INTERNATIONAL

BUSINESS

Chapter-6
Objectives of the Chapter

1.Why firms conduct International Business

2.Basic Concepts of International Business
3.Barriers to International Business
4.Regulation of International Business
5.Approaches to International Business
6.Adapting to Foreign Markets
Why Firms Conduct International Business?

International Business (IB): The performance of

business activities across national boundaries. E.g.
Coca-cola, Microsoft, Toyota, etc. A country with a
surplus of some product may decide to sell this surplus
to other nations. Such sales will enable the country to
purchase other products that it may not have the ability
to produce. Scarcity of resources is perhaps the major
reason why nations trade with each other.
Absolute Advantage

When a country can produce a product more

efficiently than any other nation. E.g. South Africa has
an absolute advantage in the production of Diamonds.
However, absolute advantage is rare because usually
at least two countries can efficiently supply a specific
product.
Comparative Advantage

When a country can produce one product more efficiently

and at a lower cost than other products, in comparison than
other nations. E.g. Countries with low labor costs, such as
China and South Asian or South American countries have a
competitive advantage in producing labor-intensive products
such as shoes and clothing. Comparative advantage shifts
frequently, mainly due to competition.
Ready made Garment Product for
Bangladesh is the example of:

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Five Basic Concepts of International Business

1. Emporting: The process of bringing goods from one

country for the purpose of reselling them in another
country
2. Exporting: Businesses that sell their goods and services
to customers in other countries
3. Balance of trade (BOT) is the difference between the
value of a country's imports and exports for a given
period
 Five Basic Concepts of International Business

4. Balance of Payment: The balance of payments (BOP) is a

statement of all transactions made between entities in one country and
the rest of the world over a defined period of time, such as a quarter or
a year. (Difference between Cash Inflow and Cash Outflow)
5. Exchange Rate: An exchange rate is the value of a country's
currency vs. that of another country or economic zone. Most
exchange rates are free-floating and will rise or fall based on supply
and demand in the market
 When Cash inflow is larger than the Cash
outflow of a particular year for a country, it
is called?

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 Barriers to International Business

1. Cultural and Social Barriers

2. Political Barriers
3. Tariffs and Trade Restrictions:
a) Import Tariff: A duty or tax charged against goods brought into a
country
b) Quota: A limit on the amount of a product that can leave or enter
a country
c) Embargo: A total ban on certain imports and Exports
 Approaches to International Business

1. Exporting
2. Licensing: Licensing is another way to enter a foreign market with
a limited degree of risk. Under international Licensing, a firm in
one country permits a firm in another country to use its intellectual
property( Patents, trade marks etc).
3. Franchising Franchising is a business model in which many
different owners share a single brand name.
 Approaches to International Business

3. Joint Venture: A joint venture is a business arrangement in which

two or more parties agree to pool their resources for the purpose of
accomplishing a specific task. This task can be a new project or any
other business activity. However, the venture is its own entity,
separate from the participants' other business interests
4. Acquisition: An acquisition is when one company purchases most
or all of another company's shares to gain control of that company.
 Approaches to International Business

5. Trading Companies: Trading companies are specialists that cover all

export and import operations and procedures. A trading company buy
products in one country and sold them in different countries where it has
its own distribution network.
6. Countertrading refers to when an exporter agrees to accept payment in
the form of goods or services. There are many forms of countertrading,
ranging from simple barter agreements to complex offset deals.
Countertrading commonly takes place between private companies in
developed nations and the governments of developing countries.