International

Business
 Driving forces of International Businesses
The Reduction and Removal of Trade Barriers
After World War II, the General Agreement on Tariffs and Trade
(GATT) and the WTO have reduced tariffs and various non-tariff
barriers to trade. It enabled more countries to explore their
comparative advantage. It has a direct impact on globalization.

Trade Negotiations
The Uruguay Round of negotiations (1986–94) can be considered
as the real boon for globalization. It is considerably a large set of
measures which was agreed upon exclusively for liberalized
trade. As a result, the world trade volume increased by 50% in
the following 6 years of the Uruguay Round, paving the way for
businesses to span their offerings at an international level.
 Driving forces of International Businesses

•Transport Costs
Over the last 25 years, sea transport costs have plunged 70%,
and the airfreight costs have nosedived 3–4% annually. The
result is a boost in international and multi-continental trade
flows that led to Globalization.

•Growth of the Internet

Expansion of e-commerce due to the growth of the Internet
has enabled businesses to compete globally. Essentially, due
to the availability of the Internet, consumers are interested to
buy products online at a low price after reviewing best deals
from multiple vendors. At the same time, online suppliers are
saving a lot of marketing costs.
 Driving forces of International Businesses

•Growth of Multinational Corporations

Multinational Corporations (MNCs) have characterized the global
interdependence. They encompass a number of countries. Their
sales, profits, and the flow of production is reliant on several
countries at once.

•The Development of Trading Blocs

The 'regional trade agreement' (RTA) abolished internal barriers
to trade and replaced them with a common external tariff against
non-members. Trading blocs actually promote globalization and
interdependence of economies via trade creation.
 Restraining forces for International
Business
1. Political factors

2. High foreign investments and high cost

3. Exchange instability

4. Entry requirements

5. Tariffs, quota etc.

6. Corruption and bureaucracy

7. Technological policy

8. Quality Management
 GOING
INTERNATIONAL
 ENTRY
STRATEGY
1. Exporting
• Indirect & Direct

2. Licensing
• Agreement
• Patent, trademark, copy right, technology, production
processes, and product licensee’s fee
 ENTRY
STRATEGY
2. Franchising
– by franchisers to franchisee
– Usage

3. Foreign Assembly
– Subsidiary local
– assembly
 ENTRY
4. Turnkey OperationSTRATEGY
– Staff of an operating facility
– foreign buyer

5. Foreign production subsidiary

– Establishment
– Purpose
 ENTRY
STRATEGY
6. Foreign production subsidiary
– Purpose of production

7. International Firm
– Significant portion
– In foreign countries
 ENTRY
8.
STRATEGY
Multinational Corporation
– Parent country
– host country

9. Joint Venture
– Property rights
 ENTRY
STRATEGY
10. Foreign Direct Investment
– Arrangement in which a firm buys or establishes tangible
assets

– In another country

– Through direct investment

– By buying a company stock in capital markets

 MAIN
BARRIERS
1. Cultural and social barriers

2. Legal and political barriers

3. Economic barriers:
 ADVANTAGES OF I
B
1. Faster growth

2. Access to cheaper inputs

3. Increased quality and efficiency

4. New market opportunities

5. Diversification
 DISADVANTAGES OF I
B
1. Increased costs

2. Foreign regulations and standards

3. Delays in payments

4. Complex organizational structure

 REASONS FOR RECENT GROWTH
IN I B
1. Expansion of technology
2. Business is becoming more global because
•Transportation is quicker
•Communications enable control from a far
•Transportation and communications costs are more conducive for
international operations
3. Liberalization of cross-border movements
4. Lower Governmental barriers to the movement of goods,
services, and resources enable Companies to take better
advantage of international opportunities
 IB
APPROACHES
1. Ethnocentric approach

2. Polycentric approach

3. Regiocentric approach

4. Geocentric approach
 IB
APPROACHES
1. Ethnocentric approach

• Under this approach , target market is own

country , Exccesive production will export

due to change in customer taste, preferences

1. Ethnocentric approach
Organization Structure
Managing Director
↓
↓
↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓
MGR MGR MGR MGR MGR
R&D FIN PROD HRD MKTG
↓
↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓
Asstt. Mgr Asstt. Mgr Asstt. Mgr
 IB
APPROACHES
2. Polycentric approach

• Under this approach, the companies customizes the

marketing mix to meet the taste, performance and needs of
the customers of each international market.
2. Polycentric approach
Organization Structure
Managing Director
↓
→→→ CEO
↓ FOREIGN
↓ SUBSIDIARY
SOUTH AFRICA
↓
↓
↓
↓
↓⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻ ↓
MGR MGR MGR MGR MGR

R&D FIN PROD HRD MKTG

 IB
APPROACHES
3. Regiocentric approach

• Under this approach, the company operating

successfully in a foreign country thinks of exporting

other neighbouring countries of the host country.

• At this stage, the concerned subsidiary considers the

regional environment ( such as laws, culture, policies

etc) for formulating the policies & strategies.

3. Regiocentric approach
Organization Structure
Managing Director
↓
→→→ C E O
↓
↓ SOUTH AFRICA
↓ ↓⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻ ↓

↓ Mktg Mktg Mktg

↓ ( Lesotho) ( Kenya)
( Nambia)
↓
↓⁻⁻⁻⁻⁻⁻⁻ ⁻ ↓⁻⁻⁻⁻⁻⁻⁻⁻ ↓⁻⁻⁻⁻⁻⁻⁻
↓⁻⁻⁻⁻⁻⁻⁻⁻ ↓ MGR MGR MGR
 IB
APPROACHES
4. Geocentric approach
• Under this approach, the company analyses the tastes,
preference and needs of the customers in all foreign markets and then adopts a
standardized marketing mix for all the foreign markets.

• Coca-cola adopted this strategy by selling its popular soft drink with the same
content, packaging, branding & advertisement themes worldwide

• Whirlpool designs a world-washer – small, stripped-down automatic washing

machine for Mexico, Brazil & India. However, it modified its product for

Indain market to wash the delicate “sarees”.

4. Geocentric approach
Organization Structure
Managing Director Headquarters India
↓
↓
↓

↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻ ↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻ ↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻ ↓

Subsidiary Subsidiary Subsidiary Subsidiary
India South Africa Kenya Nambia
 •

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