INTERNATIONAL BUSINESS

Prof Bharat Nadkarni

International Trade Policies

1. Laissez-faire approach (Free trade)

• Followed by Developed countries
• Broad Rules and Regulations
• Created a level playing field
• Corporates are made to compete freely
• Customer is the decisive factor

2. Interventionist approach
• Followed by Less Developed or Developing countries
• Govt. holds power and intervenes in all decisions
• Decisions are more subjective rather than objective

Interventionist approach
 International Business

Turnover ROI Profit

Fiat / Ambassador 100 40% 40

--------------------------------------------------------------------
Toyota (Japan) 100 10% 10

Toyota (Int’l) 1000 10% 100

Toyota (Global) 10,000 5% 500

Profit Maximisation to Market Maximisation

 International Business
Theories
1. Mercantilism (ex Colonial rule)

2. Absolute advantage and Comparative advantage (ex

India – tea, US- wheat)

3. Theory of Country size (ex India, Brazil, USA)

4. Factor Proportions Theory (ex India, USA, Singapore,

Dubai)

5. The Product Life Cycle Theory (Raymond Vernon’s

Theory)
 International Business
Mercantilism (ex Colonial rule)
•In Mercantilism, since currencies of countries were not
linked, precious metals like Gold was used as a transacting
means.
•If any country Exports then it will receive equivalent gold
from importing country and if they import then they will have
to pay gold to exporting country.
•Industrial development started first in Europe, especially in
Greece, Portugal, France, Britain etc.
•Because of industrialization they were always looking out for
countries with abandon natural resources.
•In Mercantilism, Industrially developed countries were taking
undue advantage of less developed countries and with unfair
practices rich countries were becoming richer and poor
countries were becoming poorer.
 International Business
How industrially developed countries were taking undue
advantage of poor countries.

India UK
Raw Cotton Cloth
Rs 100 Rs 1000

Export from India Imports from UK

Raw cotton will get converted into Cloth in textile mills of
Manchester.
Under Mercantilism, Rs 900 worth of Gold from India will go
to UK to balance payment.
 International Business
Bretton Woods System 1944 – 1947
•Around 50 countries came together in a place called Bretton
Woods in USA to developed exchange rate amongst
currencies.

•They created Supranational institution called IMF

(International Monetary Fund) to regulate monetary system
for the whole world.

•IMF termed US Dollar as “Vehicle Currency”.

1.Means, in every business transaction in entire World, US
dollar will act as intermediary.
2.Only US Dollar will be allowed to be carried by travelers.
 International Business
How IMF created Exchange Rate and connected
currencies of entire World.
•They used Principle of Purchasing Power Parity (PPP).

•1 Troy Ounce of Gold = 31.1 gms was costing Us $ 35 in

USA

•So every country should find how much it costs in their own
currency in their country. That will help them to link their
currency with US Dollars. (Ex. Rs 700, Dirhams 350, Kenyan
Shillings 1400)

•Once every country links their currency with US Dollar, one

needs only a calculator to link all the currencies of the World
with one another.
 International Business

• IMF connected the World by creating SDR allocation

(Special Drawing Rights) on the basis of Country’s Credit
worthiness (ex Monetary Gold)

• IMF assisted financially poor countries by allocating loans

to enable them to improve economy vis a vis improving
quality of life of the people of the country.

• IMF drew money form financially rich countries and

allocated to financially poor countries on a long term basis
at negligible interest rate.
 International Business : Prof Bharat Nadkarni
Components of Balance of Payments
Item Credit Debit Net
A)Current Account
I Merchandise Export Import + or -
II Invisibles

(B) Capital Account

I Private
II Banking
III Official (Govt)

(C ) IMF assistance

(D) SDR Allocation

(E) Reserves and Monetary Gold

 International Business

Balance of Payment is a document wherein all the

transactions of International Business of a country is captured
and documented.
A.
Merchandise, means physical goods going from one country
to another country. Ex. Export and Import
Invisibles means services, tendered from one country to
another country. Ex. Acting, Performing arts, Tourism etc
B.
Private Organisations doing business by investing in other
countries and also repatriating profits to their own countries.
Banks doing business in other countries.
Governments investing in other countries
 International Business
C.
IMF giving loans to financially poor countries
D.
SDR, Special Drawing Rights, allowed by IMF to each country.
It’s like General Reserve of Balance Sheet or a Wallet.
E.
Monetary Gold Reserve of the Country
Transactions
•If money comes in, it’s Credit
•If money goes out, it’s debit
•Net will be difference in Credit and Debit, either Plus or
Minus. If it’s plus, it will go into SDR Wallet and if it’s minus, it
will come out of SDR Wallet. If Wallet is Empty, IMF will assist
by giving loan.
 International Business
Absolute Advantage and Comparative Advantage Theory
Absolute Advantage
•Every country must find out what they are good at and
produce so much to take care of the whole world. Export
additional quantity and earn revenue, With the revenue import
what is not available in your country.
•Tend to become a Surplus Economy Country, by having
more income than expenditure.
•If not by Natural Resources then by acquired skills.
Comparative Advantage
•Shifting resources to viable alternatives and at times even
rely on and partner with other countries.
•Also create a second line of defense. Ex Yom Kippur war
•Ex. South Africa and India, USA and Mexico
Reference Books : International Business By
• Subba Rao

• Francis Cherunilam

• Dr Chandran

• Sundaram and Black

• Daniels & Radebough

• Charles Hill & Jain

• Roebuck & Simon

Thank you
What is International HRM
International Human Resource Management (IHRM) is a
branch of management studies that investigates the design
and effects of organizational human resource practices in
cross-cultural contexts. It links international business, human
resource management and organizational behavior.
It is an art which helps one to manage different people. It’s
not only about managing people but also people who hold
different culture. Before understanding IHRM, we need to first
understand what is HRM?
HRM means managing the people within an organization.
Decisions made by the management and the practices
followed which directly affects the employee of a company is
known as Human Resource Management.
IHRM can be defined in many ways. However, International
Human Resource Management (IHRM) is the process of
acquiring, designating, and effectively using human
resources in a multinational company or organization,
while trying and maintaining the balance of integration
and differentiation of HR activities in foreign location.

But what is “international” about HRM? With globalization,

isn’t all HRM, by definition, international?
For decades, the question has been asked: To what extent
and in what ways are MNCs and their managers becoming
truly “international”? For over 20 years, much of the literature
on IHRM has focused on the issue of expatriation.
Expatriates are sent out around the world like corporate
missionaries to provide technical and managerial expertise,
to control operations, and to further develop these managers
as well as their companies.
Research conducted in Europe, by Geert Hofstede in the
1960s and 1970s, challenged the extent to which American
theories could be applied abroad (Hofstede, 1980). His
findings launched the field of comparative management
research where differences in management practices were
explained by differences in cultural values. Indeed different
models of HRM have been identified: the American model
that tends to be more transactional and the European model
which is more social and more constrained by the institutional
Context. HR practices such as selection, recruitment,
performance appraisal, compensation, training and
development, and career management need to be
deciphered to understand potential problems in the transfer
of these practices.
Nevertheless, the success of Japanese companies in the
early 1980s shook up the complacency of North American
managers and researchers and spurred an interest in the
“Japanese model” of HRM practices.The debate then
centered upon issues of transferability of management
practice and particularly HRM practice. Could Japanese
management practices, for example quality circles, work in
the U.S.A.? Why did practices developed by Deming (an
American) work better in Japan than in the U.S.? Was it
because of some unique aspects of “Japanese” culture?
Peters and Waterman (1984) entered the debate by arguing
that “good management” principles and practices are
universal, and as such, these could also be found in excellent
U.S. companies.
The secret to success was apparently a strong corporate
culture. This influenced “best practices.” Since then, the
debate has focused on best practices versus cultural
contingencies.
Hence, IHRM studies varies from understanding management of expatriates, importance of the
changing nature of expatriates, the role of HR function in managing expatriates, reasons
for few women managers in the international field, importance of retaining expatriates and
the problems associated with it.

1.2 Three Components of IHRM The subject matter of IHRM is covered under three headings: •
Cross-cultural management • Comparative HRM • IHRM The Cross-cultural Management
believers say that every nation has its own unique sets of deep-lying values and beliefs,
and that these are reflected in the ways that societies operate, and in the ways that the
economy operates and people work and are managed at work. Comparative HRM focuses
on the way that people work and explores the differences between nations in the way that
they manage this process. International Human Resource Management (IHRM) examines
the way organisations manage their human resources across these different national
contexts.

Cross-cultural Management Nations differ in their values, cultures and attitudes. We all believe in
some or the other sort of stereotypes – even though it may not be true. Beliefs such as
these are common: All Asians are good at Maths, All Irish people drink alcohol, All
Americans are domineering, All Italians are good lovers! However, the same may not be
true. We might meet a non alcoholic Irishman or even a passive American! At the same
time, plenty of research has found that since different nations have different values, there is
a difference in how their organizational behaviour is. It is, therefore, essential that an
International HR manager is aware of such differences. This is because all HR activities
like recruitment, appraisals, performance and rewards are affected by the cultural
orientation of an employee. As an International HR manager, while taking policy or process
decisions, it is essential that one keeps in mind the cultural aspect.
Comparative Human Resource Management Comparative HRM (CHRM) explores the
extent to which HRM differs between different countries or even sometimes between
different regions of a country. We know that they may have different labour markets
and education systems, different employment laws and trade unions, and the different
cultural expectations that we have already noted. It should be no surprise, therefore,
to find that employment systems differ noticeably between countries and that
managing human resources has to vary from country to country. The CHRM field
concentrates on aspects like differences in HR policies across nations influenced by
their culture, government policy and education system. Or how is HRM structured in a
particular country. Difference in management practices across nations is also a
matter of discussion in CHRM.

International Human Resource Management IHRM has traditionally examined the way in
which international organisations manage their human resources across these
different national contexts. IHRM practitioners have to be aware of what is allowed in
different nations and regions of the world and also what makes costeffective
management practices. This area is also concerned about ensuring how a company
manages its people in a cost-effective way across countries while being sensitive to
individual country differences as well. IHRM has the same dimensions as HRM in a
national context, but it operates on a larger scale, more complex scenarios and
coordination. IHRM has its own issues and pressures, those of more personal insight
into the employee’s life and family situations and a greater need for diversity
management.