Module 1-1-1

MODULE 1
INTERNATIONAL BUSINESS
INTERNATIONAL BUSINESS
 International Business conducts business transactions all
over the world. These transactions include the transfer of
goods, services, technology, managerial knowledge, and
capital to other countries. International business involves
exports and imports.
OR
 The exchange of goods & services, Resources,

Knowledge, & Skills , among individuals & businesses in
multiple/two or more countries. Transaction that are
carried out across national borders to satisfy the
objectives of individuals and organization.
ADVANTAGES AND PROBLEM OF IB
ADVANTAGES
 Earning Foreign Currency
 Division of Labor
 Optimum Utilization of Resources
 Increase Standard of Living
 Industrialization
 International Peace and Harmony
 Stability in Prices
 No. of Product Available in Market
 Benefit to consumer
 Employment Opportunities
 Increase Revenue
DISADVANTAGES
 Competition
 Exploitation
 Legal Problem
 Language
 Dumping Policy
 Publicity of Undesirable Fashion
 Complicated Technical Procedure
 Adverse Effect to Home Based Industry
 Shortage of Goods in Exporting Country
 Rivalry among Nations
 Colonization
 Adverse Effect on Economy
COMPARISON OF DOMESTIC AND INTERNATIONAL BUSINESS
1. ENVIRONMENT
Domestic Business International Business
Operations Operations
 The economic,  The environment is

political, legal, socio- not fully known.
cultural, competitive incalculable hidden
and technology factors which may
environments are emerge any time to
known pose as problems.
They will lead to
pitfalls.
2. PLAN AND STRATEGY
 Can be worked for  Only long term

short terms and planning and strategy
carried forward to long will work. Strategic
term. inputs are required in
multiples.
3. COMPETITIVE FORCES AND THEIR INTENSITY
Operations
Operations
 The maximum  International

domestic competitive competitive forces
forces operate and play a vital role and its
one can understand difficult to understand
their movements as their motive and
they are visible. movement.
4. CURRENCIES AND THEIR
MOVEMENTS
 Local currency is used for  Transactions are carried

transactions. Costing, out in various currencies.
pricing, revenue and margins Fluctuations in cross
are computed in a single currency movement and
currency. Volatility may have
associated risks are
a minimum impact in
common. Currency
business in short term. One
fluctuation influences
can overcome easily.
pricing and costing and
investment decisions.
5. BUSINESS RISKS
 Comparatively one can  Very difficult to

predict future risks predict and risks may
and shocks and they crop up at any time,
will not have a major due to the political
impact on the situation, the society
businesses with itself and several
strong background. unknown factors.
6. RESEARCH
 It is reasonable and  Very expensive and

easy to conduct difficult to conduct.
business research, Reliability criteria
demand analysis and depends on individual
customer surveys. It is
countries and there is
also reliable.
no uniformity in the
output and findings.
7. HUMAN RESOURCES
 Due to past glory and  Multilingual, multi-
established systems, strategic and
corporates can succeed multicultural human

resources and they
even if the human
should be able to
resources have
withstand large risks.
minimum skills and
Every individual is profit
knowledge. Team
center, hence,
commitments is
accountable.
evaluated and appraised
8. ORGANIZATIONAL VISION AND OBJECTIVE
 Narrowed down to  Broadened to cover

work in a single many countries and
country with a steady geographic and
growth objective. cultural diversity may
Each one will influence the vision
understand the vision and objective.
and objective easily.
9. PRODUCT AND USAGE
 Adapted to the local  Varies from country to

environment, as per the country subject to
requirements of the regulations. This is
domestic customers especially true for
affordability, beliefs, consumer & medicinal
values, cultural items. Standardization,
elements and buying adaptability, usage
behavior. pattern & warranties are
parts of product
10. LEGAL ASPECTS
 Only local regulations are  International regulations

fully applicable to and host country
conduct business. There regulations are
is minimum adherence to applicable. Advanced
international regulations
countries impose strict
related to IPR.
regulations compared to
LDCs. Strict adherence to
contractual obligations is
common.
11. INVESTMENT AND SOURCING
 Depending on the size of  All overseas operations

the business one can except exports, call for
start with a minimum huge investments to set up
investment. Involvement and expand the business in
of regulatory bodies is many countries. Special

regulatory bodies are
minimal. Individual ability
involved in the process
and repayment terms
since foreign currency is
determine the funds.
transacted.
12. PRICING STRATEGY
 A majority of  Companies use

companies use cost marginal cost pricing
plus margin pricing or or transfer pricing or
competitive pricing. competitive pricing to
succeed.
13. DISTRIBUTION CHANNELS
 The business house  Government or market

can use its discretion practice governs the
to select any channel distribution channel.
to reach the customer. Cash and carry,
No restriction exists shopping malls and
here. mail order services are
becoming popular in
international business.
14. PROMOTION
 Advertising, personal  Different countries have

selling and other different restrictions. For
promotional methods are example, advertisements
not restricted through for liquor and cigarettes
strict legal framework if
are not permitted in
they are not socially
some countries and
objectionable.
campaigns using female
models are banned in
others.
15.LOGISTICS
 Domestic players are  International players

involved in all the with advanced
activities. The cost of technology and
logistics is very high systems are involved.
locally. Proportionately, the
cost is low for
physical movements.
GLOBALIZATION : MEANING
 The end of the twentieth century saw the beginning of
a new era of globalization. Economic integration,
advances in technology, and global transport networks
have forged a “global village.” As the world changes,
we also need to change in both our knowledge and our
perspective. Literacy in the twenty- first century is no
longer limited to conventional, text-based reading
competency, it also includes technology and media
applications and extends to intercultural realms of
knowledge.
 Globalization is an ongoing process driven by a
combination of political, economic, technological,
and socio-cultural forces. The process of
globalization since World War II has been driven by
the planning of politicians to break down borders
hampering trade so as to increase prosperity and
interdependence and to decrease the chance of
future war.
 First Pillar: Awareness – Going Outside the Box
 Second Pillar: Embrace – Accepting Globalization as
the Direction in which the World is Moving
 Third Pillar: Thinking Independently – Getting Rid of
the Influence of Ideology
 Fourth Pillar: Integration – Learning from Each Other

GLOBALIZATION : DEFINITIONS
 “The shift toward a more integrated and interdependent
world economy.”
 Anthony Mc Grew : Globalization is multiplicity of

linkages and interconnections that transcend the nation-
states (and by implications the societies) that make
upon the modern world systems. It defines a process
through which events, decisions, and activities in one
part of the world can come to have significant
consequences for individuals and communities in quite
different parts of the world.
 William Tabb – ‘globalization refers to the process of
reducing barriers between countries and encouraging
closer economic, political, and social interactions’
 It can also be defined as a process of interaction and
integration between the people, companies, and
governments of different nations, a process driven by
international trade and investment and aided by
information technology. This process has effects on the
environment, on culture, on political systems, on
economic development and prosperity, and on human
physical well-being in societies around the world.
DIFFERENT ASPECTS OF
GLOBALIZATION
 Industrial globalization – development of worldwide
production markets and broader access to a range of
foreign products for consumers and companies.
Particularly movement of material and goods between
and within national boundaries.
 Financial globalization – development of worldwide
financial markets and better access to external financing
for borrowers.
 Economic globalization – establishment of a global
common market, based on the freedom of exchange of
goods and capital.
 Political globalization – creation of international organizations to
regulate the relationships among governments and to guarantee the
rights arising from social and economic globalization.
 Informational globalization – increase in information flows between
geographically remote locations. Arguably this is a technological
change with the advent of fibre optic communications, satellites,
and increased availability of telephone and Internet.
 Cultural globalization - sharing of ideas, attitudes and values across
national borders. This sharing generally leads to an
interconnectedness and interaction between peoples of diverse
cultures and ways of life. Mass media and communication
technologies are the primary instruments for cultural globalization.

sharing of ideas, attitudes and values
Cultural across national borders
broader access to a range of foreign

Industrial industrial products for consumers and
companies
development of worldwide financial

Financial markets and better access to external
Globalization financing for borrowers.
establishment of a global common market,

Economic based on the freedom of exchange of goods
and capital.
creation of international organizations to
Political regulate the relationships among
governments.
Informational increase in information flows between

geographically remote locations
STAGES OF GLOBALIZATION OF
BUSINESS
Transnational Company
Global Company
Multinational Company
International Company
Domestic Company
DOMESTIC COMPANY
 Limited to the home country. Production and

marketing facilities are located at home only.
Surplus may or may not be exported.
 There are no overt efforts to develop foreign
markets. It may add new product lines, serve new
local markets but whole planning is limited to
domestic markets only.
FEATURES
 Focus remains with domestic market.

 They do not think globally and avoid taking risk in going
global.
 traditional kind of business management competency and
less global expertise.
 They know their may be risk in expanding into global
market and thus they try to play safe and satisfied with
whatever gains they are getting in domestic market.
INTERNATIONAL COMPANY
 Some ambitious resourceful domestic companies after going
beyond their domestic marketing capacities start thinking of
expanding their operations in international markets.
 Even though they think of international markets, still they are
of ethnocentric or domestic oriented. These companies adopt
the strategy of locating the branches of their companies in other
countries and practice the same domestic operations in foreign
markets, including the same promotion, price, product policies.

FEATURES
 Focus on going beyond domestic market.

 Their management remains ethnocentric with a vision to
expand internationally. They extend their domestic products,
domestic prices and other business practices to foreign
countries.
 They keep their marketing mix constant and extend their
operations to new countries. Their management style remains
centralized for their home nation and extended top down to the
overseas market country.
MULTINATIONAL COMPANY
 After sometime, international companies realize that the
domestic model and practices adopted through extension
policies do not serve the purpose. The foreign customers may
not prefer the products that are sold in domestic market. Hence,
these companies respond to the needs of different customers in
different countries and produce such goods and services that
will satisfy them.
FEATURES
 Companies when they spread their wings to more nations

become multinational companies.
 Sooner or later they realize that they have to change their

marketing mix according to the foreign market.
 This can also be termed as multi domestic, in which

different strategies are adopted for different market. The
management of such companies remains decentralized and
even production may be in the host country.
 Performance evaluation is done at different host countries.

GLOBAL
 The global company adopts global strategy for

marketing its products. It may produce either in the
home country or in any other single country and
market its products throughout the world. It may
also produce the products globally and market them
domestically.
FEATURES
 Such companies have a global marketing strategy.

 They either produce in home country or in a single country and
focus marketing globally.
 They adapt to the market conditions according to the foreign
market.
 Their performance evaluation is done worldwide.
TRANSACTIONAL COMPANY
 Transactional Company operates at the global level by way of

utilizing global resources to serve the global markets. It has
geocentric orientation and has integrated network. Its key
assets are dispersed and every sub unit of the company
contributes towards achievement of the company objectives.
It produces best quality raw materials from the cheapest
source in the world, process them in the country wherever it
is economical and sells the finished products in those markets
where prices are favorable.
FEATURE
 Transnational companies have a geocentric approach, which means

they think globally and act locally.
 Transnational companies collect information worldwide and scan it

for use beyond geographical boundaries.
 The vision of such to grow more in a global way.
 The Research and Development, management, product development

are shared worldwide.
 Their human resources procurement and development remains

globally.
EPRG FRAMEWORK : INTRODUCTION
 EPRG model, sometimes also called EPG model, is
used in the international marketing.
 It was introduced by Perlmutter (1969). The strategy of
the organization is characterized by three factors:
Ethnocentrism, Polycentrism and Geocentrism.
 A little later, Wind, Douglas and Perlmutter (1973)
extended this model by another factor - regiocentrism.
The extended model is known as EPRG model.
MANAGEMENT ORIENTATIONS
Polycentric:
Each host country is
Ethnocentric: Unique, sees differences
Home country is in foreign countries
Superior, sees
Similarities in foreign
Countries
Regiocentric: Geocentric:
Sees similarities and World view, sees
differences in a world Similarities and
Region; is ethnocentric or Differences in home
polycentric in its view of and host countries
the rest of the world
THE EPRG FRAMEWORK
 Ethnocentric
 Associated with national arrogance & home country

superiority
 Assumes what succeeds in the home country will also
succeed in other countries
 Domestic and international companies
 Standardized approach to marketing
 Foreign markets are secondary to the domestic market
 E.g. Nissan in 60s, Coke in the late 80s/early 90s
 Nissan on the U.S. market. This Japanese company decided
to export cars to the United States. While Japanese winters
are quite mild, the weather conditions in some states in the
U.S. can result in very low temperatures and heavy snow. In
Japan it was popular to cover car against snow falls, etc. For
quite a long time, Nissan executives assumed that the U.S.
customers will do the same, as Japanese. But they did not
and have problems with their cars. Finally, Nissan had to
change its orientation from ethnocentric to polycentric.
 Polycentrism
 Opposite of ethnocentrism – each country market is
unique
 Highly localized / adapted approach to marketing
 Multinational companies – Local “kingdoms”
 Examples McD (no beef burgers in India)
 Citicorp was a polycentric organization. (In 1998 the
merge of Citicorp and Travelers Group has been
done and Citigroup has been formed.) Its branches in
various countries carried out their own policies. As a
result, foreign subsidiaries did not serve for the whole
group.
 Regiocentric
 Treat a world region as one homogeneous
market (e.g. NAFTA region; the EU, etc.)
 Localization / adaptation for the region;
ethnocentric or polycentric view of the rest of
the world
 Examples Punjab (paneer products more) Gujarat (sugar
more)
 Coca-Cola and Pepsi are regiocentric companies.
 a company with the Regiocentric orientation is General
Motors. The company has significantly different
strategies in Europe, Americas and Asia. Top managers
in different regions have considerable freedom in
decision making.
 Geocentrism
 World view – focused on standardizing programs
but will adapt if indicated by research
 Global / transnational company / a blurring of
national identity
 E.g. Microsoft / any software company
Ethnocentrism Polycentrism Regiocentric Geocentrism
Main decisions Lower role of the Main decisions Collaboration with

made in the main main headquarter made in regional local headquarters
headquarter headquarters
Home standards Local standards Regional Universal

applied on all applied on local standards in standards
markets markets regions
Focus on domestic Focus on local Focus on regional Focus on global

objectives objectives objectives objectives
Ethnocentrism Polycentrism Regiocentric Geocentrism
Identification with Identification with Identification with Global view

the owner's the nationality of the region
nationality host country
High positions High positions High positions Having an

taken by managers taken by local taken by regional experience in
from owner's managers managers different countries
country is a must to take a
high position

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MODULE 1

 The exchange of goods & services, Resources,

 Optimum Utilization of Resources

 Increase Standard of Living

 International Peace and Harmony

 No. of Product Available in Market

 Adverse Effect to Home Based Industry

 Shortage of Goods in Exporting Country

 Rivalry among Nations

 The economic,  The environment is

 Can be worked for  Only long term

 The maximum  International

 Local currency is used for  Transactions are carried

 Comparatively one can  Very difficult to

 It is reasonable and  Very expensive and

 Due to past glory and  Multilingual, multi-

established systems, strategic and

corporates can succeed multicultural human

 Narrowed down to  Broadened to cover

 Adapted to the local  Varies from country to

 Only local regulations are  International regulations

 Depending on the size of  All overseas operations

start with a minimum huge investments to set up

investment. Involvement and expand the business in

of regulatory bodies is many countries. Special

 A majority of  Companies use

 The business house  Government or market

 Advertising, personal  Different countries have

 Domestic players are  International players

 Second Pillar: Embrace – Accepting Globalization as

the Direction in which the World is Moving

 Third Pillar: Thinking Independently – Getting Rid of

the Influence of Ideology

 Fourth Pillar: Integration – Learning from Each Other

 Anthony Mc Grew : Globalization is multiplicity of

regulate the relationships among governments and to guarantee the

rights arising from social and economic globalization.

 Informational globalization – increase in information flows between

geographically remote locations. Arguably this is a technological

change with the advent of fibre optic communications, satellites,

and increased availability of telephone and Internet.

 Cultural globalization - sharing of ideas, attitudes and values across

national borders. This sharing generally leads to an

interconnectedness and interaction between peoples of diverse

cultures and ways of life. Mass media and communication

technologies are the primary instruments for cultural globalization.

broader access to a range of foreign

development of worldwide financial

establishment of a global common market,

Informational increase in information flows between

 Limited to the home country. Production and

 Focus remains with domestic market.

 Some ambitious resourceful domestic companies after going

beyond their domestic marketing capacities start thinking of

expanding their operations in international markets.

 Even though they think of international markets, still they are

of ethnocentric or domestic oriented. These companies adopt

the strategy of locating the branches of their companies in other

countries and practice the same domestic operations in foreign

markets, including the same promotion, price, product policies.

 Focus on going beyond domestic market.

 Companies when they spread their wings to more nations

 Sooner or later they realize that they have to change their

 This can also be termed as multi domestic, in which