INTERNATIONAL BUSINESS

Chapter 1
APPROACHES
 International Business
Origin

 Process of focusing on the resources of The term International

Business emerged from
the globe and objectives of the International Marketing
organizations on global business
opportunities and threats.

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International Business
Introduction
 1990’s and the new millennium indicated rapid
Internationalization and Globalization
 International Business need accurate information - time
sensitive
 Size of the international business should be large to
impact the economies.
 Most of MNC’s are large in size
 International Business houses segment their markets on
geographic market segmentation
 International Markets present more potential than the
domestic markets
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International Business
Introduction …contd

International Markets are wider in scope, varied in customer tastes

and preferences and purchasing ability etc

• International Marketing
• International Investments
International business • Management of Foreign Exchange
is wider in scope and • Procuriment
• International Finance from International financial Institutions
includes • International Logistics and production
• International Strategic Management

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 Approaches to International Business

1. Ethnocentric Approach
2. Polycentric Approach
3. Regiocentric Approach
4. Geocentric Approach

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 Wind, Douglas, and Perlmutter

focuses on the international marketing operations of the

company and the different attitudes towards the
company’s involvement on the front of international 
marketing processes and environment. 

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Anatomy of EPRG Framework :

 The framework addresses the way the strategic decisions are

made within the company and how the relationships are shaped
and maintained between the headquarters of the company and
its subsidiaries.
 The way in which the business and its staff view the world is
defined as international management orientations but
Perlmutter identified an alternative way of classifying these
orientations that are referred to in the EPRG Framework.
 It consists of 4 stages in the international operations evolution
process and the framework states that the business and the staff
tend to operate in one of the four explained ways.

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 The D.C normally formulate their Ethnocentric
strategies, their product design and their Approach
operations towards the national markets,
customers and competitors.
 But the excessive production more than
the demand for the product –
 The domestic company continues the exports
to the foreign countries and view the Foreign
market as an extension to the domestic
markets as new region.
 Thus, maintenance of domestic approach
towards international business is called
ethnocentric approach.
 The company establishes a foreign subsidiary
Polycentric
company and decentralize all the operations and
Approach
delegates decision-making and policy making
authority to its executives.

 Company appoints the key personnel from the

home country and all other vacancies are filled by
the people of the host country.

 The executive of the subsidiary formulate the

policies and strategies, design the product based on
the host country’s environment and preference of
the local customers.
 NISSAN which in the first years of its existence on
Ethnocentric
international arena was following ethnocentric
approach Nissan
approach
 Sold cars abroad exactly as they were sold in their
domestic market in Japan,
 after several years of its international trading the
company realized that ethnocentric international
marketing orientation is no longer relevant for
some industries including automobile industry in
which they were operating and changed its
approach to polycentric

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Polycentric Approach
 Ford Motors, Suzuki, Toyota, General Motors, Nissan, etc.
– all these companies adapt their brands to specific needs
of each country’s consumer

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Regiocentric Approach
 The company after operating
successfully in a foreign country,
thinks of exporting to the neighboring
countries of the host country.
 The foreign subsidiary considers the
regional environment for the
formulating policies and strategies.
 However, it markets more or less the
same product designed under
polycentric approach in other countries
of the region, but with different market
strategies.
Regiocentric
 Markets based on market characteristics which
are more or less similar
 The similarities on the basis of economic,
cultural and political characteristics are taken
into account while grouping these countries to
form regions. Here, the basic assumption is that
the needs of the potential customers in these
countries would be similar. ECONOMIC ,
SOCIAL, CULTURAL, and POLITICAL
similarities between the native area and
overseas region and satisfy the similar needs
and demands of the potential customers.
 Regiocentric approach may also be used as a
transition approach, between a polycentric
approach and a geocentric approach.

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Geocentric Approach
 The entire world is just like a single
country for the company.
 They select employee from the entire
globe and operate with a number of
subsidiaries.
 The HQ co-ordinates the activities of the
subsidiaries.
 Each subsidiary functions like an
independent and autonomous company
in formulating policies, strategies,
product design, HR policies and
operations.
 Companies view the entire world as a
single country.
Reasons for going global
Reasons for going global

Why do the Business firm

of a country go to other
countries ?

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 Reasons for going global

A To Achieve higher rates of profits

A
B Expanding the production capacities
beyond domestic country

D C Severe competition in the home

country
B
C
D Limited Home market

Content Content Content

Here Here Here
 Reasons for going global

E Political Stability vs Political

Instability

A
F Availability of Technology and
Managerial Competence

D C High Cost of Transportation

B
C
D Nearness to raw materials

Cheap Increase Tp avoid

Labor market share tariffs and
import
quotas
Problems of International Business
Problems of International Business
 Political Factor
 Exchange instability
 Tariffs, Quotas and trade barriers
 Intellectual Property theft
 Adverse effects on economy
 Competition with developed countries
  Rivalry among nations
Problems of International Business
 Colonization
 Exploitation
 Legal problems
 Publicity of undesirable fashions
 Language problems
  Dumping policy
 Complicated technical procedure
 Shortage of goods in the exporting country
 Adverse effects on home industry

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Advantages of International Business
Advantages

 High living standard:

 Advantages of Raw materials, HR, Natural and Climatic
Conditions – (high quality of product)
 Customer satisfaction - more products/ less price
 so it also enhance the living standard
 Increased Socio-economic welfare:

IB enhances consumption level and economic welfare of the

people of the trading countries.

 People of china, People of India

 Coco-cola, Pepsi
 McDonald’s,
 Electronic Products of Japan
 Coffee from Brazil

Thus, the Chinese consumption level and socio-economic

welfare enhanced.
 Wider Market:

 Companies need not depend on local market/ product.

 Customer taste/ preferences

 Polycentric approach, employment,

 Toyota, Honda, Xerox and Coco-cola

Reduced risks
 Both commercial and political risk reduced in
international business.
 Companies – options – variety of country

 Eg: USSR – affected partly – safer operation due to other

country operations
Large scale Economics
 MNC – larger market- larger quantities
 Reduced cost of production – availability of cheap
expertise, quality.
Potential untapped markets
 IB provide exploring and exploiting the potential markets
which are untapped far.

 Eg: Rural market

 Bata shoes = £ 100 (Rs 8000) whose price is Rs.1200 in India
Provide opportunity and challenges to
domestic business
 IB provide opportunity to domestic company.
 It includes technology, expertise, market intelligence,
product development.
 Japanese companies in USA – opportunity.
 Foreign market – thread to Indian market.
Division of labour and specialization

 Brazil – coffee

 Kenya – tea

 Japan – automobile & electronics

 India – textiles and garments

Economic growth of the world
 Increased industrial activity
 Increased productivity
 Leads to country and world economic growth
Cultural transformation
 IB leads to not only commercial and economical
 Social and cultural changes
 Now a days,
 West is slowly tending towards the east and wise versa
 That is close cultural transformation and integration
Review
 Meaning
 Nature of IB
 Reasons for companies going to International
 Stages of internationalisation
 Approaches to IB
 Advantages of IB
 Problems of I B
Questions
 International Trade
 International Marketing
 International Business
 Host country
 Parent Country
 Third Country
 DC, IC, MNC, GC, TNC
 Cultural Transformation
 Entry Requirement
 Globalisation
 Quotas
 Tariff
 Stages of Internationalisation
 Approaches