CODE : SBA1602

CLASS : INTERNATIONAL BUSINESS MANAGEMENT

BATCH : 2019 – 2022 – LLB
TUTOR : Dr M.S.RATHNAMALA - MBA
ACADEMIC YEAR 2021 – 2022
 Unit 1
CODE : SBA1602
CLASS : INTERNATIONAL BUSINESS MANAGEMENT
International Business
BATCH : 2019 — Definition
– 2022 – LLB —
TUTOR : Dr M.S.RATHNAMALA - MBA
Internationalizing Business — Advantages — Factors
ACADEMIC YEAR 2021 – 2022
Causing Globalization of Business — International
Business Environment — Country Attractiveness —
Political, Economic and Cultural Environment —
Protection Vs Liberalization of Global Business
Environment.
 INTERNATIONAL BUSINESS
 

International business may be defined simply as business transactions that

take place across national borders. Nearly all business enterprises, large and
small, are inspired to carry CODE
on business across the globe. This may include,
: SBA1602
purchase of raw materials, fromCLASSforeign suppliers, assembling
: INTERNATIONAL products
BUSINESS from
MANAGEMENT
components made in several countries
BATCH : 2019or– 2022
selling– LLB
products or services to
customers in other nations. TUTOR : Dr M.S.RATHNAMALA - MBA
  ACADEMIC YEAR 2021 – 2022
Other definitions:
 
IB field is concerned with the issues facing international companies and
governments in dealing with all types of cross border transactions.
IB involves all business transactions that involve two or more countries.
IB consists of transactions that are devised and carried out across borders to
satisfy the objectives of individuals and organizations.
IB consists of those activities private and public enterprises that involve the
movement across national boundaries of goods and services, resources,
knowledge or skills.
 International business is a term used to collectively describe all commercial
transactions (private and governmental, sales, investments, logistics, and transportation)
that take place between two or more nations. Usually private companies undertake such
CODE : SBA1602
transactions for profit; organizations undertake them for profit for political reasons. A
CLASS : INTERNATIONAL BUSINESS MANAGEMENT
multinational enterprise (MNE) is a company that has a worldwide approach to markets
BATCHin more
and production or one with operations : 2019than– a2022 – LLB
country.
  TUTOR : Dr M.S.RATHNAMALA - MBA
ACADEMICcorporation
An MNE is often called multinational YEAR 2021 – 2022
(MNC) or transnational company
(TCN). Well known MNCs include fast food companies such as McDonald's and Yum
Brands,vehicle manufacturers such as General Motors, Ford Motor Company and
Toyota, consumer electronics companies like Samsung, LG and Sony, and energy
companies such as Exxon Mobil, Shell and BP. Most of the largest corporations operate
in multiple national markets.
 
The conduct of international operations depends on companies' objectives and the
means with which they carry them out. The operations affect and are affected by the
physical and societal factors and the competitive environment.
INTERNATIONALIZATION STAGES
 Advantages of International business

1. Obtaining Valuable Forex: A country can earn valuable Forex by exporting its goods to other
countries.
2. Division of labor: International business leads to the specialization of product production.
Therefore, high-quality products that you have the greatest advantage.
3. Optimal use of available resources: International businesses reduce the waste of domestic
resources. It helps countries make the best use of their natural resources. Each country produces those
products that have the greatest advantage.
4. Improving the standard of living of people: The sale of surplus products from one country to
another leads to increased income and savings for people in the first country. This will improve the
standard of living of the population of the exporting country.
5. Consumer Benefits: Consumers also benefit from international business. They are free to use a
variety of better quality products at a reasonable price. Therefore, consumers in the importing country
have a variety of products, which is an advantage.
 6. Promotion of industrialization: The exchange of
technical knowledge allows developing and developing
countries to establish new industries with the help of foreign aid.
Therefore, the international business helps the industry develop.
7. International Peace and Harmony: International business
eliminates competition between different countries and promotes
international peace and harmony. Build interdependence and increase
mutual trust and integrity.
8. Cultural Development: International business encourages the
exchange of cultures and ideas between more diverse countries. You
can adopt a better way of life, clothing, food, and more from another
country.
9. Economics of large-scale production: International business
leads to large-scale production due to high demand. Every country in
the world can benefit from large-scale production.
10. Product price stability: International business reduces large
fluctuations in product prices. It leads to stable product prices around
the world.
 11. Expanding the product market: International
business expands the product market around the world.
As the scale of the business expands, the profits of the
business will increase.
12. Benefits in an emergency: International business
allows you to face emergencies. In the event of a natural
disaster, we can import goods according to your needs.
13. Creating Employment Opportunities: International
companies promote employment opportunities in export-
oriented markets. It raises the standard of living of
countries dealing with international business.
14. Increasing public income: The government imposes
import and export taxes on this transaction. Therefore, the
government can make a lot of money from international
business.
 Disadvantages of International
business
1. Negative economic impact: One country affects the economy of
another through international business. In addition, large-scale
exports hinder the industrial development of importing countries. As
a result, the economies of importing countries are suffering.
2. Competition with developed countries: Developing countries
cannot compete with developed countries. Unless an international
business is managed, it impedes the growth and development of
developing countries.
3. Competition between nations: Fierce competition and the desire
to export more products can create competition between nations. As
a result, international peace can be hampered.
4. Colonization: Due to economic and political dependence and
industrial recession, importing countries may be colonized.
 5. Exploitation: International business leads to
exploitation from developing countries to developed
countries. Prosperous and dominant nations regulate the
economies of poor nations.
6. Legal Issues: The different laws, regulations, and
customs procedures that different countries follow to have
a direct impact on import and export trade.
7. Unwanted fashion promotion: Cultural values ​and
heritage are not the same in all countries. There are many
aspects that may not be suitable for our environment,
culture, traditions, etc. This obscenity is often created in the
name of cultural exchange.
8. Language Issues: Different languages ​in different
countries create barriers to establishing business
relationships between different countries.
 9. Dumping policy: Developed countries tend to sell
their products to developing countries at prices below
production costs. As a result, industries in developing
countries have been closed.
10. Complex technical steps: International business is very
technical and has complicated procedures. It contains various
uses for important documents. Expert service is required to
handle complex procedures at various stages.
11. Shortage of commodities in exporting countries:
Traders may prefer to sell commodities to other countries
instead of their own in order to make more profits. As a
result, there is a shortage of products in the country of origin.
12. Negative impact on the domestic industry:
International business represents a threat to the survival of
early and early industries. Foreign competition and unlimited
imports can disrupt our country’s future industry.
 MODE OF ENTRY INTO
INTERNATIONAL BUSINESS

Mode of entry may be defined as the institutional

mechanism by which a firm makes it products or
services available to the consumers in the
International market.

The following are the various mode of entry into

International business:
 EXPORTING
Exporting is the easiest mode of entry into international business. Therefore most

firms begin their international expansion using this model of entry. Exporting is the sale

of products and services in foreign countries that are sourced from the home country.

 The exports are of two types:

 
Direct Exports: These include the sale of goods from the firm to the seller overseas
directly. In this firm experience first hand information about the market. There is no
intermediary involved.
 
Indirect Exports: In this, the exporter hires the expertise of someone else to facilitate
the exchange. The intermediary charges the fee for its services.
 There are several types of
intermediaries:
 Manufacturers’ export agents: who sell the
company’s product overseas
 Manufacturers’ representatives: who sell the
products of a number of exporting firms in overseas
markets
 Export commission agents: who act as buyers
for overseas markets
 Export merchants: who buy and sell on their
own for a variety of markets.
 ADVANTAGES OF EXPORTING

 It involves very little risk and low allocation of

resources for the exporter.
 It increase sales and reduce inventories.
 Exporting also provides an easy way to identify
market potential
 It establishes recognition of a name brand.
If the enterprise proves unprofitable, the company
can simply stop the practice with no diminution of
operations in other spheres and no long-term losses
of capital investments.
 DISADVANTAGES OF EXPORTING

 Exporting can be more expensive because of the costs of

fees, commissions, export duties, taxes, and transportation.
 Exporting could lead to less-than-optimal market
penetration because of inappropriate packaging or
promotion.
 Exported goods could also be lacking features
appropriate to specific overseas markets.
 Additional market share could be lost if local
competition copies the products or services offered by the
exporter.
 The exporting firm also could face restrictions against
its products from the host country.
 LICENSING
In this mode of entry, the manufacturer of the home
country leases the right of intellectual properties, i.e.,
technology, copyrights, brand name, etc., to a
manufacturer of a foreign country. The license is
granted for a predetermined fee. The manufacturer that
leases is known as the licensor and the manufacturer of
the country that gets the license is known as
the licensee. In essence, the licensee is buying the
assets of another firm in the form of know-how or R &
D. The licensor can grant these rights exclusively to one
licensee or nonexclusively to several licensees.
 ADVANTAGES OF LICENSING
• Low investment of licensor.
• Low financial risk of licensor.
• Licensor can investigate the foreign market.
• Licensee’s investment in R&D is low.
• Licensee does not bear the risk of product failure.
• Any international location can be chosen to enjoy
the advantages.
• No obligations of ownership, managerial
decisions, investment etc.
 DISADVANTAGES OF LICENSING

• It limits future profit opportunities associated with the

property by tying up its rights for an extended period of time.
• By licensing these rights to another, the firm loses control
over the quality of its products and processes, the use or
misuse of the assets, and even the protection of its corporate
reputation.
• Both parties have to manage product quality and promotion
• One party’s dishonesty can affect the other.
• Chances of misunderstanding.
• Chances of trade secrets leakage of the licensor.
 FRANCHISING
In this mode, an independent firm called the franchisee does
the business using the name of another company called
the franchisor.
Franchising is mode in which the franchisee is granted
permission to use a name, process, method, or trademark. And
also the franchisor firm assists the franchisee with the
operations of the franchise or supplies raw materials, or both.
The franchisor generally also has a larger degree of control
over the quality of the product. Payment under franchising
agreements is that the franchisee pays an initial fee and a
proportion of its sales or revenues to the franchising firm.
 EXAMPLES: The prime examples of U.S. franchising
companies are service industries and restaurants, particularly fast-
food concerns, soft-drink bottlers, and home and auto maintenance
companies i.e. McDonald’s, KFC, Holiday Inn, Hilton etc.

ADVANTAGES OF FRANCHISING
• Low investment.
• Low risk.
• Franchisor understands market culture, customs and
environment of the host country.
• Franchisor learns more from the experience of the
franchisees.
• Franchisee gets the R&D and brand name with low cost.
• Franchisee has no risk of product failure.
 DISADVANTAGES OF
FRANCHISING

• Franchising can be complicated at times.

• Difficult to control.
• Reduced market opportunities for both franchisee
and franchisor.
• Responsibilities of managing product quality and
product promotion for both.
• Leakage of trade secrets.
 MANAGEMENT CONTRACTS
Management contracts are contracts under which
a firm basically rents its expertise or know-how to a
government or company in the form of personnel
who enter the foreign environment and run the
concern.
This method of involvement in foreign markets is
often used with a new facility, after expropriation
of a concern by a national government, or when an
operation is in trouble.
 TURNKEY PROJECTS

It is a special mode of carrying out international

business. It is a contract under which a firm agrees
to fully carry out the design, create, and equip the
production facility and shift the project over to the
purchaser when the facility is operational. The
amount of relevant remuneration is charged for the
same.
 ADVANTAGES OF TURNKEY
PROJECTS
• These projects are suitable for the large scale production.
• These projects are undertaken in collaboration with
management contracts to achieve the highest level of
efficiency.
DISADVANTAGES OF TURNKEY PROJECTS
• The project completion time is lengthy hence there are
higher chances of currency risks.
• Due to lengthy project duration, the returns are not
available in short time.
• Turnkey operations also face all the problems of
operating in remote locations.
 CONTRACT MANUFACTURING

Contract manufacturing is another method firms use

to enter the foreign arena or international business
scenario. In this case, an MNC contracts with a local firm
to provide manufacturing services. In this arrangement,
the MNC subcontracts the production in two ways:
• In one scenario, the MNC enters into a full production
contract with a local plant producing goods to be sold
under the name of the original manufacturer.
• In a second scenario, the MNC enters into contracts
with another firm to provide partial manufacturing
services, such as assembly work or parts production.
 ADVANTAGES OF CONTRAT
MANUFACTURING
• Contract manufacturing has the advantage of expanding
the supply or production expertise of the contracting firm
at minimum cost.
• The MNC can diversify vertically without a full-scale
commitment of resources and personnel.

DISADVANTAGE OF CONTRACT MANUFACTURING

• The firm forgoes some degree of control over the
production supply timetable when it contracts with a local
firm to provide specific services.
 FOREIGN DIRECT
INVESTMENT
Foreign Direct Investment involves a company entering an overseas market
by making a substantial investment in the country. Some of the modes of entry
into international business using the foreign direct investment strategy includes
mergers and acquisitions, joint ventures and greenfield investments.
This strategy is suitable when the demand or the size of the market, or the
growth potential of the market in the substantially large to justify the
investment.
Some of the reasons because of which companies opt for foreign direct
investment strategy as the mode of entry into international business can
include:
• Restriction or import limits on certain goods and products.
• Manufacturing locally can avoid import duties.
• Companies can take advantage of low-cost labour, cheaper material.
 ADVANTAGES OF FOREIGN
DIRECT INVESTMENT

• You can retain your control over the operations

and other aspects of your business
• Leverage low-cost labour, cheaper material etc.
to reduce manufacturing cost towards obtaining a
competitive advantage over competitors
• Many foreign companies can avail for subsidies,
tax breaks and other concessions from the local
governments for making an investment in their
country
 DISADVANTAGES OF FOREIGN
DIRECT INVESTMENT

• The business is exposed to high levels of political

risk, especially in case the government decides to
adopt protectionist policies to protect and support
local business against foreign companies
• This strategy involves substantial investment to be
made for entering an international market
 JOINT VENTURES
A joint venture is one of the preferred modes of entry into international
business for businesses who do not mind sharing their brand, knowledge,
and expertise.
Companies wishing to expand into overseas markets can form joint
ventures with local businesses in the overseas location, wherein both joint
venture partners share the rewards and risks associated with the business.
Both business entities share the investment, costs, profits and losses at
the predetermined proportion.
This mode of entry into international business is suitable in countries
wherein the governments do not allow one hundred per cent foreign
ownership in certain industries.
For instance, foreign companies cannot have a 100 hundred per cent stake
in broadcast content services, print media, multi-brand retailing, insurance,
power exchange sectors and require to opt for a joint-venture route to enter
the Indian market.
 ADVANTAGES OF JOINT VENTURE 

• Both partners can leverage their respective expertise to grow and

expand within a chosen market
• The political risks involved in joint-venture is lower due to the
presence of the local partner, having knowledge of the local market
and its business environment
• Enables transfer of technology, intellectual properties and assets,
knowledge of the overseas market etc. between the partnering firms
DISADVANTAGES OF JOINT VENTURE
•Joint ventures can face the possibility of cultural clashes within the
organisation due to the difference in organisation culture in both
partnering firms
• In the event of a dispute, dissolution of a joint venture is subject to
lengthy and complicated legal process.
 STRATEGIC ACQUISITIONS

Strategic acquisition implies that the company

acquires a controlling interest in an existing company in
the overseas market. 
This acquired company can be directly or indirectly
involved in offering similar products or services in the
overseas market.
One can retain the existing management of the newly
acquired company to benefit from their expertise,
knowledge and experience while having your team
members positioned in the board of the company as
well.
 ADVANTAGES OF STRATEGIC ACQUISITIONS

• The business does not need to start from scratch as one can use the
existing infrastructure, manufacturing facilities, distribution channels
and an existing market share and a consumer base.
• The business can benefit from the expertise, knowledge and
experience of the existing management and key personnel by retaining
them.
• It is one of the fastest modes of entry into an international business on
a large scale.
DISADVANTAGES OF STRATEGIC ACQUISITIONS
• Just like Joint Ventures, in Acquisitions as well, there is a possibility
of cultural clashes within the organisation due to the difference in
organisation culture.
• Apart from that there mostly are problems with seamless integration
of systems and process. Technological process differences is one of the
most common issues in strategic acquisitions.
 WHOLLY OWNED SUBISIDIARY OR
GREEN FIELD VENTURING
Wholly Owned Subsidiary is a company whose common stock is
fully owned by another company, known as the parent company. A
wholly owned subsidiary may arise through acquisition or by a
spin-off from the parent company.
ADVANTAGES
• Gain local market knowledge
• It can be seen as insider who employs locals
• Maximum control
DISADVANTAGES
• High cost.
• High risk due to unknowns
• Slow entry due to setup time
 PORTFOLIO INVESTMENTS
Portfolio investments do not require the physical presence of a
firm’s personnel or products on foreign shores. These investments can
be made in the form of marketable securities in foreign markets, such
as notes, bonds, commercial paper, certificates of deposit, and non-
controlling shares of stock. They can also be investments in foreign
bank accounts or as foreign loans.
Investors make decisions to acquire securities or invest money
abroad for several reasons:
• To diversify their portfolios among markets and locations
• To achieve higher rates of return
• To avoid political risks by taking their investments out of the country
• To speculate in foreign exchange markets.
Portfolio investments can be made either by individuals or through
special investment funds.
 CONCLUSION
Before entering into the international market,
the firm should crucially decide its operational
business strategy. Depending upon the growth and
diversification needs of the business, the
appropriate mode of international business should
be selected. The factors to be considered in mind
are ability and willingness of firm to commit to
resources, level of control desired, level of risk a
firm is willing to take, intensity of competition,
quality of infrastructure etc.