INTERNATIONAL BUSINESS

AND TRADE
 I. Approaches of International Business
1. Ethnocentric Approach- The domestic companies normally formulates their strategies, their product design
and their operations towards the national markets, customers and competitors. Domestic product-mix without
major modifications for the overseas markets.

2. Polycentric Approach- customizes the marketing mix to meet the taste performance and needs of the
customers of each international market and market oriented. Company appoints key personnel from home
country and all other vacancies are filled by people of host country.

3. Regiocentric Approach- views different regions as different markets. A particular region with certain
important common marketing characteristics is regarded as a single market. Hire the same people within the
same region.

4. Geocentric Approach- views the world as single market. Analyses the taste, preference and needs of
customer. And adopt a standardized marketing mix in foreign market. International recruitment where the
Multi National Companies recruit the most suitable employee for the job irrespective of their Nationality.
II. Problems of International Business

 Political Factors
 High Foreign Investment and High cost
 Exchange instability
 Entry Requirements
 Tariffs, quota etc.
 Corruption and bureaucracy

 Technological policy
 Quality Management
 III. 10 Entry Strategy
1.Exporting  Indirect & Direct Indirect Exporting- exporting the goods to a third party
company that sells to direct international buyers.
Direct Exporting- the goods is directly to international buyers no
third company taking a commission.

2. Licensing  Agreement An international business licensing agreement involves two firms

 Patent, trade mark, from different countries, with the licensee receiving the rights or
copy right, technology, resources to manufacture in the foreign country. Rights or
production, processes and resources may include patents, copyrights, technology,
product managerial skills, or other factors necessary to manufacture the
 Licensee’s fee good.

3. Franchising  by franchisers to Franchising- is a method of distributing products or services involving

franchisee a franchisor, who establishes the brand's trademark or trade name and
a business system
Franchiser - A franchisor sells the right to open stores and sell products
or services using its brand, expertise, and intellectual property. It is the
original or existing business that sells the right to use its name and idea.
Franchisee - A franchisee is a small-business owner who operates a
franchise. The franchisee pays a fee to the franchisor for the right to use
the business's already-established success, trademarks, and proprietary
knowledge.
4. Foreign Assembly  Subsidiary The firm produces domestically all or most of the
 Local assembly components or ingredients of it’s products and ships
them to foreign market to be put together as a finished
product.

5. Turnkey Operation  Staff of an operating Turnkey operation is a type of project that is

facility constructed so that it can be sold to any buyer as a
 Foreign buyer completed product.

6. Foreign production  Establishment A foreign subsidiary is a company operating overseas that is

subsidiary  Purpose part of a larger corporation with headquarters in another
country, often known as a parent company or a holding
company.production subsidiary means any Foreign
Subsidiary established or existing solely for the purpose of
producing or acquiring an Item of Product.

7. International Firm  Significant portion An international firm is a business involving two or more
 In foreign countries people that is operates between two or more nations.
8. Multinational  Parent country Any corporation that is registered and operates in more
Corporation  Host country than one country at a time. Generally the corporation has
its headquarters in one country and operates wholly or
partially owned subsidiaries in other countries.

9. Joint Venture  Property rights is a business entity created by two or more parties,
generally characterized by shared ownership, shared
returns and risks, and shared governance. A foreign
company invite a partner from other countries to share
equity ownership. Shares might not be equal vary by
deals.

10. Foreign Direct  Arrangement in which a firm A company investing in foreign company.
Investment buys or establishes tangible
assets
 In another country
 Through direct investment
 By buying a company stock in
capital marketps
 IV. Reason for recent growth of International Business

1. World bank

 an International financial organization that lend money to underdeveloped and developing countries for
development.
 The World Bank Group is one of the world’s largest sources of funding and knowledge for developing
countries. Its five institutions share a commitment to reducing poverty, increasing shared prosperity, and
promoting sustainable development.
 189 Member Countries
 2. Economic Communities

o World Trade Organization (WTO)

 The World Trade Organization (WTO) is the only global international organization dealing with the
rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk
of the world’s trading nations and ratified in their parliaments.
 WTO was founded in January 1, 1995
 Headquarters is in Geneva, Switzerland
 160 members
  European Community (EC)

 The European Community (EC) was an economic association formed by six European member
countries in 1957, consisting of three communities that eventually were replaced by the European
Union in 1993.The European Community dealt with policies and governing, in a communal fashion,
across all member states.
 The six founding member countries of the European Community were Belgium, Germany, France, Italy,
Luxembourg, and the Netherlands.
 Headquarter is in Brussels, Belguim
  North American Free Trade Agreement (NAFTA)

 The North American Free Trade Agreement (NAFTA), which was enacted in 1994 and created a free
trade zone for Mexico, Canada, and the United States, is the most important feature in the U.S.-
Mexico bilateral commercial relationship. As of January 1, 2008, all tariffs and quotas were
eliminated on U.S. exports to Mexico and Canada under the North American Free Trade
Agreement (NAFTA).
 NAFTA was founded in January 1, 1994.
 Separate national offices in Mexico City, Ottawa and Washington
  Asean Free Trade Agreement (AFTA)

 The ASEAN Free Trade Area (AFTA) is a trade bloc agreement by the Association of Southeast Asian
Nations supporting local trade and manufacturing in all ASEAN countries, and facilitating economic
integration with regional and international allies.
 established on 8 August 1967 in Bangkok, Thailand.
 Founding Fathers of ASEAN: Indonesia, Malaysia, Philippines, Singapore and Thailand.
 The 6 members who signed the agreement were Brunei, Indonesia, Malaysia, the Philippines, Singapore
and Thailand.
 provide assistance to each other in the form of training and research facilities in the educational,
professional, technical and administrative spheres;
 3. General Agreement on Tariff and trade (GATT)

An international organization formed to reduce or eliminate tariff and other barrier to international
trade.
 Located in Geneva, Geneva Canton, Switzerland
 GATT signed on October 30, 1947.
 The 23 founding members were: Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China,
Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway,
Pakistan, Southern Rhodesia, Syria, South Africa, United Kingdom and the United States.
 4. International Monetary Fund (IMF)

 An international financial organization that lend money to countries in conducting international

trade.
 International Monetary Fund is an organization of 190 member countries.
 The IMF was established in 1944 in the aftermath of the Great Depression of the 1930s.
 IV. Reason for recent growth of IB

1. Expansion of technology.

2. Business is becoming more global because

 Transportation is quicker
 Communications enable control from afar
 Transportation and communication costs are more conducive for international operations

3. Liberalization and cross-border movements

 Lower Governmental barriers to the movement of goods, services and resources enable
Companies to take better advantage of international opportunities
 V. Adopting to Customers need

1. Products and Services should meet to foreign market.

2. Price adjustments by considering the cost of foreign trade, such as transportation, taxes,
exchange rate.

3. Distribution system through existing transportation system, suppliers and stores.

4. Promotion should be modified based on different language, law, and culture from country to
country.

5. Put yourself into customer’s shoes.

 VI. Main Barriers

1. Cultural and Social Barriers
2. Legal and Political Barriers
Socio cultural barriers are man-made constructs originating from
social norms and cultural values. They have mainly an adverse impact
on information seeking by restricting access to information sources and
giving rise to negative emotions.
can be simply described as the laws and regulations that business has to
follow in order to make sure the business owners do not get arrested.

3. Economic Barriers
 Tariff Taxes placed by a government on goods entering or leaving a country.

 Quotas Limiting the amount of products that can come into a country

 Embargo official prohibition by a government of ocean trade into and out of its
ports. Any restraint imposed on commerce by law.

 Currency Money is different for each nation and must be exchanged to be used;
strength of currency.
 VII. Motivation to do International Business

1. Proactive
◦ to increase profit
◦ to take advantage of product life cycle
◦ to achieve Economics of scale

2. Reactive
◦ Competitive pressures
◦ Overproduction and excess capacity
◦ Declining domestic sales
◦ Saturated domestic markets
 Need for I B

1. Achieve higher rate profits

2. Expanding the production capacity beyond the demand of the domestic country

3. Availability of technology and managerial competence

4. Cost of manpower, transportation & Nearness to R/M

5. LPG Implt.

6. Market share