International Business Environment

An Overview Presented By: Jatin Vaid

International Business
IB is all commercial transactions private and governmental, between two or more countries. These transactions include sales, investments and transportation. The conditions within a Co.s external environment affect the way business functions.

When a Co. operates internationally, it adds foreign conditions to its domestic ones, which makes its external environment diverse.
These conditions are physical, societal and competitive.

EXTERNAL INFLUENCES 1. PHYSICAL AND SOCIETAL FACTORS POL & LEGAL POLICIES CULTURAL FACTORS ECONOMIC FORCES GEOGRAPHICAL INFLUENCES 2. COMPETITIVE ENVIRONMENT ADVANTAGE IN PRICE, MARKETING NO. AND COMPARATIVE CAPABILITIES OF COMPTITORS. COMPETITIVE DIFFERENCES BY COUNTRY

OPERATIONS OBJECTIVES SALES EXPANSION RESOURCE ACQUISITION RISK MINIMIZATION

STRATEGY

MODES IMPORT/EXPORT

MEANS FUNCTIONS MARKETING GLOBAL MFG FINANCE HR

TOURISM & TRANSPORTATION LICENCING MGT CONTRACTS DIRECT & PORTFOLIO INVESTMENT

OVERLAYING ALTERNATIVES CHOICE OF COUNTRIES ORG & CTRL MECHANISMS

Objectives to engage in International Business

1. 2. 3.

To expand sales To acquire resources To minimize risk

1. To expand sales
Higher sales mean higher profits. The Co.s may increase the potential market for their sales by pursuing international markets. Increased sales a major motive for Co.s.

2. To acquire resources
To reduce costs, manufacturers seek out products, services & components produced abroad. They also seek foreign capital, technology & information. Helps Co.s to improve its product quality and differentiate itself, thus inc market share and profits.

3. To minimize risk
Co.s may take advantage of business cycle differences in countries to minimize swings in sales and profits. Co.s may enter in to IB for defensive reasons, to counter advtgs comptt may gain in foreign markets, that in turn could hurt them domestically.

Reasons for recent international growth

1.

2.

3.

4.

Rapid increase in and expansion of technology. Liberalization of Govt. policies on cross border movement of trade & resources. Dev. Of instt. That support & facilitate international trade. Increased global competition.

Modes of International Business

1. 2.

Merchandise Exports and Imports. Service Exports and Imports.

a) Tourism & Transportation b) Performance of services c) Use of assets (TM, patents, )

3.

Investments
a) Direct investment (gives investor ctrl int) b) Portfolio investment (non-ctrlng int in co stocks)

1. Merchandise Exports & Imports

ME are tangible prdts goods- send out of a country. MI are goods brought in to a country. Called visible exports & imports. Countrys most common international economic transactions.

2. Service Exports & Imports

Generate non-prdt interntl earnings. Co. or individual receiving payment is making a service export & the one paying is making a service import. Forms: 1) Tourism & Transportation: airlines, shipping co., travel agencies & hotels. Foreign tourism 2) Performance of services: banking, insurance, rentals, engg., management : earnings in form of fee. Management contracts fee for spl contracts. 3) Use of assets : -co. allows others to use assets like TM, patents, under contracts called licensing agrmt rec royalities - Franchising.

3. Investments
1)

Direct: - gives investor controlling int. in a foreign co. - FDI Portfolio: - non controlling int. in a co. or loans to a co. - Co. use them for short term financial gain.

2)

External influences on IB
1.

Understanding a Co.s Physical & Societal environments. Political policies and legal practice. Cultural factors. Economic forces Geographical influences.

a) b) c) d)

2.

The competitive environment

a)

b)

c)

Major advantage in price, marketing, innovation, etc. Number of comparative capabilities of competitors. Competitive differences by country.

Evolution of Strategy in the Internationalization Process

1. 2. 3. 4.

Passive to active expansion. External to internal handling of Ops. Deepening mode of commitment. Geographic diversification.

USUAL PATTERN OF INTERNATIONALIZATION

DOMESTIC BUSINESS A LOW MEDIUM HIGH B E

Countervailing Forces
1.

2. 3.

Globally standardized V/S Nationally Responsive Practices. Country V/S Company competitiveness. Sovereign V/S Cross National Relationships.