1. INTERNATIONAL BUSINESS The International Business Imperative Prof. Ranjani Srinivasan1

2. Learning Objectives To understand the meaning of Globalization To understand the drivers of Globalization To learn the concept of international business. To understand the reasons for international business expansion To appreciate the opportunities and challenges offered by international business.2 3. The Globalization phenomenon Globalization refers to the free cross border movement of goods, services, capital, information and people. It is the intensification of cross-national economic, political, cultural, social and technological interactions that leads to establishment of transnational structures. 3 4. Globalization : Defined May be defined as the process of integration and convergence of economic, financial, cultural and political systems across the world.4 5. Globalization dimensions: Economic Globalization Internationalization of markets, financial system, corporations, technology and competition.Financial Globalization Liberalization of capital movements and deregulations of financial services. Integration of financial markets.Cultural Globalization Convergence of cultures across the world. 5 6. Drivers of Globalization Increase in and expansion of technology: Most modern marvels have been invented in recent times. More percent of population involved in developing new products. Pace of new development very fast. Technology sharing also very fast. 6 7. Drivers of Globalization Advances in Communications and Transportation : Strides in communications and transportations makes people aware about the new products fast. Cost of improved transportation and communication have come down.7 8. Liberalization of Cross-Border Trade and Resource Movements : Most governments have reduced restrictions on inernational movements of products and services because: Citizens want a greater variety of goods and services at lower prices. Competition spurs domestic producers to become more efficient. They hope to induce other countries to lower their barriers in turn. 8 9. Development of services that support International Business: Companies and govts. have developed a variety of services that facilitate conduct of international business. Eg. Bank credit agreements, clearing arrangements, insurance that covers risk of damage en route and non payment, special schemes of govt etc. 9 10. Growing Consumer Pressures : Consumers are aware of the latest products and services available in other countries. So they want more, newer, better and differentiated products.Increased Global Competition : Competition spurs movement to newer markets. Mergers and acquisitions across the border may improve operating efficiencies.10 11. Changing Political Situation: Less schism between non-communist and communist world. Willingness among governments to promote international trade. (development of sophisticated airports and seaports, info. on foreign markets etc.).Expanded Cross National Cooperation Bilateral, Multilateral treaties for cooperation in trade, usage of infrastructural facilities for trade, reduction of trade barriers etc. 11 12. What is International Business? International business consists of all commercial transactions taking place between two countries. These transactions include sales, investment and transportation by government or private companies with or without the objective of making profit.12 13. Reasons for International Business Expansion Market Seeking Motives:Marketing Opportunities due to life cycles of products Uniqueness of product or service eg. Himalayan herbs and Indian medicinal plants, software deveopment at competitive prices, value added BPO/KPO services etc.13 14. Reasons for International Business Expansion Economic Motives: Profitability Higher profits from overseas business is a significant motive for intl. expansion. Differences in profitability due to : Price differentials in various country markets Export Incentives by home country govt. Fiscal incentives by host country govt. Low cost and abundant availability of factors of production. Low intensity of competition in foreign markets .14 15. Reasons for International Business Expansion Economic Motives : Achieving economies of scale: Large scale production capacities necessitate domestic firms to dispose off their goods in intl. markets. Moreover global business also contribute to synergies and increased economies even in marketing, logistics, supply chain and other functional areas. 15 16. Reasons for International Business Expansion Economic Motives: Spreading R&D costs:R& D intensive companies like those in software, Pharmaceuticals, micro processors etc. need to recover costs speedily by spreading business in newer and profitable markets. So international business expansion is critical for their success.16 17. Reasons for International Business Expansion Strategic Motives Growth: For companies with small home markets growth is possible by moving to larger markets in other countries. For e.g. Singapore, Malaysia, Thailand, Norway, Sweden, Finland etc.Risk Spread: International expansion is also used to mitigate risk of economic upheavals in the home market. Operating in several countries reduces dependence on any 17 particular market . 18. Globalization : Challenges Opening up of domestic market to foreign companies increases competition even for firms solely operating in domestic markets. Liberal investment regime facilitates intl. Cos. In establishing business operations, giving rise to increased competition to firms that have been used to operate in protected economies. 18 19. Globalization : Opportunities Increased market access and reduced tariffs make foreign markets not only accessible , but increases competitiveness as well. Liberalization of regulatory framework helps investment and expansion in foreign markets. It give opportunity for integration of business operations on a global scale. It gives opportunities for foreign collaborations and ownership. 19 20. Types of International Business Export-import trade Foreign direct investmentLicensingFranchising Management contracts 20 21. International Business Questions How will an idea, good, or service fit into the international market? Should trade or investment be used to enter a foreign market? Should supplies be obtained domestically or abroad? What product adjustments are necessary to be responsive to local conditions? What are the threats from global competitors, and how can these threats be counteracted? 21 22. Domestic Vs International Busines.22