INTERNATIONAL BUSINESS

International business is the process of focusing on the resources of the globe and

objectives of the organization on global business opportunities and

threats , in order to produce , buy , sell or exchange of

goods/services world wide

Stages of internationalization

There are five steps of internationalization which are -:

1 •Domestic Company

2 •International company

3 •Multinational Company

4 •Global Company

5 •Transnational Company

1. Domestic Company

Domestic company limits its operations , mission ,vision to the national political boundaries. The company focuses its view on the domestic market opportunities, supplier , financial companies ,customers etc.

Domestic company never thinks of growing globally.

These company follows ethnocentric approach.

International Company

International Companies focus on Domestic practices, but extends the wings to foreign country.

These companies extend the domestic product ,price promotion and other business practices to the foreign markets.

These companies adopt ethnocentric approach.

3. Multinational Company

MNC formulate different strategies for different market.

Stage of multinational company is also referred to as multidomestic.

The orientation shifts from ethnocentric to polycentric.

They operate like a domestic company of the country concerned in each of their market.

4. Global Company

Global company either produces in one country and market globally or produces globally and market domestically.

5. Transnational Company

Transnational company produces, markets, invests and operates across the world

It is an integrated global enterprise that links global resources with global market at profits.

Transnational company adopt geocentric approach.

International Business Approaches

Douglas Wind and Pelmutter advocated four approaches 0f I. B .

They are -: Ethnocentric Polycentric Regiocentric Geocentric

1.Ethnocentric Approach

Under this approach, the domestic companies view foreign markets as an extension to domestic market.

Polycentric Approach

Company establishes a foreign subsidiary company and decentralizes all the operations and delegates decision making and policy making authority to its executives.

C.E.O. reports directly to the M.D. of the company.

Org. Structure Of Polycentric Company

MD

CEOForeign

Subsidiary

ManagerR&D

Manager Mkt.

ManagerFinance

Regiocentric

The company after operating successfully in a foreign country, thinks of operating to the neighboring countries of the host country. At this stage, the foreign subsidiary consider the regional environment (e.g .Asian env. Like laws culture, policies etc.)for formulating policies and strategies.

Managing Director

CEO sub. Asia.

MktChina

Mkt.Tibbat

MktNepal

Man.Mkt.

Man.R&D

Man. Finance

Man.HR

Man.Producti

on

Geocentric Approach

Under this approach the entire world is just like a single country for the company. They select the employees from the entire globe and operate with a no. of subsidiary.

DIFFERENCE B/W DOMESTIC AND INTERNATIONAL BUSINESS

Basis of Difference

Domestic Business International Business

1.Approach Ethnocentric May be Poly, regio or geocentric

2.Geographic Scope Small (within the national Boundaries)

Large (min. 2 countries, max. entire globe)

3.Risk Low High

4.Return Low high

5.Environment Simple (scan only domestic env.)

Complex (scan international env.)

6.Operating style Limited to domestic Country

Can be spread over the entire globe

7.Quotas The quotas imposed by various countries on their exports and imports not directly or significantly influence domestic business

Affect (operate within the quota)

CONTD.

8 Tariffs Do not directly and significantly influence

Directly influence

9.Foreign exchange rates

Not affect the business Affect the business

10.culture simple Different (complicated to u/s)

11.HR Normall employs the people from the same country

Much complicated(employ from various country

12. Market &customer Limited(meet the needs of domestic market and customer)

Abroad(u/s market and customer globally)

Risk and challenges of I.B.

Political Factor Exchange instability Entry requirements Tariffs quotas and trade barriers(import & export quotas in order to protect domestic

business) Corruption Bureaucratic practice of government(delay in projects) Technological pirating Quality maintenance Natural factor

(Environment,Weather,Water,Infrastructure etc.)

CONT.

War High cost Terrorism risk Strategic decisions

Advantages of I.B.

We shall discuss the competitive advantages of I.B.

High living standards Increased socio economic welfare Wider market Reduced effects of business cycle Reduced risks Large scale economies Potential untapped market Provides the opportunity for and challenge to

domestic

Contd

Division of labor and specialization Economic growth of the world Optimum and proper utilization of world

resources Cultural transformation

Why company go globally(obj./goals of I.B.)

To achieve high rate of profits Expanding the production Severe competition in the home country Limited home market Availability of technology and skilled

human resource High cost of transportation Nearness to raw material

Liberalization and globalization To increase market share To achieve higher rate of economic

development Tariffs and import quotas

Globalisation

The medieval proverb says “A merchant has no nation” It means that a businessman can view the entire world as one country for the operations.

Erasing national and political boundaries for the purpose of business may be termed as globalization. It implies integration of economy of the country with the rest of the world economy and opening up of the economy for FDI by liberalizing the rules and regulations and by creating favorable socio-economic political climate for global business.

Charles U.L. Hill defines Globalization as“The shift towards a more integrated and

interdependent world economy. Globalization has two main components – the globalization of market and the globalization of production.”

Features of globalization

Operating and planning to expand business throughout the world

Erasing the diff. b/w domestic market and foreign market.

Buying and selling goods & services from/to any country in the world

Establishing manufacturing and distribution facilities in any part of the world

Product planning & deveolpment are based on market consideration of the entire world

Contd.

Sourcing of factors of production and inputs from the entire globe

Global orientation in strategies, organizational structure, organizational culture and managerial expertise

Setting the mind and attitude to view the entire globe as a single market.

Process of globalisation

Acc. To Ohamae Globalizations has 5 stages. They are1 Exports through dealers or distributors of the home country

2 Exports directly

3 Establish production and mkt. operations in various key foreign countries

4The company replicates a foreign company in the foreign company by having all the facilities including R&D full fledged human resource etc.

5Company becomes a true foreign company by serving the needs of foreign customers just like the host country’s company serve.

Components of globalization

• integrating& merging of the distinct world markets in to a single market

• Locating the mfg .facilities in a no. of locations around the globe

• Enabled the global company to develop into a virtual global company.

• Investment of capital by a global company in any part of the world.

Glob. of market

Glob. Of production

Glob. Of Technolog

y

Glob of investmen

t

Drivers of globalization

i. Establishment of WTOii. Regional integrationiii. Declining trade barriers(tariffs )iv. Declining investment barriers(fdi)v. Growth in FDIvi. Strides in technologya) Microprocessors & telecommunicationsb) Internetc) Transportation Technologyvii) Growth of MNC

Regional Integration

1) EU2) NAFTA(North American Free Trade

Agreement)3) SAARC(South Asian Association for

Region Cooperation)4) ASEAN Etc.

Advantages of Globalization

Free flow of capital Free flow of technology Increase in industrialization Global Production Balanced development of world economy Increase in production and consumption Lower price with high Quality Cultural exchange & demand for a variety

of product

Cont.

Increase in Employment and income Higher standards of living Balanced human development Increase in welfare and prosperity

Disadvantages of Globalization

Kills domestic business Exploits human Resources Violation of labor and environmental laws Leads to unemployment Decline in demand for domestic product Decline in income Widening gap b/w the rich & the poor Transfer of natural resources National sovereignity at stake

GeocentricM.D.

HeadquarterIndia

Sub.India

Sub.Aus.

Sub.U.S.A.

Sub.S/A

Sub.Japan

International Business Environment

Study of env. helps to the opp. & threats of the I.B.

Env. Means surroundings. I.B. env. Means the factors/activities those surround/encircle the I.B.

In other words business environment means the factors that affect or influence the MNC and transnational companies.

I.B. Environment

ENV.

Internal External

OrganisationalStructure

Production

Marketing

Finance

R&D

External Environment

Micro(All Stake Holder)

Macro

Shareholders

Creditors

Banker & Financial

institution

Competitor

supplier

Intermediary

Customer

Macro Env.

Socio-

Cultural

Env.

Technologic

alEnv.

EconomicalEnv.

Political

Env.

Internation

al

Natural

Env.

Social and cultural env.

Culture is a set of traditional beliefs and values which are transmitted and shared in a given society.

It includes - Attitude of people to work Attitude to wealth Family Marriage Religion Education etc.

Technological Env.

Technology is application of knowledge-“A systematic application of scientific or

other organised knowledge to particular task”

Acc. To J.K. Galbraitho Many inventions and discoveries do not

remain property for long period.o Level of tech. is not same in all countrieso I.T. redefined business

Economic Env.

The economic env. of various countries mostly and directly influences .I.B. the change was revolutionary after 1990

Economic system-1. Capitalistic –Customer choice for

product/services. Decide what will be produced by whom? (customer allocate resources)

Ex. U.S.A. , Japan , U.K.

2 Communism - State owns all the factor of production and

distribution. It is also called Marxism.Ex China, Poland , Russia , Most of the east

European countries3. Mixed Economy-Major factor of production and distribution

are owned , managed and controlled by state.

Ex. India

Countries Classified by income

Low income countries Lower middle countries Upper middle Countries Higher income countries