References:

1. International Business : K Aswathappa

2. International Business-competing in the global market : Charles W L Hill and Arun K Jain

International Business management

Unit 1: Introduction

Year : II Semester : IV

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Prepared and presented by,N. Ganesha Pandian,Assistant professor,Madurai School of management,Madurai.

ContentsInternational business – DefinitionInternationalizing business – AdvantagesFactors causing globalization of businessInternational business environment Country attractivenessPolitical, economic and cultural environment Protection Vs Liberalization of global business environment

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World as market place

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International Business

International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.

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Internationalizing BusinessInternationalization of capital

Internationalization of corporate mind set

Internationalization of supply chain

Internationalization of market presence

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Need for International BusinessInternational business: causes the flow of ideas,

services, and capital across the worldoffers consumers new choicespermits the acquisition of a wider variety of productsfacilitates the mobility of labor, capital, and technologyprovides challenging employment opportunitiesreallocates resources, makes preferential choices, and shifts activities to a global level

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Drivers of International Business1. Developing markets have huge opportunities to increase

their profits and sales

2. Many MNC’s are locating their subsidiaries in low wage countries to take advantage of low cost production

3. Trading blocks seek to promote International business by removing trade and Investment barriers

4. Changing demographics also adds to increasing globalization

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Contd…5. Declining investment and trade barriers have vastly

contributed to cross-border business6. The most powerful instrument that triggered

internationalization is technology7. Resource seeking is another motive for firms going

international8. Internationalization is triggered by world bodies and

institutions e.g.. WTO World trade organizations

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Advantages of International BusinessProduct flexibility – offer a much wide range of product globallyLess competitionIncreased investment opportunityDiversification of riskProtection from national trends and eventsLearning new methods

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Trade related entry modes Exporting – exporting goods directly to foreign customers

International sub-contracting – When a firm in host country has surplus manufacturing capacity

Countertrade – countries exchange goods for goods and like

Management contract – enforceable agreements on trade related activities

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Transfer related entry modes

International leasing International licensing International franchising Build – operate – transfer (BOT) –Trunkey operations

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FDI related entry modes

Branch officeCo-operative joint ventureEquity joint-ventureWholly owned subsidiary

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Terminologies1. Transnational Corporation (TNC): Companies “Transcend”

or operate across national borders.

2. Multinational Corporation (MNC): Companies operate in multiple companies.

3. Multinational Enterprise (MNE): International giants are state-owned enterprises, rather than corporations

4. Global corporation: small number of companies whose business presence more than 100 nations

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5. International trade: Export of goods and services by a firm to a foreign buyer (importer)

6. International marketing: Firm level marketing across the border, including market identification and targeting, entry mode selection and etc.,

7. International investment: Cross-border transfer of resources to carry out business activities

8. International management: Application of management concepts and techniques in a cross-country environment

9. International business: Cross-border transaction of goods, services and resources between two or more nations

10. Global business: Conduct of business activities in several countries using highly co-ordinate and single strategy

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Globalization

Globalization refers to the opening of local and nationalistic perspectives to a broader outlook of interconnected and interdependent world with free transfer of capital, goods and services across the national frontiers.

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Globalization has several facets, including globalization of markets and globalization of production:

1. Globalization of market: refers to the merging of historically distinct and separate national markets into one huge global marketplace.

2. Globalization of production: refers to the sourcing of goods and services from locations around the globe to take advantage of national difference in the cost and quality of factors of production.

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Emergence of global institutionsGATT (General Agreement in trade and tariff) and its successor WTO (World trade organization)

International monetary fund(IMF), World bank, United nations (UN)

1. WTO(World trade organization) is primarily responsible for policing the world trading system and make sure nation-states adhere to the rules laid down in trade treaties

As of May 2005,148 nations that collectively amount to 97 percent of trade were WTO members

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International monetary fund (IMF) and world bank created in 1944 by 44 nations that met at Bretton woods, new Hampshire.

The task of IMF was to maintain order in the international monetary system, and that of the world bank to promote economic development.

World bank – focus on making low interest loans to cash-strapped governments in poor nations, to develop their infrastructure

IMF – lender of last resort to nation-states whose economies in turmoil and currencies are losing value against those of other nations

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The United nations – Established in Oct 24, 1945, by 51 countries committed to preserving peace through international co-operation and collective security.

Today every nation in the world nearly 191 countries of total in members with UN.

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Drivers of globalization• Declining trade and investment barriers

• The role of technological change

- Microprocessors and telecommunications

- The internet and World wide web

- Transportation technology

• The changing demographics of global economy

• The changing world output and world trade picture

• The changing FDI picture

• The changing nature of MNE picture

• The changing world order

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Effects of globalizationGlobalization and management Globalization and jobsGlobalization and wagesGlobalization and child labor Globalization and women Globalization and developing countriesInequalities

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The globalization debateIs the shift toward a more integrated and interdependent global economy a goods thing?

Demonstrators at the WTO meeting in Seattle in December 1999

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International business Vs Domestic business

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Country AttractivenessMultiple factors determining host country attractiveness in the eyes of large FDI investors.A country attractiveness assessment is based on two dimensions:

1. Market and industry opportunities 2. Country risks (Economic/social/political

factors)

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Country attractiveness analysisMarket opportunities:

Potential demand in country

Market sizeGrowth

Quality of demand

Industry opportunities:

Profitability potentialCompetitiveness of firm

Resource availability

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Political risks: disruptions owing to internal or external events or regulations as a result of government Economic risks: Exposes the business performanceCompetitive risks: assessment on competition prevailing in a countryOperations risks: risk of infrastructure, taxation policies, availability of raw material

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International Business Environment

The environment of international business is regarded as the sum total of all external forces working upon the firm as it goes about its affairs in foreign and domestic marketsThe environment can be classified in terms of domestic, foreign and international spheres of impact

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The international environment is conceived as the interaction between domestic and foreign factors, they cover a wide spectrum of forces:

1. Political environment2. Legal environment3. Cultural environment 4. Technological environment5. Economic environment

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Political and legal environment Political environment refers to the influence of the system of government and judiciary

in a nation on international businessDemocracy – Supreme power is vested with

citizensTotalitarianism – Individual freedom is

completely subordinated to the power of the authority of state.

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Types of Totalitarianism Theocratic – country’s religious leader are also its political leader (e.g) Afghanistan and Iran

Secular – Political leaders are guided by military and bureaucratic powers (e.g) Pakistan; until 1980s several Asian countries like south Korea, Taiwan and Singapore

Tribal – (e.g) Zimbabwe, Tanzania, Uganda and Kenya

Right-wing Totalitarianism – China is a classic example of polity through communist by definition, following right wing policies

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Types of political risksMacro risks

1. Expropriation of corporate assets

2. loss of technology or other intellectual properties

3. Mandatory labor laws

4. Protectionist measures

5. Civil wars and wars between countries

6. Inflation, recession, currency devaluation

7. Natural calamities

8. poverty

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Micro risks

Kidnappings, ransom, terrorismOfficial dishonestyIncreased taxationCaps on FDI

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Classification of risksFirm- Specificrisks

Cultural and Institutional risks

Transfer risks

Country- Specificrisks

Global- Specificrisks

• Business risk

• Foreign exchange risk

• Governance risk

Blocked • Ownership structure

• Religious heritage

• IPR • Protectionism

• Terrorism and war

• Environmental concerns

• Anti-globalization

• Cyber attacks

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Managing political risks

Avoiding investmentAdaptationThreat LobbyingTerrorism consultants

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Legal environment Refers to the legal system obtaining in a country

Four basic legal systems prevailing around the world

1. Islamic law

2. Common law (derived from English law)

3. Civil or code law (derived from Roman law)

4. Marxist legal system)

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Industrial disputes resolution

Conciliation

Litigation

Arbitration

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MNC and legal environment

MNC

Protection of IPRS

Product Liability and safety

Competition laws

Labor laws

Shipping of goods

Contracts

Advertising and sales promotion

Bribery and corruption Environmental

laws

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Cultural environment Elbert W steward and James A Glynn writes “Culture consists of the thought and behavioral pattern that members of society learn through language and other forms of symbolic interaction – their customs, habits, beliefs and values, the common view points that bind them together as a social entity.

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Cultural dimensions National culture

Business Culture

Occupational culture

Organizational culture

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Occupational and organizational culture

Mechanistic ad organic culturesAuthoritarian and participative culturesDominant and sub-culturesStrong, weak and unhealthy cultures

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Elements of cultureLanguage and cultureSupernatural benefitsEducation and cultureReligionAestheticsAttitudesCustoms and manners

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* Multi-cultural diversity

* Diversity – advantages and disadvantages

Points to discuss

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Managing across the culturesCultural predispositions

1. Ethnocentrism – is the tendency of people to evaluate a foreigner’s behavior by the standards of their own culture and to believe their own culture is superior to others

2. Polycentrism – if ethnocentrism exhibits intolerance to other cultures, polycentrism advocates tolerance to beliefs and values of other societies

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Contd…3. Regio centrism – The formation of

regional trade blocks has increased the popularity of regional headquarters

4. Geo centrism – in geocentric orientation, subsidiary operations are managed by the best qualified individuals, regardless of their nationalities

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Technological Environment

J.K. Galbraith defines technology as a ‘systematic application of scientific or other organized knowledge to practical tasks’

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Classification of TechnologyState of the art technologies

Proprietary technologies

Known technologies

Core technologies

Leveraging technologies

Supporting technologies

Pacing technologies

Emerging technologies

Scouting technologies

Idealized unknown technologies

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The Technology cycle

Awareness phase Acquisition phaseAdaption phaseAdvancement phaseAbandonment phase

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Impact of technology

Social implications Economic implicationsPlant level change

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Social implications

High expectations of consumersSystem complexitySocial changesSocial systems

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Economic implicationsIncreased productivityNeed to spend on R&DJobs become intellectualProblems of techno – structureIncreased regulation and stiff oppositionRise and decline of products and organizationsBoundaries redefinedTraining of scientists and engineers

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Plant level changesOrganizational structureResistance to changeFear of riskE-commercePatentingTransportationMarketsTechnology transfersProduction

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Economic Environment Classification of countries on the basis of income

Region-wise classification countries

Economies in transition

Economic scenario

Economic systems

Financial system

Economic policies

Structural adjustments

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Merits and demerits of market, command and mixed economy

Command economy:Denial of individual freedomCommitment to workRate of economic growthEqualityLuxurious lifestylesLack of flexibility

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Protectionism Protectionism means by which trade between country is restricted in some way – normally through measures to reduce the number of imports coming into a country

1. Tariff barriers2. Quotas 3. Non tariff barriers

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Trade liberalizationThe removal of or reduction in the trade practices that thwart free flow of goods and services from one nation to another. It includes dismantling of tariff (such as duties, surcharges and export subsides) as well as non-tariff barriers ( such as licensing regulations, quotas and arbitrary standards).

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Exam point of view (Part-A)Define the concept of trade.Differentiate export with importWhat is polycentrism?Define the term international businessName some forms of international businessWhat is international trade?What is international business?Compare globalization of market with globalization of production.Explain the nature of international business.

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What is international business environment?Define globalizationWhat is geo centrism?Define LPG and benefits of globalizationWhat is MNE?What is political environment?What are the challenges of globalization?What are the different stages of globalization?List out the disadvantages in globalizationDefine MNEs and state any five Indian MNEsWhat is international trade?Define ‘Cross National agreements’?Transnational companyDifferentiate between Ethnocentrism and Polycentrism in the context of international businessWhat are the factors causing globalization of business?

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Part-BDiscuss the forms of international business.Discuss the history and process of globalization and state its merits and demerits in the Indian context.How does political environment influence international business? Explain in detailElucidate the political, economic and cultural environment of international business with real world exampleDiscuss the factors favouring globalization of Indian business How does cultural environment influence international business?

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Analyse the steps taken by Indian government to globalise the economy.Discuss the differences in culture in different countries and state the need to understand cultural differences from international trade point of view.Explain the advantages of MNEsExplain the role of MNCs in Indian economy. Why do MNCs like to Indianise their operation? Give reasons.What are the available modes of entry into foreign markets? Explain each one of them shortlyElucidate the success and failure of international business with any two examples.Examine the dimensions of international business environment. Explain the steps needed to upgrade domestic business into international business

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***The End***