International Business Module Overview

Faculty: Dr. Noor Firdoos Jahan
09-Jun-23 Dr. Noor Firdoos Jahan, Professor, RVIM 1

Module I – Introduction to International Business
 Introduction to International Business;
 Elements of International Business; Globalization;
 International Business Environment - Economic Environment;
Political Environment; Demographic environment; Legal
Environment
 Culture in an International Business Organization.

• Introduction
• Nearly all business enterprises, large and small are inspired
to carry on business across the globe.
• This may involve purchase of raw materials from foreign
suppliers, assembling products from components made in
several countries, or selling goods or services to customers
in other nations.
• One of the trend in 20th century has been the lowering of
barriers to facilitate easy movement of goods and services
across national borders. It is benefiting all the business
organizations.

What is 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.
Definition of International Business
Peter Drucker says international business and international
marketing are the art and science of creating customers abroad.
“Trade” is in the visible thing which can be seen. Trade is between
commodities(Agriculture) and good(Mfg).
‘Business includes trade in services. When we use the services of
foreign banks, or buy an insurance policy for the good sent by ship,
we are not trading but are doing business. Business is buying and
producing at the lower rate and then selling at a higher rate for
maximum possible profits.

The History of Global Business
 Trade took place between China, India, and Japan as
many as 15,000 years ago.
 During the 11th century, England, France,
Spain, and Portugal all used ships to move products
between countries.

The History of Global
Business
1600 1700 1800 1900 2000s
1599: The British
East India Company
conducts trade
through Asia.
1600-1776: Merchants in colonial America conduct
trade and export agricultural products and other
goods to Britain and European countries.
1776: British
investors try to
establish companies
in the newly
independent United
States
1800s: Multinational
companies such as Colt’s
Manufacturing Company
and Singer’s sewing
machine company begin
to appear.
1920: More than 37 U.S.
companies operate production
facilities in two or more nations.
Every car bought in Japan is
made by a U.S. company.
2000s: Americans
sell goods and
services to other
countries, and
Americans purchase
goods and services
from other countries.

Need/Objectives for international
business
 To Achieve higher rate of profits
 Expanding the Production capacities beyond the demand of the
domestic country
 Severe competition in the home country
 Limited home market
 Political stability vs. political instability
 Availability of technology and competent human resource
 High cost of transportation
 Nearness to raw materials
 Liberalisation, Privatisation and Globalisation (LPG)
 To increase market share
 Increase in cross border business is due to falling trade barriers
(WTO), decreasing costs in telecommunications and transportation;
and freer capital markets

Scope of International Business
Scope of International Business
1. International Marketing
2. International Finance and Investments
3. Global HR
4. Foreign Exchange

India’s International Business
 Now, India exports around 7500 commodities to about 190 countries,
and imports around 6000 commodities from 140 countries. Exports and
Imports are not only restricted to commodities (merchandise). Service is
also a major export/import item.
 Top Export Items: Petroleum products, precious stones, drug
formulations & biologicals, gold and other precious metals are the top
exported commodities.
 Top Import Items: Crude petroleum, gold, petroleum products, coal,
coke & briquettes constitute top import items.
 Now, India’s service surplus finance about 50 per cent of the
merchandise deficit (the trade balance).
 India’s top five trading partners continue to be USA, China, UAE, Saudi
Arabia and Hong Kong.
 Service Exports: Top Services
 The composition of service exports has remained largely unchanged over
the years.
 Software services constitute the bulk of it at around 40-45 per cent,
followed by business services at about 18-20 per cent, travel at 11-14 per
cent and transportation at 9-11 per cent.

 Ease of Doing Business: Performance of India
India now ranks 68 out of the 190 countries under the
indicator “Trading across Borders” in the Ease of Doing
Business Report published by World Bank. (2019)
 Who regulates Export Trade in India?
 Export trade is regulated by the Directorate General of
Foreign Trade (DGFT) and its regional offices, functioning
under the Ministry of Commerce and Industry, Department
of Commerce, Government of India.
 Policies and procedures required to be followed for exports
from India are announced by the DGFT, from time to time.
New foreign trade policy came into existence from 1/4/2023.
 https://pib.gov.in/PressReleaseIframePage.aspx?PRID=19125
72

Reasons for Recent International
Business Growth
1. Expansion of technology
2. Business is becoming more global because •Transportation is
quicker
•Communications enable control from afar
•Transportation and communications costs are more conducive
for international operations
3. Liberalization of cross-border movements
4. Lower Governmental barriers to the movement of goods,
services, and resources enable Companies to take better
advantage of international opportunities

Similarities of Domestic trade with international
Business are as follows :
 Both are based on specialization
 Countries differ in endowments and so do the regions
of the country
 Immobilities lead to specialization and specialization
leads to business
 Both t international and domestic business takes place
for profit
 Both types of the trade take place in the differences in
the cost and prices.

Main Difference Between Domestic and international
Business are as follows
 Internal trade takes place between the geographical
boundaries of a nation, whereas international trade
takes place between different nations.
 In the trade of any nation, the volume of its internal
trade will be more than that of external trade. Internal
trade accounts for about 95% of the total volume of the
trade of a country, whereas foreign trade accounts for
only about 5% of the total volume of the trade of a
country.

 In the case of home trade, there is much scope for the
operation of forces of demand and supply. But, in the
case of foreign trade, there is not much scope for the
full operation of the forces of demand and supply.
 The number of documents of trade required for home
trade is less than the required for foreign trade.
 Home trade is subject to regulations and laws of only
one country, whereas foreign trade is subject to
regulations and laws of two or more countries.

 Home trade is, generally, free from restriction, whereas
foreign trade is subject to a number of restrictions.
 The cost of transport in home trade is much less than that
in foreign trade.
 The interval between the dispatch of goods by the seller
and the receipt of the same by the buyer in home trade is
not much.
 Goods are subject to greater risk in foreign trade than in
home trade.

 As goods are subject to more risks in foreign trade, in
the case of international trader, goods are, generally,
insured against the risks.
 Home trade involves the currency of only one country
whereas foreign trade involves the currencies of two or
more countries.

Five stages of Internationalization
1. Domestic Company: it limits its operations to national
political boundaries.
2. International Company: it focus on domestic practices,
but extend the wings to foreign countries.
3. Multinational company: it formulates different strategies
for different markets
4. Global company: these companies either produce in one
country and market globally or produce globally and
market domestically
5. Transnational company: it produces, markets, invests and
operates across the world.

International Business Approaches
Douglas Wind and Pelmutter advocated four approaches
International business. They are;
1. Ethnocentric
2. Polycentric,
3. Regiocentric, and
4. Geocentric approaches

Ethnocentric Approach
 The domestic companies normally formulate their
strategies. Their product design and their operations
towards the national markets, customers and competitors.
But, the excessive production more than the demand for
the product, either due to competition or due to changes in
customer preferences push the company to export the
excessive production to foreign countries.
 The domestic company continues the exports to the foreign
countries and views the foreign markets as an extension to
the domestic markets just like a new region

 The executives at the head office of the company make
the decisions relating to exports and, the marketing
personnel of the domestic company monitor the
export operations with the help of an export
department.
 The company exports the same product designed for
domestic markets to foreign countries under this
approach. Thus, maintenance of domestic approach
towards international business is called ethnocentric
approach.

Polycentric Approach
 The domestic companies, which are exporting to foreign countries
using the ethnocentric approach, find at the latter stage that the
foreign markets need an altogether different approach.
 Then, the company establishes a foreign subsidiary company and
decentralists all the operations and delegates decision-making and
policy-making authority to its executives. In fact, the company
appoints executives and personnel including a chief executive who
reports directly to the Managing Director of the company. Company
appoints the key personnel from the home country and the people of
the host country fill all other vacancies.
 Under polycentric approach, companies establish foreign subsidiary
and empowers its executives.

Regiocentric Approach
 The company after operating successfully in a foreign
country, thinks of exporting to the neighboring countries
of the host country. At this stage, the foreign subsidiary
considers the regions environment (for example, Asian
Environment like laws, culture, policies etc.) for
formulating policies and strategies.
 However, it markets more or less the same product
designed under polycentric approach in other countries of
the region, but with different market strategies

 Under regiocentric approach subsidiaries consider regional
environment for policy/strategy formulation.

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 number of subsidiaries.
 The headquarter coordinates the activities of the
subsidiaries. Each subsidiary functions like an independent
and autonomous company in formulating policies,
strategies, product design, human resource policies,
operations etc
 Under geocentric approach, companies view the entire
world as a single country.

Drivers of International Business
 Establishment of WTO
 Regional Integration
 Declining Trade barriers
 Declining investment barriers
 Growth in FDI
 Strides in technology
 Growth of MNCs

Restraining Forces
 There are several forces, which restrain the
globalization trend. There are two types of factors
which hamper globalization:
1. External factors – Government policies and control,
social and political opposition against foreign
business.
2. Internal factors – internal factors like organization
culture, management style, structure etc.

Advantages of International
Business
 High living standards
 Increased socio-economic welfare
 Wider market
 Reduced effects of business cycle
 Reduced risk
 Large-scale economies
 Potential Untapped Markets
 Provides opportunity

 Division of labour and specialization
 Economic growth of the world
 Optimum and proper utilization of world resources
 Cultural transformation
 Knitting the world into a closely interactive traditional
village .

Problems of International Business
1. Political factors
2. High foreign investments and high cost
3. Exchange instability
4. Entry requirements
5. Tariffs, quota etc.
6. Corruption and bureaucracy
7. Technological policy
8. quality Maintenance

Elements of International Business
The four main elements of international business -
1) Political Environment - The political surroundings in worldwide
enterprise includes a fixed of political elements and authorities
sports in a overseas marketplace that could both facilitate or prevent a
enterprise` capacity to behavior enterprise sports with inside the overseas
marketplace.
2. Economic Environment - The time period monetary surroundings
refers to all of the outside monetary elements that have an effect on
shopping for behavior of clients and organizations and consequently have
an effect on the overall performance of a company.
3. Technological Environment -The technological surroundings consists
of elements associated with the machines and substances utilized in
production offerings and goods.
4. Cultural Environment- The cultural surroundings includes the have an
effect on of religious, family, educational, and social structures with
inside the advertising system. Marketers who intend to marketplace their
product remote places can be very sensitive to overseas cultures.

The Global Business Environment

PEST FACTORS
 It is concerned with the important external
environmental influences on a business.
 PEST stands for Political, Economic, Social &
Technological analysis.
 It could affect the strategic development of a business.
 Identifying PEST influences is a useful way of
summarizing the external environment in which a
business operates.

POLITICAL ENVIRONMENT
 All business firms are directly affected to a greater extent by
the government & its programmes.
 Political forces will choose the nature of business,
programmes & projects to be undertaken for the progress of
the country.
 These political forces can be classified as:
 Long Term Forces: It denotes the secular changes in
business activities due to political conditions prevailing &
the adoption of particular line of policy in business


 Rapid Changes: It consists of unexpected political changes
due to army coup or revolt or capturing of the government
machinery by the rebel group.
 Business in a country can be started & nurtured to grow into
big business only within the legal system of the country.
 All countries of the world have a separate set of laws for the
control & direction of business.
 The business law of a country is a complex system of
regulations & intervention that form the legal environment
of the business.
 All business managers should have the knowledge of
business law for taking management decisions.

DIMENSIONS OF POLITICAL ENVIRONMENT
 Nature of the policy – Democracies & Autocracies
 Nature of Constitution of Country – law passed by the
parliament is significant. Parliament is supreme, it can help
any project which gets its approval
 Political System – India has representative democracy
based on adult authorization.
 Political Awareness of the People & the Govt. – people
should be aware of their rights & duties in the smooth
functioning of a democracy
 Laws Passed by the Govt. – any law that is contradictory
can be repealed

ECONOMIC FACTORS
 The business enterprise is affected by a variety of economic
forces that cannot be controlled by the business. These
economic forces are Demand Force & Competitive Force.
 For a business firm to survive & flourish, it should have
adequate demand for its products, & at the same time, the
firm has to compete with the rival firm producing alike
products or alternate products.

 Economic Forces Affecting demand:
For customers to buy the commodity of the firm, they should
have the capacity to buy & readiness to buy. The ability to
purchase a commodity depends on the disposable income of
the customer. Out of the entire income, the individual has to
pay taxes & the disposable income will be less if the taxes are
high. On the other hand, if the individual wants to save, the
amount for expenditure will be less. The attitude of saving
will affect the demand. A change in price of the commodity
will also affect the demand.

 Economic Forces Affecting Competitive Forces:
a. Price Cutting: It is a method which had to be adopted
very carefully, as it may eventually lead to price-war between
firms contending, resulting in reduction of profits.
b. Advertisement: Advertisements in recent days have
become a very commanding tool in persuading the
consumers to a particular brand. In monopolistic
competition, a great share of the market is well-established
by firms making effective & aggressive advertisement.

c. Product Differentiation: A tries to get competitive strength
by differentiating its product from those of its rivals. By having
special design, color, packing & features, the firm tries to get
competitive edges.
d. Marketing Strategies & Consumer Service: New firm adopt
a variety of types of marketing strategies to create market for
their products, for e.g. installment system, credit system, hire-
purchase etc. Customer service like, free door delivery, quick
service, after sales service, guarantee from defects are adopted
to have more & more demand for their commodities

Economic Policies of the Govt.
 Industrial Policy
 Fiscal Policy
 Monetary Policy
 EXIM Policy
 Public Sector & Economic Development

SOCIO-CULTURAL ENVIRONMENT
 Social & Cultural attitudes of a region influence the business
organizations of the region in many ways.
 Every society develops its own culture which means how the
members of that society behave & interact with each other in
society, as well as outside society.
 The term culture includes values, norms, customs, ethics,
goals & other accepted behavior patterns.

 The socio-cultural fabric is an imperative environmental
factor that should be analyzed while formulating business
strategies.
 The cost of ignoring the customs, traditions, taboos, tastes &
preferences of people could be extremely high.
 The buying & consumption habits of the people, their
language, beliefs & values, customs & traditions, tastes &
preferences, education are all factors that have an effect on
business.

 For a business to be successful, its policy should be the
one that is appropriate in the socio-cultural
environment.
 The marketing mix will have to be so designed as most
excellent to suit the environmental characteristics of
the market.

Determinants of Culture
Determinants
of Culture
Religion
Language
Education
Political
philosophy
Social
structure

Cultural Sensitivity
Knowing that cultural differences as well as similarities
exist, without assigning values (i.e. better or worse, right
or wrong) to those cultural differences.

Cultural Sensitivity
• Communicate effectively with customers, suppliers, business associates and partners in
other countries and foreign employees (expatriates).
• Conduct negotiations and understand the nuances of the beginning postures of the
other parties into a negotiation.
• Predict trends in social behavior likely to affect the firm’s foreign operations.
• Understand the ethical standards and concepts of social responsibility in various
countries.
• Build Foster relationships between union confederations and employee associations
require cultural empathy.
• Understand local Government policies and influences it for business promotion.
• Conduct efficient meetings in different countries and encourage employees
participation in management.
• Understand how people interpret market research an other information.
Therefore, every international manager need to know about cultural differences among
nations in order to be able to:

Factors of Culture Affecting International Business
 Social Stratification System
 Motivation
 Relationship Preference
 Risk Taking Behavior
 Information & Task Processing

Levels of Culture in Multinational Management
 National Culture
 Business Culture
 Occupational & Organizational Culture

TECHNOLOGICAL ENVIRONMENT
 Technology means “the systematic knowledge of the
industrial arts”.
 Technique denotes the method of performance.
 These are increasingly used in modern literature on
industrial production.
 The present age is the age of technology.
 Technology affects the business in two ways:
1. Impact on the society
2. Impact on business operations

Impact of Technology on Business Unit
 Production & Product Progress
 Employment Practices
 Marketing
 Information Processing

International Technology Issues
 Technology Acquisition
 Choice of Technology
 Terms of Technology Transfer
 Creating Local Capability

LEGAL ENVIRONMENT IN INTERNATIONAL BUSINESS
 It refers to the rules & laws that regulate behavior of
individuals & organizations
 Failure to comply with the laws will result into penalty
depending on the seriousness of the offence
 International Law for Business aims at providing the
regulations required for execution of international
transactions involving more than one nation

 Every country has its own set of laws for regulating business,
therefore, it has to comply with provisions of both, domestic
as well as international law.
 The most important aspect of international law is
jurisdiction.
 The growth of business depends on the legal system of the
country.
 All business managers should have the knowledge of
business law for taking management decisions.

ROLE OF GOVERNMENT IN INTERNATIONAL TRADE
 As the business has to fulfill certain responsibilities
towards the government, in the same way the government
has to fulfill several responsibilities towards the business.
 Government is the most influential & sovereign authority
in the country.
 The government can use that power to regulate & to
stimulate business.

RESPONSIBILITIES TOWARDS BUSINESS
 Awarding patent rights & copy rights
 Basic Research
 Building Infrastructure
 Controlling the growth of monopolies & preserving
competition
 Maintenance of Law & Order
 Protections
 Providing Information
 Providing Money & Credit
 Reservation of fields of production

RESPONSIBILITIES TOWARDS GOVERNMENT
 Active participation in politics
 Government Contracts
 Government Services
 Payment of Taxes
 Providing inputs to the Government
 Social Responsibility
 Obey Laws

Demographic factors
Demography refers to study of people, such as their age,
sex, marital status, occupation, family size etc. Though,
demography is uncontrollable because you cannot
control the sex, age, marital status in your external
environment, but accurate forecast of it goes a long way
to enabling you as a marketer forecast future trend and
consumptions of your product.

Culture in an International Business Organization

An American family on assignment in Indonesia
went to restaurant with their Pet dog. The
restaurant manager politely greeted then at
the door, took their dog and , 30Minutes later-
family was shocked
They had SERVED IT TO THEM
The consumption of dog meat is associated with
their culture, where dog meat is considered a
festive dish usually reserved for occasions such
as weddings and Christmas.

Cross cultural Theories
Organizational culture varies one from another based
on 4 factors:
 Organizational objectives and Goals.
 Competitive Challenge
 National variables and
 Socio cultural variables like different religion,
language, education etc.
Cultural Diversity or Multi-Culturism

Dutch Scientist, has analyzed cultural
dimension in IBM Employees (1,16,000)
in 70 countries and in 3 regions
like E. Africa, W .Africa and Saudi Arabia.
Hofstede tried to eliminate the
impact of changing organizational
cultures and analyzed the influences
of different national cultures.

Hofstede provides a useful framework for
understanding the workforce diversity. His main
findings were:
• Work related value are not universal
• Underlying values continues when a multinational company
tries to impose the same norms on all its foreign interests.
• Local value determine how the headquarters regulations are
interpreted;
• By implication, a multinational that tries to insist on
uniformity is n danger of creating morale problems and
inefficiencies.

Hofstede’s framework for Assessing
culture
Hofstede’s studies of the interactions between national
cultures and organizational cultures demonstrated that
there are national and regional cultural groupings that
affect the behaviors of societies and organizations, and
that are very persistent across time

Dimensions of Hofstede’s
framework of assessing culture:
 Low and High Power Distance
 Individual and collectivism
 Masculinity v/s Femininity
 Uncertainty avoidance
 Long and short term orientation

Power Distance:
unequal power of distribution.
It is the distance between individuals at different levels of hierarchy.
Hofstede observed two types of distance:
1. High power distance
2. Low power distance
High Power distance Low power distance
Countries in which people blindly obey the
orders of their superior, employees
acknowledge the boss’s authority simply by
respecting that individual’s formal position
in the hierarchy, and they seldom bypass
the chain of command
Countries which people (supervisors and
subordinates) are apt to regard one another
equal in power.
Results
• Less Harmony and less cooperation
• Centralized order
• Autocratic Leadership
• Taller Organization structure
• More harmony and cooperation.
• Decentralized structure
• Democratic leadership
• Flatter organization structure
Maxico, South Korea and India. Austria, Esrael, USA, UK, Denmark

Uncertainty Avoidance
High uncertainty avoidance Low uncertainty avoidance
Countries with a high level of uncertainty
avoidance tend to have strict laws and
procedures to which people adhere closely,
and there is strong sense of nationalism.
In a business context this value results in
formal rules and procedures designed to
provide more security and greater career
stability
In countries with lower levels of uncertainty
avoidance nationalism is less pronounced,
and protests and other such activities are
tolerated. As a consequence, company
activities are less structured and less
formal.
so
• Managers have propensity for low risk
decisions,
• employees exhibit little aggressiveness
• lifetime employment is common
• Taller organization structure
• Managers take more risk, and there is
high job mobility
• Peoples have risk taking attitude and
high labour turnover.
• Flatter organizational structure
Japan, Israel, Austria, Pakistan India, USA, UK etc.

Individual and collectivism
Individual collectivism
• Interest of Self and Family
• ‘I’ consciousness
• Independence of Individual from
organization.
• Grater Individual Initiatives
• Promotions are based on Merit and
performance
• Interest of Group
• ‘We’ consciousness
• Dependency on organization
• Less Individual initiatives
• Promotions are seniority based
USA, UK, Australia Japan, Taiwan and Pakistan

Masculinity v/s Femininity
Traditionally, ‘masculine’ values – assertiveness, materialism, aggressiveness and a
lack of concern for others that prevail in society, femininity emphasizes feminine
values – a concern for others, for relationships, nurturing, care for weak and for quality
of life. The degree of masculinity affects in the following characteristics way:
High Masculinity Low Masculinity
• Career is considered as most
important
• Work needs take precedence
• Individual decision-making is
emphasized
• Achievement is given importance and
is defined in terms of money and
recognition
• Importance is placed on cooperation
and friendly atmosphere.
• Employee security gets precedence.
• Group decision – making is
emphasized
• Achievement is defined in terms of
human contacts and living
environment
Countries with high masculinity – India,
Japan,USA, UK etc.
Countries with low masculinity – Denmark,
Norway, Sweden etc.

Culture shock
Culture shock is a term used to describe the anxiety and
feelings (of surprise, disorientation, confusion, etc.) felt
when people have to operate within an entirely different
cultural or social environment, such as a foreign country.
It grows out of the difficulties in assimilating the new culture,
causing difficulty in knowing what is appropriate and what is
not.

Phases of Culture Shock
􀂄 The Honeymoon Phase" - During this period the differences between
the old and new culture are seen in a romantic light, wonderful and new.
􀂄 "Negotiation Phase" - After a few days, weeks, or months, minor
differences between the old and new culture are resolved.
􀂄 The "Everything is OK" phase - Again, after a few days, weeks, or
months, one grows accustomed to the new culture's differences and
develops routines. By this point, one no longer reacts to the new culture
positively or negatively, because it no longer feels like a new culture. One
becomes concerned with basic living again, as one was in their original
culture.
􀂄 Reverse Culture Shock - Returning to one's home culture after
growing accustomed to a new one can produce the same effects as

Corporate Gifts / Greetings
 Africa A light warm handshake is acceptable form of greeting when anyone
meet and anyone leave
 Asia Bow down to each other
 Australia & New Zeeland- During parties, host will introduce to the other
guests, do not expect gifts from foreigners doing business with them
 Europe Shake hands with a firm grip when any one meet and anyone depart
 Middle East & Gulf Countries- Gift should be presented publicly to the group
after a deal is closed. In addition to hand shake , they may touch other arms &
shoulder, and embrace when they are so close
 Canada & USA Hand shake is a full – hand grip

Meetings and presentations
 Africa Be prepared for a large no. of people
 Asia Decide before hand what tech. information they are willing to share and
be sure everyone on your team knows
 Australia & New Zeeland- To the point, specific and punctual
 Europe Class conscious good manners are critical and ignorance is no excuse
for bad manners
 Middle East & Gulf Countries- Maintain Royalty and detail discussion, prefer
local language or English
 Canada & USA Meeting begin and end as scheduled. There is very little small
talk at meetings

Doing business in China
1. The focus of reform in China is primarily on the state owned enterprises (SOE).
2. The managers are official, not entrepreneurs, there is no real incentives for them.
3. Business meetings typically start with pleasantries such as tea and general conversation
about the guest’s trip to the country, local accommodations, and family.
4. The Chinese host will give the appropriate indication for when a meeting is to begin and
when the meeting is over.
5. Once the Chinese decide who and what is best, they tend to stick with these decisions.
Although slow in formulating a plan of action, once they get started, they make fairly good
progress.
6. In negotiations, reciprocity is important. If the Chinese give concessions, they expect
some in return.
7. Because negotiating can involve a loss of face, it is common to find Chinese carrying out
the whole process through intermediaries.
8. During negotiations, it is important not to show excessive emotion of any kind.
Anger or frustration is viewed as antisocial and unseemly (indecent).
9. Negotiations should be viewed with a long-term perspective. Those who will do
best are the ones who realize they are investing in a long-term relationship.

Doing business in India
1. It is important to be on time for meetings.
2. Personal questions should not be asked unless the other individual is a friend
or close associate.
3. Titles are important, so people who are doctors or professors should be
addressed accordingly.
4. Public displays of affection are considered to be inappropriate, so one should
refrain from backslapping or touching others.
5. Beckoning is done with the palm turned down; pointing often is done with the
chin.
6. When eating or accepting things, use the right hand because the left is
considered to be unclean.
7. The namaste gesture can be used to greet people; it also is used to convey other
messages, including a signal that one has had enough food.
8. Bargaining for goods and services is common; this contrasts with Western
traditions, where bargaining might be considered rude or abrasive.

Globalization
Globalization implies integration of the
economy of the country with the rest of the
world economy and opening up of the
economy for foreign direct investment by
liberalizing the rules and regulations and by
creating favorable socio-economic and political
climate for global business.
76
09-Jun-23 Dr. Noor Firdoos Jahan, Professor, RVIM

According to IMF: -”The growing economic
interdependence of countries worldwide
through increasing volume and variety of
cross border transaction in goods and
services and of international capital cash
flows, and through the more rapid and
widespread diffusion of technology.”
77

Features of Globalization
 Opening and planning to expand business
throughout the world.
 Erasing the difference between domestic
market and foreign market.
 Buying and selling goods and services
from/to any countries in the world.
 Locating the production and other physical
facilities on a consideration of the global
business dynamics ,irrespective of national
consideration.
78

 Basing product development and production planning
on the global market consideration.
 Global sourcing of factor of production i.e. raw-
material, components , machinery, technology, finance
etc. are obtained from the best source anywhere in the
world.
 Global orientation of organizational structure .and
management culture
79

Pros and Cons of Globalisation
Globalization have several benefits ,these are: -
 Free flow of capital and increase in the total
capital employed.
 Free flow of technology.
 Increase in industrialization.
 Spread of production facilities throughout the
globe.
 Balanced development of world economies.
 Increase in production and consumption.
 Commodities at lower price with high quality.
 Increase in jobs and income.
 Higher Standard of living.
 Balanced human development
80

Negative effects of Globalization
 Loss of domestic industries
 Exploits Human resource
 Decline in income
 Unemployment
 Transfer of natural resources
 Lead to commercial and political colonism
 Widening gap between rich and poor
 Dominance of foreign institutions
81

Forms of International
Business/Modes of entry
Companies desiring to enter the foreign markets, face
the dilemma while deciding the method of entry into
foreign market. COMPANIES can
 Ownership advantage
 Location advantage
 Internationalization Advantage

Different modes of entry
 EXPORTING
-indirect exporting
-direct exports
-intra-corporate transfers
 LICENSING
 FRANCHISING
SPECIAL MODES
-Contract
manufacturing
-Management
Contracts
-Turnkey projects
 FDI without alliances
 FDI with alliances

Forms of Exporting
Indirect
exporting
Direct
exporting
Intra-corporated
transfer

85
 Indirect involvement means that the firm
participates in international business
through an intermediary and does not
deal with foreign customers or markets.
 Direct involvement means that the firm
works with foreign customers or markets
with the opportunity to develop a
relationship.
Forms of Exporting

Indirect Exporting

16-87
 Exporting of goods and services through
various home-based exporters
 Manufacturers’ export agents
 Export commission agents
 Export merchants
 International firms
Indirect Exporting – Eg.

Direct Exporting

Intra-corporate Transfer

Exporting
Advantages
Relatively low
financial exposure
Permit gradual
market entry
Acquire knowledge
about local market
Avoid restrictions
on foreign
investment
Disadvantages
Vulnerability to
tariffs and NTBs
Logistical
complexities
Potential conflicts
with distributors

 Licensing is when a firm, called the licensor,
leases the right to use its intellectual property—
technology, work methods, patents, copyrights,
brand names, or trademarks—to another firm,
called the licensee, in return for a fee.
 The property licensed may include:
 Patents
 Trademarks
 Copyrights
 Technology
 Technical know-how
 Specific business skills
Licensing

The Licensing Process

Basic Issues in
International Licensing
 Specifying the boundaries of the agreement
 Determining compensation
 Establishing rights, privileges, and constraints
 Specifying the duration of the contract
 Eg. Pepsico, Coke Bottling Plant

Licensing –Adv. & Disadv.
Advantages
• Low financial risks
• Low-cost way to assess
market potential
• Avoid tariffs, NTBs,
restrictions on foreign
investment
• Licensee provides
knowledge of local
markets
Disadvantages
• Limited market
opportunities/profits
• Dependence on
licensee
• Potential conflicts
with licensee
• Possibility of creating
future competitor

 Under franchising, an independent organisation
called the franchisee operates the business under
the name of another company called the
franchisor.
 In such an arrangement the franchisee pays a fee
to the franchisor.
 Franchising is a form of Licensing but the
Franchisor can exercise more control over the
Franchisee as compared to that in Licensing.
Franchising

Franchising Agreements
 Franchisee has to pay a fixed amount and royalty based
on sales.
 Franchisee should agree to adhere to follow the
franchisor’s requirements
 Franchisor helps the franchisee in establishing the
manufacturing facilities
 Franchisor allows the franchisee some degree of
flexibility.
 Eg. McDonalds, Subway, KFC

Franchising- Adv. & Disadv.
Advantages
• Low-cost way to assess
market potential
• Avoid tariffs, NTBs,
restrictions on foreign
investment
• Maintain more control
than with licensing
• Franchisee provides
knowledge of local market
Disadvantages
• Limited market
opportunities/profits
• Dependence on franchisee
• Potential conflicts with
franchisee
• Possibility of creating
future competitor

Specialized Entry Modes

Contract manufacturing
 Contract manufacturing is outsourcing entire or part
of manufacturing operations.
 E.g.: pharmaceuticals, Personal Care products etc
 The iPad and iPhone, which are products from Apple
Inc., are manufactured in China by Foxconn. Hence,
Foxconn is a contract manufacturer and Apple benefits
from a lower cost of manufacturing devices

Contract Manufacturing-Adv. &
Disadv.
Advantages
• Minimize resources
devoted to
manufacturing
• Focus firm’s
resources on other
elements of the
value chain
Disadvantages
• Reduced control
(may affect quality,
delivery schedules,
etc.)
• Reduce learning
potential
• Potential public
relations problems

 A management contract is an agreement
between two companies whereby one
company provides managerial assistance,
technical expertise and specialised services to
the second company for a certain period of
time in return for monetary compensation.
 Eg. Schools, sports facilities, hospitals, office
buildings, malls and large businesses have
on-site cafeterias, restaurants.
Management Contract

Management Contract
• Focus firm’s resources on its
area of contracts
• Minimal financial exposure
Advantages
• Potential returns limited by
contract expertise
• May unintentionally transfer
proprietary knowledge and
techniques to contractee
Disadvantages

 A turnkey project is a contract under which a
firm agrees to fully design, construct and
equip a manufacturing/business/service
facility and turn the project over to the
purchaser when its ready for operation, for a
remuneration.
Turnkey Project

Turnkey Project

Business Process Outsourcing
 Business Process Outsourcing is the long term
contracting out of non core business processes to an
outside provider to help achieve increased shareholder
value.
 WHY BPO?
To enable executives to concentrate on strategy.•
To improve processes and save money•
Increase organizational capabilities.

FDI without alliances
Companies enter the international market through FDI ,
invest their money, establish manufacturing and
marketing facilities through ownership and control.
Greenfield strategy- the term Greenfield refers to
starting of the operations of a company from scratch
in a foreign market.

Greenfield Strategy
• Best site
• Modern facilities
• Economic development incentives
• Clean slate
Advantages
• Huge time and patience needed
• Expensive
• Comply with local and national
regulation
• Local workforce needed
• Strongly perceived as a foreign worker
Disadvantages

FDI with strategic alliances
Strategic alliance is a cooperative and collaborative
approach to achieve the larger goals.
Role of alliances
 Many complicated issues are solved through alliances
 They provide the parties each other’s strengths
 Helps in developing new products with the interaction
of 2 or more industries
 Meet the challenges of technological revolution.
 Managing heavy outlay
 Become strong to compete with a multinational
company.

Modes of FDI through alliances are:
 Mergers and acquisitions
 Joint ventures
FDI with strategic alliances

Merger : The combining of two or more companies,
generally by offering the stockholders of one company
securities in the acquiring company in exchange for
the surrender of their stock.
Acquisition : When one company takes over another
and clearly established itself as the new owner, the
purchase is called an acquisition.
HDFC Bank acquisition of Centurion Bank of
Punjab for $2.4 billion
Mergers and Acquisitions

Motives for acquisitions:
1. Removal of competitor
2. Reduction of the Co failure through spreading risk over a wider range of
activities.
3. The desire to acquire business already trading in certain markets &
possessing certain specialist employees & equipments.
4. Obtaining patents, license & intellectual property.
5. Economies of scale possibly made through more extensive operations.
6. Acquisition of land, building & other fixed asset that can be profitably
sold off.
7. The ability to control supplies of raw materials.
8. Expert use of resources.
9. Tax consideration.
10. Desire to become involved with new technologies & management
method particularly in high risk industries.

Acquisition Strategy
Advantages
• Obtains control over the acquired firm such
as factories and brand names
• Integrate the mgt of the firm into its overall
international strategy
Disadvantages
• Assumes all the liabilities such as financial
and managerial

 A joint venture is an entity formed between two or
more parties to undertake economic activity together.
The parties agree to create a new entity by both
contributing equity, and then they share in the
revenues, expenses, and control of the enterprise.
 Sony-Ericsson is a joint venture by the Japanese
consumer electronics company Sony Corporation and
the Swedish telecommunications company Ericsson
to make mobile phones
Joint Ventures

 Advantages:
 Benefit from local partner’s knowledge.
 Shared costs/risks with partner.
 Reduced political risk.
 Disadvantages:
 Risk giving control of technology to partner.
 May not realize experience curve or location economies.
 Shared ownership can lead to conflict
Joint Ventures

International Business Module Overview

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