International Business basics

1. International Business
By,
Moncy Kuriakose
Assistant Professor

2. MODULE 1

3. INTRODUCTION TO IB
 It refers to all those business activities
which involve cross-border
transactions of goods, services, and
resources between two or more
nations

4. Internationalization
 Importing minor items which is not
available in domestic - extent real
internationalization little
 Importing items even though
domestically available - purely on
business consideration - real
internationalization

5. MNC
 A company that has a worldwide
approach to markets and production
or with operations in several countries
 Eg. Ford, LG…..

6. Other terms
 TNC - Transnational corporation:
operate across national borders.
 MNE - Multinational Enterprise: state
owned international enterprise
 Global Corporation: Business in
dozens of nations.

7. Nature of IB
 Import and export of commodities and
manufacture of goods.
 Investment of capital in different
sectors
 Supervision of employees in different
countries
 Investment in international services
like banking, advertising etc
 Transaction involving copyrights,
patents, trademarks and process

8. Dimension of International
Business
 Trading : Exporting & Importing
 Manufacturing at home country & marketing
in foreign country
 Manufacturing at foreign country & marketing
in home & foreign country
 Manufacturing at global level through
sourcing from different foreign countries &
production at home country
 Services : telecommunication, banking,
tourism etc
 Investment: portfolio investment, investment
in foreign countries etc.

9. International Marketing
 Finding out what customers want
around the world and satisfying it
better than competitors, both domestic
and international.

10. International trade
 Different from international marketing
 Products exported - repacked without
further processing - sold under foreign
brand name.

11. Problems in international
marketing
 Political and legal difference
 Cultural differences
 Economic differences
 Differences in currency unit
 Differences in the language
 Differences in the marketing
infrastructure
 Trade restrictions
 High cost of distance
 Differences in trade practices

12. Why go for International
Business
 Profit Advantage
 Growth opportunities
 Domestic market constraints
 Competition
 Government policies and regulations
 Monopoly power
 Spin off benefits
 Strategic vision

13. Environment of international
Business
 It is regarded as the sum total of all
the external forces working upon the
firm as it goes about its affair in
foreign and domestic markets.

14. Environment of International
Business
 In order to succeed, marketers must
know about the customer in a context
 Includes - competition, government
policies, broader economic, social and
political macro forces - shape the
evolution of market
 Strategies for domestic and foreign
business environment
 SRC(self reference criterion) - Eg
P&G in Japan

15. Different set of environment
 Internal environment - attitude,
capabilities and commitment of all
employees including top management,
resources etc
 Domestic environment
 Foreign environment
 Global environment

16. Economic Environment
 It has much to do with the scope of
business, business prospects and
business strategy
 Important economic factors:
Nature and level of development of the
economy
Economic resources
Size of the economy
Economic system and policies
Economic conditions

17. Nature of the Economy
 Classification of economies is on the
basis of per capita income, sectoral
distribution of the income and
employment generation, social
development indicators etc .
 Least developed countries
 Developing countries
 Developed countries

18. Growing economic power of
developing countries
 Economic and export growth rate of
developing countries is higher than
developed countries.
 Developing countries - more attention
by MNC - more investment inflows
 It may even be necessary to invent
low cost product to suit low income
market

19. Region states
 Geographically vast and culturally
diverse
 Different regions of a national
economy show great diversity - not
appropriate to regard it as single
economic unit

20. CONTD..
 Observing the flow of 4I’s to tap into
the economy:
1. Investment
2. Industry
3. Information technology
4. Individual consumers

21. Structure of economy
 Contribution from different sectors
 Agricultural sector
 Manufacturing sector
 Service sector - contribute 60% of the
world GDP

22. Economic policies
 Several economic policies have
impact on business -
 Industry policy - say liberalisation in
1991
 Trade policy - import and export policy
 Foreign exchange policy - exchange
rate policy and policy in respect of
cross border movement of capital
 Foreign investment and technology
policy
 Fiscal and monetary policy

23. Economic conditions
 Economic boom and recession
 Eg. US economy accounts 30% of the
global economy - Recession in US
economy effect global economy
 Income level - Distribution of income
 GDP trends

24. Political Environment
 Refers to influence of the system of
government and judiciary in a nation
on international business
 Government may impose trade
barriers on export and import
 Political risk - risk of loss of asset due
to events that politically motivated
 Assessment of political risk is
important for MNC before starting its
operation in a country.

25. Demographical Environment
 Management is Men, Material,
Machinery and Money
 Market is people - demand depends
on people and their characteristics
 Demographic factors have significant
implications on business - population,
age composition, gender, ethnic
composition, rural urban distribution,
income level, family size etc

26. Global Environment
 The global environment can have a
major impact on how a company
operates
 It consists of the international
interactions out of a company's control
that influence how a business
operates
 It refers to those global factors which
are relevant to business - WTO
principles and agreements, economic

27. Social / Cultural Environment
 Social or cultural factors -
 Religious aspects
 Language
 Customs
 Traditions and beliefs
 Tastes and preferences
 Buying and consumption habits
 Social stratification

28. Technological Environment
 Technology facilitate introduction of
new product - improvement in the
operational efficiency and exciting
changes in the modus operandi of
business
 Type of technology in use
 Level of technological developments
 Speed with which new technologies
are adopted and diffused
 Technology policy

29. Legal Environment
 Wide variations between countries in the
policies and regulations regarding
conduct of the business
 Eg. Restriction in use of media
 Three set of laws relevant to
international business:
International laws, treaties, conventions
etc
Laws of foreign countries
Laws of home country(ie, India) related
to foreign trade

30. Indian Laws
 Foreign Trade (Development and
Regulation) Act, 1992
 FEMA Act, 1999
 Antiquities and Art Treasures Act 1972
 Customs Act, 1962
 Export (Quality Control and
Inspection) Act, 1963

31. Entry strategies for International
Business
 FDI
 FII
 Licensing
 Franchising
 Joint Ventures
 Wholly owned Subsidiaries
1. Greenfield investment
2. Acquisition

32. MODULE 2

33. Globalization
 IMF defines globalization as “the growing economic
interdependence of countries worldwide through increasing
volume and variety of cross border transactions in goods,
services and of international capital flows, and also through
the more rapid and widespread diffusion of technology”.

34. Contd…
 The process by which businesses or
other organizations develop
international influence or start
operating on an international scale.

35. Process of Globalization
 During the late 20th century,
globalization rapidly expanded to
resemble the form which it is
commonly known as today.
 European countries began to expand
and colonise
 Towards the end of the 19th century,
world trade and investment
experienced rapid expansion.

36. Contd…
 The period of economic depression between
WWI and WWII slowed down progress
towards globalization.
 It did not take long, however, for companies
to become interested in expanding their
business by operating in the markets of
foreign nations.
 Developments in communication and
transport, particularly that of air travel, soon
made it possible for these companies to carry
out their plans.
 The development of the internet continued to
assist these companies, creating
transnational corporations.

37. Characteristics of Global
Economy
 Transnational/Global economy is shaped mainly
by money flows rather than by trade in goods
and services.
 Management is decisive factor of production than
traditional factors
 Goal is market maximization and not profit
maximization
 Trade is becoming a function of investment
 Decision making power is shifting from national
state to regional blocks
 Autonomous world economy - organized by
information
 Seeing the entire world as a single market

38. Stages of globalization
 Ohame identifies five stages:
1. Domestic company moves into new markets
by linking with local dealers
2. The company takes over these activities on
its own
3. It begins to carry out its own manufacturing,
marketing and sales in the key foreign
markets
4. It moves to a full insider position in these
markets, supported by a complete business
system including R&D
5. It moves towards a genuinely global mode
of operation - global localisation

39. Essential conditions for
Globalization
 Business freedom
 Facilities
 Government support
 Resources
 Competitiveness
 Orientation

40. Benefits of Globalization
 Foreign capital - contribution to economic
development
 Productivity grows - living standard can go up
faster
 Increase in competition - more cost and
quality conscious
 Global competition and imports keep a lid on
prices - controls inflation
 Enhance consumer choice
 Spurs innovation with fresh ideas from
abroad
 Job creation
 Expansion opportunity for domestic firms

41. Globalizations of Indian
Business
 India’s economic integration with the
rest of the world was very limited
because of the restrictive economic
policies followed until 1991..
 With the new economic policy ushered
in 1991, there has, however, been a
change.

42. Obstacles to Globalisation in
India
 Government policy and procedures
 High Cost
 Poor Infrastructure
 Obsolescence: The technology employed, mode and style of
operations etc., are, in general, obsolete and these seriously affect
the competitiveness.
 Resistance to Change
 Poor Quality Image
 Supply Problems
 Small Size.
 Lack of Experience
 Limited R&D and Marketing Research
 Growing Competition
 Trade Barriers: the non-tariff barriers have been increasing,
particularly in the developed countries. Further, the trading blocs like
the NAFTA, EC etc., could also adversely affect India’s business.

43. Factors Favouring
Globalization in India
1. Human Resources
2. Wide Base: India has a very broad resource and industrial base which can
support a variety of business.
3. Growing Entrepreneurship
4. Growing Domestic Market.
5. Niche Markets: There are many marketing opportunities abroad present in
the form of market niches.
6. Expanding Markets: The growing population and disposable income and
the resultant expanding internal market provides enormous business
opportunities.
7. Transnationalisation of World Economy
8. NRIs:.
9. Economic Liberalisation:
10. Competition

44. GATT
 General agreement on tariffs and
trade
 Predecessor of WTO
 Formed in 1948 - international desire
to liberalize trade.
 International trade guided by the rules
and procedures agreed by the
signatories
 Nations were admitted on the basis of
their willingness to accept GATT

45. Objectives of GATT
 Raising standard of living
 Ensuring full employment, a large and
steadily growing volume of real
income and effective demand
 Developing full use of the resources of
the word
 Expansion of production and
international trade

46. WTO
 The World Trade Organization (WTO)
is the only international organization
that deals with the global rules of trade
between nations
 It deals with the global rules of trade
between nations.
 Its main function is to ensure that
trade flows as smoothly, predictably
and freely as possible

47. Contd…
 The WTO officially commenced on 1 January 1995 under the
Marrakesh Agreement, signed by 123 nations on 15 April
1994, replacing the General Agreement on Tariffs and Trade
(GATT), which commenced in 1948.
 It is the largest international economic organisation in the
world.

48. WTO Principles
 To help trade flow as freely as
possible
 To achieve further liberalisation
gradually through negotiation
 To set up an impartial means of
settling disputes

49. Functions of WTO
 Administering the WTO trade agreement
 Providing forum for negotiations among its
members concerning their multilateral trade
relations
 Administering the mechanism for settling
trade disputes between the member
countries
 Monitoring national trade policies
 Providing technical assistance and training
for developing countries
 Cooperating with other international
organisation like IMF in achieving greater
coherence in global economic policy making

50. Organizational structure of WTO
 Top level decision making body -
Ministerial conference
 General council
 Goods council, services council and
intellectual property council
 Working parties, specialized
committees and working group

51. Protectionism
 The main objective:
1. To protect domestic industries from
foreign competition
2. To promote indigenous research and
development
3. To conserve the foreign

52. Regional trade block
 A trade bloc is a type of
intergovernmental agreement, often
part of a regional intergovernmental
organization, where barriers to trade
(tariffs and others) are reduced or
eliminated among the participating
states.

53. Example of Regional trade
block
 NAFTA - North American Free Trade
Agreement
 SAARC - South Asian Association for
Regional Cooperation
 EU - European Union
 CEFTA - Central European Free Trade
Agreement

54. International commodity
agreement
 An international commodity
agreement is an undertaking by a
group of countries to stabilize trade,
supplies, and prices of a commodity
for the benefit of participating
countries.
 An agreement usually involves a
consensus on quantities traded,
prices, and stock management.

55. Example
 The International Cocoa
Agreement(2003)
 Agreement was made between the
seven main cocoa exporting countries,
Cameroon, Ivory Coast, Gabon, Ghana,
Malaysia, Nigeria and Togo, and the
main importing countries including the
EU members, Russia, and Switzerland.
 The main purpose of this agreement was
to promote the consumption and
production of cocoa on a global basis as
well as stabilise cocoa prices, which had

56. Global Trade
 Global trade, also known as
international trade, is simply the
import and export of goods and
services across international
boundaries.

57. International operations
management
 Managing the diverse operations
globally in such a way as to achieve
overall optimum results consistent
with the objectives and strategies of
the firm.

58. Phases of operations
Procuring materials
locally/from foreign
countries
Sourcing finished
products from foreign
countries
Manufacturing at
home/abroad
Marketing in the
home market/foreign
markets

59. Outline of the production and
logistical factors making up the
business system
 Product development
 Sourcing and inbound logistics
 Production
 Outbound logistics, marketing and
servicing

60. Global Supply Chain
 Managing the supply chain is vital for
international business
 Ultimate objective is to deliver
products to market with variety,
responsiveness, timeliness and
efficiency.

61. Global Supply Chain
Management
 Global Supply Chain Management,
also known as the value chain or
logistics network management,
 consists of a network of suppliers,
manufacturers, warehouses,
distribution centers, wholesalers and
retailers.
 It also includes a variety of specialized
facilitating systems, such as
transportation and information

62. Global Value chain

63. Factors influencing selecting
Location of production facility
 Nature of organisation
 Cost
 Exchange rate variation
 Availability and cost of inputs
 Logistical factors
 Product life cycle and Pattern of demand
 Nature of product
 Government policies and regulations
 Social and political factors

64. International Logistics
 International logistics is the process of
planning and managing the flow of
goods and products in your company's
supply chain from acquisition to
customer purchase, where part of the
process involves crossing at least one
international border.

65. Components of logistics
 Fixed facilities location
 Inventory management
 Order processing
 Material handling and transportation

66. Investment Environment
 International business has been
propelled by large cross border flows
of finance
 Two channels of aid flows:
1. Between governments or
government agencies
2. Though multilateral institutions like
the world bank

67. Types of foreign private
investment
 FDI
 Portfolio investment

68. FDI
 Investment in foreign country -
investor retains control over the
investment
 Takes the form of starting a -
Subsidiary
Acquiring stake in an existing firm
Starting joint venture in foreign country

69. Portfolio investment
 Investment by FII
 Investment in GDRs, ADRs, FCCBs
etc..

70. Significance of Foreign
Investment
 Significant role in economic
development
 Domestic investment, employment
generation and export increase
 Change in balance of payment and
foreign reserve of many countries
including India

71. Factors affecting International
investment
1. Stable, predictable macroeconomic policy
2. An effective and honest government
3. A large and growing market
4. Freedom of activity in the market
5. Minimal govt regulation
6. Property rights and protection
7. Reliable infrastructure
8. Availability of high quality factors of production
9. A strong local currency
10. The ability to remit profits, dividends and interest
11. A favorable tax climate
12. Freedom to operate between markets

72. Growth of foreign investment
 Foreign investment surging in many
countries
 Till 1990, FI flows between developed
countries
 From 1993, FI flows to developing
countries increased
 Cross border M & A increased

73. THANK YOU