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international business


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international business

  2. 2. <ul><li>International business in all commercial transactions- private and governmental- between two or more countries. The goal of private business is to increase or to stabilize profits, which partly depends on- </li></ul><ul><li>Foreign sales </li></ul><ul><li>Foreign resources </li></ul>HINA SHARMA
  3. 3. <ul><li>When operating internationally, a company should consider its mission (What it will seek to do and become over the long term), its objectives (specific performance targets to fulfill its mission), and strategy (the means to fulfill its objectives). </li></ul>HINA SHARMA
  4. 4. <ul><li>Four major operating objectives that may influence companies to engage in international business.They are </li></ul><ul><li>To expand sales </li></ul><ul><li>To acquire resources </li></ul><ul><li>To diversify sources of sales and supplies </li></ul><ul><li>To minimize competitive risk </li></ul>HINA SHARMA
  5. 5. <ul><li>According to Peter F. Drucker, the global economy include: </li></ul><ul><li>1. The global economy/ transnational economy is mostly shaped by the flow of capital across the economies rather than by the flow of goods and </li></ul>HINA SHARMA
  6. 6. <ul><li>services. The trends in the international money markets and capital markets influence the monetary policies and fiscal policies of the sovereign governments. Sovereign governments, rather modify their monetary and fiscal policies. These modified policies determine the dynamics and direction of capital flow </li></ul>HINA SHARMA
  7. 7. <ul><li>across the countries. </li></ul><ul><li>2. Management is the primary and decisive factor whereas the other factors of production like land, capital and human resource are secondary in the transnational economy. Money markets and capital markets have also become transnational. </li></ul>HINA SHARMA
  8. 8. <ul><li>3. The goal of the transnational business is market expansion rather than profit maximization. </li></ul><ul><li>4. Global trade is a function of global investment, but not vice-versa. </li></ul><ul><li>5. The decision- making power shifts from </li></ul>HINA SHARMA
  9. 9. <ul><li>the national government to the group of governments like the European community, North American Free Trade Agreement, the World trade Organization etc. </li></ul><ul><li>6. Information flows through advanced information technology, organizes the </li></ul>HINA SHARMA
  10. 10. <ul><li>flow of money, capital and investment across the national boundaries. </li></ul><ul><li>7. Transnational business houses see the entire globe as a single market for production and market of goods and services. </li></ul>HINA SHARMA
  11. 11. <ul><li>1. Rapid increase in and expansion of technology </li></ul><ul><li>2. Liberalization of governmental policies on cross – border movement of trade and resources </li></ul>HINA SHARMA
  12. 12. <ul><li>3. Development of institutions to support and facilitate international trade </li></ul><ul><li>4. Increased global competition </li></ul><ul><li>Business is becoming more global because </li></ul><ul><li>- Transportation is quicker </li></ul><ul><li>- Communication enable control from a far </li></ul>HINA SHARMA
  13. 13. <ul><li>- Transportation and communication costs are more conducive for international operations </li></ul><ul><li>Lower governmental barriers to the movement of goods, services, and resources enable companies to take better advantage of international opportunities. </li></ul>HINA SHARMA
  14. 14. <ul><li>Supporting services </li></ul><ul><li>-Are made by business and government </li></ul><ul><li>-Ease flow of goods </li></ul><ul><li>-Reduce risk </li></ul><ul><li>More companies operate internationally because </li></ul><ul><li>-New products quickly become known globally </li></ul>HINA SHARMA
  15. 15. <ul><li>-Companies can produce in different countries </li></ul><ul><li>-Domestic companies’ competitors, suppliers, and customers have become international. </li></ul>HINA SHARMA
  16. 16. <ul><li>Potentiality of markets </li></ul><ul><li>*Wider scope </li></ul><ul><li>*Inter-country comparative study </li></ul><ul><li>Differences in government policies, laws and regulations </li></ul>HINA SHARMA
  17. 17. <ul><li>*Host country’s monetary system </li></ul><ul><li>*National security policies of the host countries </li></ul><ul><li>*Cultural factors  </li></ul><ul><li>*Language </li></ul><ul><li>*Nationalism and business policy </li></ul>HINA SHARMA
  18. 18. <ul><li>STAGE 1: DOMESTIC COMPANY </li></ul><ul><li>STAGE 2: INTERNATIONAL COMPANY </li></ul><ul><li> </li></ul>HINA SHARMA
  19. 19. <ul><li>STAGE 3: MULTINATIONAL COMPANY </li></ul><ul><li>STAGE-4: GLOBAL COMPANY </li></ul><ul><li>STAGE-5: TRANSNATIONAL COMPANY </li></ul>HINA SHARMA
  20. 20. <ul><li>Douglas Wind and Pelmutter advocated four approaches of international business. They are: </li></ul><ul><li>Ethnocentric approach </li></ul><ul><li>Polycentric approach </li></ul><ul><li>Regiocentric approach </li></ul><ul><li>Geocentric approach </li></ul>HINA SHARMA
  21. 21. <ul><li>To achieve higher rate of profits </li></ul><ul><li>Expanding the production capacities beyond the demand of the domestic country </li></ul><ul><li>Severe competition in the home country </li></ul><ul><li>Limited home market </li></ul>HINA SHARMA
  22. 22. <ul><li>Political stability vs. political instability </li></ul><ul><li>Availability of technology and competent Human resource </li></ul><ul><li>High cost of transportation </li></ul><ul><li>Nearness to raw materials </li></ul><ul><li>Availability of quality human resources at low cost </li></ul><ul><li>Liberalization and globalization </li></ul>HINA SHARMA
  23. 23. <ul><li>To increase market share </li></ul><ul><li>To achieve higher rate of economic development </li></ul><ul><li>Tariffs and import quotas </li></ul>HINA SHARMA
  24. 24. <ul><li>High living standards </li></ul><ul><li>Increased socio-economic welfare </li></ul><ul><li>Wider market </li></ul><ul><li>Reduced effects of business cycles </li></ul><ul><li>Reduced risks </li></ul><ul><li>Large-scale economies </li></ul>HINA SHARMA
  25. 25. <ul><li>Potential untapped markets </li></ul><ul><li>Provides the opportunity for and challenge to domestic business </li></ul><ul><li>Division of labour and specialization </li></ul><ul><li>Economic growth of the world </li></ul><ul><li>Optimum and proper utilization of world resources </li></ul><ul><li>Cultural transformation </li></ul><ul><li>Knitting the world into a closely interactive traditional village </li></ul>HINA SHARMA
  26. 26. <ul><li>According to Pitts and Snow, competitive advantage is, ‘ any feature of a business firm that enables it to earn a higher return on investment, despite counter pressure from competitors.” Large firms have the following advantages </li></ul>HINA SHARMA
  27. 27. <ul><li>Large scale economies like low cost of production, effective utilization of resources, appointment of specialists and experts etc. </li></ul><ul><li>Ability to expand and diversify its activities. </li></ul><ul><li>Ability to bear political and commercial risks. </li></ul>HINA SHARMA
  28. 28. <ul><li>Paying lower rate of interest to its creditors and underwriters. </li></ul><ul><li>Ability to bargain with the suppliers of inputs and achieve the agreement at favorable terms for the company. </li></ul><ul><li>Providing customer services efficiently and economically. </li></ul>HINA SHARMA
  29. 29. <ul><li>Paying less taxes to the government by shifting the funds from one business to another. </li></ul><ul><li>Use portfolio planning to have synergistic advantage by allocating more resources to those portfolios/ products which have a high market demand and by reducing the resources </li></ul>HINA SHARMA
  30. 30. <ul><li>to those products/ portfolios with low market demand. In other words, the company reduces or stops further investment in dogs, diverts the investment from cash cows to problem children and/or star portfolios. </li></ul><ul><li>Further business firms can get the competitive advantage </li></ul>HINA SHARMA
  31. 31. <ul><li>from the following sources: </li></ul><ul><li>Economies of scale: companies achieve the economies of scale through division of labour, specialization, automation, rationalization, computerization, forward integration and backward integration. </li></ul>HINA SHARMA
  32. 32. <ul><li>Latest technology: Companies can adopt the latest technology either on their own and/ or through joint- ventures. </li></ul><ul><li>Human resources: Highly committed, skilled, and innovative human resources, employees with positive and high emotional quotient would </li></ul>HINA SHARMA
  33. 33. <ul><li>also enhance the competitive advantage to the company. </li></ul><ul><li>Continuous upgradation of employees through learning and training. </li></ul><ul><li>Computer- aided design, production process, e- commerce, business process re-engineering and enterprise resource planning would also </li></ul>HINA SHARMA
  34. 34. <ul><li>be sources for competitive advantage. </li></ul><ul><li>Product and process innovation and development. </li></ul><ul><li>Employees with diversified culture and cultural collaboration. </li></ul><ul><li>Continuous organizational learning, capacity building and upgradation. </li></ul>HINA SHARMA
  35. 35. <ul><li>Acquiring market power to understand, monitor and control suppliers of </li></ul><ul><li>inputs, customers, dealers or market intermediaries and competitors. </li></ul><ul><li>Cheap sources of raw materials, finance etc., in various foreign countries. </li></ul>HINA SHARMA
  36. 36. <ul><li>Changing and varying tastes and preferences of customers at varying </li></ul><ul><li>degrees across the globe. </li></ul><ul><li>Different levels of economic development, social and cultural development, technological development of world countries. </li></ul><ul><li>Mobility of labour force across the globe. </li></ul>HINA SHARMA
  37. 37. <ul><li>Political factors </li></ul><ul><li>Huge foreign indebtedness </li></ul><ul><li>Exchange instability </li></ul><ul><li>Entry requirements </li></ul><ul><li>Tariffs, quotas, and trade barriers </li></ul><ul><li>Corruption </li></ul>HINA SHARMA
  38. 38. <ul><li>Bureaucratic practices of government </li></ul><ul><li>Technological pirating </li></ul><ul><li>Quality maintenance </li></ul><ul><li>High cost </li></ul>HINA SHARMA
  39. 39. <ul><li>APPROACH: Domestic business’s approach is ethnocentric. It does mean that domestic companies formulate strategies, product design etc. towards the national markets, customers and competitors. </li></ul><ul><li>International business’s approach can be polycentric or regiocentric or geocentric. International business under polycentric approach enters foreign markets by establishing foreign subsidiaries. </li></ul>HINA SHARMA
  40. 40. <ul><li> Under the regiocentric, they export the product to the neighbouring countries of the host country. Under the geocentric, they treat the entire world as a single market for production, marketing, investment and drawing various inputs. </li></ul>HINA SHARMA
  41. 41. <ul><li>GEOGRAPHIC SCOPE: Domestic business’ geographic scope is within the national boundaries of the domestic country. </li></ul><ul><li>Geographic scope of the international business varies from the national boundaries of a minimum of two countries up to a maximum of the entire globe. </li></ul>HINA SHARMA
  42. 42. <ul><li>OPERATING STYLE: domestic business’ operating style including production, marketing, investment, R & D, etc. is limited to the domestic country. </li></ul><ul><li>ENVIRONMENT: Domestic business mostly analyses and scans the domestic environment. </li></ul><ul><li>Operating style of the international business can be spread to the entire globe. </li></ul><ul><li>International business analyses and scans the relevant international environment. </li></ul>HINA SHARMA
  43. 43. <ul><li>QUOTAS: The quotas imposed by various countries on their exports and imports not directly and significantly influence domestic business. </li></ul><ul><li>TARIFFS: The tariff rates of various countries do not directly and significantly influence the domestic business. </li></ul><ul><li>The international business has to operate within the quotas imposed by various countries on their exports and imports. </li></ul><ul><li>The tariff rates of various countries directly and significantly influence the international business. </li></ul>HINA SHARMA
  44. 44. <ul><li>FOREIGN EXCHANGE RATES: Foreign exchange rates and their fluctuations do not directly and significantly affect the domestic business. </li></ul><ul><li>CULTURE: Mostly domestic culture of the country affects the business operations including product design. </li></ul><ul><li>Foreign exchange rates and their fluctuations directly and significantly affect the international business. </li></ul><ul><li>Mostly culture of various countries affects the business operations including product design of international business. </li></ul>HINA SHARMA
  45. 45. <ul><li>EXPORT- IMPORT PROCEDURES: Domestic business is not normally influenced by export- import procedures of the country. </li></ul><ul><li>HUMAN RESSOURCES: Domestic business normally employs the people from the same country. Therefore, the task of HRM is not much complicated. </li></ul><ul><li>International business is significantly influenced by export- import procedures of various countries. They need to follow these procedures. </li></ul><ul><li>International business normally employs the people from various countries. Therefore, the task of HRM is much complicated. </li></ul>HINA SHARMA
  46. 46. <ul><li>MARKETS AND CUSTOMERS: Domestic companies meet the needs of the domestic markets and customers. As such, it would be appropriate for them to understand the domestic markets and customers. </li></ul><ul><li>International business should understand markets and customers of various countries. </li></ul>HINA SHARMA