This document outlines the syllabus for an International Business course. It includes 5 units that will be covered: International Business Environment, Foreign Trade, Foreign Exchange Market, International Financial Institutions, and India's Foreign Trade. It provides learning objectives and outcomes, lists recommended books and online resources, and provides an overview of the content that will be covered in each unit.
MBA SEM-III
307– International Business Environment
Generic Elective – University Level
1. Introduction to International Business: Importance, nature and scope of International business; modes of entry into International Business, internationalization process. Globalization: Meaning, Implications, Globalization as a driver of International Business. The Multinational Corporations (MNCs) – evolution, features and dynamics of the Global Enterprises. Consequences of Economic Globalization, Brexit, Reverse globalization. (5+1)
2. International Business Environment: Political Economy of International Business, Economic and Political Systems, Legal Environment, Cultural Environment, Ethics and CSR in International Business. (5+1)
3. International Financial Environment: Foreign Investments - Pattern, Structure and effects. Theories of Foreign Direct Investment, Traditional and Modern theories of FDI, Modes of FDI - Greenfield, Brownfield Investments, Mergers and Acquisitions, Motives of FDI, FDI contrasted with FPI. Basics of Forex Market. (5+1)
4. International Economic Institutions and Agreements: WTO, IMF, World Bank, UNCTAD Tariff and Non-tariff Barriers. Balance of Payment Account: Concept and significance of balance of payments, Current and capital account components. Introduction to Basic Concept of IFRS. (5+1)
5. Emerging Issues in International Business Environment: Growing concern for ecology, Digitalisation; Outsourcing and Global Value chains. Labor and other Environmental Issues, Impact of Pandemic COVID-19 on international trade. (5+1)
MBA SEM-III
307– International Business Environment
Generic Elective – University Level
1. Introduction to International Business: Importance, nature and scope of International business; modes of entry into International Business, internationalization process. Globalization: Meaning, Implications, Globalization as a driver of International Business. The Multinational Corporations (MNCs) – evolution, features and dynamics of the Global Enterprises. Consequences of Economic Globalization, Brexit, Reverse globalization. (5+1)
2. International Business Environment: Political Economy of International Business, Economic and Political Systems, Legal Environment, Cultural Environment, Ethics and CSR in International Business. (5+1)
3. International Financial Environment: Foreign Investments - Pattern, Structure and effects. Theories of Foreign Direct Investment, Traditional and Modern theories of FDI, Modes of FDI - Greenfield, Brownfield Investments, Mergers and Acquisitions, Motives of FDI, FDI contrasted with FPI. Basics of Forex Market. (5+1)
4. International Economic Institutions and Agreements: WTO, IMF, World Bank, UNCTAD Tariff and Non-tariff Barriers. Balance of Payment Account: Concept and significance of balance of payments, Current and capital account components. Introduction to Basic Concept of IFRS. (5+1)
5. Emerging Issues in International Business Environment: Growing concern for ecology, Digitalisation; Outsourcing and Global Value chains. Labor and other Environmental Issues, Impact of Pandemic COVID-19 on international trade. (5+1)
This PPT is designed with the objective of giving insights into marketing elements (Product, Price, Place & Promotion) in International Marketing, entry modes, and other related topics.
The other major topics discussed are mentioned below. This PPT is designed with simple words for the benefit of UG and PG students
International Marketing-Motives, Characteristic and advantages, Transitional stages in international Marketing,Management orientation in International Marketing
Global Marketing Information System, International Marketing research, International Marketing Entry Stages
Product Decisions, New Product Development, Geographic Expansions, Strategic Alternatives
International pricing Objectives and strategies, Transfer pricing, International Marketing Channel, Channel Terminology, Physical Distribution and Logistics, Global Advertising and Branding, Public Relation, Personel Selling, Sales Promotion , Direct Marketing, Trade Shows and Exhibitions
The term globalization derives from the word globalize, which refers to the emergence of an international network of economic systems. Globalisation refers to rapid increase in the share of economic activity taking place across national borders. It goes beyond the international trade includes goods and services, delivered &sold & movement of capital.
Globalization or globalisation is the trend of increasing interaction between people or companies on a worldwide scale due to advances in transportation and communication technology, normally beginning with the steamship and the telegraph in the early to mid-1800s. With increased interactions between nation-states and individuals came the growth of international trade, ideas, and culture. Globalization is primarily an economic process of integration that has social and cultural aspects, but conflicts and diplomacy are also large parts of the history of globalization.
Thinking of a career in international business? See if you and an international job environment are a good fit. Fuel the growth and success of multinational corporations with a career in international business. You’ll find many exciting opportunities for work at home and abroad. An increasing number of businesses now conduct business globally. In international business you’ll engage with global and cultural business issues as an import/export agent, translator, foreign currency investment advisor, foreign sales representative, international management consultant and more. If you’re in interested in learning where international business can take you, learn which personal and professional traits you’ll need to succeed.
Unit 1: Environmental Context of International Business, Framework for analyzing international
business environment – Domestic, foreign and global environments and their impact on
international business decisions.
Global Trading Environment: World trade in goods and services – Major trends and developments;
World trade and protectionism – Tariff and non-tariff barriers; Counter trade.
Unit 2: International Financial Environment: Foreign investments -Pattern, Structure and effects;
Movements in foreign exchange and interest rates and then impact on trade and investment flows.
Unit 3: International Economic Institutions and Agreements: WTO, IMF, World Bank UNCTAD,
Agreement on Textiles and Clothing (ATC), GSP, GSTP and other International agreements;
International commodity trading and agreements.
Unit 4: Multinational Corporations and their involvement in International Business: Issues in
foreign investments, technology transfer, pricing and regulations; International collaborative
arrangements and strategic alliances.
Unit 5: Regional Economic Groupings in Practice: Regionalism vs. multilaterallism, Structure and
functioning of EC and NAFTA; Regional economic cooperation. Emerging Developments and
Other Issues: Growing concern for ecology; Counter trade; IT and international business.
Complete detail on International Business Dynamics first Module-1
Introduction Chapter, Contents Meaning and definition of International Business to Significance to Aid International Managers please go through it, If any inputs or queries reach me through Instagram and Facebook (allnewcrazy)
This PPT is designed with the objective of giving insights into marketing elements (Product, Price, Place & Promotion) in International Marketing, entry modes, and other related topics.
The other major topics discussed are mentioned below. This PPT is designed with simple words for the benefit of UG and PG students
International Marketing-Motives, Characteristic and advantages, Transitional stages in international Marketing,Management orientation in International Marketing
Global Marketing Information System, International Marketing research, International Marketing Entry Stages
Product Decisions, New Product Development, Geographic Expansions, Strategic Alternatives
International pricing Objectives and strategies, Transfer pricing, International Marketing Channel, Channel Terminology, Physical Distribution and Logistics, Global Advertising and Branding, Public Relation, Personel Selling, Sales Promotion , Direct Marketing, Trade Shows and Exhibitions
The term globalization derives from the word globalize, which refers to the emergence of an international network of economic systems. Globalisation refers to rapid increase in the share of economic activity taking place across national borders. It goes beyond the international trade includes goods and services, delivered &sold & movement of capital.
Globalization or globalisation is the trend of increasing interaction between people or companies on a worldwide scale due to advances in transportation and communication technology, normally beginning with the steamship and the telegraph in the early to mid-1800s. With increased interactions between nation-states and individuals came the growth of international trade, ideas, and culture. Globalization is primarily an economic process of integration that has social and cultural aspects, but conflicts and diplomacy are also large parts of the history of globalization.
Thinking of a career in international business? See if you and an international job environment are a good fit. Fuel the growth and success of multinational corporations with a career in international business. You’ll find many exciting opportunities for work at home and abroad. An increasing number of businesses now conduct business globally. In international business you’ll engage with global and cultural business issues as an import/export agent, translator, foreign currency investment advisor, foreign sales representative, international management consultant and more. If you’re in interested in learning where international business can take you, learn which personal and professional traits you’ll need to succeed.
Unit 1: Environmental Context of International Business, Framework for analyzing international
business environment – Domestic, foreign and global environments and their impact on
international business decisions.
Global Trading Environment: World trade in goods and services – Major trends and developments;
World trade and protectionism – Tariff and non-tariff barriers; Counter trade.
Unit 2: International Financial Environment: Foreign investments -Pattern, Structure and effects;
Movements in foreign exchange and interest rates and then impact on trade and investment flows.
Unit 3: International Economic Institutions and Agreements: WTO, IMF, World Bank UNCTAD,
Agreement on Textiles and Clothing (ATC), GSP, GSTP and other International agreements;
International commodity trading and agreements.
Unit 4: Multinational Corporations and their involvement in International Business: Issues in
foreign investments, technology transfer, pricing and regulations; International collaborative
arrangements and strategic alliances.
Unit 5: Regional Economic Groupings in Practice: Regionalism vs. multilaterallism, Structure and
functioning of EC and NAFTA; Regional economic cooperation. Emerging Developments and
Other Issues: Growing concern for ecology; Counter trade; IT and international business.
Complete detail on International Business Dynamics first Module-1
Introduction Chapter, Contents Meaning and definition of International Business to Significance to Aid International Managers please go through it, If any inputs or queries reach me through Instagram and Facebook (allnewcrazy)
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Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
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2. International Business
Syllabus
BBA CBCS 2018 SEM IV
Course Code: 403 Course Type: Core Course
Credits: Four Examination Pattern-UE+IA-60:40
Course Objectives:
To acquaint the student with emerging issues in international
business
To study the impact of international environment on foreign market
operations of a firm
Learning Outcomes:
Students will be able to understand and apply the concepts of
international business to current global development issues.
Unit 1 - International Business Environment - Nature,
Definition of International Business; Theories of International Trade /
Mercantilism - Ricardo’s Theory / Smith Theory, Heckscher-Ohlin
Theory / Porters Model; Role of culture in business environment
3. International Business
Syllabus
Unit 2: Foreign Trade - Balance of Trade and Balance of
Payments
Unit 3: Foreign Exchange Market - Meaning of Exchange
rate; Determination of Exchange rate – Fixed, Flexible and
Managed
Unit 4: International Financial Institutions - International
Monetary Fund (IMF) – Objectives and functions and World
Bank – Objective and Functions
Unit 5: India’s Foreign Trade - Composition and direction of
India’s Foreign Trade; Current Foreign Trade Policy of India.
Online Resources:
https://internationalaffairsresources.com/intlbus.html
https://www.bestcolleges.com/resources/international-business
https://www.mooc-list.com/course/international-business-i-
courser
4. Suggested Books
International Business – Daniels and Radebough
International Business – Sundram and Black
International Business – R. Chandran
International Business – Roebuck and Simon
International Business – Charles Hills
International Business – Subba Rao
International Business – K. Aswathappa
International Business – Justin Paul
Apart from books, news and updates from internet,
business newspaper and other sources – This
must be a regular habit of yours
Trade magazines, journals and periodicals
5. UNIT – 1
Introduction to International Business
Nature, definition of International Business
Theories of International trade
Mercantilism – Richard's Theory / Smith Theory / Heckscher – Ohlin
Theory / Porters Models
Role of Culture in business environment
Why study International business
Need of International Business
● National perspective
● Individual Company perspective
Nature / Characteristics / Factors influencing International Business
Why buyers buy a foreign product ?
Domestic Business Verses International Business
Reason for recent international business growth
Hindrance in International Business Operations
6. International Business
International Business involves any type of
business activity across international
borders.
Any commercial transaction (private and
governmental, sales, investments, logistics
and transportation) taking place across the
boundary lines of a sovereign entity.
For private parties such transaction for
revenue, profit and prosperity.
For govt. it is for image, dependency,
economic growth and bilateral relations.
The prime objective includes sales
expansion, resource acquisition and risk
minimization
7. International Trade
Exchange of capital, goods and services across
international territories. It is between two nations. It
arise due to divergent scarcities of resources
between nations.
International Marketing
Generally it is an exchange for finished product. It
is between two marketing firms. It occurs usually
with a motive of profit.
Scope of international Business
It has a wider scope that includes besides
marketing, physical movement of goods &
services, technology transfer, collaborations,
investments, joint ventures, establishment of
subsidiaries, manufacturing etc.
8. Why Study International Business
Most companies are either international or compete
with international companies.
Modes of operation may differ from those used in
domestic transactions.
The actual way of conducting business may differ by
country to country.
An understanding helps you to make better career
decisions.
An understanding helps you to decide what
governmental policies to support or oppose.
9. Need of International Business
National Perspective
1. No nation can meet all of its people needs
2. Outsourcing is considered as the viable solution.
3. Cultural integration due to people exchange.
4. Ultimate source to increase market share.
5. Source to earn foreign revenue.
6. Technological advancement.
7. Attraction towards foreign countries. Social Status
8. Perception of quality.
9. To support a group member nation.
10. To support other auxiliary services – Transport, insurance,
banking, Shipping etc.
11. Cheap availability of resources – material, machines etc.
12. To support other infant Industrial SBUs.
13. Opening of New Venture
14.Reform process – LPG
15.Enthusiastic Young Generation.
10. Need of International Business
Individual Company Perspective
1. Managing the PLC & Cost reduction through mass production.
2. Geographical expansion a growth strategy.
3. The adventurous spirit of the younger generation.
4. Corporate strategy and ambition.
5. Technological advancement.
6. Building a corporate image.
7. Incentives and business impact.
8. Labour advantage & generating employment opportunities..
9. New business opportunities.
10.Emergence of SEZs etc.
11.Earning of valuable foreign exchange.
12.Interdependency of nations.
13.Trade theories and their impact.
14.To strengthen diplomatic relations (CSR).
15.Core competency of firms (Adapt New Standards & Change in Style & function).
16.Investment for infrastructure.
17.To uplift national image.
18.Foreign trade policy and company targets.
19. To support national targets.
20.WTO and other international agencies.
11. Nature / Characteristics / Factors influencing
International Business
1. Social Factors :
National Legal regime
Political Situation
Financial Systems
Marketing Infrastructure
Culture
Language
Climate
2. Economic Factors :
Commercial Policy Variables (Tariffs, Quotas, Licensing etc.)
Currency Restrictions
Internal Demand Management Policies & Instruments
Global Economy Concept
12. Nature / Characteristics / Factors influencing
International Business
3. Competition :
Producers in the importing country
Exporters from the importing countries
Other exporters from one’s own country
4. Logistic Factors :
Availability of transport (Sea, Air, Freezer Space etc.)
Cost of transportation
Availability of Labour and Human resource
5. Risk Factors :
Political Risk (Stable govt. etc.)
Commercial Risk
Acts of God (natural Calamities etc.)
Acts of Enemies, Pirates, Thieves etc.
13. Why buyers buy a foreign product ?
In General they buy a foreign product because ,
1. Product Specification : The product is
somewhat different from the existing domestic
product.
1. Price : To get quality product at bargain price.
1. Quality : The product be perceived to deliver
good value for money.
1. Country Image : Producer country or
manufacturers’ image.
14. Domestic Business Verses International Business
Dimensions Domestic Business
Operations
International
Business Operations
Business Environment Economic, political, legal,
social, cultural, competitive
and technological
environment are known
Not fully known. Several
hidden factors may emerge
any time and pose problems.
They will lead to pitfall.
Plan and Strategy Can be worked out for short
term and carried forward for
long term
Only long term planning and
strategy will work. Strategic
inputs are required in
multiples.
Competitive forces
and their intensity
Maximum competitive forces
operate and one can
understand their movement
International competitive
forces is difficult to
understand their motives
and movement
Currencies & their
movement
Local currency is used for
transaction. Costing, pricing,
revenue and margin are
computed in single currency.
Violation may have minimum
impact & can be overcome .
Transactions are in various
currencies. Fluctuations in
cross country currencies
influence transaction.
15. Domestic Business Verses International Business
Dimensions Domestic Business
Operations
International
Business Operations
Business Risks Comparatively
predictable and will not
have major impact on
business
Very difficult to predict.
Risk may erupt any time
due to political situations
and several other
factors.
Business Research Easy to conduct
business research and
to demand analysis and
customer surveys. It is
reliable.
Very expensive and
difficult to conduct.
Reliability depends on
individual countries.
Human Resources Due to past success and
established systems can
survive if workforce is
not adequate.
Multilingual, cultural and
strategic human
resources
Evaluation of Human
Resources
Team commitments are
evaluated and appraised.
Each individual is a profit
center and accountable.
16. Domestic Business Verses International Business
Dimensions Domestic Business
Operations
International
Business Operations
Product and usages Adapted to local
environment as per the
requirement of customers
buying behavior.
Varies from country to
country.
Legal Aspects Only local regulations are
fully applicable to conduct
business. Minimum
adherence to
international regulations.
Several international and
host country regulations
are applicable. Strict
adherence to contractual
obligation is common.
Investment and
Sourcing
One can start with a
minimum investment
depending on capability .
Regulatory bodies
involvement is minimum.
Except export all
overseas operations calls
for huge investment.
Several special
regulatory bodies
involvement.
Pricing Strategy Not complicated. Can go
for margin pricing,
competitive pricing.
More complicated to
determine pricing
strategy.
17. Domestic Business Verses International Business
Dimensions Domestic Business
Operations
International
Business Operations
Product Promotion It is not generally
restricted if they are not
socially objectionable.
Different countries have
different restriction on
promotional efforts.
Logistics Domestic players are
involved in all activities.
Cost is comparatively
minimum.
International players
with advance technology
and systems are
involved.
Distribution Channel No restriction to select
the distribution channel.
Government or market
practice govern the
distribution channel.
Organizational vision
and objective
Steady growth objective.
Easy to understand
vision and objective.
Broadened to cover
many countries.
Geographical and
Cultural diversity may
influence.
18. REASONS FOR RECENT INTERNATIONAL
BUSINESS GROWTH
Expansion of Technology
Transportation & Telecommunications : Transportation and
telecommunications costs are more encouraging for
international operations.
Liberalization of cross-border movements : goods, services,
labour, capital etc.
Development of Supporting Institutional Arrangements:
Development of business and governments institutions that
enable the effective application of technology.
Increase in Global Competition : New products become global;
Globalization of production
Cultural Integration due to development of travel and tourism.
Strength of human resources and its variation among nations
Government Initiative and bilateral dependency
Economic Reform
Enthusiastic Young generation
19. Hindrance in International
Business Operations
Tariff Barrier
Non-tariff barriers
Group Nations Philosophy
Terrorism
Varied Culture, Taste and Traditions
Nature and Climate
Changing Peoples Perception and Choice
Pirating and Imitations
Unstable International Money Exchange Rates
Increased Activities of Capturing Shipments
Inclination for Self Reliance
20. Theories of International Trade
In General
Due to difference in opportunity cost and mutual
benefits to two countries international trade takes
place
International trade takes place due to
comparative advantages. Some important
theories are:
♦ Mercantilism Theory
♦ Theory of Absolute Cost Advantage
♦ Theory of Comparative Cost Advantage
♦ Theory of Competitive Cost Advantage
♦ Theory of Purchasing Power Points
♦ Theory of PLC
21. Theory of Mercantilism
It is the oldest trade theory
It was popular during 1500 to 1800 AD
Colonial powers (British) use to import raw materials from
various countries and exporting the finished products to their
colonies
The colonies were permitted to export only less value goods
and import more value goods
The country should export more and import less and receive
the trade surplus in form of gold
The colonies were prevented from manufacturing and this
allowed the colonial powers to enjoy more trade surplus and
forced the colonies to experience trade deficits
This has paved the way for discontent in colonies and cause for
an eagerness for independence
But the decay of gold standard reduced the validity of
Mercantile theory and modified into neo-Mercantilism
22. Theory of Absolute Cost Advantage
Adam Smith, the Scottish economist has developed this theory
in 1776 which emphasizes free trade between two countries
This theory is based on the principle of survival and the division
of labour
It suggests that different countries can get the advantages of
international trade by producing certain goods more efficiently
than others
He advocated the free trade among countries to increase a
country’s wealth (survival)
Free trade provides a variety of goods and services to its
people to choose and specialize in production depending upon
strength and opportunities
He suggested to specialize in those production of goods which
yield cost advantage over other countries
This has contributed and advocated to popularize the barter
trade mechanism
23. Theory of Absolute Cost Advantage
Example
Consider two countries Taiwan and India
Taiwan is having cost advantage in production of laptops and
India in leather shoes
Both countries inclined for involve in bilateral trade
The below chart shows the production per day of the countries
Taiwan agrees to exchange 4 laptops against 40 leather shoes
Taiwan needs 2 days to produce 40 leather shoes and 0.67
days to produce 4 laptops
Thus Taiwan can save [2 days – 0.67days] 1.33 days
Similarly, India needs 2 days to produce 4 Laptops and 0.67
days to produce 40 leather shoes
Thus India can save [2 days – 0.67days] 1.33 days
COMMODITY TAIWAN INDIA
Leather Shoes 20 60
Laptops 06 02
24. Theory of Absolute Cost Advantage
The absolute cost advantage theory is based on certain
assumptions, such as an be achieved due to
♦ Trade is possible between two countries due to scarcity and
deficit of products
♦ Only two commodities can be traded based on barter principle
♦ Always opportunities of free trade exists between two countries
♦ The major element of cost of production is labour class
(suitability and the level of skills)
♦ The saved labour cost can be utilized for the production of
products of absolute advantages
♦ Both involved countries need the product for their consumption
♦ A country can concentrate on those production where absolute
cost advantage is the optimum
♦ No country can survive by their own production only
♦ Each country has absolute advantage of at least production of
one product at low cost
25. Theory of Absolute Cost Advantage
The absolute cost advantage theory has experienced certain
criticism, such as
♦ Majority of developing countries and the LDCs do not have
absolute advantage of producing any product at low cost but
still they participate in international trade
♦ Countries varies in size and population thus quantity of
demand also vary between the two countries
♦ The theory emphasize and concentrate only on labour and
ignore other parameters of trade like resources, technology,
relations and transportations
♦ Large scale production can also provide absolute advantage
of production, which is ignored in this theory
♦ International trade is always situational and based on
environmental factors which is not considered and not absolute
♦ No consideration of BoP
26. Theory of Comparative Cost Advantage
On the criticism of absolute cost advantage theory a British
economist David Ricardo has proposed an another theory of
international trade “The Theory of Comparative Cost
Advantage”
It is an extension of Adam Smith’s theory of absolute cost
advantage
Assumptions of this theory
♦ Trade takes place always and only between two countries
♦ Only two products can be traded between two countries
♦ There is no trade barriers between countries
♦ Trade is not dependent of production cost
♦ Transportation cost is not involved in the production cost
♦ There exist full employment of labour
♦ Trade is subject to immediate return (no credit)
♦ The only element of cost of production is labour
27. Theory of Comparative Cost Advantage
Implications of Comparative Cost Advantage
Efficient allocation of global resources
More global production at least possible cost
Product price varies among countries due to difference in
the opportunity cost
Demand forecasting is a must for international trade
Demand for resources and product is must and obvious
between nations
Nation can involve in those transaction in which they do
their good to best (comparative advantage)
It is advisable for country to import products from those
countries who are relatively better in producing them
It also involves opportunity parameters for determination of
production cost
28. Theory of Comparative Cost Advantage
Illustration of Comparative Cost Advantage
Japan is having absolute cost advantage in both commodities
Japan is 300 times better in laptop and 1.2 times better in leather shoes
Alternately India is 0.33% competent in laptop and 0.83% in leather
shoes production
Consider one country produce only one product
For Japan 60 leather shoes = 06 Laptops. This means 10 leather shoes
is equivalent to one laptop
Similarly for India 50 leather shoes = 2 laptops. This means 25 leather
shoes is equivalent to one laptop
Suppose Japan offers one laptop in exchange of 18 leather shoes
It is beneficial for both nation as Japan is getting 8 more leather shoes in
exchange on one laptop and India is getting advantage of 7 leather
shoes in exchange of one laptop
COMMODITY JAPAN INDIA
Leather Shoes 60 50
Laptops 06 02
29. Theory of Comparative Cost Advantage
Criticism of Comparative Cost Advantage
Not always two counties but more than two countries participate
in international trade
Transport is major determinant of cost which is ignored
Trade between two nation is not always limited to only two
products
Labour unemployment and underemployment has become part
of the system and cannot be avoided
International trade is not only aimed for economic efficiency
other consideration such as group nation, regional block are
also important
It do not consider the resource movement can also provide
comparative advantage
This is restricted only up to product trade and not service trade
It do not consider the ratio of gains between participating nation
30. Theory of Competitive Advantage
Michael Porter developed a model to describe the theory of
international trade
This model is also known as Porter Diamond
He involved 10 nations to conduct a comprehensive study on
the factors that lead to success and the five forces (Competitive
force) influencing strategy
♦ The power of buyers in determination of the price
♦ The power of the suppliers in determination of price of inputs
♦ The threat of new competitors in determination of the contest
♦ The threat from the substitute in determination of replacement
♦ The degree of existing competition (rivalry) in the industry
This theory was applicable during the 2nd half of 20th century
31. Theory of Competitive Advantage
He concluded that the competitive superiority is derived from 4
factors
These 4 factors can provide the competitive advantage to a firm
in varied proportions
All these 4 factors need not always be favourable for a
company to attain global supremacy
The interactive affect of these 4 factors is necessary in the
home country to gain a global competitive advantage
He described this in a diamond shaped model
Factor Conditions
Relating and
Supporting Industries
Demand Nature and
condition
Firm Strategy,
Structure, and Rivalry
32. Theory of Competitive Advantage
These 4 factors or elements he described as determinants
♦ Factor Conditions – External environment of business
♦ Demand Nature and Condition - The extent of innovation to
gain competitive advantage
A stiff and healthy competition in home nation prepares a firm to
compete in global market
♦ Relating and Supporting Industries – The prime
dependent factors are transportation, infrastructure, insurance
and the communication facilities
♦ Firm Strategy, Structure and Rivalry –
To invest in R&D to compete in home nation
Enhancement in product design, technology and HR
It facilitates superior product at lower price
Healthy competition in home nation generates competitive
advantages in the international market
33. Theory of Competitive Advantage
This theory also experienced criticism as
♦ None of the influencing forces
(Competitive forces) were new and known
to people around the world
♦ It perceived as a blend of traditional
individual country based theory
♦ It is also perceived as individual firm
based theory
♦ The theory lacks the universal appeal
and acceptance
34. Purchasing Power Parity Theory
This theory was formulated by Gustav Cassel, a Swedish
economist in 1920 when inflation was very high world over
This theory represents the synthesis of the work done by David
Ricardo, Whitely and Henry Thornton
He believed that when currencies are exchanged among
nations, their purchasing power is only get transferred
The principle determinant of exchange rate is the difference in
national inflation rates
This implies that a nation where cost and price are relatively
less (Nepal) than another country (India) will find its currency
appreciating
He focused only on the inflation differentials among countries
and suggested the only dominant factor to explain the
movement and value of exchange rates from one country to
another country
35. Purchasing Power Parity Theory
Mathematically this can be explained as,
P = e x P*
Where P = Price of product in the home country
P* = Price of same product in other country and
e = Home currency price of the currency of other countries
This can be demonstrated as
e = P / P*
Example
The price of laptop in India is Rs. 25K
The price of same laptop in US is $ 500
Suppose 1 USD = Rs. 50
The e would be 1
36. Purchasing Power Parity Theory
The P and the P* can be interpreted as the domestic and foreign
index which represents the respective inflation figures
The PPP theory tries to restore the real exchange rate which is
relevant for international business
Real Exchange Rate [R] = Nominal Exchange x Foreign Price index /
Domestic Price Index
Suppose the nominal exchange rate is Rs. 50 = 1USD; Indian home
price index increases to Rs.110 due to inflation
Then, 50 x 100 / 110 = Rs. 45.45
A difference of Rs. 4.55 due to inflation
Thus the nominal exchange rate must be depreciated by 10% to
make it Rs. 55
Thus due to impact of inflation the real exchange rate is adjusted to
Rs. 55
This means if the nominal exchange rate is adjusted to inflation
differentials, the exchange rate can be made constant in terms of
purchasing power
37. Purchasing Power Parity Theory
The PPP theory thus suggests that export to those
countries whose inflation rate is higher and reverse
to import
But this also experienced criticism as
♦ It ignored the account actual practice factors
such as interest rates, portfolio decisions,
economic growth rate, intervention by the central
bank etc. which have effect on the variation of the
exchange rate
The law of one price can be challenged by
absolute cost advantage theory
The floating exchange rate is obvious in
international business transaction
38. Theory of Product Life Cycle
This theory has been developed by Raymond Vernon
This is the 2nd firm based theory of international trade
Every product passes through 4 life stages as
♦ Introduction
♦ Growth
♦ Maturity and
♦ Decline Stage
This theory traces the roles of product innovation,
market expansion, comparative advantages and the
strategic responses
This theory also outlines the global rivals in
international manufacturing, trade and the investment
decisions
39. Theory of Product Life Cycle
He described his theory under different product life stages with
different parameters as,
PARAMETERS
INTRODUCTORY
STAGE
GROWTH
STAGE
MATURITY
STAGE
DECLINE
STAGE
Production
Location
In general
industrial or the
developed
nations
In other
industrial,
developed and
friend countries
Expansion in
multiple
countries and
across continents
Primarily in LDCs
and the needy
countries
Market
Location
Preferably to the
countries who
are in exports
Inclination
towards other
export
opportunities
Less
concentration in
industrial nations
Focus on LDCs
Addition of some
more LDCs for
export
Competitive
Factors
Enjoys monopoly
advantages
Rapid increase in
demand
Overall demand
stabilizes
Overall decline
in the demand
Sales
Orientation
Sales focused on
benefit rather
than price
Increase in the
Number of
competitors
Decrease in the
Number of
competitors
Price remains
the decisive
factor for sales
Product
Features
More emphasis
on product
features
Extensive price
competition
Beneficial pricing
in LDCs
Decrease in
competition
40. Theory of Product Life Cycle
PARAMETERS
INTRODUCTORY
STAGE
GROWTH
STAGE
MATURITY
STAGE
DECLINE
STAGE
Product
Offerings
A unique product
offering
More
standardized
product
Concentration
on customized
offering
Feature Addition
or volume
addition
Production
Pattern
Limited
production of
the product
Increase in
capital and the
production
Larger scale
production for
competent price
Routine or
mechanical
production
Production
Technology
Evolving
production
techniques
More
standardized
production
method
Highly
standardized
production
methods
Not a matter of
consideration
Required
Labour
Skills
Technically more
competent
persons
Technically
qualified persons
Combination of
technical & non
technical person
Less skilled
labour remains
on demand
Capital
Inputs
Huge investment
no guaranteed
returns
Introduction of
cash flow
A unique
business unit
representation
Calculation on
capital gains and
loss
Sales Pattern More in home
country
Increase in host
country
Penetration in
other segments
A definite
customer base
41. Limitations of Product Life Cycle Theory
Inconsistent behaviour of certain consumer goods
(habit products) and synthetic products
Production facilities do not move at first instance to
attain cost advantage
Cost reduction has little concern for premium and
luxurious products
In some countries purchasing power of people is more
than the inflation rate thus for them price is least
decisive factor
The cost of transportation and the impact of
advertising is ignored in this theory
After 1990 the globalization has enabled MNCs to
introduce the innovated product simultaneously in
many countries
43. Social & Cultural Environment
Understanding the culture of a particular
country and respecting its customs and
traditions plays an important role in
international business
There are various elements of culture,
like customs, traditions, mannerisms,
values, beliefs, attitude, religion etc. that
are of importance to international
business
All these elements have to be
thoroughly understood before entering
new markets. The culture of the country
44. Each business unit needs to formulate its strategy
and business plans considering the socio-cultural
environment of the host nation
Points to consider :
● Social environment comprise of customs, habits,
education, attitudes, beliefs, values, language and
other forms of interaction between the members of
the society.
● Whether the society is modern, conservative, racial,
orthodox etc.
● This identifies the behaviour of the audience.
● This guides the purchase decision of potential buyers.
Social Factor of Business
45. A passing view on culture
MODERN CONSERVATIVE RACIAL ORTHODOX
Liberal by nature Not Liberal Not readily Very authentic
Not rigid in
consumption habits
Limited consumption
habits
Mostly traditional
consumption habits
Compromise to some
extent
More receptive to new
product
Only tried and tested
product
Inclined towards new
product
To some extent
Accepts all advertising
messages
Not at all Shows interest. May
or may not
More Cultural bound
More health conscious Customs are superior
and not the health
Own way of
justification
Accepts such concern
Majority are Quality
conscious
Not quality conscious Mostly volume
conscious
Varies as per
perception
46. Offering “Bali” to godess Kali during
Navratri in eastern Indian states in
Western Indian states “Dandia &
Garba”
Lord Ganesh eating Modak as prasad
Tirupati Balajee prasad is Laddu
Lord Ganesh in Navi Mumbai &
Thailand (different forms)
Selling of greeting cards for Valentine
Day is risky affair due to opposition
from political parties
Wine is banned in Gujarat &
Tamilnadu – Problem for EU-27
Social & Cultural Impact
47. Cultural Variants
• Dressing habits – Gulf and India
• Each Indian states – Own
dressing style
• Living styles – Festival and
dance
• Eating habits Pizza V/s Jhunaka
Bhakar ?
• Vegetarian V/s Non Vegetarian
in India (Highly debatable)
• Chinese food
• Iraqis and Afghans eats dry fruits
as regular food
• Arab eats Basmati Rice
• Languages -16 Languages in
India
49. When a firm operates in an
international business environment,
as an individual is bound by the
society in which he lives, it needs to
understand the importance of
society
Social class is an important part
of the society. In majority of
societies, these classes are
classified mostly as upper, middle
and lower
The perception level of each class
and their frequency of buying goods
differ from one country to another
Involved Social Risk
50. Social Factors
• Beaf and pork cannot be exported from
India
• Caste factor in India
• Religion – Jain Shewtambar V/s
Digambar
• Hindu- Kumbhamela
• Muslim – Muslim law in gulf – eye for
eye camel race
• Marriage ceremony – Wastage of time &
money
• People to work – Asia v/s America
• Attitude to wealth
• Level of Education
• Ethics and Social responsibilities
• Crime Rate - Looting, Illegal
Excavations, Theft, War
51. Social Unrest in Pakistan
Attack on Sri Lankan Cricket Team
The recent wave of killings and arson has left more than 1000
people dead in last 10 days.
Areas like Orangi Town, Qasba Colony and Katti Pahari are
severely effected while Hassan Square, Old Sabzi Mandi,
Gulistan-e-Johar and other parts of Karachi have experienced
their share of bloodshed and terrorism
52. Arab women wear the Naqab, a face-covering Islamic dress for
females
India is the land of old social traditions and religious practices
and one of bad religious practices of Devadasi is still prevailing
53. Middle East
Iraq
Iran – nuclear ambition, internal consternation
Israel – Israeli cycle of violence with Palestine
Asia Afghanistan – Talibanian culture + Idol of Bhudha broken
by Taliban
Indonesia – Jemmaithe Islamia and Al-Qaeda’s – The kissing
cousins
Philippines – domestic terrorists
India –Threats from 1)Terrorism 26/11 2) Maoists – Andhra
Pradesh, WB, Jarkhand & Odisha
Terrorism & Maoists - Major Threat to India
54. Assignment
Describe in brief Heckscher – Ohlin theory
of international trade
You are instructed to submit the same in
professional manner on or before February
17, 2023 (Friday)
You are advised to submit your assignment
to your CR and she will submit the same to
me
No, unethical and hypothetical excuse, for
non submission within time. No further
acceptance.