IBM Module 1.pptxbshhdhhsnbgdhirgduisjdjudu

International Business
International
Business
Management
Module 1
School of Management

Brush with Colgate
tooth paste [Colgate
Palmolive, US]
Using Oral B tooth brush
[P&G, US]
Bathe with Dove soap [HUL, Anglo Dutch]
Use Nivea Deo [ Beiersdorf,
Germany]
Have Kellogg's corn flakes for
breakfast [US]
e
And Nescafe Sunrise coffe
[Nestle, Switzerland]
Use Samsung mobile [Korea]
Work on Acer
computer [Taiwan]
And Garnier shampoo [L’Oreal, France]
With Windows & MS Office s/w
[US – designed by Indian
Engineers]
Have lunch at McDonalds [US]
View Star TV program [News Corp,
based in Hong Kong, China and owned
by an Australian]
Communicate over Airtel -
An Indian Co. part owned
by Singtel of Singapore
Japanese TV mfd in
Indonesia
18.58 % of the equity held by
ADS / GDR, 32.04 % held by FIIs
Drive Honda City Car [Honda,
Japan – with components mfd
in India, Japan & Thailand

School o
3
f Management
Global Indian Companies

Tata – global footprint
School of M4anagement

Revenue in FY19 - ₹ 622,809 crore
$ 88.9 billion
Exports $ 32.4 billion
Single largest petroleum refining
complex in the world – 1.24 Million
Barrels per day

Annual revenues of USD 44.3 billion
120,000 employees
Present in 36 countries
Over 50% of the revenues from overseas

RISE OF EMERGING MULTINATIONALS

Course Learning Objectives
 To expose students to the changing global business environment and enable
understanding of political, economic, social and cultural factors impacting international
business, which will help in ensuring students learn skills to manage change in the global
 To understand the various modes of engaging in international business and how business
leadership is achieved through the right choice of mode of entry.
 To understand the roles and importance of various multilateral trade bodies, forums and
institutions and documentation requirements for export and import of goods and services
 To understand the different functions of management – viz. marketing, HR, operations
and finance – in the context of global business

 Assess the role of
international business What you will
learn in
International
Business?
environmental factors in
management and use
environmental scanning as a decision-making tool.
 Choose the suitable mode of entry after evaluating
the strategic, market and trade implications.
 Assess the impact of multilateral institutions on
global trade, manage the changing business
scenario, and manage the export and import
process.
 Manage effectively different functions in global
organizations to create value for stakeholders.

COURSE
COVERAGE
Module :1: Introduction to International Business, its environment and
theories
• Global Economy – Introduction
• International Business Environment - Cultural, Political-legal and Economic
factors
• International Trade Theories
Module : 2 Role of Government and Multilateral Agencies in International
Business
• Governmental Influence on International
• Cross-National Cooperation and Agreements
• Foreign Exchange Market & International Monetary System
• IMF & World Bank
Module :3: International Business Strategy
• Strategy of International Business
• Country Evaluation & Selection
• Entry decisions
Module :4: Emerging Markets
• Definition and Classification
• Unique risks in emerging markets
• Factors influencing entry mode choice in emerging markets
Module :5: International Business Functions
• Export Import Management
• Global HR Management
• Global Marketing Management
• Global Production & Logistics Management
• Financial Management in International Business

EVALUATION
Component % marks
Class Participation 10
Case Analysis/ Presentation 15
Individual Assignment 5
IAT 20
Semester End Exam 50
Total 100

In this Module
Introduction to International Business
International Business Environment
Theories of International Trade

In this session
 Introduction to International Business
 Why International Business
 Changing Economy and World
 Meaning of Globalization &International Business
 Why Companies go international
 Drivers of Globalization
 Criticisms of Globalization

DRIVERS OF INTERNATIONAL
BUSINESS

Source:
https://www.imf.org/external/datamapper/PPPSH@
WEO/OEMDC/ADVEC/WEOWORLD
GDP PPP Share of
Advanced Economies
Vs. Emerging +
Developing Economies
Advanced
Economies
Emerging &
Developing Economies

Source:
https://www.pwc.com/gx/en/world-2050/assets/pwc-the-world-
in-2050-full-report-feb-2017.pdf

Merchandise Trade
Source: Economic Survey 2021-22

Service Trade
Source: Economic Survey 2021-22

Schoo
18
l of Management
Source:
Dept. of Commerce, Govt of India –
Annual Report 2018-19

Globalisation
 Integration of world economies through the reduction in barriers to
the movement of trade, capital, technology and people.
 The shift toward a more integrated and interdependent world
economy

 All commercial transactions—including
sales, investments and transportation
that take place between two or more
countries. Primarily, they consist of
 Export & Import of products and services
 Foreign Direct Investment
o Manufacturing
o Services

CRITICISMS OF GLOBALIZATION
 Threats to national sovereignty
 Environmental stress
 Income inequality
 Job losses
 Tax evasion
 Power of MNCs over governments

Why Companies go global?
 Opportunity for market
diversification
 Serve customers that have
relocated
 Earn higher margins
 Confronting competition
 Sales expansion  Resource acquisition
 Gain new ideas about product,
services and business methods
 Closer to supplier sources
 Risk reduction
 Access to low cost production
 Economies of scale
 Joint venture/ foreign partner

WHAT FACTORS SHOULD COMPANIES CONSIDER?
 Political-legal factors
 Economic factors
 Cultural factors
 Entry strategy
 Market factors – Competition, customers
 Financing & Investment Options
 Organisation structure & HR
 Logistics & SCM

COMPONENTS OF GLOBALIZATION
Two components:
1. The globalization of markets
2. The globalization of production

1. Globalization of Markets
 Refers to the merging of distinct and separate national markets
into one huge global marketplace
 Most global markets are for industrial goods and materials
 Challenges for consumer marketing companies
 Significant differences still exist among national markets
 Country-specific marketing strategies
 Varied product mix

2. Globalisation of Production
 Sourcing of goods and services from locations around the globe
to take advantage of national differences in the cost and quality
of various factors of production
 Impediments to the globalization of production include
 Formal and informal barriers to trade
 Barriers to foreign direct investment
 Transportation costs
 Issues associated with political and economic risk

Drivers of Globalisation
1. Declining trade and investment barriers
2. Increase in and expansion of technology
3. Development of services that support international
business
4. Growing consumer pressures
5. Increased global competition
6. Changing political situations
7. Expanded cross-national cooperation

To recap
 Why international business
 Meaning of globalization & international business
 Criticisms of globalization
 Why companies go international
 Factors companies should consider while going global
 Components of Globalization
 Drivers of globalization

International
Business
Political
Cultural
Legal
Econoical

International Business Environment

CULTURE
 Sum total of learned values, beliefs and customs that serve to direct the
behaviour of members of a particular society
 Refers to the learned norms based on the values, beliefs and attitudes of a
group of people
 Complex whole that includes knowledge, belief, art, law, morals, customs and any
other capabilities and habits acquired by humans as members of society

Culture
Language (verbal
and non verbal)
Religion
Values & Beliefs
Attitudes
Manners, Customs
& Rituals
Material Elements
Aesthetics
Education
Social Institutions
Elements of
Culture

Elements of Culture
1. Language
 Includes both verbal and non verbal communication

2. Religion
Defines the ideals for life, which are
reflected in the values and attitudes of
societies and individuals
Provides the basis for transcultural
similarities under shared beliefs and
behavior

Religion Characteristic
Christianity Lays stress on frugality and accumulation of
wealth from hard work
Islam Plays a pervasive role in the life of its followers;
supports entrepreneurship and discourages
exploitation
Hinduism Family is an important element in Hindu society;
The extended family structure has an impact on
the purchasing power and consumption of
Hindu families
Buddhism Views life as an existence of suffering;
Emphasizes on spiritual achievement rather
than worldly goods
Confucianism Is characterized by a code of conduct; stresses
on loyalty and relationships

3. Values and beliefs
 Values are shared beliefs or group norms that have been
internalized by individuals
 Accumulated feelings and priorities that individuals have
about things/ objects
 Relatively few
 Serve as guide for appropriate behaviour
 Enduring/ difficult to change
 Not tied to specific objects situations
 Widely accepted by members of society

4. Attitudes
Attitudes are evaluations of
alternatives based on values
Attitudes towards change:
o Is positive in industrialized
countries
o Is viewed with suspicion in
tradition-bound societies

5. Manners, customs & Rituals
Usual and acceptable ways of
behaving
Overt modes of behaviour that
constitute culturally approved or
acceptable ways of behaving in
specific situation

When to Give Gifts
and
What to Give

Elements of Culture
6. Material elements
Material culture results from technology
o It is directly related to the way a society organizes its
economic activity
o It is manifested in the availability and adequacy of the
following basic infrastructures:
• Economic
• Social
• Financial
• Marketing

7. Aesthetics
Each culture makes a clear
statement concerning good taste
as expressed in the arts and in the
particular symbolism of colors,
form and music
Color is used as a mechanism for:
o Brand identification
o Feature reinforcement
oDifferentiation

8. Education
 Formal and informal education play a major role in the
passing on and sharing of culture
 Educational levels of a culture can be assessed by
using literacy rates and enrollment in higher education
 Educational levels have an impact on business
functions

9. Social institutions
 Affect the ways in which people relate to each
other
 Family relationships
 Social stratification: Division of a particular
population into classes
The higher strata control most of the buying
power and decision-making positions
 Reference groups: Provide the values and
attitudes that become influential in shaping
behavior
Can be primary or secondary
Social organization determines the roles of
managers and subordinates and the way they
relate to one another

DIMENSIONS OF CULTURE AT THE WORKPLACE
1. High Context Vs. Low Context
 High-context culture: Context is as important as what is actually said:
o Speaker and the listener rely on a common understanding of the context
 Low-context culture: Most of the information is contained explicitly in
the words

2. Individualism Vs collectivism
 West Vs. Asia
3. Power distance
 Low(West)
 High (Asia)
4. Uncertainty avoidance
 Low (S’pore, HongKong, Sweden, USA)
 High (Japan, S Korea, France, Portugal)
5. Gender-role orientation – Masculinity Vs. Feminity
 Japan, Switzerland, UK, USA Vs. Scandinavia, Thailand,
Netherlands
Hofstede’s Dimensions

Country Power
Distance
Uncertainty
Avoidance
Individ
ualism
Masculi
nity
Arabic World 80 68 38 52
Argentina 49 86 46 56
Australia 36 51 90 61
Brazil 69 76 38 49
Canada 39 48 80 52
Denmark 18 23 74 16
Eastern
Africa
64 52 27 41
Finland 33 59 63 26
France 68 86 71 43
Germany 35 65 67 66
Great
Britain 35 35 89 66
India 77 40 48 56
Indonesia 78 48 14 46
Iran 58 59 41 43
Country Power
Distance
Uncertainty
Avoidance
Individ
ualism
Masculi
nity
Israel 13 81 54 47
Italy 50 75 76 70
Japan 54 92 46 95
South Korea 60 85 18 39
Malaysia 104 36 26 50
Pakistan 55 70 14 50
Russia 90 70 42 37
Singapore 74 8 20 48
South Africa 49 49 65 63
Spain 57 86 51 42
Sweden 31 29 71 5
Switzerland 34 58 68 70
Thailand 64 64 20 34
USA 40 46 91 62
Hofstede’s Dimensions of
Culture at the Workplace
Highest Two ranked countries
Lowest Two ranked countries

6. Trompenaars’ Cultural Dimensions
a) Universalism Vs. Particularism
Universalism: Belief that ideas and practices can be applied
everywhere in the world without modification; focus is more on
formal rules; business contracts are adhered to closely, people
believe “a deal is a deal”.
Ex. Canada, U.S., Germany, U.K., Netherlands,
France, Japan, Singapore, Thailand

6. Universalism Vs. Particularism
o Particularism: belief that circumstances dictate how ideas
and practices should be applied and something cannot be
done the same everywhere; legal contracts often
modified, well-acquainted people often change the way in
which deals are executed.
Ex. India, China and South Korea

b) Neutral Vs. Emotional
Neutral - People try not to show their feelings, act stoically and
maintain their composure.
Ex. Japan and the U.K
Emotional - People smile a great deal, talk loudly when excited
and greet each other with enthusiasm.
Ex. India, Mexico, the Netherlands and Switzerland

Ex. Venezuela, Indonesia, India and China
c) Achievement oriented Vs. Ascription oriented
 Achievement - status is accorded based on how well
people perform their functions.
Ex. Austria, U.S., Switzerland and the U.K.
 Ascription culture: status is based on who or what a
person is.

d. Specific Vs. Diffuse
o Specific culture: Individuals have a large public space
shared with others and a small private space guarded
closely and shared with only close friends and associates;
Open and extroverted; strong separation of work and
private life.
Ex. Austria, U.K., U.S. and Switzerland
o Diffuse culture: Public and private space are similar in
size, people often appear to be indirect and introverted;
work and private life often are closely linked.
Ex. Venezuela, China, India and Spain

e. Time
 Sequential - People do only one activity at a time, keep
appointments strictly, prefer to follow plans as laid out.
Ex. US
 Synchronous - People tend to multi-task, view
appointments as approximate, schedules are seen as
subordinate to relationships (France, Mexico)
 Present Vs. Future
 Future is more important (U.S., Italy, and Germany)
 Present is more important (Venezuela, Indonesia, and Spain)
 All three time periods equally important (France and Belgium)

f. Locus of Control
 Internal direction - People believe that they can control
nature or their environment to achieve goals. This includes
how they work with teams and within organizations.
Ex. US, Australia, UK, Israel
 External direction - People believe that nature, or their
environment, controls them; they must work with their
environment to achieve goals. At work or in relationships,
they focus their actions on others .
Ex. China, Russia, Saudi Arabia

7. Long-term versus short-term
orientation
8. Self-reference criterion:
Unconscious reference to one’s
own cultural values
9. Ethnocentrisms: The belief that
one’s own culture is superior to
others.

CULTURAL INTEGRATION
Succeeding in Global M & A
 Operational - Merging organizational systems,
processes and procedures
 Cultural - Involves building an environment where
individuals are inclined and able to work together
MBI Model: Mapping  Bridging  Integrating

MBI Model
1. Mapping
Creates awareness and consciousness of the different
aspects of culture
Recognizing the different dimensions of its own and
the others’ cultures.

2. Bridging
 Establishes the communication between the different cultures
Preparing : Setting up a ground for communication
Decentring : Going away from your own cultural centre and
try to understand others’ point of view in order to make
yourself understood and understand others
Recentring: To establish a common reality and harmonizing
common rules
 Different factors are necessary to make these steps successful
such as motivation, confidence, no blame on others’ culture, and
a sense of unity.

School of
3. Integrating
Structures and processes to be put in practice to
ensure communication, build participation, solving.

Cultural Integration
Importance of understanding of ‘Culture’ in International Business
1. Roles of an international manager
 Identifying cross-cultural and intracultural differences
 Isolating potential opportunities and problems
2. Organizations act as change agents by introducing new products/
ideas/practices resulting in changes in
 Manner of consumption
 Type of products consumed
 Social organization

SOURCES OF CULTURAL KNOWLEDGE
 Cultural: Is defined by the way it is acquired
 Factual: Obtained through communication, research, and education
 Experiential: Acquired by being involved in a culture other than
one’s own
 Interpretive: Acquired by understanding the nuances of different
cultural traits and patterns

Cultural
Integration
THE TRAINING CHALLENGE
 To foster culture sensitivity and
acceptance of new ways of doing
things:
 Internal education programs must be
included
 The objective of training programs is to
foster:
 Preparedness
 Sensitivity
 Patience
 Flexibility in managers and other personnel

CROSS-CULTURAL TRAINING METHODS

CONTENTS
INTRODUCTION
BASIS OF INTERNATIONAL TRADE
1. Theory of Mercantilism
2. Theory of absolute cost advantage
3. Theory of comparative cost
advantage
4. Factor endowment theory
5. Theory of competitive advantage
6. Product life cycle theory
7. Theory of identical preferences
8. Product differentiation
9. Outlet for domestic surplus
CONCLUSION

INTRODUCTION
The reason for the emergence of international trade is that
the human wants are varied and unlimited and no single
country possesses the adequate resources to satisfy all these
wants. Hence there arises a need for interdependence
between countries in the form of international trade. So in
order to make effective utilisation of the world’s resources
international trade is to be boosted and the problems faced
by the countries should be dealt with.

BASIS OF INTERNATIONAL TRADE
No country is self sufficient in producing all the required
goods and services from its own resources. This problem
can be solved through international trade where the
countries obtain those goods which it cannot produce or
cannot produce as cheaply as possible in another country.
However this is not the only basis for doing international
trade, there are other reasons also. Trade economists
have laid down different theories for international trade.

Contd….
Theory of Mercantilism
Theory of absolute cost advantage
Theory of comparative cost advantage
Factor endowment theory
Theory of competitive advantage
Product life cycle theory
Theory of identical preferences
Product differentiation
Outlet for domestic surplus

Mercantilism convent_ectheory
An economic philosophy based on the belief that
1. a nation’s wealth depends on accumulated treasure, usually gold, and
2. to increase wealth, government policies should promote exports and discourage
imports. In balance-of-payment accounting
an export that brings dollars into a country is called “positive,” but
imports that cause dollar outflow are labeled “negative.”

THEORY OF ABSOLUTE COST
ADVANTAGE (By Adam Smith)
Producing a good with fewer inputs (capital, labor, land,
raw materials, etc.) per unit of output than other
countries
If input prices are the same in two countries, the country
with an absolute advantage in a good will have a lower
unit cost of production for that good
A country should produce and export products in which
it has an absolute advantage
A country should import products in which it has an
absolute disadvantage

Per unit cost of production( Rs.)
Country Cotton Tea
India 5 10
Indonesia 10 5
India has absolute cost
advantage in the
production of cotton
and Indonesia in the
production of tea
Both countries will
gain if India produces
and exports cotton and
Indonesia produces
and exports tea.

THEORY OF COMPARATIVE COST
ADVANTAGE (By David Ricardo)
Focus on comparative cost advantage not on absolute cost
advantage.
Each country specialises in the production of that
commodity in which its comparative cost of production is
the least.
A country will export those commodities in which its
comparative costs are less.
A country will import those commodities in which its
comparative costs are high.

Commodities (Per unit cost of
production)
Country
A B C D E
X 10 12 13 14 15
Y 9 5 8 13 14
Cost
Difference
1 7 5 1 1
Country Y has comparative
advantage in products B and
C
Country Y will put all its
resources in the production
of B and C
Country X will produce other
products i.e. A, D, and E.

FACTOR ENDOWMENT THEORY
(By Heckscher and Ohlin)
A country that is relatively abundant in a factor of production
should export goods that use a lot of that factor in the
production process, and import other goods
Example: a country like China with a lot of labour should
export labour-intensive goods
Why? If a factor is relatively abundant, it will be relatively
cheap, and a country will be more globally competitive in
products that use a lot of that factor

THEORY OF COMPETITIVE
ADVANTAGE (By Micheal Porter)
To compete in the world a country requires a strategy to gain a
competitive edge over the others.
Competitive advantage is created by technological and institutional
change, not just inherited from a country’s natural endowments.

PRODUCT LIFE CYCLE THEORY (By
Vernon)
Industrialised countries contribute more resources to
research and development which results in development
of new products
In early stage they have monopoly on such new products
and enjoy easy access to foreign markets
Later other countries start imitating their products and
initial advantage disappears.

THEORY OF IDENTICAL
PREFERENCES (By Linder)
Based on the principle that trade opportunities are more among
countries at similar stage of development with similar demand
structure
E.g. USA and Japan are largest trade partners because of identical
consumer preferences and similar stage of development.

PRODUCT DIFFERENTIATION
Another reason or basis for international trade can be the
product differentiation.
It means differentiating a product in some manner such as
adding different and new features in the same basic products.

OUTLET FOR SURPLUS
Most countries involve in international trade because
they have surplus production
Surplus commodities or some unused resources can be
exported
E.g. India had surplus wheat in 2000 and there was no
additional storage capacity, so it was decided to export
wheat at cheaper rates in the international market.

CONCLUSION
To sum it up, we can say that there are multiple basis for
international trade. It can also be said that these are the
inevitable factors which force a country to do international
trade.

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