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International business
International Business involves commercial activities that cross national borders. It includes trade, investment, and transportation between two or more countries. Key features include large-scale operations, integration of economies, and domination by multinational corporations from developed countries. The main benefits for participating countries are technology transfers, employment, and industrial development, but it also leads to keen global competition and restrictions. Firms progress from domestic to international and eventually multinational as they expand globally. The main goals and approaches of international business are then discussed.
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International business
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- 2. A business also knownas a firm or enterprise is an organization involved in trade of good ,services or both to the customers Comprise of all commercial activities (private, government, sales, investment ,transportation that take place between two parties Any type of business activity that crosses borders Any commercial industrial activity involving two or more nations INTERNATIONAL BUSINESS
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- 4. Features Large scale operation Integrationof economies (combination of many economies to produce ) Dominated by MNCs and developed countries (technology, finance, skilled manpower) Benefits participating countries (technology, employment, industrial development Keen Competition (competition with developing countries) International Restrictions (trade blocks, foreign investment restrictions Sensitive (technology, economic policies, government)
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- 6. DOMESTIC COMPANY -operation withinnational boundaries -focuses on domestic customers, suppliers, opportunities INTERNATIONAL COMPANY -just importers and exporters -No investment abroad -Focus is mainly on domestic country MULTINATIONAL COMPANY -finds out extension strategy will not work (Toyota-Japan/US) -have investment in other countries -Formulate strategies for each market GLOBAL COMPANY -Philps- MNC (Japanese companies – global strategy- satisfy world market -have investment in other countries -produce in one country and market globally or produce globally and market domestically Dr.Reddys Lab TRANSNATIONAL COMPANY -They produce,operate,invest across the globe Have investment in foreign companies -have central corporate facility but decision making ,R&D etc to individual market
- 7. International business approaches Ethnocentric Polycentric Regiocentric Geocentric Sameas International company Same as MNC/McD Considers regional environment for policy/strategy formulation Entire world is a single country for company Each subsidary works like independent country
- 8. Goals of Internationalbusiness Achieve high rate of profits Apple-$730 million(foreign)$620(dom estic)-2007 Expanding beyond the demand of domestic country Toyota(Japan) Severe competition in home country Limited home market (low population/low purchasing power Japan-US/Europe ITC-Europe due to (India) Political stability (continuation of same policies ) Technology and competent human force Europe-Indian companies(BPO)
- 9. High cost oftransportation Compared to domestic countries(locate manufacturing units in domestic) Mobil,caterpiller Nearness to raw materials US,Europe-Saudi Arabia(availability of petrol Availability of cheap manpower Locating business in India Liberalization and Globalization Increase market share Ball corporation(can manufacturer-continental can company(europe)-increased global market share Achieve high rate of economic development Tarrifs and Quotas (protect domestic countries) Japan/US- competion- Us-imposed T&Q on import of Japanese automobiles Best is FDI
- 10. Theories of InternationalTrade • Mercantilism • Absolute advantage (Classical) • Comparative advantage • Factor Proportions Trade • International Product Cycle • New Trade Theory • National competitive advantage
- 11. Mercantilism: mid-16th century •A nation’s wealth depends on accumulated treasure – Gold and silver are the currency of trade • Theory says you should have a trade surplus. – Maximize export through subsidies. – Minimize imports through tariffs and quotas Benefitted colonial powers and caused discontent in colonies- India /British
- 12. Defining mercantilism … “…trade theory holding that nations should accumulate financial wealth, usually in the form of gold (forget things like living standards or human development) by encouraging exports and discouraging imports” • Flaws: Restrictions, impaired growth, decay of gold standards reduces validity of theory • It is views trade as a zero sum game which means a gain for one country results in a loss by another
- 13. Theory of Absolutecost Advantage • Adam Smith: Wealth of Nations (1776) argued: – Capability of one country to produce more of a product with the same amount of input than another country – A country should produce only goods where it is most efficient(Cost less than other countries), and trade for those goods where it is not efficient – Based on the principle of division of labour – E.g INDIA • Trade between countries is, therefore, beneficial • Assumes there is an absolute balance among nations
- 14. • Advantage maybe in skilled labor in certain products ,economies of scale would reduce cost per unit , or it may be natural advantage due to climate, natural resources(Indian climate (mangoes, cashews);U.s(Wheat) or may be acquired advantage through technology and skill development
- 16. Assumptions • Trade isbetween two countries • Only two commodities are traded • Free trade exists between countries • The only element of cost of production is labour
- 17. Assume if theytrade with each other Output per one day of labour Japan India PENS 20 60 AUDIO TAPE RECORDERS 6 2
- 18. • Suppose Japaneseagree to exchange 4 tape recorders for 40 pens • To produce 40 pens ----Japan takes 2 days • To produce 4 tape recorders----Japan takes 0.67 day(4/6) Now India, To produce 40 pens---India takes 0.67 day To produce 4 tape recorder-----India takes 2 days So what is the advantage India= (2-0.67)= 1.33 day same for japan So here they save labour, which can be used for other purposes
- 19. 0 10 2030 40 50 1 2 3 4 5 6 60 No of pens Nooftaperecorders
- 20. • … destroysthe mercantilist idea since there are gains to be had by both countries party to an exchange • … questions the objective of national governments to acquire wealth through restrictive trade policies • … measures a nation’s wealth by the living standards of its people