International Business BBA 5th.pptx

MGT 207: International Business
Course Details
Unit 1: Globalization and International Business LH 6
Concepts of globalization and international business; Factors affecting
globalization; Reasons for international business expansion; Drivers of
market globalization; Domestic vs international business.
Unit 2: Theories of International Trade and Investment LH 8
Theory of Mercantilism, Theory of Absolute Advantage, Theory of
Comparative Advantage, Factor Endowment Theory, Product Life-Cycle
Theory, Theory of Competitive Advantage; Foreign direct investment based
theories ; Implications of international trade and investment theories;
Contemporary issues of international trade.

Course Details
• Unit 3: Global Business Environment LH 12
• Political and legal systems; Actors in political and legal systems; Political
risks; e-commerce and intellectual property rights; Government
interventions and investment barriers; Cultural environment – concept,
why culture matters in international business?; Regional economic
integration – types, leading economic blocs; Emerging foreign markets;
The changing demographics of the global economy; International
monetary and financial environment – currencies and exchange rate
systems; The floating exchange rate system.; Modes of payment in
international trade; Global financial system; International economic
institutions; WTO and free trade policies.

Course Details
• Unit 4: International Strategic Management LH 10
• Strategy and opportunity assessment; Role of strategy in international
business; Estimating market potential; Choosing a strategy; Entering and
operating in international markets – exporting and importing, collaborative
ventures and strategic alliances, licensing, franchising; Global
• Outsourcing; MNCs and Foreign Direct Investment (FDI) in the world
economy – concept, types and trends.

Course Details
• Unit 5: Functional Areas of International Business LH 12
• Global production, outsourcing and logistics – managing global supply
chain; Global marketing strategy – global branding, product development,
pricing, communications, and distribution strategies; Global e-marketing
strategy; Financial management – sources of funds for international
operations: Investment decisions; Tax practices; Currency risk
management; International human resource management – staffing
policy, diversity management, labour relations, preparing employees for
repatriation.

Text and Reference Books
• Basic Books
• Charles W L Hill and Arun K. Jain. International Business: Competing in the Global Marketplace. Tata McGraw
Hill, New Delhi.
• Johan S. Hill. International Business: Managing Globalization. Sage Publications. New Delhi.
• References
• Alan Sitkin and Nick Brown. International Business: Challenges and Choice. Oxford University Press. New
Delhi.
• Oded Shenkar and Y. Luo. International Business. Wiley Publications. New Delhi. Rakesh Mohan
Joshi. International Business. Oxford University Press. New Delhi.
Nepalese Books.
Sthapit Arun. International Business. Kathmandu. Taleju Prakashan
Gautam, Murari prasad. International Business. Kathmandu. Asmita publication.

Concept of Globalization and International Business
Globalization
• Globalization means integrations of national economy to global economy national
business to international business. It is possible due to the reduction in the barriers to
the movements of merchandise, capital, technology, and amongst the nations.
• It has promoted world economy and socio cultural interdependence through
international business. Major drivers and role players of modern globalization are
government, international institutions national and multinational enterprises and
people.
• During the 1990 United nation, World bank (WB), International Monitory Fund(IMF),
and United State Treasury (UST) worked together to address the global challenges
such as Business Poverty, inequality, climate, environment degradation, peace and
justice.

Concept of Globalization and International Business
Globalization: meaning different to different people.
• Free trade, investment and freeing economies.
• Integration of economies in the world.
• Growing interdependence of the world people.
• A process of integrating not just the economy, but culture, technology and
governance.
• Integration of national economy into global economy.
• Based on the free market economy.
• Free movement of products across borders
• Free flow of capital labour and technologies across the national borders.
• Standardized Technology
• Emergence of MNCs
• Extensive use of information, communication and entertainment technology (ICET)
Characteristics of Globalization

Forms of Globalization
Political globalization
• The forms of globalization believes in the democracy, introduction of decentralization,
good governance, human right, rule of law, social justice, setting up global and
regional institutions harmonization and regulatory system.
Economic Globalization:
• In general, economic globalization broadly refers to the increasing integration of
national economies around the world, particularly through trade and financial flows.
• Economic globalization involves trade in goods and services, capital flows and trade
in assets (e.g., currency, stocks), the transfer of technology and ideas, and
international flows of labor or migration.
Socio-Cultural globalization
• Advances in technology and communication increase the interaction between
individuals and societies living in different geographies. Social-cultural dimension
of globalization refers to the movement and spread of ideas, knowledge and
individuals at a global scale
• Worldwide exchange of socio-cultural value and norms including norms related to the
women right, global citizen, and tourism.

Technological Globalization.
• Technological globalization can be defined as the increasing speed of technological
diffusion (movement) across the global economy. It refers to the spread of
technologies around the globe, and particularly from developed to developing nations.
• The world has seen the tremendous development in the sectors of science and
information communication and entertainment technology (ICET). The technology of
production operation and communication developed in ore part of the world get
instantly globalized and use in other parts of world.
• Microsoft window, GSM, CDMA, Hotmail Gmail as well as internet search engine
widely use across the world

Natural (Ecological Environmental) Globalization
• Environmental globalization has become a broad spectrum to solve the most alarming
problems such as, global worming, depletion of the o-zone layer, acute loss of
biodiversity, environment and noise pollution. This scenarios have contributed to the
development of unification among the nations that has made consensus and
emerging thought of integration.

Factors affecting globalization.
Regulatory associated with
• Liberalization; reduction and elimination of trade barriers on flow of
merchandise goods services and intellectual preparties.
• Deregulation; free flow of production factors, funds, goods, services and
removal of monetary system of price, foreign exchange, subsidies etc.
• Privatization; minimum state ownership in business sectors.
Expansion of Technology
There have been advances and expansion of technologies in the area of
information and technologies, communication transportation. They increasingly
encourage an increased flow of ideas and information across the border. It
enables the customers to learn about foreign products and services.

Institutionalization;
Growing concern of the creation of supranational like WTO, SAFTA, BIMSTEC
regional, bilateral, multilateral institution for economic and social co-operation,
preferential arrangement, unification, integration and development.
Cost concern
Firms always have cost concerns. So they have goal of achieving economies of
scale to reduce cost of production. The firm locate the production plants in
countries where cost of the factors of production are lower. When they do so they
bring about globalization of their business operations.
Development of services that support international Business.
Government and firm have developed a variety of services and facilities that
support international business activities. These services would include availability
of easier bank credits and foreign currencies clearing arrangements, insurance.
Such services facilitates the globalization.

Growing consumer pressure;
Consumers may build pressure on firms from different parts of the world to
supply more, new and better products . They also demand finely differentiated
goods.
Rich buyers also demand more luxuries. As a result,, firm will have to respond to
such consumer pressures to supply the demanded goods distributing in different
parts of world ultimately led globalization.
Increased global competition
Another factor affecting globalization is increased global competition. Due to the
tough competition firms buy or sell in foreign markets. Because of the
competition they go to foreign country markets instead of limiting business only
to their domestic market.
Firms are defending their home country markets from competitors by entering
ingo the competitors home markets to distract them.

Changing political situation
There are number of political trends that affects globalization, the pace of
globalization increased when there was a big trends toward democratization of
political systems after the fall of communist as well as Monarchies in Nepal.
International Media outreach
Media both in at home and abroad have expanded their outreach today. As a
results the happening of one part of world will be instantly know to other part.
Products in one market will be instantly known to the other part which create the
demands from across the world.
Media including electronic, print online ones have brought the world people more
and more closer and promoting globalization.

Reasons for international Business Expansion
Following are the reasons for expansion of international business
• Economic globalization or global economic integration were supported by the governments
and international institutions and private sectors company.
• Trade and investment were liberalize through the flexible regulatory and institutional system,
with the reduction of trade and investment barriers.
• Fonds or foreign exchange were easily available and move freely across the nations through the
international financial management system.
• Transnational corporations (TNCs) and multinational enterprises (MNEs) were evolved and
strengthened the international business.
• Business cultural transfer with the innovative, dynamic and prudent leadership and
management styles.
• Innovation through extensive research and development R&D.
• Development of information, communication, entertainment and transportation technologies
(ICETT) and there by shrinking the global size.

Drivers of market globalization
Crisis in capitalism
• Capitalism model always focuses on the capital and its role in production.
• First results is over production that is created by getting not enough market to sell overly
produced volumes. So they not only sell product their own country but also expand them to
overseas market.
• Secondly over accumulation of capital and they faces to where to use capital in an optimum
way. As a result they have to invest globally.
Technological advances.
• Technological advances is the strong driver of market globalization four things brought
significant impact in human lives in recent decades.
• Computerization and development of microprocessors
• Development of information and communication technology (ICT) and internet.
• Production technology
• Transportation technology.

International institutions
Among the international institution WTO is the strongest driver of market globalization. Was set
up in 1995 with the help of helping business communities through the freer and fair trade and
there by strengthening the world economy by developing rules based trade and investment
system.
The world bank, international monetary fund, the international finance corporation (IFC)
partners and their agencies played active roles in supporting the globalization move.
September 2000 United nation come up with agenda of millennium development goals MGD
adopted by 191 countries.
Companies
Companies at national as well as international level were very much facilitated by the
introduction of rules based trading system by the institution like WTO and by the liberalization
and deregulation of economy by government. This support the widening the international
business.
Company could involve in achieving the comparative cost advantages in production through
specialization which ultimately boost the globalization.

Government:
Government of all the countries become the effective drivers of globalization by introducing
liberalization economics policies through deregulation, privatization and harmonization of
regulatory norms.
People:
People were indirect drivers as they were consumer as well as means of production
People become supportive basically for two reasons
They realized the socio economic benefits as standard of living gradually increasing with the
availability
• Comparative and comparative advantages
• International media outreach
• Competition
• Political trends towards promoting regional economic blocs
• Growing consumer pressure

Advantages and Disadvantages of Globalization
Advantages
• Transfer of Technology
• Better Services
• Standardization of Living
• Development of Infrastructure
• Foreign Exchange Reserves
• Economic Growth
• Affordable Products
• Contribution to World GDP Growth
Rate
• Extensions of Market
Disadvantages
• Inequitable distribution income and
benefits.
• Increasing of the Unemployment rate
• Trade Imbalance
• Environmental Loots
• Threats to socio cultural values in
countries
• Environment degradation
• Erosion of national sovereignty
• Unfair competition and monopoly

International Business
Meaning.
International business involves the international trade of merchandise, services
and intellectual properties and investment made in a capital, technology,
management and intellectual property across the frontiers (border).
It is defined as the process of extending the business activities from domestic to
any foreign country with an intention of targeting international customers.
• IB include all the business transactions across the frontiers in the form of;
• Export and import of goods and services
• investment made in capital, technology, management
• Sale or uses of intellectual property such as license copyright, patent,
trademark etc.

International Business
Characteristics of international Business
1. Large scale operations
2. Involve more than two countries in business
3. Integration of economies
4. Dominated by developed and MNCs
5. Benefits to participating countries
6. Keen competition
7. Based on free market economy
8. Special role of science and technology :
9. Based on free flow of factors of production.
10. Impact of international organization
11. Uses of multiple currencies exchanged with us Dollar.

important features of IB
• Transaction across the national boundaries more than one countries
• Payments of such transaction made in foreign currencies.
• Exposed to the external environments.

DOMESTIC BUSINESS INTERNATIONAL BUSINESS
• Domestic business refers to the business
where economic transactions are conducted
within the geographical boundaries of the
one country.
• International business refers to the business
where economic transactions are conducted
across borders with several countries in the
world.
• In Domestic business buyer and seller belong
to same country.
• In International business buyer and sellers
belong to different countries.
• In Domestic business, selling procedures
remain unaltered.
• In International business selling procedure
changes.
• The quality of products, or standards may be
lower.
• Quality of product or standards is expected
and enforced.
• In domestic business it is very easy to
conduct business research.
• In international business, business research
is very expensive and hard to conduct.

• It deals with a buyers single currency. • It deals with multiple currencies.
• There are few restrictions on domestic
business.
• There are a lot of restrictions on
international business.
• The nature of customers in domestic
business is homogeneous.
• The nature of customers in international
business is heterogeneous.
• In domestic business the degree of risks is
low.
• In international business the degree of
risk is high.
• Factors of production have greater
mobility.
• Factors of production have limited
mobility.
• The transportation medium of goods in
domestic business involves the use of
roads and railways.
• The transportation medium of goods in
international business involves the use of
water and airways.
DOMESTIC BUSINESS INTERNATIONAL BUSINESS

Domestic business is subject to the laws,
regulations, policies, and taxes regime of
a single nation.
The domestic business operations are
not directly or significantly impacted by
the tariff rates and quotas imposed by
different countries.
International business is subject to the
laws, regulations, policies, and taxes
regime of multiple countries.
The international business operations
are directly or significantly impacted by
the tariff rates and quotas imposed by
different countries.

Unit-2 Theories of International Trade and Investment
Learning objectives
• Why the international trade and investment take place
• Describe the advantages of knowing the theories
• Understand the Doctrine of mercantilism
• Comprehend the classical theories like absolute advantage theory comparative cost
advantage theory factor endowment theory.
• Elaborate other trade theories like product life theory, porter theory of national
competitive advantages etc.
• Describe the classical and contemporary theories of investment
• Appreciate the implication of international trade and investment theory

Unit-2 Theories of International Trade and Investment
The knowledge of theories of international trade and investment helps us to:
• Determine the nation fiscal an monetary, trade, investment, and foreign exchange
policy
• Allocate nation’s resources in most effective manner.
• Calculate the benefits of international trade and investment
• Identify the factor that determine the trade and foreign investment of a country
• Decide make or buy what should be produce at home and what should be import
from abroad.
• Find most lucrative market for domestic goods and services
• Decide where one should go for investment
• Increase production, productivity export, income employment, etc. in country

Mercantilism Theory
1630 by Thomas Mun.
 This theory stated that country’s wealth was determined by the amount of its gold and sliver
holdings.
 Mercantilists believe that a country should increase its holdings of gold and silver by
promoting export and discouraging imports.
 Trade for wealth and state power can be achieve through trade surplus.
 It is based on Zero Sum Game (one country profit is the another country loss)
 Only through the mobilization of resources with the help of trade and nation’s citizen desire
are satisfied.
 The objective of each country was to have a trade surplus, or a situation where the value of
experts are greater than the value of imports and to avoid a trade deficit.
 Wealth can be obtained by the government commercial policies of export promotion and
import restriction with barriers which results trade surplus to make nation strong with
accumulated wealth.

Absolute Advantage Theory :Adam Smith 1776
• This theory which focused on the ability of a country to produce a good more
efficiently than another nation. The trade take place when one nation can produce
goods at lower cost than anther nation.
• Trade is POSITIVE SUM GAME ( both countries are benefited)
• In a hypothetical two country world, if country A could produce a good cheaper or
faster or both than Country B, then country A had the advantage and could focus on
specializing on producing that good. Similarly, if Country B was better at producing
another good, it could focus on specialization as well.
• Export goods of production advantage and import goods of production disadvantage
• Source of Absolute Advantages
• Natural advantages (Natural Resources)
• Acquired advantages (Technologies)
Disadvantages: no explanation where a nation may have advantage in producing both
commodities

Comparative Advantage Theory (David Ricardo 1817)
• It is the extension of Absolute Advantage Theory
• Comparative advantage is contrasted with absolute advantage. Absolute advantage
refers to the ability to produce more or better goods and services than somebody
else. Comparative advantage refers to the ability to produce goods and services at a
lower opportunity cost(foregone benefit), not necessarily at a greater volume or
quality.
• Positive Sum Game (Both countries benefited)
• if the country has Absolute Advantage in both the product then the specialized in the
production of that good which it produce more efficiently comparatively and import those
which it produces less efficiently comparatively.
• Produce and export the good which can be produce more efficiently
• Example if the India is efficient in truck and car production but compare which one is more
beneficial and production choose one these.

Factor Endowment Theory
• Also known as Factor proportion theory or Two factory theory or Heckscher &
Ohlin in 1933
• Basic premises – factor endowment vary among countries and this leads to
difference in factor costs.
• The countries will export those goods which make intensive use of factors that
are locally abundant (available) and import goods that make intensive use of
factors that are locally scarce.
• For example, China and India are home to cheap large pool of labor. Hence
these countries has become the optimum location for the labor intensive
industries like textile and Garments where as US is better for capital intensive.

Modern Theory of International Business
Country Similarity Theory
• It is given by a Swedish Economist Staffan B Linder in 1961
• He tried to explain the concept of the INTRA- INDUSTRY TRADE
• The theory proposed that consumers in countries that are in the same or similar stage of
development would have similar preferences. For example America sell tesla car to Japan
and Japan sell Toyota in America.
• In this companies first produce for domestic consumption, when they explore exporting, the
companies often find that markets that look like their domestic one in terms of customer
preferences, offer the most potential for success.
• Linder’s country similarity theory then states that most trade in manufactured goods will be
between countries with similar preference income and intra industry trade will be common

Product Life cycle Theory; Raymond Vernon
• A product life cycle is the length of time from a product first being introduced to consumers
until it is removed from the market. A product’s life cycle is usually broken down into four
stages; introduction, growth, maturity, and decline.
• According this theory as the product reaches the stage of maturity and decline, production
will shift to foreign locations especially to emerging economies where unskilled, inexpensive
labor can be made efficient for standardized production process.
• In any given market, products pass through four distinct phases of life cycle in the
international market. Introduction, the growth, the maturity and the declining and death.
Hence a product reaching at maturity and decline phase in one country, market may be
introduced afresh in another country markets.

• Stage1: New product stage:
• innovative product, production in home country, price not a weapon and pioneer (country
first invented product) country is net exporter.
• The innovator at this stage is a monopolist and therefore enjoys all of the benefits of
monopoly power, including the high profit margins required to repay the high development
costs and expensive production process. Price elasticity of demand at this stage is low; high-
income consumers buy it regardless of cost.

Stage 2: The Maturing Product
The innovating country increases its sales to other countries. Competitors with slight variations
develop, putting downward pressure on prices and profit margins. Production costs are an
increasing concern.
As competitors increase their pressures on price, the innovating firm faces critical decisions on
how to maintain market share.
Vernon argues that the firm faces a critical decision at this stage, either to lose market share to
foreign-based manufacturers using cheaper labour or to maintain its market share by
exploiting the comparative advantages of factor costs by investing in other countries.

Stage 3: The Standardized Product
In this final stage, the product is completely standardized in its manufacture.
Profit margins are thin and competition is fierce. The product has largely run its course in
terms of profitability for the innovating firm.
A new and innovative product that’s begins with as a nation’s export items ultimately become
it’s imports.

National Competitive Advantage theory
• This theory also know as porter’s diamond Theory in 1990
• Porter helps to understand about the factors that are available to a nation.
• The theory state that a nation’s competitiveness in an industry depend on the capacity
of the industry to innovate and upgrade.
• The theory focus on explaining why some nation are more competitive in certain
industry.
• Four attributes together forms PORTER DIAMOND

Demand condition
• Porter stress that nature of domestic demand for the product as an important
condition in strengthening the competitive advantage. It was also presume that
the sophisticated and knowledgeable consumer give pressure to domestic firm to
create high quality, useful and innovative product that will intensify the possibility
of penetrating foreign market.
Factor endowment
• Porter has analyzed the features and level of composition of production factors.
He has also distinguished between basic factors such as natural resources,
climate, location, educational level health and demographic. Advance factors
such as technology, communication infrastructure skills labour R$D facilities etc.

Related and supporting Industries.
Availability of effective operation of input supplier and supporting industries with
in the country also determine the level of competitive advantages of the firm in the
country.
Firm Strategy structure and Rivalry
According to porter’s a nation competitive advantage is also determined by the
firm’s strategies, structure and rivalry with the country.

Foreign Direct Investment Based Theory
International investment – Foreign direct investment and portfolio Investment
International investment is the outflow of the assets from home country to abroad (host
country) or inflow from foreign country to home country with the view of investment.
International investment can be grouped in two types;
Foreign Direct Investment (FDI): it include all the ownership and control of assets with voting
share in business organization set up in foreign country.
It is an investment made by firm or individual in one country into business interested location
in other country.
FDI Strategies;
Green field strategy
Parent company creates a subsidiary in a different country, building its operations from the
ground up (From the stat up).
In addition to the construction of new production facilities, these projects can also include the
building of new distribution hubs, offices, and living quarters.

Foreign Direct Investment Based Theory
Cross Border Merger and Acquisition;
Cross-border mergers and acquisitions involve assets and operations of firms belonging to two
different countries. Acquisition refer to the purchasing of assets or stocks of part or all of
another firm (or other firms) that result in operational control of the whole or part of the
other firm.
Portfolio investment:
• Foreign portfolio investment (FPI) refers to investments made in securities and other
financial assets issued in another country.
• Both methods of foreign investment are crucial to global trade and development, however,
FDI is often considered the preferred mode and is less volatile.
Many companies invest in foreign countries by following reasons
• To capture the high rate of return on investment
• To exploit knowledge (human skills) and other resources
• Benefits form political, regulatory, and economic stability of host countries.

Classical and contemporary Theory
Classical theory:
The capital move from one country to another because difference in interest rate for
investment of equal risk. But there had to be perfect competition.
Contemporary Theory: Due to some drawback of perfect competition contemporary was
emerged. Following are the main contemporary
1. Monopolistic Advantage Theory
Theory explain that the FDI is made by the firms in oligopolistic industries possessing technical
and other advantages over indigenous firms. A foreign firms might have advantage in term of:
• Economic of scale
• Superior technology
• Superior knowledge in marketing, finance, management
• Monopolistic advantage over the indigenous firm.

2. Ownership Advantages theory
A companies having advantages of technology, brand image and experience and they wish to
operate business in foreign countries directly by establishing their own subsidiaries thereby
utilizing their competitive advantage.
In this case company have ownership advantage in terms of its own technology, process, brand
image, management capabilities, economies of scale.
3. Internalization theory
It is only a part of market imperfection Theory. The concept of internalization theory is to
transfer the superior technology, intellectual property or superiors knowledge to a foreign
subsidiary, and obtain a higher return or fee on its investment.
The companies either into contract and provide authority to use. Its competitive advantages in
form of license, franchise or import and distribute goods and services.

4.Dunning’s Eclectic Theory of International Production (OLI Model)
It is also known as miscellaneous theory that is based on everything already discussed in
above. According to john Dunning, a firm invest overseas for three types of advantages.
Ownership specific: (Technology/ knowledge, economies of scale and monopolistic)
Location specific: ( more profit due to specific factors; physical, political, economic, etc. in
foreign market)
Internalization: (higher return in licensing, franchising or exportation rather than the full
operation)
5. International product life Cycle Theory:
This theory explains that FDI is a natural stage in the life of a product, there is direct
relationship between the international trade and international investment, foreign direct
investment occurs when product life move to third and fourth stages

Implications of International Trade and Investment Theories
Understanding the trade theory and its implication is crucial to international business
manager, government policy maker in the following way:
1.What product should we import and export?
2.How much we Trade?
3.With whom should we Trade?
Charles W.L Hill has explained three important implications of theories on international
business:
(a) Location implications,
(b) First mover implications and
(c) Policy implications.

1. Location Implications (Profit or Objective Focused)
Theories explain that different countries have different advantages in production activities.
from the business (profit) point of view, a firm should perform its productive activity in a
country, where it is more efficient and effective, or where the profit is higher.
Sudan, Egypt, and Spain are efficient in production of cotton, Korea is efficient in
production of acrylic and rayon yarns and fabrics, Germany is efficient in production of
high-tech machines for fabric cutting, making and trimming and stitching and packaging.
But Bangladesh is efficient to use Korean fabric and German machine to produce clothing.
The global value chain (GVCs) are expanding and deepening to take the advantage of cost
economies of scale with sophisticate information technologies and improved logistics, and
trade facilitation. Intra-industrial trades are surging with the fragmentation and
transformation in production processes.

For example, the production process has four main stages like:
Designing and product development or prototype making;
manufacturing of basic components;
manufacturing of advanced components;
final assembly.
Normally, it is found that the first and third stages are mostly completed in highly developed
countries like USA, Japan, Sweden, Germany and Switzerland.
Second and fourth stages are performed in many developing countries like S. Korea, Taiwan,
Malaysia, China, India, etc.
Manufacturers and NNC or TNC are taking advantage of difference of efficiencies and cost, as
identified by the various theories of trade and investment.

2. First-mover Implications (Technology Focused)
• When a new product is produced and introduced by a company, for the first time, it may
dominate the global market and trade with that product. As in the case of Nokia, which
dominated production and marketing of mobile phone sets. These are early movers or first-
movers.
• Samsung Electronics emerged with its wide range of products initially during 1990s, with
market price leadership strategies, even if it had several years of substantial losses before its
venture turnout to record at 5th position in Fortune 500 ranking of the world's
Multinational Corporations (MNCs), in terms of profit of USS 36.6 billion in 2019.
• From the investment point of view, a business person has a clear message that substantial
Financial movement in trying to establish under first mover strategic advantage ultimately
pay a large profit.
The first-mover implications depend on consideration of product life-cycle, market
imperfection and ownership advantage theories.

3. Policy Implications (Strategy Focused)
 Private companies or MNCs are the major players in international business. Most theories
promote free trade and investment and most governments also try to practice the concept of
theories of trade.
 However industrialists, farmers, producers of services are always lobbying governments to
follow restrictive trade and investment practices whereas traders or merchants are lobbying
for free flow of trades.
 If the government has a soft spot for industrialists, the cost of living to citizen increases,
because of high protection cost (restrict foreign trade or high tariff and tax), and producers
return will increase. The positive outcomes are high revenues to the government through
increased tariffs and increased employment in the industries.
 On the other hand, when government favors free trade, cost of living to its citizens, cost of
employment and customs revenue decreases. Therefore, there is tension of interests among
traders, industrialists and government.

The question is, how long employment that is protected from external market forces, could be
sustained. When imported items are much cheaper, even if high tariffs are imposed, highly
protected industries have to be forced to close down, at one point.
A firm or a nation must invest to upgrade the factors of production and supportive industries,
HRD and infrastructure to achieve competitive advantages. It is the best interest of firm and
companies to lobby the government to adapt the policy strategy to support porter diamonds for
strengthening the competitiveness.

Government's responsibilities to monitor and regulate trades with national objectives including
national security, peace, welfare, stability, safety and security of the citizens.
Transactions across the boundaries exogenous (growing form) environmental forces affect the
business system. Such forces include political, socio-economic, regulatory, technological, fiscal
and monetary, commercial and distribution practices, and foreign exchange regulations of
importing countries.
These exogenous factors are uncontrollable to the exporters and importers and may cause
several issues and constraints in speedy movements of international transactions.
Contemporary issues are mostly related to the uncontrollable exogenous environmental factors
and the government interventions in IB. Issues of trade also differ from country to country.
Contemporary Issues of International Trade

The WTO is the regulatory body of international trade and its members are legally bound to
many agreements and arrangements making standardized rules of trade.
The WTO with its rules, monitors and watches over the flows of international trade and
investment to ensure that their operations are smooth, predictable and free.
The WTO has also a Dispute Settlement Mechanism (DSM) of DBS to handle any trade-related
arguments that arises between the member countries.
However, there are still critical and high-frequency issues requiring top priority and immediate
measures to address them effectively. Such contemporary issues are discussed below:

1. Wave of Protectionism:
• There is a new trend among the member countries to hike tariffs with or without following
without WTO negotiation procedures which lead to the trade war between countries E.g.
Donald Trump hike tariff in Chinas products.
• Trade war always have negative effect on international business and WTO looking such issue
extremely critical.
• Recently there is significant increases in the trade restrictive regulatory measures by the WTO
members.

Subsidies to Agricultural Products:
• Many developed countries like USA, Canada and Japan and emerging countries like China,
India, provide several types of supports and subsidies in inputs and technology required for
farming or in export transactions that directly help in reducing farm and export costs.
• Subsidies distort the global market or demand and supply system creating a situation of
artificial competitiveness.
• Not all the governments of many countries can afford to extend such subsidies to the farmers
with exception to developed and emerging economies.
• The World watch Institute reported that total agriculture subsidies distributed to farmers in 35
countries including EU (28), China, USA, Japan. Indonesia, Korea R„ Canada, Mexico accounted
for US 429 billion in 2012. The OECD countries alone accounted for us 280 Billion.
• In this way government that causes the trade unfair by providing subsidies to farmer and
manufacturer.

 Dumping:
 Dumping occurs when a country or company exports a product at a price that is lower in the
foreign importing market than the price in the exporter's domestic market.
 It is one of the important issues of international trade as it gives room of unfair trade
competition, erode the competitiveness of domestic industry and can also put domestic
manufacturers in the most disadvantageous position requiring closing down their business
operation.
 Dumping is legal under World Trade Organization (WTO) rules unless the foreign country can
reliably show the negative effects the exporting firm has caused its domestic producers.
 Countries use tariffs and quotas to protect their domestic producers from dumping.

Transit facility for land-locked Country
• Access to nearest sea or transit facility is very critical and important issue of landlocked
because they can not do without transit access to reach to international market for both
imports and exports.
• Landlocked country has little choice about the transit of goods and sometime subject to
monopoly pricing within the neighboring countries.
• WTO system has the provisions on freedom of Transit in its ARTICLE V. it state that there shall
be freedom of transit through the territory of each contracting party.
• Despite the WTO provision agreed by all WTO members including Nepal and India, Nepal have
faced terrible transit problems since the last September 2015.

Intellectual Property (IP) Theft and Counterfeiting:
Majority of developed countries like the United States are always worried about the possibility
of intellectual property theft mainly in the countries having mass production possibilities. This
type of theft also occurs when customers are made to believe they are getting a genuine
product when they are not.
Theft normally occurs in products like sophisticated technologies, software, movies, music,
cosmetics, jewelry, watches, electronic components and equipment, literatures, etc. Theft is
most rampant in cases of patented, branded and trademarked products.
Fiscal and Monetary;
All revenue oriented measures like collection of customs duties, excise duties and other indirect
taxes; for-ex payment mechanisms.

Safety and security:
Security and anti-smuggling controls; dangerous goods; vehicle checks; immigration and visa
formalities.
Environment and health:
International environmental issues linked with trade, such as forest protection, ozone depletion,
hazardous wastes, and global climate change, etc. Complexity of relations between trade and
environment quality gave birth to many issues.
Sanitary and Phytosanitary, veterinary and hygiene controls; health and safety measures CITES
controls; waste, pollutions;
Consumer protection:
Product testing; labelling; conformity checks with product standards including technical barriers
to trade (TBT); and Trade policy. Administration of licensing, quota, export refunds, prohibitions,
state trading, etc.

Containerized Trade and Dry Ports
Containerization is a system that carries the traded goods in a container which is extremely safe
from climatic effect, and secure from pilferage (theft) breakage and damage.
There are many instances where goods are either stolen or damaged in transit, and even at the
port. In case of land locked country like Nepal containerization requires the use of dry ports.
Other issues
• Protection of human and child right
• Protecting domestic job and industries
• Shift toward services sectors
• Reginal integration

Learning objectives
• Describe the political and legal system
• Understand the of several political risk and identify the measures to learn such risk.
• Comprehend the general principles and types of laws, Acts, appreciate the complexities of
doing business cross culture.
• Appreciate the regulatory implication in the IB and major legal concerns of business
executives
• Elaborate the roles of actors in political and legal system
• Understanding to subject related to the e-commerce and intellectual property right
• Comprehend the government intervention and investment barriers.
Global Business Environment

Learning objectives
• Understand the concept, dimension of socio-cultural components
• Elaborate the process of regional economic integration and its nature
• Describe the emerging foreign markets
• Comprehend the changing demographics of global economy
• Understand the international monetary and financial environment
• Elaborate the foreign currency and exchange rate system
• Describe the modes of payment in international trade
• Understand about the global financial system
• Comprehend the nature of international economic institution
• Elaborate the concept of WTO and free trade policy

The Global Business environment
The international business environment refers to the all the factors and forces aggregate
surrounding in internationally operating firm that influence the firm’s performance and
outcome in the global market.
The IB environment can be categorized in following
Operating environment; All those factors and force which influence the firm’s operation they
include competitors, creditors, customers, labour, trade union, supplier.
Industry Environment: it consists of all industry specific factors identified by the porter’s 5
forces model; Supplier power, buyer power, entry barriers, substitute availability and
competitive rivalry for firm providing same product.

General environment
• Political legal Environment
• Economic and financial Environment
• Socio- Cultural Environment
• Technological Environment
• Natural Environment
• Global Environment

Political and Legal Systems
Political System
Political system is an integration of government bodies; associations like political or social
parties, trade unions, lobbying groups, civil societies etc. and executive and legislative
organizations that perform several roles based on the norms, rules and procedures as set out
by the constitution of a country.
A society without political system cannot exist or cannot be imagined for the reason that the
political system
• Determines and enforces the rules and procedures for the utilization and distribution of
resources;
• Integrates the social, legal, economic and religious norms
• Makes many executive policy decisions about the national security as well as rights, duties
and privileges of the citizens.

Political and Legal Systems
The political system assumes the responsibilities and roles of a country's government. A
government plays important roles in and is mainly responsible for:
(i) Maintaining peace and security,
(ii) Ensuring stability,
(iii) Maintaining international relationships,
(iv) Providing basic services to the citizens to facilitate their welfare and happiness through
constructive policies, institutions, and infrastructures.
• There are many types of political systems or ideologies. Political ideology of a country has
profound implications on the international business activities.
• Different countries are influenced by different political ideologies depending on their
historical background and attitudes and philosophies of dominant political parties.

Five most important contemporary political systems or ideologies are: communism,
dictatorship, capitalism (mixed economy), socialism and monarchy.
Communism
Under communism a government owns the major means of production and resources. All
properties including land, people, money and other resources within the national territory
belong to a state government.
Karl Max and Friedrich Engels, authors of the Communist Manifesto (1S45), were the
profounder of communism and Vladimir Lenin and Joseph Stalin further developed and
enforced it.
The important tenets of the theory are "Classless and Stateless Society' , "Power" and
"Properties" or "means of production" go to one political party or society, and oppositions
have no space in communism.

• France during 18th and 19th centuries, Soviet Union (1917 to 1991), many state of Central
and Eastern Europe including Hungary, Czechoslovakia, Poland, East Germany, etc. were
communism.
• People's Republic of China (1949-to-date); North Korea, Vietnam, Angola, Cambodia,
Mozambique, and Cuba are the examples of countries which operated under the
communism.
• Recently China has attempted to introduce market reforms without democratization but
adapted new capitalism and accepted middle classes. Among the former Soviet Blocs, 17 are
economies in transition to market economy.

Dictatorship or Totalitarian
In this system an individual or a group of persons (party) takes over all political power and
make decisions applicable to the citizens and resources of a country.
Features of dictatorship system are:
1. authoritarianism means one person or a group or a party rules over the citizen. Like South
Africa was ruled by foreigners prior to the end of Apartheid and Chile was ruled by
Pinochet;
2. Fascism is an extreme form of nationalism that calls for supremacy of the state, like
Mussolini ruled Italy from 1924 to 1943 and Germany was ruled by Hitler,
3. Secular belief means there is control through military power as there is a total government
ownership of means of production like in former Soviet Union and present Cuba and
China; and
4. Theocratic belief where religious leaders are the political leaders like in Iran and the
Taliban Party leader in Afghanistan.

Capitalism
The tenet of capitalism is that all factors or means of production should be owned, operated
and traded by the private sector for profit. Surprisingly the father of capitalist thinking, Adam
Smith, never used the word capitalism.
He has mentioned about "the system of natural liberty". The first economist to use the word
capitalist is Prof. Arthur Young (1792) and it was popularized by Karl Marx and Friedrich Engels
in Das Kapital (1867).
According to Karl Marx the main features of capitalism are:
(a) private ownership of means of production,
(b) market economy, and
(c) a state government produces the legal framework of business and physical Market should
work freely under the concept of perfect competition.

Capitalism
• It believes on free trade, privatization and abolition of subsidies and government supports.
Under this system investments, distribution, income, production, pricing and supply of
goods, commodities and services are determined by voluntary private decisions.
• The government should work in the areas where the private sector cannot enter for the
society welfare where there is no or profit such as army, police, fire extinguisher,
infrastructures and other public services, and government to government international
relations. Perfect capitalism is a quite complex view and it does not exist in the world.
• Governments in almost all countries of the world interferes the operation of the private
sector by making hundreds of rules and regulations for the welfare of citizen and to protect
the national interests. In reality majorities of economies in the world have a mixture of
private and public ownership and control.

Socialism
Government should own and control the basic means of production, distribution and exchanges
without profit motives. Many socialist or labour parties were formed and took government powers in
many countries in the past such as Great Britain, France, Germany, Greece and Spain.
a political and economic system in which property and the means of production are owned in
common, typically controlled by the state or government. Socialism is based on the idea that common
or public ownership of resources and means of production leads to a more equal society.
In Britain the Labour Party (Socialist) has been more restrictive to foreign business than the
conservative party and this party nationalized steel, ship-building, coal mining and the railways.
The main difference between communism and socialism is that under communism, most property and
economic resources are owned and controlled by the state (rather than individual citizens); under
socialism, all citizens share equally in economic resources as allocated by a democratically-elected
government.

Monarchy
In a monarchy, a monarch is the head of state until he or she abdicates or dies and then his
her son or daughter takes the power. The system follows historically achieved power and
hereditary.
• A monarch is not chosen and he or she is the final word in government. There might be
executive and legislative authorities as functionaries to make rules, decisions and
enforcement but the monarch has final discretion.
• With very few exceptions, there is no absolute monarchy system in the world. However,
there are many developed and developing countries with constitutional monarchy system
like in the U.K., Denmark, Kuwait, Spain, Sweden, Tuvalu, the Netherlands, Thailand, Japan,
Malaysia, Lesotho, and few others. Under constitutional monarchy power to make laws and
decisions are limited by constitution to a monarch.

Legal System
Legal system is a process that guides the interpretation and enforcement of regulatory norms,
laws, rules and procedures. There are three major legal systems in the world that consist of
civil law, common law and religious law.
Civil law is a Roman originated and constitution based codified system of law officially
followed by France, the Netherlands, Germany, Spain, and Portugal and their former colonies.
Common law is a jurisprudence (philosophy of law) based system and originated in Britain is
followed by former British colonies and by the United States. In this case court looks to past
presidential decisions of relevant or high courts.

Legal System
A country's national legal system guides and regulates business setting ups„ operations,
transactions and other business practices.
It is an enforceable body of the rules and laws that:
(a) regulates or governs the conduct and behaviors of individuals or institutions in a society,
(b) specifies their rights and obligations
(c) gives the processes by which such rules are enforced and grievances are redressed.
Though the world is shrinking with the wave of globalization each country has its own
regulations on external transactions such as import, export, customs, foreign exchange,
registration. taxation, foreign investments, transfer of money and technology, etc. Such a legal
system differs significantly from country to country.

Legal System
investment also relies on the extent to which legal environments are favourable. A businessperson
must know three important considerations:
(i) The types of laws prevailing a foreign country,
(ii) The court where the laws are adjudicated, and
(iii) The law enforcement
The general principles and features of a legal system:
Foundation: The historical background, the culture and traditions or customs, and prevailing political
forces of a country are the foundations of a legal system. These foundations profoundly affect how the
law is written, interpreted, and adjudicated. Political Ideology. A government that makes the legal
system and regulatory frameworks of a country is guided by dominant political ideologies.
Citizen's Rights: It also provides rights, freedoms and protections to the individuals and companies. It
specifies the nature of citizen's rights on property, work, movement, speech and other conducts
thereby it reduces the uncertainty in expectations of an individual or institution.

Legal System
Society's Views: It reflects the common views of wide-segments of a society that have agreed
to abide by the common set of enforceable rules and regulations.
Modes and Conducts: It also specifies the modes and conducts and clearly indicates the limit
that an individual or institution cannot cross and thereby it preserves the social order.
Penalties: the legal system make provision for the penalties for the violation of limit or legal
system.

Strategic Concerns
a) Product safety, liability and national standards
b) Marketing Related Regulation
c) Local content requirement
d) Legal jurisdiction and Arbitration
e) Protection of intellectual property right
f) Competition law or Restrictive business
practice.
g) Ownership law
h) Foreign exchange
i) Environmental liability
j) Technology and non equity investment
k) Taxation
l) International trade and investment agreement
Operational Concerns
a) Business Registration and establishment
b) Contract and contract enforcements
c) Financial flow Regulation
d) Pricing and wages
e) Hiring and firing
f) Bribery and Corruption
g) Bankruptcy or closing down of Company
Legal Area of Managerial Concerns

Actors in Political and Legal System
Government:
The first most important actor is the government. Government operates at national, state,
municipal and local levels through different bodies, agencies and officials having power and
enforces laws. Operation international business transactions are highly determined by their
policy decisions and directions.
International Organizations:
Multinational agencies like the World Trade Organization (WTO), United Nations (UN),
International Monetary Fund (IMF) and the World Bank Group (WBG) have a strong influence
on international business activities.
The WBG is one of the world's largest sources of funding and knowledge for developing
countries. Its five institutions share a commitment to reducing poverty, increasing shared
prosperity, and promoting sustainable development.

The WBG include International Bank for Reconstruction and Development (IBRD), the
International Finance Corporation (IR), the International Development Association (IDA), the
Multilateral Investment Guarantee Agency (NIIGA), and the International Centre for
Settlement Of Investment Disputes (ICSID). Such organizations help facilitate free and fair
trade by providing administrative guidance, governing frameworks, technical assistance, and,
occasionally, financial support.
Regional Economic Blocs:
Regional trade organizations, such as the European Union (EU), the North American Free Trade
Agreement (NAFTA), the Association of Southeast Asian Nations (ASEAN), and the South Asian
Association for Regional Cooperation (SAARC) aim to move forward the economic and political
interests of their members.
The EU represents a full form of regional economic integration with its own executive,
legislative, security, and bureaucratic bodies.

Special Interest Groups:
Special interest group is any non-profit making governmental organization formed to serve
one or more shared interests or concerns of particular countries, communities, industries,
health, culture, environment, or other causes with the objective of seeking to influence public
policy.
Such organizations at national and international levels may affect the cost of doing business
and thereby pricing of products or services. Some of such organizations are civil societies,
cartel organization like OPEC, environmental protection organization like the Andean-Amazon
Working Group, bar association, religious organizations, World Human Right Commission,
Amnesty International, etc.

Multinational and National Companies:
Companies are profit making governmental business organizations that play very crucial roles
in investment; production; exchange of goods, services, transfer of technologies and
currencies at national and international level.
All other actors in the political system either facilitate or impede the operation of companies.
It is estimated that there are more than one million registered companies engaged in
international business all over the world.

Political Risk
National security, political sovereignty, ideology, national pride, etc., are the fundamentals
that form a basis for host government actions that may lead to possible political risks to
business organizations.
Some political decisions or change in the policy decisions and public actions might be harmful
to the business organization. expropriation or confiscation of properties and economic
measures that creates risks, political sanctions or embargoes, movements of activists,
violence and terrorism, traditional hostilities, etc. Lower the level of perceived political risks
higher will be the chances for attracting domestic or foreign investment.

Political Risk
National Security:
Business options are opened in more than 200 countries in the world. According to the United
Nations classifications in 2018 there are 33 developed economies, 126 developing economies
(including 46 Least Developed Countries), and 17 economies in transition.
An international business person or marketer should give a top most priority to assess the
national and political security conditions that helps in calculating the risk of losing properties
or investment and before selecting a country to set up a business unit.
When a country is already at the verge of war, revolution, coup and frequent government
changes there is no chance to entering international business or marketing into such a
country.

Political Risk
Expropriation and State Ownership or Nationalization:
One of the most harmful government actions to the domestic private and foreign private investors is
confiscation of properties or assets. It involves seizure of a company's property without giving any
compensation. Many developing countries have seized the properties of private business organizations
before 1960s.
There is no history or records of return of such property to the previous owners. However, in modern
age many governments are going to favourable direction by providing legal guarantee on not
implementing the policy of expropriation of property and thereby attracting foreign direct investment.
Investment Guarantee and Dispute Settlements:
Many international regulatory legal bindings, institutional mechanisms have been created to protect
the provisions, properties of foreign investors in developing countries. Some of such institutional
provision include Multilateral Investment guarantee Agency (MIGA) of the World Bank guarantees the
private sector's investment by giving political risks insurance, technical assistance and dispute
mediation. Moreover, the International Centre for the Settlement of Investment Disputes (ICSID) of the
World Bank also helps to resolve the disputes between the host government and foreign investors.

Political Risk
Privatization:
Privatization is the transfer of ownership and management of public assets to private citizens,
or foreign nationals or multinationals. During late 1980s, many government-owned companies
and businesses were privatized during the movements towards liberalization after well-known
Structural Adjustment Programmes (SAPs) of the Washington based institutions — the World
Bank (VAB) and the International Monetary Fund (IMF) — were implementing in more than
100 countries around the world.
Many move to privatization drive for reasons like: (i) effective use of the available resources,
(ii) efficiency in production of goods and services, (iii) prudential management decisions and
dynamic leadership, (iv) risk taking capabilities and result oriented research and development
works, etc.

Political Risk
Political Embargoes and Sanctions:
A country prohibits individuals and companies under its jurisdiction from engaging in trade or
transacting with those of another country. An embargo involves a complete ban on all
commercial activities between two countries, while sanctions are more limited in scope.
In sanction a country prohibits trade in certain types of goods or transactions with another
country or with particular individuals and companies.
A sanction is like a partial embargo. A nation or a group of nations may ban or impose
sanctions or very high tariffs against imports from or export to another or a group of other
nations purely for political reasons
From the economic view point sanctions of political nature is not an effective measure, though
it might hurt the continued trade relations between the business persons of two countries. In
a long-run all of the trading partners will find other options or alternative avenues to cater the
needs of the markets.

Political Risk
Economic Risks and Labour Conditions:
Many economic decisions come out of political ethos that might hamper the business
operation in short as well as long-runs.
Some of such economic risks that crop up out of the political decisions and directly affect the
business transactions are briefly presented below.
Increase in income tax on profit from business and in import tariffs on inputs that have to be
imported.
Control in allocation of foreign exchange required to import machinery, plants, or raw
materials might hamper the establishment and operation of a factory.

Political Risk
Economic Risks and Labour Conditions:
Imposition of a law requiring to use certain percentage of input produced domestically (local
content requirement). At one point garment factories in Nepal were required to use Nepali
fabrics at least 10 percent of total fabric requirements.
Restriction or ban is imposed on uses of imported items. The objective is to create market to
local products.
Price control system — government often tended to introduce price control system to support
public welfare and reduce inflationary pressure.
Labor Unions — Some governments support to labour unions, most of whom are ideological
oriented.

Political Risk
Activisms and Movements –
There are many political, economic, social and environmental activists (PESEAs) at national,
regional and international levels. Their acts can be termed as "activisms" or movements that
are generally intentional actions to introduce political changes, economic justice, social
changes and environmental healthiness.
Activisms can be through two systems
(a) Protests like boycotts, rallies, street marches, strikes, BANDH (closing down or halting
activities.
(b) Persuasion is activism (convincing people government) to change people's behavior,
manner, understanding etc. or to develop the government's understanding on a particular
issue before it imposes any radical regulatory changes.

Political Risk
Lobbying
It is also a kind of persuasion activism or movement to influence the government authority or
legislators or parliament members.
Objectives of lobbying is to get regulatory provisions or government decision made their favor
A lobbyist can be consultant, layer, trade association corporation executives chambers of
commers etc.
The environmentalists are in favor of the conservation and green movement. They have
created various organization all over the world for the sustainable management of bio-
diversity and ecology for human being.

Political Risk
Violence and Terrorism
Violence and terrorism involves illegal and criminal activities that include killings kidnapping of
people destruction of property,
The most popular and types and reasons of terrorism are:
Political; overthrow a government or to get released of imprisoned members.
Economic: to demand ransom to run or operate a terrorist group
Religious: to punish non believers of terrorist religion
Ethnic: fight between to ethnicity,
Nuclear, chemical and biological terrorisms for political reason
Cyber terrorism

Political Risk
Hostilities:
Hostile behaviour; unfriendliness or opposition. Many countries in the western and
eastern part of world are hostile to each other due to the differences in races, tribes,
religions ideologies.
Arab Vs Israel
India Vs Pakistan
Hutus Vs Tutsi in Burundi and Rwanda
The US VS Al Queda
Black Vs White in south Africa
Chinese Vs Japanese

Planning to Reduce Political Risks
Macro and long term Measures
1. Creating positive attitude toward foreign investment
2. Careful selection of Entry strategy
3. Technology transfer and management only
4. Insurance on investment
5. Strong bilateral agreement
Short term Measures
Negotiation to Phase out: hand over ownership slowly to host countries such as Manipal
Hospital which will be hand over in 50 years by Indian Government to Nepal government.
Political Lobbying and Bribery: when the situation gets as worst as the foreign investor there is
left only option to bribe government or political parties to scape from confiscation or
expropriation

E-Commerce and Intellectual Property Right (IPRS)
E-commerce it is known as electronic commerce or internet commerce, refers to the buying
and selling goods or service and the transfer of money and data to execute these transaction
using the internet.
The history of e- commerce begins with the first ever online sale: on August 11,1994 a man
sold a CD by the band Sting to his friend through his website NetMarket.
There are four main types of e-commerce models that can be describe almost every
transaction that take place between countries and business through online market or e-Bay: a
Business to consumer (B2C), Business to Business (B2B) Consumer to Consumer (C2C)
Consumer to Business (C2B)
B2C = producer sale product directly to ultimate consumer
B2B= wholesaler sale to Retailer
C2C = consumer sale used product to another consumer
C2B= consumer sell it used product ot Business eg:

Intellectual Properties (IPRs)
Intellectual propitiates are creations of “The Human Mind”. Protection of such properties is to
give rights to creators of inventor as an incentive to produce new “Ideas or “Knowledge
"useful to society.
Copyright, Trademark, geographical indicators, industrial design, patent layout design,
undisclosed information are the main Types of IPRs.
Protection of IBs is covered by the various international agreements on intellectual property
rights (IPRs). The World International Property Organization(WIPO) has been dealing with this
subject matters and multilateral rules relating to intellectual property for more than a century.
The WTO Agreement on Trade Related intellectual properties (TRIPS) lays down the minimum
standards the protection of IPRs as well as the procedures and remedies for their
enforcement.

Government Intervention and Trade and Investment Barriers
1. Revenue Generation
2. Protection of Domestic production and increase in Employment
3. Protection live and Health of Human, Animal and Plant
4. Maintain technical Standards
5. Balance of Payment
6. Discourage Unfair competition
7. Promotion of exports
8. Religions and defense
9. Industrialization Arguments

Tariff and Non Tariff Barriers in Trade
Tariff are taxes or duties imposed on products as and when these cross a nation’s border.
Custom office are generally authorized to impose tariffs on three types of transaction; import
export and transit trades.
Non Tariff measures are the policy measures other than ordinary customs tariffs than can
potentially have and economic effect on international trade in goods , changing quantities
trade, or preces or both.
These measures are imposed normally under the trade, customs, foreign exchange, finance,
intellectual property , food ,plant animal, health and environment related acts, regulation of
rules of a country.
Non Tariff measures include Sanitary and Phyto-sanitary, Pre shipment inspection and
Technical Barriers to Trade (TBT), Quota, prohibition, price control, Distribution restriction etc..

Cultural Environment- Concept and Importance
A society is built of particular group of human being and culture is a ways of living or unique
style of a society. A society includes social institution like family, educational, religious, kinship
and extended family government and business or corporate. A manager or marketer has two
basic tasks: first to get strategic advantage by studying and understanding the society and its
cultural effects.
Secondly; to be prepared to incorporate such understanding into the production, personnel and
marketing plan and strategies.
“Six Rules of Thumb” that are helpful to manager are
• Be prepared
• Slow down
• Exhibit trust
• Understand the importance of language
• Respect the culture
• Understand the components of Culture

Cultural Environment- Concept and Importance
Component of Culture groped into two
• Surface culture: food, life style, education, language, material culture.
• Deep culture: attitudes, beliefs religions, aesthetic values, social organization,
Most Anthropologists have agreed that
• Culture consists of learned and shared response
• Culture define the boundaries of different group

Why the Cultural Matters in International Business?
There is no universal Culture:
Proper understanding and lunching culturally adapted business plan and strategies can guide to
the best performance with innovative ideas and techniques in business operation.
Changing socio cultural environment
Social class, castes, and groups; demographic structure, life style, and family system, change in
work place and responsibility toward nature and environment are different in different societies
And all of this matter while deciding strategies.
Adaption and Standardization: an international business leader has to make prudent decision
on areas and elements where cultural universal are possible where adaptation are required.
Due to globalization of the economy and shrinking world through speedy means of
Transportation and communication system
Multinational company have succeeded to standardize many products and services that are
being accepted universally.

Areas of cultural Universe
Music, dance, entertainments , education ,electric equipment ,Travel and finance service food
and drink are the vary popular cultural universe. These cultural are worldwide and accepted by
many culture without any hesitation. Business on these items are also growing.
Cultural Empathy
The way of thinking are also different in different geographical regions like ways of living.
The way of people think feel, react and act are guided by learn pattern of behaviors in a society.
It is necessary to understand the host country cultural aspect while determining business
strategy.
Power Distance
Power distance that results many issues between individualism vs collectivism, masculinity vs
femineity, employers vs employees, development countries vs developing countries and rich vs
poor. The forces influence consumption pattern.

High- and Low – Context Culture.
This means understanding the different culture, High context culture is person’s world is his
bond. Less information is contain in verbal parts of communication. Non verbal cues play the
important role in communication. Example are Japan middle Est, China India emphasis on
person’s value and position or social status.
Low context culture: words carry most of the information in communication if there is contract,
thorough legal writing and signed paper is required and layers are important persons. USA,
Western European Countries where no importance is attached to person’s background, values
and relationships.
Communication and Negotiation:
Communication is important parts of international business any mistake in communication will
prove costly for a firm. It is necessary concerns social and cultural norm in using promotional
means including advertising foreign firms have be careful while negotiating business
transactions and using the non verbal communication such as appearance, posture, eye contact
symbolism etc.

Social Behavior:
Different countries have different way to present good behaviors. In Muslim countries foreign
are friends are not supposed to ask anything about the spouse and other ladies in house.
Normally ladies don’t appear in official parties and fads.
Japan and China both hands are used in presenting visiting card and card scripts is turned
towards the receiver so that he can read it instantly and easily.
Use of left hand while giving or receiving any thing is considered impolite in many Asian
countries.

Regional economic Integration – Types and leading Economic Blocs
Concept and Nature
It refers to the agreement between the countries in a geographical region to reduce the tariff and non
tariff barriers to the free flow of goods and services and factor of production between each other.
In regional economic integration where individual sovereign countries are organize into a group and
then abolish their respective restrictive measures on movement of goods services and other factors
within the member countries.
The REI may involve cooperation in agriculture, tourism, investment, financial and banking services,
exchange of technologies and research, etc. that promote their citizen welfare.
At an initial stage a free trade area was formed to abolish trade barriers and that development into a
custom union
in the second stage where a common external tariffs is set up. In the third stage common market was
evolved to permit factor movement freely
finally the bloc moved towards a full economic integration called economic union with harmonize fiscal
and monetary policies.

Stage of REI
Free Trade Area
Free Trade Areas (FTAs) where trade barriers are gradually abolished between members.
Customs tariff and non tariff barriers. Example of FTA are North American Free Trade
Agreement (NAFTA) and South Asia Free Trade Area (SAFTA)
Customs Union
A customs union involves the removal of tariff barriers between members, plus the acceptance
of a common (unified) external tariff against non-members.

Stage of REI
Common Market
A ‘common market’ is the significant step towards full economic integration, and occurs when
member countries trade freely in all economic resources – not just tangible goods. This means
that all barriers to trade in goods, services, capital, and labour are removed.
Economic Union
This is the final stage in the process of regional integration. In economic union all the fiscal and
monetary policy of member countries are unified to create even greater economic
harmonization.

Conditions of Economic Integration
Economic status ; nation with same or similar economic status are benefited by regional
integration.
• Free Movements of Goods, Services and Resources. Goods and services are not imposed any
duties or charges while crossing borders.
• Common market; at the economic level concept of single or common market is introduced
among the members of regional or economic block.
• Harmonize Fiscal an Monetary Policies: integration and harmonization on fiscal and monetary
policies. Common budgetary policies, custom tariffs, taxation etc.
• Cordial Relations of Small Group: coordination and cooperation between the small group of
nations become than multilateral forum.
• Short distance: member countries with shorter distance can be benefited exchanges of
resources and reduced transaction cost.
• Common socio cultural: countries with common history, culture, languages, awareness of
common interest likely to have similar tastes preference and income to adapt the products
and other services.

Leading Economic Blocks
NAFTA
North American Free Trade Agreement (NAFTA) established a free-trade zone in North America;
it was signed in 1992 by Canada, Mexico, and the United States and took effect on Jan. 1, 1994.
With the objective of free trade of members countries with largest trade blocs in the world by
gross domestic product.
Goals of the NAFTA
• To reduce barriers to trade
• To increase cooperation for improving working conditions in North America
• To create an expanded and safe market for goods and services produced in North America
• To establish clear and mutually advantageous trade rules
• To help develop and expand world trade and provide a catalyst to broader international
cooperation

NAFTA structure
• Free Trade Commission: Made up of ministerial representatives from the NAFTA partners.
• NAFTA Coordinators: Senior trade department officials designated by each country.
• NAFTA Working Groups and Committees: Over 30 working groups and committees have been
established to facilitate trade and investment and to ensure the effective implementation and
administration of NAFTA.
• NAFTA Secretariat: Made up of a “national section” from each member country. Responsible
for administering the dispute settlement , Maintains a tri-national website containing up-to-
date information on past and current disputes.
• Commission for Labor Cooperation : Created to promote cooperation on labor matters among
NAFTA members and the effective enforcement of domestic labor law.
• Commission for Environmental Cooperation : Established to further cooperation among
NAFTA partners in implementing the environmental side accord to NAFTA and to address
environmental issues of continental concern, with particular attention to the environmental
challenges and opportunities presented by continent wide free trade.

European Union (EU)
Comprising 28 European countries and governing common economic, social, and security
policies. Originally confined to Western Europe, the EU undertook a robust expansion into
central and eastern Europe in the early 21st century. The EU was created by the Maastricht
Treaty, which entered into force on November 1, 1993.
Structure of EU
1. The EU Council sets the policies and proposes new laws. The political leadership, or
Presidency of the EU, is held by a different leader every six months.
2. The European Parliament debates and approves the laws proposed by the Council. Its
members are elected every five years.
3. The European Commission staffs and executes the laws. José Manuel Barroso is the President
who serves under 28 Commissioners.

Objectives of EU
• An area of freedom, security and justice without internal frontiers (line or border separating
two countries)
• An internal market where competition is free and undistorted;
• Sustainable development, based on balanced economic growth and price stability, a highly
competitive social market economy, aiming at full employment and social progress, and a high
level of protection and improvement of the quality of the environment;
• The promotion of scientific and technological advance;
• The combating of social exclusion and discrimination, and the promotion of social justice and
protection, equality between women and men, solidarity between generations and
protection of the rights of the child; the promotion of economic, social and territorial
cohesion, and solidarity among Member States.

South Asian Association for Regional Cooperation (SAARC)/ SAFTA
South Asian nations, which was established on 8 December 1985 when the government of
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka formally adopted its charter
providing for the promotion of economic and social progress, cultural development within the
South Asia region and also for friendship and co-operation with other developing countries.
It is dedicated to economic, technological, social, and cultural development emphasizing
collective self-reliance. Afghanistan joined the organisation in 2007. Meetings of heads of state
are usually scheduled annually.
Objectives of SAARC
• To promote the welfare of the people of South Asia and to improve their quality of life;
• To accelerate economic growth, social progress and cultural development in the region and to
provide all individuals the opportunity to live in dignity and to realize their full potential ;
• To promote and strengthen selective self-reliance among the countries of South Asia;

South Asian Association for Regional Cooperation (SAARC)/ SAFTA
Objectives of SAARC
• To contribute to mutual trust, understanding and appreciation of one another's problems;
• To promote active collaboration and mutual assistance in the economic, social, cultural,
technical and scientific fields;
• To strengthen co-operation with other developing countries;
• To strengthen co-operation among themselves in international forums on matters of common
interest; and
• To co-operate with international and regional organisations with similar aims and purposes

SAARC organizational structure:
1. SAARC Council: At the top, there is the Council represented by the heads of the government
of the member countries.
2. Council of Minister: It is to assist the council. It is represented by the foreign ministers of the
member countries.
3. Standing Committee: It is comprised by the foreign secretaries of the member government.
4. Programming Committee: It consist of the senior official of the member governments.
5. Technical Committee: It consist of the represented of the member nations.
6.Secretaria: The SAARC secretariat is located in Nepal.

ASEAN
On 8 August 1967, five leaders - the Foreign Ministers of Indonesia, Malaysia, the Philippines,
Singapore and Thailand - sat down together in the main hall of the Department of Foreign
Affairs building in Bangkok, Thailand and signed a document. By virtue of that document, the
Association of Southeast Asian Nations (ASEAN) was born.
ASEAN STRUCTURES AND MECHANISMS
• ASEAN Summit, ASEAN Coordinating Council
• ASEAN Community Councils , ASEAN Sectoral Ministerial Bodies
• Committee of Permanent Representatives , National Secretariats
• Committees Abroad , ASEAN Chair
• ASEAN Secretariat, The highest decision-making organ of ASEAN is the Meeting of the ASEAN
Heads of state

ASEAN
PRINCIPLES of ASEAN
• Mutual respect for the independence, sovereignty, equality, territorial integrity, and national
identity of all nations;
• The right of every State to lead its national existence free from external interference,
subversion or coercion;
• Non-interference in the internal affairs of one another;
• Settlement of differences or disputes by peaceful manner
• Renunciation of the threat or use of force; and
• Effective cooperation among themselves

ASEAN
Objectives :
• To accelerate the economic growth, social progress and cultural development in the region
through joint endeavors in the spirit of equality and partnership in order to strengthen the
foundation for a prosperous and peaceful community of Southeast Asian nations
• To promote regional peace and stability through abiding respect for justice and the rule of law
in the relationship among countries in the region and adherence to the principles of the
United Nations

BIMSTEC Free Trade Area
• The BIMESTIC, as a regional economic bloc. In June 1997 to strengthening socio economic
cooperation among Bangladesh, India, Sri Lanka and Thailand, admitted to Myanmar in
December 1997 and Bhutan and Nepal in Feb 2004.
• BIMEST-EC FTA is a wide scope agreement covering trade in service and investment including
tourism apart from trade in goods, which are not included in SAFTA.
Objectives of BIMATEC
Elimination of Trade Barriers
Liberalization of Trade
Facilitate and promote investment
Expansion of economy
Harmonization of institutional and regulatory mechanism.

Emerging Foreign Market.
New industrialized countries of the world are considered emerging economies like Argentina,
Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea and Turkey.
The features of these economies are:
• High per capita income
• Economic growth rate is high
• They are expanding liberalize economic system, with policy and institutional transformation.
These countries are yet to reach developed country status, even after having good macro
economic standing outpacing to other developing counterparts. However these countries have
some population below the poverty level and huge gaps in income distribution.

The Changing Demographics of the Global Economy
It was only since 1960 the demographics of the global economy started changing dramatically in
modern technique with the:
• Innovative dynamic business leadership, supported by R&D and innovations
• Information and communication technology (ICT)
• Evolution of Multinational companies (MNEs)
• Gradual economic globalization with liberalized economic polices for conducive business
environment
• Availability of international business finance
• Economic integration with the formation of world international and regional institutions

The changing demographics of the global economy for the last forty year can be explained
under four important trends.
Changing World output GDP: in 2017 The world GDP was distributed by 63.8 percent to high
income economies, 27.5 percent to million upper income economies, 8.2 percent to million
lower income economies and 0.7 percent to low income economies.
Change in the World Trade. The world trade in past 70 year grew annually recording in an
average of export and import from US$ 60 billion in 1984 to US$ 17.87 Trillion in 2017.
The share of USA in total world export has come down from 21.7 percent to 9 percent .
However USA is a still the highest importing and second largest exporting countries.

Change in World Foreign Direct Investment
FDI get momentum particularly after new globalization period with the liberalization,
deregulation and privatization of the economic activities in the majority countries in the world.
In past 35 years the world annually FDI outflows increased from US$ 27 Billion in 1982 to US$
1432 in 2017. Stock of outward FDI increased dramatically from US$ 579 Billion in 1982 to US
30.84 Trillion in 2017.
Change in Multinational Enterprises (MNEs)
Modern MNEs developed after the Second world war and industrial revolution late in 19th
century. At a later stage, rapid growth of MNEs was facilitated by the advent of ICT and
liberalization of world economy.
It is estimated that there were 7,000 MNEs in 1970 that increased to 38,000 in 2000 and 82,000
in 2008. currently it is estimated that there are not less than 230,000 MNEs in the world.

Multinational companies are attracted by:
• Availability of resources
• Growing market
• Availability of institutional finance
• Flexible taxation rules
Change in institutional and other aspects
• After the second world war many nation and international institution involved more on
economic aspects of life than on the national security.
• At international level some of leading institutions are United Nations, World Bank, IMF, OECD,
WTO, UNCTAD, ITC OPEC, ADB and other regional level EU, SAAARC, SAFTA, NAFTA, ASEAN
etc.
• Former communist nations in Europe and Asia are now committed to democratic politics and
free market economies and are creating new opportunities for international business.
• Many socialists , environmentalists and related institutions have taken steps to reduce the
negative impact of globalization including growth in trade and investment that affects or hurt
social and environmental aspects of the society.

International Monetary and Financial Environment
Monetary policy is the management of money supply, price, interest rate and foreign exchange
to achieve macro economic stability in areas like inflation, consumption, growth and liquidity.
monetary instruments are managed and controlled by the central bank based on related acts
and regulation an in close association with the finance ministry of a country.
Some of the most important areas that have to considered by an international business
managers
Monetary instruments are:
Money supply
Credit availability and interest rate
inflation
Foreign exchange
The monetary forces are the instruments of government economic policy used for achieving the
objectives like economic and price stability to reduce inflation pressure and economic deflation,
employment, foreign exchange stability, and economic growth of a country.

Currency and Exchange Rate System
1. Foreign exchange is a payment mechanism for international transaction
2. Foreign exchange rate is number of unit of one currency needed to buy one unit of other
currency
3. International or cross border transactions of goods , services, ideas and capital investment
exceed the value of Us Dollar 23 trillion every year.
4. There is no single international money which is acceptable worldwide for such transactions
5. All the transaction under international business clearly involve exchanges of currencies and
every exchange of currency involves two cooperating parties (currency buyer and seller)
6. There are many financial institutions, broker, investor, speculators etc. in the world whose
daily foreign exchange transaction turnover exceeds US dollar 5 trillion.
7. Exchange rates are not only means of exchange of a national currency into foreign currency
but they also enable conversions, calculations of comparisons of cost and prices of goods
and services being traded internationally. In the long run political, general economic, fiscal
monetary environment are highly responsible of fluctuation of value of currency.

Currency and Exchange Rate System
In the medium and short run the specific forces that lead to fluctuations of the value of a
currency or change in the foreign currency rate are basically the changes in market forces
(demand and supply ) due to change in following?
• Per capita gross national income
• Money supply and money demand
• Interest rate
• Production, productivity employment,
• Inflation rate
• Speculations of market players

Floating or Flexible Exchange Rate system
• It is determined by market conditions of demand for and supply of foreign exchange. Flexible
exchange rate are more prevalent in market or free economies. Monetary authority or central
bank does not intervene in the process of determination of exchange rate.
• Foreign exchange rates of Us Dollar and other currencies (excluding Indian Rupees) in Nepal
are determined under the floating rate system.
• Advantages of flexible exchange rate are: simple to operate, as exchange rate move
automatically, it helps promotion of foreign trade.
• Disadvantages: frequent changes in rates cause uncertainty in business and investment and
risk taking capacity of investor is reduced.
Fixed Exchange Rate System
A government determines the fixed rate based on the economic situation and interest of the
country. Fixed exchange rate ensures certainty and confidence on the currency and thereby
promotes foreign business, long term investment etc.

Modes of Payment in International Trade
The trader must offer their customers attractive sales terms supported by appropriate payment
method to succeed in the global marketplace and win sales against foreign competitors.
The international payment modes are:
a) Cash in advance (CIA):A method of payment for goods in which the buyer pays the seller in
advance of the shipment of goods. Usually employed when the goods, such as specialized
machinery, are built to order.
b) Letter of credit (LC): A letter of credit or LC is a written document issued by the importer’s
bank (opening bank) on importer’s behalf. Through its issuance, the exporter is assured that
the issuing bank will make a payment to the exporter for the international trade conducted
between both the parties.
The importer is the applicant of the LC, while the exporter is the beneficiary. In an LC, the
issuing bank promises to pay the mentioned amount as per the agreed timeline and against
specified documents.

International Business BBA 5th.pptx

International Business BBA 5th.pptx

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