INTERNATIONAL BUSINESS NOTES FOR BBA AND BCOM STUDENTS ALL 5 IB MODULES IN ONE FILE.pdf

ACHARYA INSTITUTE OF GRADUATE STUDIES
(NAAC Reaccredited ‘A’ and Affiliated to Bengaluru City University)
Soldevanahalli, Bengaluru-560107
DEPARTMENT OF MANAGEMENT
INTERNATIONAL BUSINESS – MODULE 01 – INTERNATIONAL BUSINESS
Mrs. Manjula BK
Assistant Professor
Department Of Management
AIGS
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INTERNATIONAL BUSINESS
OBJECTIVE:
 To facilitate the students in understanding Globalization and International
Business Management
INTRODUCTION TO INTERNATIONAL BUSINESS
Business activities done across national borders is International Business. The
International business is the purchasing and selling of the goods, commodities
and services outside its national borders. Such trade modes might be owned by
the state or privately owned organization.
In which, the organization explores trade opportunities outside its domestic national
borders to extend their own particular business activities, for example, manufacturing,
mining, construction, agriculture, banking, insurance, health, education, transportation,
communication and so on.
Nations that were away from each other, because of their geological separations and
financial and social contrasts are now connecting with each other. World Trade
Organization established by the administration of various nations is one of the major

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contributory factors to the expanded connections and the business relationship among
the countries.
The national economies are dynamically getting borderless and fused into the world
economy as it is clear that the world has today come to be known as a ‘global village’.
Numerous more organization are making passage into a worldwide business which
presents them with opportunities for development and tremendous benefits.
India was trading with different nations for quite a while, yet it has quickened its
progress of incorporating with the world economy and expanding its foreign trade and
investment.
Meaning and Definition of International Business
A/C to Harcourt Brace and Company ,Orland ,Florida
“International business consists of transactions that are devised and carried out
across national borders to satisfy the objectives of individuals and organizations”.
According to international business journal,“ international business is a
commercial enterprise that performs economical activity beyond the bounds of its
location , has branches in two or more foreign countries and makes use of economic,
cultural, political ,legal and other differences between countries”.
International business refers to the trade of goods, services, technology, capital
and/or knowledge across national borders and at a global or transnational
scale. It involves cross-border transactions of goods and services between two or
more countries.

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According to International Business Journal, 'International business is a commercial
enterprise that performs economical activity beyond the bounds of its location, has
branches in two or more foreign countries and makes use of economic, cultural,
political, legal and other differences between countries.
Need & importance of International Business
1. Diversity in the global market
The international market is ever-changing due to the many factors that affect
it such as operational structures and environmental conditions. With the
advent of technology, the world seems smaller and more accessible; the
economy today is globalised and corporations are getting more foreign
acquisitions and transactions than any time before. As such, employers are
continually looking for skilled employees who have the expertise to handle
such transactions.
2. Increasing number of global or multinational companies
Multinational companies (MNCs) are a growing and very significant part of
the world market, meaning that knowledge in this area will help you stand out
to employers. Global disasters or major happenings in politics, trade or law,
have an impact on all types of businesses that conduct business abroad as well
as domestically. Even when companies are not functioning all over the world,

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business leaders cannot afford to overlook what’s happening in the
international market and industries. Nations too cannot lay out their economic
policies by ignoring the foreign sector. In international business management,
foreign policy plays a crucial role in matters of finance, investment, and trade
laws.
3. Develop key business skills
An international business management degree helps students to understand a
whole new world of business operations, much more than other
specialisations. This course helps students understand how to work and
oversee a diverse team, perform research within a global context, improve
business performance, learn new skills like digital marketing and social
media, and make strategic decisions that will ensure business goals are
achieved. Students with an international business management degree learn
key skills including the following: decision making, time management,
leadership, decision making, communication and critical thinking.
4. Extensive career options
International business management is a very broad degree and equips students
with a range of skills that are vital and desired by employers in every industry.
Graduates can explore a wide range of jobs in marketing, accounting,
management, HR, consultancy, corporate finance, health management,

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advertising, banking, retail, tourism, hospitality, and event management,
including sales.
5. Growing importance of global business education
Global trade is becoming a specialisation of its own. The global business
world is expanding and evolving with each passing day. If you are keen to
work across boundaries, it is vital that you understand and study business
within a global context. An exposure to global business management helps
them gain a wider understanding of different cultures, markets, and
businesses. Most importantly, it allows students to understand how
globalisation has made the world more connected. All these key points make
students with an understanding of international business education more
attractive to potential employers.
6. International Trade Raises Living Standards
Exports boost the economic development of a country, reduce poverty and raise
the standard of living. The world's strongest economies are heavily involved in
international trade and have the highest living standards, according to the
Operation for Economic Co-operation and Development (OECD).
Countries like Switzerland, Germany, Japan and the Scandinavian countries have
high volumes of imports and exports relative to their gross domestic product and

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offer high standards of living. Nations with lower ratios of international trade, such
as Greece, Italy, Spain and Portugal, face serious economic problems and
challenges to their living standards. Even with low wages, less developed countries
can use this advantage to create jobs related to exports that add currency to their
economy and improve their living conditions.
7. Exports Increase Sales
Exporting opens new markets for a company to increase its sales. Economies rise
and fall, and a company that has a good export market is in a better position to
weather an economic downturn.
Furthermore, businesses that export are less likely to fail. It's not only the exporting
companies that increase sales; the companies that supply materials to the exporters
also see their revenues go up, leading to more jobs.
8. Exports Create Jobs
A company that increases its exports needs to hire more people to handle the higher
workload. Businesses that export have a job growth 2 to 4 percent higher than
companies that don't; these export-related jobs pay about 16 percent more than jobs
in companies with fewer exports. The workers in these export-related jobs spend
their earnings in the local economy, leading to a demand for other products and
creating more jobs.

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9. Imports Benefit Consumers
Imported products result in lower prices and expand the number of product choices
for consumers. Lower prices have a significant effect, particularly for modest and
low-income households. Studies show that lower import prices save the average
American family of four around $10,000 per year.
Besides lower prices, imports give consumers a wider choice of products with
better quality. As a result, domestic manufacturers are forced to lower their prices
and increase product lines to meet the competition from imports. Even further,
domestic vendors may have to import more components of their products to stay
price competitive.
10.Improved International Relations
International business removes rivalry between different countries and promotes
international peace and harmony. Mutual trade creates a dependence on each other,
improves confidence and fosters good faith.
A good example of co-dependency of nations is the relationship between the United
States and China. Even though these countries have significant political
differences, they try to get along because of the huge amount of trade between
them.
Their relationship evolved and changed a lot over the past decades. Not too long
ago, it was characterized by mutual tolerance, intensifying diplomacy and bilateral
economic relationships. This was a win-win for both parties.

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In July 2016, more than 800 hundred Chinese products became subject to a 25
percent import tax. The new tariff policy is expected to affect U.S.-China relations.
Financial experts believe that there's no going back to how things were.
A policy of a free international trade environment strengthens the economies of all
countries. The competition from imports and exports leads to lower prices, better
quality of products, wider selections and improved standards of living. While
international trade may lead to the loss of some jobs, it has a stronger synergistic
effect on the creation of new jobs and improved economic conditions.
Stages of internationalization
Stage 1: Domestic-market establishment The domestic market is often an
appropriate place to test products and fine-tune performance before tackling
the complexities of international trade. It can also give a good indication of
performance. However, in some instances, this stage of the export process
doesn’t serve any purpose at all. This may be the case for a Canadian software
company, for example, that has developed a product specifically for a foreign
market. Because international-market development requires resources of time
and money on the part of the exporter, it’s important to ensure that a strong
foundation has been built in the domestic market upon which to base future
export-market-expansion activities, so that international activities do not
compromise the company’s core business.
Stage 2: Export research and planning When companies begin trading abroad,
they often target a country similar to their own in language, financial

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structures, legal and economic systems or culture. For example, Canadians
entering the international marketplace usually address the U.S. market first.
Before venturing into an unfamiliar market, companies should prepare
themselves properly. By analyzing how successful the proposed product or
service may be in a potential market, the exporter can narrow the target
markets down to three or four. Such concentrated effort is preferable to the
common and costly mistake of ‘chasing orders around the world’.
Stage 3: Initial export sales when implementing an export plan, it’s advisable
to begin modestly by testing the market. A graduated strategy enables the
novice exporter to acquire practical experience in a market without incurring
unnecessary or unmanageable risk. During this stage, the exporter should use
initial shipments to become familiar with the mechanics of exporting
(documentation, distribution channels, transportation and collections), to get
to know the customer target group, to determine what product modifications
may be necessary and to learn about regulations that might affect the business.
This is also the stage at which to revise the initial plan.
Stage 4: Expansion of international sales if initial sales have been good,
planning for larger orders and expanded activity should follow. This stage is
usually accompanied by intensified market research, more aggressive
participation in international trade shows and other marketing activities and
greater emphasis on strengthening networks and contacts in the target market.
By the time exporters have reached this stage, they ‘ll have already learned a

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great deal about the export market through prior experience, which will assist
them in making appropriate adjustments to their strategy as they proceed with
strengthening their position in the market.
Stage 5: Investment abroad If sales are brisk, profits encouraging and
opportunities promising, the company may choose to expand its presence in
the target market. It can, for example, open a local office, tighten relations
with local partners, buy an existing local company, form a joint venture or
invest in R&D or production facilities.
This final stage carries additional ramifications and responsibilities, beyond
those of a company that is based elsewhere simply operating remotely in a
foreign market. New issues come into play because the scope of a company’s
presence broadens when it takes on a permanent physical presence in the
market. For instance, the investing company must take into account the impact
on and interaction with the community and all other stakeholders—
employees, local government, the environment, legal and tax compliance,
transparency, public image and sustainability. All of these impacts must be
managed seriously and carefully as a corporate citizen, with strong corporate
social responsibility as a policy that should be demonstrated at every
opportunity.

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Assistant Professor
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Theories of International Trade
Mercantilism, Absolute Cost Advantage, Comparative Cost Theory, Huckster –
OhlinTheorem, EPRG Framework, Tariff and non-tariff and barriers of International
Business.
With time, economists have established theories that explain global trade. These
theories explain what exactly happens in International Trade. There are 6 economic
theories under International Trade Law which are classified in four: (I) Mercantilist
Theory of trade (II) Classical Theory of trade (III) Modern Theory of trade (IV) New
Theories of trade. Both of these categories, classical and modern, consist of several
international theories.
Theories:
1. Mercantilism
This theory was popular in the 16th and 18th Century. During that time the
wealth of the nation only consisted of gold or other kinds of precious metals
so the theorists suggested that the countries should start accumulating gold
and other kinds of metals more and more. The European Nations started doing
so. Mercantilists, during this period stated that all these precious stones
denoted the wealth of a nation, they believed that a country will strengthen
only if the nation imports less and exports more. They said that this is the
favourable balance of trade and that this will help a nation to progress more.

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Mercantilism thrived during the 1500's because there was a rise in new nation-
states and the rulers of these states wanted to strengthen their nations. The
only way to do so was by increasing exports and trade, because of which these
rulers were able to collect more capital for their nations. These rulers
encouraged exports by putting limitations on imports. This approach is called
protectionism and it is still used today.
Though, Mercantilism is one the most old-fashioned theory, it still remains a
part of contemporary thinking. Countries like China, Taiwan, Japan, etcetera
still favor Protectionism. Almost every country, has implemented
protectionist policy in one way or another, to protect their economy. Countries
that are export oriented prefer protectionist policies as it favors them. Import
restrictions lead to higher prices of good and services. Free-trade benefits
everyone, whereas, mercantilism's protectionist policies only profit select
industries.
2. Absolute Cost Advantage
This theory was developed by Adam Smith, he was the father of Modern
Economics. This theory came out as a strong reaction against the protectionist
mercantilist views on international trade. Adam Smith supported the necessity of
free trade as the only assurance for expansion of trade. He said that a country

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should only produce those products in which they have an absolute advantage.
According to Smith, free trade promoted international division of labour. By
specialization and division of labour producers with different absolute
advantages can always gain over producing in remoteness. He emphasised on
producing what a country specializes in so that it can produce more at a lower
cost than other countries. This theory says that a country should export a product
in which it has a cost advantage.
Adam's theory specified that a country's prosperity should not be premeditated
by how much gold and other precious metals it has, but rather by the living
standards of its citizen
3. Comparative Cost Advantage Theory
The comparative cost theory was first given by David Ricardo. It was later
polished by J. S. Mill, Marshall, Tausig and others. Ricardo said absolute
advantage is not necessary. He also said a country will produce where there
iscomparativeadvantage.
The theory suggests that each country should concentrate in the production of
those products in which it has the utmost advantage or the least disadvantage.
Hence, a state will export those supplies in which it has the most benefit and
import those supplies in which it has the least drawback.
Comparative advantage arises when a country is not able to yield a commodity
more competently than another country; however, it has the resources to
manufacture that commodity more proficiently than it does other
commodities.
4. Huckster 0hlin Theory (H-0 Theory)

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Smith and Ricardo's theories didn't help the countries figure out which
products would give better returns to the country. In 1900s, two economists,
Eli Hecksher and Bertil Ohlin, fixated on how a country could profit by
making goods that utilized factors that were in abundance in the country. They
found out that the factors that were in abundance in relation to the demand
would be cheaper and that the factors in great demand comparatively to its
supply would be more expensive.
The H-0 Theory is also known as the Modern Theory or the General
Equilibrium Theory. This theory focused on factor endowments and factor
prices as the most important determinants of international trade. The H - 0 is
divided in two theorems: The H - 0 theorem, and the Factor Price Equalization
Theorem. The H - 0 theorem predicts the pattern of trade while the factor-
price equalization theorem deals with the effect of international trade on factor
prices. H - 0 theorem is further divided in two parts: factor intensity and factor
abundance. Factor Abundance can be explained in terms of physical units and
relative factor prices. Physical units include capital and labour, whereas,
relative factor price includes the adjoining expenses like rent, labour cost, and
etcetera. On the other hand, factor intensity means capital, labour or
technology, etcetera, any factor that a country has.
Tariff and Non-tariff
In simplest terms, a tariff is a tax. It adds to the cost borne by consumers of imported
goods and is one of several trade policies that a country can enact. Tariffs are paid
to the customs authority of the country imposing the tariff.

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Why Are Tariffs and Trade Barriers Used?
Tariffs are often created to protect infant industries and developing economies but
are also used by more advanced economies with developed industries. Here are five
of the top reasons tariffs are used:
Protecting Domestic Employment
The levying of tariffs is often highly politicized. The possibility of increased
competition from imported goods can threaten domestic industries. These domestic
companies may fire workers or shift production abroad to cut costs, which means
higher unemployment and a less happy electorate.
Protecting Consumers
A government may levy a tariff on products that it feels could endanger its
population. For example, South Korea may place a tariff on imported beef from the
United States if it thinks that the goods could be tainted with a disease.
Infant Industries
The use of tariffs to protect infant industries can be seen by the Import Substitution
Industrialization (ISI) strategy employed by many developing nations. The
government of a developing economy will levy tariffs on imported goods in
industries in which it wants to foster growth.
This increases the prices of imported goods and creates a domestic market for
domestically produced goods while protecting those industries from being forced
out by more competitive pricing. It decreases unemployment and allows developing
countries to shift from agricultural products to finished goods.
Criticisms of this sort of protectionist strategy revolve around the cost
of subsidizing the development of infant industries. If an industry develops without

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competition, it could wind up producing lower quality goods, and the subsidies
required to keep the state-backed industry afloat could sap economic growth.
National Security
Barriers are also employed by developed countries to protect certain industries that
are deemed strategically important, such as those supporting national security.
Defense industries are often viewed as vital to state interests, and often enjoy
significant levels of protection.
For example, while both Western Europe and the United States are industrialized,
both are very protective of defense-oriented companies.
Retaliation
Countries may also set tariffs as a retaliation technique if they think that a trading
partner has not played by the rules. For example, if France believes that the United
States has allowed its wine producers to call its domestically produced sparkling
wines "Champagne" (a name specific to the Champagne region of France) for too
long, it may levy a tariff on imported meat from the United States.
If the U.S. agrees to crack down on the improper labeling, France is likely to stop
its retaliation. Retaliation can also be employed if a trading partner goes against the
government's foreign policy objectives.
Common Types of Tariffs
There are several types of tariffs and barriers that a government can employ:
 Specific tariffs
 Ad valorem tariffs
 Licenses
 Import quotas
 Voluntary export restraints
 Local content requirements

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Specific Tariffs
A fixed fee levied on one unit of an imported good is referred to as a specific tariff.
This tariff can vary according to the type of goods imported. For example, a country
could levy a $15 tariff on each pair of shoes imported, but levy a $300 tariff on each
computer imported.
Ad Valorem Tariffs
The phrase "ad valorem" is Latin for "according to value," and this type of tariff is
levied on a good based on a percentage of that good's value. An example of an ad
valorem tariff would be a 15% tariff levied by Japan on U.S. automobiles.
The 15% is a price increase on the value of the automobile, so a $10,000 vehicle
now costs $11,500 to Japanese consumers. This price increase protects domestic
producers from being undercut but also keeps prices artificially high for Japanese
car shoppers.
Non-Tariff Barriers to Trade
Licenses

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A license is granted to a business by the government and allows the business to
import a certain type of good into the country. For example, there could be a
restriction on imported cheese, and licenses would be granted to certain companies
allowing them to act as importers. This creates a restriction on competition and
increases prices faced by consumers.
Import Quotas
An import quota is a restriction placed on the amount of a particular good that can
be imported. This sort of barrier is often associated with the issuance of licenses.
For example, a country may place a quota on the volume of imported citrus fruit
that is allowed.
Voluntary Export Restraints (VER)
This type of trade barrier is "voluntary" in that it is created by the exporting country
rather than the importing one. A voluntary export restraint (VER) is usually levied
at the behest of the importing country and could be accompanied by a reciprocal
VER.For example, Brazil could place a VER on the exportation of sugar to Canada,
based on a request by Canada. Canada could then place a VER on the exportation
of coal to Brazil. This increases the price of both coal and sugar but protects the
domestic industries.

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INTERNATIONAL BUSINESS – MODULE 02 – MODES OF ENTERING
Mrs. Manjula BK
Assistant Professor
AIGS
Modes of entry
Strategies to enter in to international business:
 What is the best way to enter a new market?
 Should a company first establish an export base or license its products to gain
experience in a newly targeted country or region?
 Or does the potential associated with first-mover status justify a bolder move
such as entering an alliance, making an acquisition, or even starting a new
subsidiary?
Many companies move from exporting to licensing to a higher investment strategy,
in effect treating these choices as a learning curve. Each has distinct advantages and
disadvantages. In this section, we will explore the traditional international-expansion
entry modes. Beyond importing, international expansion is achieved through
exporting, licensing arrangements, partnering and strategic alliances, acquisitions,
and establishing new, wholly owned subsidiaries, also known as greenfield ventures.
“International-Expansion Entry Modes”.1
Each mode of market entry has
advantages and disadvantages. Firms need to evaluate their options to choose the
entry mode that best suits their strategy and goals.
For international trade, Foreign market entry modes are the ways in which a
company can expand its services into a non-domestic market.
1) Exporting
2) Licensing
3) Franchising
4) Special modes
 Contract manufacturing

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Assistant Professor
AIGS
 Business process outsourcing
 Management contract
 Turnkey projects
 Foreign direct investment without alliances
5) Foreign direct investment with alliances
A. Export: Export deals with physical movement of goods and services from one
place to another through a customs port following the rules of both the country of
origin and country of destination. Exporting is the simplest and widely used mode
of entering foreign markets.
Example: ITC , Telstra etc.
Different forms of exporting:
• Indirect exporting : it is an exporting the products either in their original
form or in the modified form to a foreign country through another domestic
company .

Mrs. Manjula BK
Assistant Professor
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• Direct exporting : direct exporting is selling the products in a foreign country
directly through its distribution arrangements or through a host county’s
company.
• Intra –corporate transfer: selling of products by a company to its affiliated
company in the host country.
Example : selling of products by Hindustan unilever in India to unilever in USA.
Advantages of exporting :
• Less risk : Exporting involve less risk as the company understand the culture,
customer and the market of the host country gradually.
• Limited finance is required : if the company selects a company in the host
country to distribute the company can enter international market with no or less
financial resources but this amount would be quite less compared to that would
be necessary under other modes.
• Motivation for exporting : motivation for exporting is proactive and reactive .
Proactive motivations are opportunities available in the host country . reactive
motivations are those efforts taken by the company to export the product to a
foreign countries due to the decline in demand for its products in the home
country.
Disadvantages of exporting :
• High transportation costs can make its uneconomical to get involved in the import
or export of a certain goods.
• Availability of trade barriers such as tariffs and quotas or other hidden barriers.

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Assistant Professor
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• An exporting firms will have to work with an agent which is not necessarily loyal
to one brand (product).
B. Licensing : In this mode of entry , the domestic manufacturer leases the right to
use its intellectual property brand name, copyright, technology and trade marks or
other assets in exchange for an amount (royalty) based on sales. manufacturer in the
domestic country is called “licensor” and the manufacturer in the foreign country is
called “ licensee”.
Parties involved in licensing :
Licensor : licensor is the owner of any products services brands technology and
knowledge being licensed for a some value .
Licensee : licensee is a person who agrees to use licensor’s products, services,
brands, technology and knowledge by paying compensation or royalty.

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Example :British American tobacco company (BAST) has given licenses in many
countries for the manufacture of their brand of cigarettes “555”.
In India, ITC is the licensed producer of “555.
Advantages or merits of licensing :
1. It carry low investment in par t of licensor.
2. It carries low financial risk to the licensor.
3. The licensor can investigate the foreign market without much efforts on his part.
4. Licensee gets the benefits with less investment on R and D.
5. Licensee escapes himself from the risk of product failure.
Disadvantages or demerits of licensing :
• Licensing agreement reduces the market opportunities for both the licensor and
licensee.
• The licensee may develop his reputation.
• The licensee may sell the product outside the territory and after the expiry of the
contract.
• There is problem of leakage of the trade secrets of licensor.
C. Franchising: Franchising is an agreement where one party ( franchiser) grants
another party ( the franchisee) the right to use its trademark or trade – name as well
as certain business system and processes . to produce and market a goods or services

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Assistant Professor
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according to certain specifications. The franchisee usually pay one time franchisee
fee plus a percentage of sales revenue as royalty.
• Example : McDonalds', domino’s pizza and KFC etc.
Parties involved in franchising :
• Franchisor: is the person or company that grants the franchisee the right to
do business under their trademark or trade name.

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Assistant Professor
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• Franchisee: franchisee is the person or company that gets the right from the
franchisor to do business under the franchisor’s trademark or trade name and
benefits from it.
Advantages of franchising:
• Franchisor can enter global market with low investment and low risks.
• Franchisor can get information regarding the market , culture, customs and
environment of the host country.
• Franchisee escapes from the risk of product failure.
• Franchisee gets the benefits of R and D with low cost.
Disadvantages of franchising:
• International franchising may be more complicated than domestic franchising .

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• There is a scope for misunderstanding between the parties.
• There is problem of leakage of trade secrets.
D. Special modes :Some companies cannot make long term investment or long term
contracts to enter foreign markets. Therefore, they may use strategies. They includes:
o Contract manufacturing
o Business process outsourcing
o Management contract
o Turnkey projects
 Contract manufacturing: Some companies outsources their part of or entire
production and concentrate on marketing operations . This practice is called the
contract manufacturing or outsourcing .
Benefits :
 Contract manufacturing is a cost saving.
 Company can focus on their core competencies better if they goes for contract
manufacturing.
Advantages of contract manufacturing :
 Company can focus on their core competencies better if they goes for contract
manufacturing .
 It reduces the cost of production as the host country’s companies with their
relative cost advantage produces at low cost.

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Assistant Professor
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 International companies can get location advantages generated by the host
country’s production.
Disadvantages:
• Host companies may not strict adhere to the production design, quality standards
etc. These factors result in quality and design problems .
• when the company signs the contract allowing another company to produce their
product , they lose a significant amount of control over that product.
 Business process outsourcing: Business process outsourcing is a long term
contract, in which the international company outsources its non –core business
processes to the outside provider in order to achieve increased shared value.
 Management contract:
The companies with low level technology and managerial expertise may seek the
assistance of foreign company. Then the foreign company may agree to provide
technical assistance and managerial expertise. This agreement between the two
companies is called management contract.
Meaning: Management contract is an agreement between two companies, where by
one company provides managerial assistance, technical expertise and specialised
services in return for some commission from the others.
Advantages :
• Foreign company earns additional income without any additional investment
,risks and obligations.

Mrs. Manjula BK
Assistant Professor
AIGS
• This additional income allows the company to enhance its image in the mind
set of investors and helps to mobilise more funds for expansion.
• Management contracts help the companies to enter other business areas in the
host country.
Disadvantages :
• the host country’s companies may spoil the brand name, if they do not keep
up the quality of the products and services.
• The host country's companies may leak the secrets of technology.
Turnkey projects: A turnkey project is a contract under which firms agree to full
design , construct and equip a manufacturing business and turn the project over to
the purchaser when it is ready for operation for remuneration.
Infrastructure project like power plants, airports, railway lines, highways and dams
are under on a turnkey projects basis.
Example : Hyundai, L and T are turnkey projects.
Advantages :
• A turnkey contract is one in which an independent agent gives a fixed price to
complete a project.
• An advantage of this is the project might be easier than originally thought, and
so a large profit is made.
Dis advantages :
• The company is a contractor will not have a long term business in a foreign
country.

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• Can create a competitor.
Foreign direct investment without alliances:
Companies which enter the international markets through foreign direct investment,
invest their money establish manufacturing and marketing facilities through
ownership and control.
Foreign direct investment with alliances:
1. Mergers and acquisition
2. joint ventures
 Mergers and acquisition : Mergers is a combination of two companies to form
a new company .
A domestic company selects a foreign company and merge itself with foreign
company in order to enter international business.
Acquisition means purchase of one company by another in which no new company
is formed.

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Domestic company may purchase the foreign company and acquires the ownership
and control.
Example : proctor and gamble ( P and G ) entered Mexico
Advantages:
• The company immediately gets the ownership and control over the
employees, technology , brand names and distribution networks.
• The company can formulates international strategies and generates more
revenue.
Disadvantages:
• Acquiring a firm in a foreign market is a complex task involving bankers,
lawyers, regulations mergers and acquisition specialists from the two
countries.
• Sometimes host countries imposed restrictions on acquisition of local
companies by the foreign companies.
Joint ventures :
Two or more firms together to creates a new business entity are legally a separate
and distinct from its parents is known as joint ventures.
Joint ventures are established as corporations owned by the funding patterns in
predetermined proportions. Joint ventures provides required strengths in terms of
required capital, latest technology required human talents and enables the companies
to share the risks in the foreign markets.

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Advantages:
• joint ventures provide large capital funds.
• It is suitable for major projects.
• It spreads the risks among the partners.
• Different parties to the joint venture bring different kinds of skills.
Disadvantages:
• Joint ventures are potential for conflicts .There is disputes among the parties
due to the varied interests.
• Decision making normally slow down in joint venture due to the involvement
of a number of parties.
The Entry Strategy for BRICS Economic

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BRICS is a dialogue and cooperation platform among Member States (Brazil,
Russia, India, China and South Africa) which together account for 30% of global
land, 43% of global population and 21% of the world's Gross Domestic Product
(GDP), 17.3% of global merchandise trade,12.7% of global commercial services and
45% of world's Agriculture Production. This platform aims to promote peace,
security, prosperity and development in multipolar, interconnected and globalized
world. The BRICS countries represent Asia, Africa, Europe and Latin America,
which gives their cooperation a transcontinental dimension making it especially
valuable and significant.
The BRICS plays a vital role in the world economy in terms of total production,
receiving investment capital, and expanding potential consumer markets. The
BRICS economies have been widely regarded as the engines of the global economic
recovery.
Purposes:
BRICS cooperation is aimed at complementing and strengthening existing bilateral
and multilateral relations between Member States. The Strategy for BRICS
Economic Partnership (referred hereinafter as the BRICS Strategy) will contribute
to increasing the economic growth and competitiveness of the BRICS economies in
the global arena. The purposes of the BRICS Strategy are:
 to enhance market access opportunities and facilitate market inter-linkages;

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 to promote mutual trade and investment and create a business-friendly
environment for investors and entrepreneurs in all BRICS countries;
 to enhance and diversify trade and investment cooperation that support value
addition among the BRICS countries;
 to strengthen macroeconomic policy coordination and build resilience to
external economic shocks;
 to strive for inclusive economic growth, in order to eradicate poverty, address
unemployment and promote social inclusion;
 to promote information exchange through BRICS Virtual Secretariat and
BRICS Economic Exchange Platform, as well as other agreed platforms;
 to consolidate efforts in order to ensure a better quality of growth by fostering
innovative economic development based on advanced technologies and skills
development with a view to build knowledge economies;
 to seek further interaction and cooperation with non-BRICS countries and
international organizations and forums. BRICS members will engage with the
business communities in their respective countries to implement the Strategy.
They will encourage closer collaboration of BRICS business communities.
The BRICS Strategy is based on the following principles:
 full respect for the sovereignty of the Member States;
 commitment to international law and recognition of the central role of the
United Nations on peace, security and development;
 account for national interests, priorities, growth and development strategies of
the Member States;
 openness, sharing of information and consensus in decision-making;
 commitment to the rules and principles of the multilateral trading system as
embodied in the World Trade Organization (WTO);
 recognition of the multipolar nature of the global economic and financial
system;
 support for greater exchanges of best practices in enhancing business
environment;

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 transparency and predictability in the investment environment in line with
national policies and priorities;
 commitment to supporting sustainable development, strong, balanced and
inclusive growth, financial stability, and balanced combination of measures
ensuring social and economic development and protection of the environment;
 commitment to mutually beneficial cooperation with other countries;
 inadmissibility of unilateral economic sanctions in violation of universally
recognized norms of international relations.
Priority areas for cooperation.
1 Trade and investment
To achieve sustainable, inclusive and dynamic growth, the BRICS countries should
avail themselves of opportunities provided by international economic cooperation,
including deepening of trade and investment ties, both within BRICS and with other
members of the international community.
2 Manufacturing and minerals processing
BRICS countries consider the manufacturing sector as one of the most important
sources of growth, it may change the structure of the economy, create new jobs, raise
the quality of labour and living standards. Growth in production and export of value
added goods would provide BRICS economies with an opportunity to gain greater
benefits from international cooperation and increase their role in global value chains
and raise the level of their competitiveness.
Economic growth attributed to the development of industry and mining will facilitate
the strengthening of economic ties between the BRICS countries. It will be based on
the development of advanced technologies, innovations as well as downstream value
addition through the engagement of public and private sectors as appropriate in the
implementation of national development programs, as well as international
industrial cooperation and partnerships in the BRICS countries.

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AIGS
3 Energy
Promoting sustainable energy production and consumption is crucial for economic
development of the BRICS countries. Balance of interests, transparency and
predictability of supply and demand are the priority, given the unequal distribution
of conventional energy sources and their limited reserves, coupled with the
substantial increase in energy consumption in the developing countries.
In order to enhance their energy security, BRICS countries should address the
following priority areas:
 enhancing awareness of the needs of the energy-producing and energy-
consuming countries;
 rendering mutual support for diversification of energy supplies;
 developing energy infrastructure;
 promoting universal access to energy;
 increasing energy efficiency, including joint development and sharing of
energy efficient and cleaner energy technologies;
 introducing environmentally friendly technologies of energy production,
storage and consumption;
 promoting the use of renewable sources of energy;
 improving the utilization of clean energy sources such as natural gas.
4 Agricultural cooperation
BRICS countries as large agricultural producers play an important role in the global
agriculture market. BRICS countries also provide a fundamental contribution to food
security and nutrition, given that a sizeable majority of the 209 million people who
have been lifted out of food insecurity in the past two decades reside in the BRICS
countries.[4]
Cooperation among BRICS countries will strengthen world food security through
sustainably increasing agricultural production and raising the level of productivity

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AIGS
in agricultural sector, providing better investment conditions and transparency of the
markets, promoting better living standards and access to food.
BRICS cooperation in the area of food security and nutrition and agriculture
development will include, in its five priority areas:
5 Science, Technology and Innovation
Science, Technology and Innovation play a central role in promoting inclusive
macroeconomics and social policies and in addressing challenges to humankind
posed by the need to simultaneously achieve growth, inclusiveness, environmental
protection and preservation.
The main areas of BRICS cooperation in STI should, inter alia, include:
 Exchange of information on policies and programmes and promotion of
innovation and technology transfer;
 Food security and sustainable agriculture;
 Natural disasters;
 New and renewable energy, energy efficiency;
 Nanotechnology;
 High performance computing;
 Basic research;
 Space research and exploration, aeronautics, astronomy and earth
observation;
 Medicine and biotechnology;
 Biomedicine and life sciences (biomedical engineering, bioinformatics,
biomaterials);
 Water resources and pollution treatment;
 High tech zones/science parks and incubators;
 Technology transfer;
 Science popularization;
 Information and communication technology;

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 Clean coal technologies;
 Natural gas and non-conventional gases;
 Ocean and polar sciences;
 Geospatial technologies and its applications.
6 Financial cooperation
Financial issues are an important area of cooperation between BRICS countries and
most of them are considered in the framework of the BRICS Finance Ministers and
Central Bank Governors' process. The areas of cooperation include:
 establishment of the New Development Bank (NDB) to mobilize resources
for infrastructure and sustainable development projects in BRICS and other
emerging economies and developing countries, to supplement the existing
efforts of multilateral and regional financial institutions for global growth and
development
 establishment of the Contingent Reserve Arrangement (CRA) to contribute to
strengthening the global financial safety net and complement existing
international monetary and financial arrangements
In addition, BRICS countries' development banks will cooperate under the
framework of Financial Forum.
7 Connectivity
Connectivity is an essential prerequisite for enhancing competitiveness.
Strengthening connectivity represents a common necessity for all BRICS countries.
Initiatives launched by BRICS countries are of significant importance for
connectivity. Connectivity should be strengthened in a comprehensive, integrated
and systematic way in key areas including policy coordination, infrastructure
connection, trade, financial integration and people-to-people contacts.
7.1 Institutional connectivity:

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Institutional Connectivity will advance regulatory and procedural cooperation and
coherence among the BRICS countries through addressing trade facilitation issues
and improving the coherence and interoperability of institutions, mechanisms, and
processes. BRICS cooperation in this area should focus on:
7.2 Physical connectivity:
Development of safe, balanced and dynamic transnational transportation and
logistics systems is essential for economic growth of the BRICS countries. Efficient
operation of the transportation system is crucial for international trade and
integration in global production chains. Communication infrastructure, information
and telecommunication technologies, as a key instrument of logistics system, also
make a considerable contribution to accelerating growth and cost reduction.
7.3 People-to-people connectivity:
Enhanced people-to-people connectivity will further stimulate interaction among
BRICS countries, people and societies, promote business, labour and academic
mobility and tourism, and strengthen mutual understanding and friendship.
Education
Being strategic partners in this regard, the BRICS countries should forge close
mutual links to improve the education from the earliest to the highest levels.
The main areas of BRICS educational cooperation should include:
 developing joint methodologies for education indicators;
 sharing best practices in terms of assessing learning outcomes;
 sharing concepts, methods and analytical tools to match demands and supply
of vocational and technological education;
 developing higher education, with emphasis on mobility in graduate school,
and research;

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AIGS
 establishing networks of researchers and developing joint projects in areas of
mutual interest;
 establishing a BRICS University League (association of BRICS universities)
and a BRICS Network University;
 exchanging experience and best practices in education;

Mrs. Manjula BK
Assistant Professor
AIGS

INTERNATIONAL BUSINESS – MODULE 03 - GLOBALIZATION
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AIGS
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INTRODUCTION: Globalization is a term used to describe how trade and
technology have made the world into a more connected and interdependent
place. Globalization also captures in its scope the economic and social changes
that have come about as a resul.
Globalization is the increase in the flow of goods, services, capital, people, and
ideas across international boundaries, according to the online course Global
Business.
MEANING:
Globalization is the process by which ideas, knowledge, information, goods
and services spread around the world. In business, the term is used in an
economic context to describe integrated economies marked by free trade, the
free flow of capital among countries and easy access to foreign resources,
including labor markets, to maximize returns and benefit for the common
good.
Globalization, or globalisation as it is known in some parts of the world, is
driven by the convergence of cultural and economic systems. This convergence

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promotes -- and in some cases necessitates -- increased interaction, integration
and interdependence among nations. The more countries and regions of the
world become intertwined politically, culturally and economically, the more
globalized the world becomes.
How globalization works…..??
In a globalized economy, countries specialize in the products and services they
have a competitive advantage in. This generally means what they can produce
and provide most efficiently, with the least amount of resources, at a lower cost
than competing nations. If all countries are specializing in what they do best,
production should be more efficient worldwide, prices should be lower,
economic growth widespread and all countries should benefit -- in theory.
Policies that promote free trade, open borders and international cooperation all
drive economic globalization. They enable businesses to access lower priced
raw materials and parts, take advantage of lower cost labor markets and access
larger and growing markets around the world in which to sell their goods and
services.
Money, products, materials, information and people flow more swiftly across
national boundaries today than ever. Advances in technology have enabled and
accelerated this flow and the resulting international interactions and
dependencies. These technological advances have been especially pronounced
in transportation and telecommunications.
Features of Globalisation:
1. Liberalization:

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It stands for the freedom of the entrepreneurs to establish any industry or trade
or business venture, within their own countries or abroad.
2. Free trade:
It stands for free flow of trade relations among all the nations. It stands for
keeping business and trade away from excessive and rigid regulatory and
protective rules and regulations.
3. Globalization of Economic Activity:
Economic activities are be governed both by the domestic markets and also the
world market. It stands for the process of integrating the domestic economies
with the world economy.
4. Liberalization of Import-Export System:
It stands for liberalization of the import-export activity involving a free flow
of goods and services across borders.
5. Privatization:
Globalization stands for keeping the state away from ownership of means of
production and distribution and letting the free flow of industrial, trade and
economic activity among the people and their corporations.
6. Increased Collaborations:

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Encouraging the process of collaborations among the entrepreneurs with a
view to secure rapid modernization, development and technological
advancement, is a feature of Globalization.
7. Economic Reforms:
Encouraging fiscal and financial reforms with a view to give strength to free
trade, free enterprise and market forces of the world. Globalization stands for
integration and democratization of the world’s culture, economy and
infrastructure through global investments.
Globalization: Background:
The progress of industrial revolution in the 20th century was accompanied by
a replacement of the police state by a welfare state. The state came to be an
active actor in the economic life of the society. In the socialist states, state
ownership of means of production and distribution became the rule.
State-controlled command economies were operationalized and regarded as
the best means for rapid socio-economic development. In several other
countries, nationalization of key industries and enterprises was undertaken
with a view to provide goods and services to the people. State began
performing several socio-economic functions.
India, like several other new states, adopted a mixed economic model.
Ownership and control over key industries was entrusted to the public sector.
It was deemed essential for securing a better mobilization of resources and for
providing better services to the people. State regulation of economy and

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industry was practiced and the public sector was patronized by the state.
Private sector was given a lesser role in the economic system.
STAGES OF GLOBALAISATION
1. In the first stage of globalization, companies normally tend to focus on their
domestic markets. They develop and strengthen their capabilities in some core
areas.
2. In the second stage of globalization, companies begin to look at overseas
markets more seriously but the orientation remains predominantly domestic.
The various options a company has in this stage are exports, setting up
warehouses abroad and establishing assembly lines in major markets. The
company gets a better understanding of overseas markets at low risk, but
without committing large amounts of resources.
3. In the third stage of globalization, the commitment to overseas markets
increases. The company begins to take into account the differences across
various markets to customize its products suitably. Different strategies are
formed for different markets to maximize customer responsiveness. The
company may set up overseas R&D centers and full-fledged country or region
specific manufacturing facilities. This phase can be referred to as the
multinational or multi-domestic phase. The different subsidiaries largely
remain independent of each other and there is little coordination among the
different units in the system.
4. In the final stage of globalization, the transnational corporation emerges. Here,
the company takes into account both similarities and differences across
different markets. Some activities are standardized across the globe while
others are customized to suit the needs of individual markets. The firm attempts
to combine global efficiencies, local responsiveness and sharing of knowledge
across different subsidiaries. A seamless network of subsidiaries across the
world emerges. It is very difficult to make out where the home country or
headquarters is.

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Advantages and Disadvantages of
Globalization
Globalization is an international situation that has arisen in the late twentieth
century in which the world’s investment, employment, production, and
marketing systems have spread beyond he territorial boundaries to the
international arena. As a result, the world has become a pervasive social and
different countries are simultaneously participating in the process of uniform
investment, employment, production, and marketing.
Advantages of Globalization
As a result of globalization, we all enjoy many advantages. these are-
1. Transfer of Technology
2. Better Services
3. Standardization of Living
4. Development of Infrastructure
5. Foreign Exchange Reserves
6. Economic Growth
7. Affordable Products
8. Contribution to World GDP Growth Rate
9. Extensions of Market
1. Transfer of Technology
Transfer of technology throughout the globe is good for us. Any country can
borrow the technology through the agreement and can implement it in their
country for their overall development. We can communicate each other easily
from any part of the globe by using advance technology at minimal cost, time
and efforts.

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2. Better Services
Globalization always provides us better services. Through the technological
advancement our services like water supply, mobile networking, internet,
electricity supply and any other services have been easier and better than
before. By the way, easy access to the internet throughout the globe is also the
result of the globalization.
3. Standardization of Living
The integration of economies as the key process of globalization enables
countries to fight against poverty and improve the standard of living of the
people.
Many researchers have been stated that when a country open up their trade to
the globe, their rate of economic growth is faster and living standards tend to
increase.
4. Development of Infrastructure
Due to the technological advancement and its transfer throughout the globe
helps to improve country’s infrastructure. Countries are more enabling to
deliver their services to the people. Development of infrastructure means
overall development of respective countries. Here it is necessary to say that
economic growth and development of infrastructure are compatible with each
other.
5. Foreign Exchange Reserves
Through globalization countries can build foreign exchange reserves owing to
international financial flows.

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6. Economic Growth
Globalization entails to optimum utilization of resources wherein deficit
resources are procured and surplus resources are exported to other countries.
This ensure overall economic growth.
7. Affordable Products
With the access to the latest technology, the countries can provide products to
its countrymen at affordable prices. Globalization promotes competition in
domestic economies and their endeavor to compete against competition,
companies reduce product price or follow penetration pricing strategy.
8. Contribution to World GDP Growth Rate
Globalization ensures contribution of every country to the world GDP growth.
9. Extensions of Market
Above all, Globalization promotes extension of market. It provides an
opportunity to the domestic companies in going global. For instance,
domestically, companies can witness saturation in the demand for their
products or services but through globalization the domestic companies can
sustain and satisfy the growing demands of foreign customers.
Disadvantages of Globalization
The globalization that just keeps doing well to us is not true. It impacts us in
multidimensional way. So it has some disadvantages also. These ares-
Growing Inequality
Increasing of the Unemployment rate
Trade Imbalance

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Environmental Loots
1. Growing Inequality
Globalization can increase inequality throughout the world by increasing
specialization and trade. Although specialization and trade boost the per-capita
income it may cause relative poverty.
To illustrate this we will take an example. All dominated MNCs in the world
are located in the United States. All these companies are buying cheaper labor
from developing or underdeveloped countries for their product manufacturing
or assembling. China, India and Africa are prime examples of this. It increases
the employment of such countries but they are lagging behind relatively
developed countries.
Again those companies coming to these countries for cheap labor, they also
deprive of that country’s i.e American people from work. So it appears that
relative poverty is being created in developed countries as well.
2. Increasing of the Unemployment rate
Globalization can increase unemployment rate. Where people are getting jobs,
how is it possible? Here is the explanation.
Globalization demands for higher-skilled work with cheaper price. But
countries where Institutions are relatively weak are not capable of producing
highly skilled workers. As a result, the unemployment rate is increasing in
those countries.

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When many foreign companies invest heavily in developing countries, they
hire employee from that country. In some cases their salaries are very lower
than the other developed countries. Moreover, the demand for these employees
in developed countries is very low. Moreover, with the emergence of Global
Economic Crisis, their jobs are at risk of losing.
3. Trade Imbalance
The balance of trade refers to the balance of values between a country’s export
and import’s goods and services. As the result of globalization, any country
can trade to any part of the globe.
That is why, in some cases developing countries are so much dependent on the
developed countries in terms of import goods but their export capabilities are
lower than import. The trade imbalance has been occurring.
So, trade imbalance refers to the imbalance of values between a country’s
import and export’s goods and services. It is also called trade deficits. Trade
imbalance may be increase in developed countries by their competitors.
4. Environmental Loots
The pace of industrialization is increasing as the result of globalization.
Industrialization boosts the economic growth but it harms environment as well.
Globalization loots from the nature and it harm us very badly.
Let’s try to understand with the example. Coca-Cola is the world’s leading soft
drink company. This company consume huge amount of water for making soft
drinks. In a state of northern India, Uttar Pradesh, a Coca-Cola bottle plant was
closed by the government order because of too much usage of water claimed
by local farmers.

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In North India, the level of ground water is very low, but huge usage of this
water for the interest of a MNC is very harmful to domestic farming.
In Kerala, a state of southern India, Coca-Cola plant was also closed due to the
polluting the water which was supplied to the local communities.
Also, MNCs use the natural resources of different countries extensively for
their personal gain.
Various chemical industries are very harmful to our health by polluting the
soil, water, air.
Conclusion
From the above discussion on the Advantages and Disadvantages of
Globalization, it can be said that the list of benefits of globalization can be
easily lengthened. However, there are some disadvantages. According to
critics, the process did not benefit the poor. The impact of globalization on
environmental protection is not too great and Did not stabilize the global
economy.
The policies formulated by the IMF, the World Bank, and the World Trade
Organization only serve the interests of the developed world. Especially the
internal interests of those countries. Developing countries have no place in it.
The ideas of all these countries regarding globalization revolve around a
particular economic and social scenario.
Essential Conditions for Globalization
In order to smoothen the process of globalization, the following are necessary:
1. Removal of quotas and tariffs.

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2. Liberalization of Government rules and regulations.
3. Freedom to business and industry.
4. Removal of bureaucratic formalities and procedures.
5. Adequate infrastructure.
6. Competition on the basis of quality, price, delivery, and customer service.
7. Autonomy to public sector undertakings.
8. Incentives for research and development.
9. Administrative and Government support to industry.
10. Development of money markets and capital markets.

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An International Business Environment (IBE) refers to the surroundings in
which international companies carry on their businesses. It plays a critical role
in the development and growth of a country.
An International Business Environment (IBE) involves different aspects like
political risks, cultural differences, exchange risks, and legal and taxation
issues. Thus, it is mandatory for the people at the managerial levels to work on
factors comprising the international business environment as it is crucial for a
country’s economy.

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Types of International Business Environment
Political Environment in International Business
The political environment means the political risk, the government’s
relationship with a business, and the type of government in the country.

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Conducting business internationally implies dealing with different kinds of
governments, levels of risk and relationships.
There are different types of political systems, such as one-party states, multi-
party democracies, dictatorships (military and non-military) and constitutional
monarchies. Thus, an organisation needs to take into account the following
aspects while planning a business plan for the overseas location:
 Political system of the business
 Approach of the government towards business, i.e. facilitating or
restrictive
 Incentives and facilities offered by the government
 Legal restrictions for licensing requirements and reservations to a specific
sector like the private, public or small-scale sector
 Restrictions on importing capital goods, technical know-how and raw
materials
 Restrictions on exporting services and products
 Restrictions on distribution and pricing of goods
 Required procedural formalities in setting the business

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Economic Environment in International Business
The economic environment refers to the factors contributing to the country’s
attractiveness to foreign businesses. It can differ from one nation to another.
Better infrastructure, education, healthcare, technology, etc., are also often
associated with high levels of economic development. The levels of economic
activities combined with infrastructure, education, and the degree of
government control affect the facets of doing a business.
Usually, countries are divided into three main economic categories, i.e. more
industrialised or developed, less developed or third world, and the newly
emerging or industrialising economies. There are significant variations within
each economic category. Overall, the more developed countries are rich, the
less developed are poor, and the newly industrialising are those moving from
poor to rich. These distinctions are made based on the Gross Domestic Product
per capita (GDP/capita).
A business needs to recognise the economic environment to operate in
international markets successfully. While analysing the economic
environment, an organisation intending to work in a particular business sector
should consider the following aspects:
 Economic system to enter the business sector

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 Stage and pace of economic growth
 Level of national GDP and per capita income
 Incidents of taxes, direct and indirect tax
 Available infrastructure facilities and the difficulties
 Availability of components, raw materials and their cost
 Sources of financial resources and their costs
 Availability of workforce, managerial and technical workers, their salary
and wage structures
Technological Environment in International Business
The technological environment includes factors related to the machines and
materials used in manufacturing services and goods. As organisations do not
have control over the external environment, their success depends on how they
will adapt to the external environment. A significant aspect of the international
business environment is the level and acceptance of technological innovation
in countries.
The last decade of the twentieth century saw significant advances in
technology, and it is also continuing in the twenty-first century. Technology

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often gives organisations a competitive advantage. Hence, organisations
compete to access the latest technology, and international organisations
transfer technology to be globally competitive.
Due to the internet, it is easier even for a small business plan to have a global
presence, which grows its exposure, market, and potential customer base. For
political, economic and cultural reasons, some countries are more accepting of
technological innovations, while others are less accepting. In analysing the
technological environment, the organisations should consider the following
aspects:
 Level of technological developments in the country as a whole and
specific business sector
 Pace of technological changes and obsolescence
 Sources of technology
 Facilities and restrictions for technology transfer
 Time taken for the absorption of technology
Cultural Environment in International Business

Mrs. Manjula BK
Assistant Professor
AIGS
Page
19
The cultural environment is one of the crucial components of the international
business environment. It is the most difficult to understand as the cultural
environment is unseen. It has been described as a commonly held and shared
body of general values and beliefs that determine what is right for one group,
according to Kluckhohn and Strodtbeck.
National culture is defined as the body of general values and beliefs shared by
a nation. Beliefs and values are usually formed by factors such as language,
history, geographic location, religion, education and government. Thus,
organisations begin a cultural analysis by understanding these factors. The
well-known model is the one developed by Hofstede in 1980.
The model by Hofstede proposes four dimensions of cultural values, which are
as follows:
 Individualism – It is the degree to which a nation encourages and values
individual decision making and action
 Uncertainty avoidance – It is the degree to which a nation is willing to
deal with and accept uncertainty
 Power distance – It is the degree to which a nation sanctions and accepts
differences in power
 Masculinity – It is the degree of the gender gap in a society

Mrs. Manjula BK
Assistant Professor
AIGS
Page
20
Hofstede’s model of cultural values has been extensively used as it provides
data for a wide array of countries. Many managers and academics found this
model helpful in exploring management approaches appropriate in different
cultures.
For example, in a country that is high on individualism, one expects individual
tasks, goals and individual reward systems to be effective, while the reverse
would be the case in a country that is low on individualism. While analysing
cultural factors, the organisation should consider the following aspects:
 Approaches to society towards business in specific and general areas
 Influence of cultural, social, and religious factors on the acceptability of
the product
 Lifestyle of people and the products used by them
 Level of acceptance and resistance to change
 Demand for a specific product for a specific occasion
 Values attached to particular products, i.e. possessive or the functional
value of products
 Consumption pattern of the buyers.

Mrs. Manjula BK
Assistant Professor
AIGS
Page
21
The General Agreement on Tariffs and Trade (GATT) covers international
trade in goods. The workings of the GATT agreement are the responsibility of
the Council for Trade in Goods (Goods Council) which is made up of
representatives from all WTO member countries.
Origin of GATT:
Inspired by the success of agreement for international monetary co-operation
as reflected in the formation of the IMF, similar co-operation as reflected in
international trade also was desired by many trading nations for expansion of
world trade.
It was thought that for healthy world trade, attempt must be made to relax the
existing trade restrictions, such as tariffs.
As such, at the International Conference on Trade and Employment held in
1946 at Havana, a proposal for establishing an agency called the International

Mrs. Manjula BK
Assistant Professor
AIGS
Page
22
Trade Organisation (ITO) was made with the miscellaneous and general
objective of augmenting and maintaining world trade and employment.
Though the Havana Charter for ITO was designed as a sort of international
trade constitution, it was not translated into practice due to various difficulties
and lack of common agreement.
However, some of the countries took up one of the important issues of the
Havana Charter regarding relaxation of trade restrictions by incorporating it
into a General Agreement on Tariffs and Trade (GATT). This was signed in
1947 by some twenty-three major trading nations, including India. GATT
membership has now gone up to more than 64.
As the name itself suggests, the General Agreement was concerned only with
tariffs and trade restrictions and related international matters. It serves as an
important international forum for carrying on negotiations on tariffs.
Under GATT, member nations meet at regular intervals to negotiate
agreements to reduce quotas, tariffs and such other restrictions on international
trade. GATT, by its very nature, is a contractual agreement among parties (or
nations). It is a treaty that is collectively administered by the contracting
nations.

Mrs. Manjula BK
Assistant Professor
AIGS
Page
23
However, it has become a permanent international organisation for
safeguarding the conduct of international trade and an institution for the
multilateral expansion of trade.
Objectives of GATT:
By reducing tariff barriers and eliminating discrimination in
international trade, the GATT aims at:
1. Expansion of international trade,
2. Increase of world production by ensuring full employment in the
participating nations,
3. Development and full utilisation of world resources, and
4. Raising standard of living of the world community as a whole.
However, the articles of the GATT do not provide directives for attaining these
objectives. These are to be indirectly achieved by the GATT through the
promotion of free (unrestricted) and multilateral international trade.
As such, the rules adopted by GATT are based on the following
fundamental principles:

Mrs. Manjula BK
Assistant Professor
AIGS
Page
24
1. Trade should be conducted in a non-discriminatory way;
2. The use of quantitative restrictions should be condemned; and
3. Disagreements should be resolved through consultations.
In short, members of GATT agree to reduce trade barriers and to
eliminate discrimination in international trade so that multilateral and
free trade may be promoted, leading to wider dimensions of world trade
and prosperity.
Most Favoured Nations Clause:
In general terms, members of GATT agree that reduction in tariffs and
elimination of discrimination in international commerce should be on a
reciprocal and mutually advantageous basis.

Mrs. Manjula BK
Assistant Professor
AIGS
Page
25
The World Trade Organization (WTO) is the only global international
organization dealing with the rules of trade between nations. At its heart are
the WTO agreements, negotiated and signed by the bulk of the world’s
trading nations and ratified in their parliaments. The goal is to help
producers of goods and services, exporters, and importers conduct their
business.
The World Trade Organization (WTO) is an intergovernmental
organization that regulates and facilitates international trade. Governments
use the organization to establish, revise, and enforce the rules that govern
international trade. It officially commenced operations on 1 January 1995,
pursuant to the 1994 Marrakesh Agreement, thus replacing the General
Agreement on Tariffs and Trade (GATT) that had been established in 1948.
The WTO is the world's largest international economic organization, with
164 member states representing over 98% of global trade and global GDP.
Objectives OF WTO
The WTO has six key objectives:
(1) To set and enforce rules for international trade.

Mrs. Manjula BK
Assistant Professor
AIGS
Page
26
(2) To provide a forum for negotiating and monitoring further
trade liberalization.
(3) To resolve trade disputes.
(4) To increase the transparency of decision-making processes.
(5) To cooperate with other major international economic institutions
involved in global economic management, and
(6) To help developing countries benefit fully from the global trading system.
Functions
 Administering trade agreements.
 Acting as a forum for trade negotiations.
 Settling trade disputes.
 Reviewing national trade policies.
 Building the trade capacity of developing economies.
 Cooperating with other international organizations.

Mrs. Manjula BK
Assistant Professor
AIGS
Page
27
The OECD was initially called the Organization for European Economic
Cooperation, or OEEC. It was started in 1948, after World War II, to run the
Marshall Plan to reconstruct Europe. Its goal was to help European
governments recognize their economic interdependence.
The main purpose of the OECD is to improve the global economy and promote
world trade. It provides an outlet for the governments of different countries to
work together to find solutions to common problems.
The Organisation for Economic Co-operation and Development (OECD) is an
international, intergovernmental economic organization of 38 countries.
OECD was founded in the year 1961 to stimulate world trade and economic
progress.
Latest news related to OECD
The Organization for Economic Co-operation and Development (OECD)
is celebrating its 60th Anniversary in 2021.
1. OECD has released a research analysis’ The Long View: Scenarios for the
World Economy to 2060′. As per the findings of the research –
 The real GDP growth of the world will decline from 3.5% in 2018
to 2% in 2060.

Mrs. Manjula BK
Assistant Professor
AIGS
Page
28
 By 2060, India, China, and Indonesia combined will represent
almost half of the world’s economic output.
2. The most recent countries to join the OECD were Colombia, in April
2020, and Costa Rica, in May 2021.
About OECD
Most OECD members are high-income economies with a very high Human
Development Index (HDI) and are regarded as developed countries. OECD
members are democratic countries that support free-market economies.
 It provides a platform for its member countries to compare policy
experiences, seek answers to common problems, identify and share best
practices, and coordinate domestic and international policies of its
member nations.
 OECD is an official Permanent observer to the United Nations and is
referred to as a think-tank or as a monitoring group.
 The OECD’s headquarters are at the Château de la Muette in Paris,
France.
 The OECD member states collectively comprised 62.2% of global
nominal GDP (US$49.6 trillion) and 42.8% of global GDP (Int$54.2
trillion) at purchasing power parity in 2017.
 The international dollar: It is also known as Geary–Khamis dollar.
 It is a hypothetical unit of currency that has the
same Purchasing Power Parity (PPP) that the U.S. dollar had
in the United States at a given point in time.
 It is widely used in economics and financial statistics for
various purposes, such as to determine and analyze the PPP
and the GDP of various countries and markets.

INTERNATIONAL BUSINESS NOTES FOR BBA AND BCOM STUDENTS ALL 5 IB MODULES IN ONE FILE.pdf

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