Unit- 1 International Business- Meaning International Business conducts business transactions all over the world.

These transactions include the transfer of goods, services, technology, managerial knowledge, and capital to other countries. International business involves exports and imports. International Business is also known, called or referred as a Global Business or an International Marketing. An international business has many options for doing business, it includes, 1. 2. 3. 4. Exporting goods and services. Giving license to produce goods in the host country. Starting a joint venture with a company. Opening a branch for producing & distributing goods in the host country. 5. Providing managerial services to companies in the host country. Objectives of international Business Sales Expansion: The main objective of international business is to increase the sale because in international business a firm can sell its product in domestic as well as in foreign market Resource acquisition It means getting the resources from other countries because there may be so many resources of other country which may not be available in home country. Minimize competitive risk Many companies move internationally to minimize the risk of competitors. They want to go international market for defensive reasons. Diversification Many companies want to diversify the sources of sales and supplies, so they may seek foreign market for this purpose.

Definitions (2) 1. The exchange of goods and services among individuals and businesses in multiple countries. 2. A specific entity, such as a multinational corporation or international business company that engages in business among multiple countries. Internationalizing Business advantages and disadvantage

Advantages Faster growth: Firms that have operate internationally tend to develop at a much quicker pace than those operating locally Access to cheaper inputs: Operating internationally may enable the firm to source raw materials or labor at lower price increased quality and efficiency: Exposure to foreign competition will encourage increased efficiency. Doing business in the international market allows firms to improve the quality of their product in order to gain a competitive advantage. New market opportunities: International business presents firms with new market opportunities. These new markets provide more opportunities for expansion, growth, and income. A bigger market means more customers, increased revenue, a larger profit margin, and allows the business to realize economies of scale. Diversification: As the firm diversifies its market, it becomes less vulnerable to changes in local demand. This reduces wild swings in a company's sales and profits. Increased socio economic welfare: International business enhances consumption level and economic welfare of the people of the trading countries. For example the people of china are now enjoying a variety of products of varies countries than before as china has been actively involved in international business like coke, McDonalds range of products, electronic products of Japan and coffee from Brazil. Thus the Chinese consumption levels and socio economic welfare are enhanced Wider Market: International business widens the market and increases the demand for the product in a single country or customers tastes market size. Therefore the companies need not depend on the preferences of a single country. Due to the enhanced market the air France, now mostly depends on the demand for air travel of the customers from countries
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other than France. This is true in case of most of the MNCs like Toyota, Honda, and Xerox and coco cola. Reduced effects of business cycles: The stages of business cycles vary from country to country. Therefore MNCs shift from the country, experiencing a recession to the country experiencing boom conditions. Thus international business firms can escape from the recessionary condition. Reduced risks: Both commercial and political risks are reduced for the companies engaged in international business due to spread in different countries. Multinationals , which are operating in to erstwhile USSR were affected only partly due to their safer operations in other countries. But the domestic companies of the USSR collapsed completely. Large scale economies: Multinational companies due to the wider and larger markets produce larger quantities, invariably. It provides the benefit of large scale economies like reduced cost of production, availability of expertise, quality etc. Provides the opportunity for and challenge to domestic business: International business firms provide the opportunities to the domestic companies. These opportunities include technology, management expertise, market intelligence, product developments etc. For example Japanese firms operating in us provide these opportunities to us companies .This is more evident in the case of developing countries like India, African countries and Asian countries. Disadvantages Increased costs: There are increased operating expenses including the establishment of facilities abroad, the hiring of additional staff, traveling of personnel, specialized transport networks, information and communication technology. Foreign regulations and standards: The firm may need to conform to new standards. This may require changes such as in the production process, inputs and packaging, incurring additional costs. Delays in payments: International trade may cause delays in payments, adversely affecting the firm's cash flow. Complex organizational structure: International business usually requires changes to the firms operating structure. Training/retraining of management may be necessary to facilitate restructuring
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Features of international Business

1. Large scale operations: In international business, all the operations

are conducted on a very huge scale. Production and marketing activities are conducted on a large scale. It first sells its goods in the local market. Then the surplus goods are exported. 2. Integration of economies: International business integrates (combines) the economies of many countries. This is because it uses finance from one country, labor from another country, and infrastructure from another country. It designs the product in one country, produces its parts in many different countries and assembles the product in another country. It sells the product in many countries, i.e. in the international market. 3. Dominated by developed countries and MNCs: International business is dominated by developed countries and their multinational corporations (MNCs). At present, MNCs from USA, Europe and Japan dominate (fully control) foreign trade. This is because they have large financial and other resources. They also have the best technology and research and development (R & D). They have highly skilled employees and managers because they give very high salaries and other benefits. Therefore, they produce good quality goods and services at low prices. This helps them to capture and dominate the world market. 4. Benefits to participating countries: International business gives benefits to all participating countries. However, the developed (rich) countries get the maximum benefits. The developing (poor) countries also get benefits. They get foreign capital and technology. They get
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rapid industrial development. They get more employment opportunities. All this results in economic development of the developing countries. Therefore, developing countries open up their economies through liberal economic policies. Keen competition: International business has to face keen (too much) competition in the world market. The competition is between unequal partners i.e. developed and developing countries. In this keen competition, developed countries and their MNCs are in a favorable position because they produce superior quality goods and services at very low prices. Developed countries also have many contacts in the world market. So, developing countries find it very difficult to face competition from developed countries. Special role of science and technology: International business gives a lot of importance to science and technology. Science and Technology (S & T) help the business to have large-scale production. Developed countries use high technologies. Therefore, they dominate global business. International business helps them to transfer such top high-end technologies to the developing countries. International restrictions: International business faces many restrictions on the inflow and outflow of capital, technology and goods. Many governments do not allow international businesses to enter their countries. They have many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is harmful to international business. Sensitive nature: The international business is very sensitive in nature. Any changes in the economic policies, technology, political environment, etc. have a huge impact on it. Therefore, international business must conduct marketing research to find out and study these changes. They must adjust their business activities and adapt accordingly to survive changes.

Globalization Definition: Globalization is the growing integration of the worlds economy. It is suggested that economic decision taken in one part of the world will affect other parts of the worlds so businesses need to base their business decision-making on what is happening in the world market rather than the national market. There are three important features or aspects of globalization, which can be seen as follows: 1. The increasing importance o f international trade 2. More and more multinational companies
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3. More and more businesses thinking globally about their strategy. Globalization of Business Globalization in its true sense is a way of corporate life necessitated, facilitated and nourished by business practices cutting across borders of the world economies and developed by corporate strategies. Globalization is an attitude of mind - it is a mind-set which views the entire world as a single market so that the corporate strategy is based on the dynamics of the global business environment.

Factors Causing globalization of business There are many factors which have contributed to the growth of globalization, such as:

Technological change, The reduction of transportation costs, The deregulation of business, The consumer taste changes and the growth of new market and competition

Detailed explanation is seen in the following table:

Factors contributing to globalization

Explain how

Technological change

More powerful computers and internet have allowed the easy transfer of data, which plays an important role in speeding up the globalization.

The reduction of Air transportation and telephone costs have improved transportation costs the developing environment for globalization
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Consumer change

taste More and more consumers today are willing to buy foreign or new products for fashion or new styles

The growth of new New markets have been opened up in countries like markets former Eastern European countries and China. The growth of new markets has increased the trend of globalization.

Competition

More and more fierce competition has forced businesses to seek opportunities in the world markets. To compete successfully, businesses today must develop a global strategy.

Causes of Globalization Globalization is not a twentieth-century phenomenon. Globalization of economic activity has been closely linked with the development and establishment of empires worldwide through international trade since the sixteenth century. Looking back over the last three centuries, it would be nearly impossible to separate the political and economic in particular, international trade histories of Western nations. i. Global thinking: Companies which have adopted a global outlook stop thinking of themselves as national marketers who venture abroad and start thinking of themselves as global marketers. The top management and staff are involved in the planning of world-wide manufacturing facilities, marketing policies, financial flows and logistical systems. The global operating units report directly to the chief executive or executive committee, not to the head of an international division. Executives are trained in worldwide operations, not just domestic or international. Management is recruited from many countries, components and supplies are purchased where they can be obtained at the least cost, and investments are made where the anticipated returns are the greatest, according to Philip Kotler.
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ii. Multilateral Financial Arrangements: Multilateral financial arrangements are intended to render mutual financial assistances amongst nations. Nations are not equally endowed with resources. Nations are not enjoying same fate all the time. There may be ups and downs. At times of need, nations need supporting hands. When the exchange crisis hit the South East Asian nations, during 1997- 98, they needed sop. When the severe earthquake hit the Gujarat State of India, the nation needed support to rebuild the affected fortunes. These are recent examples. In the 1940s, the II World War ravaged economies needed assistances. Then came into being, the World Bank and International Monetary Fund by the collective action of the world nations. Later International Development Association, International Finance Corporation, Asian Development Bank, African Development Bank, etc., came into being. All are the results of collective decisions of the member nations to form and benefit from these organizations. These institutions help capital transfer from capital rich countries to capital poor countries. Multinational financial institutions, referred to above, are created by world nations, for nations and of nations. These institutions are given birth to by the nations. These are meant for the member nations. The resources of these institutions collectively belong to these member nations. Multilateral finance is largely debt capital, rather than equity type. Multilateral finance is generally provided to government or quasi-government institutions which may be passed later by them to private sector organizations. Multilateral finance carries a concessional rather than commercial rate of interest. Multilateral finance routed through governmental bodies generally is used to fund social and basic infrastructural projects. As debt capital assistances there are, debt servicing obligation vested on the government. Generally a longer initial moratorium period and longer repayment period are the order. To ensure that funds are used effectively, conditionalitys are added as strings to the fund provided. World Bank and International Development Association provide assistances for sectoral development covering agriculture, energy, environment, education, health & nutrition, social sector, financial institution development, tele-communication, transportation, urban development, water & sewerage, public sector management etc. International Monetary Fund provides assistances for meeting balance of payments problems, for structural adjustments requirements, poverty reduction, growth facilitation etc. These capital flows lead to globalization iii. Foreign Private Capital: Foreign Private Capital is capital contributed by foreign citizens, foreign companies, multinational corporations and the
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like. The present era is the era of global private capital. Global private capital flows into global markets in search of better investment opportunities. Portfolio diversifications and opportunity seizing are the causes. Private capital is now trusted as a means of encouraging investments stock in third world countries. Third world countries, in the past, depended on multilateral capital. But they failed to make effective use of the capital, which resulted in mounting external debt. And debt servicing became a problem. And more conditions added for subsequent borrowings made the countries realize the policy folly by sticking to multilateral capital. They saw the great opportunity in the private capital market. The success of the Asian economies, South American economies, kindled the interest of other third world nations to taste the nectar of private capital. In private capital, debt servicing need is not there for the government. It is an issue between the financier and borrower in private equity capital, even this need is not there. Global private capital comes with technology, marketing, management and other skills. Capital flows into sectors which have potentials of growth. These help globalization. Iv. Empire Building: Empire building in the last three centuries was closely connected with the development, of, and attempts to monopolize, international trade. The Spaniards and Portuguese won trade routes from the Mediterranean powers in the fourteenth to the sixteenth centuries; subsequently, these routes were won over and monopolized by the British, the Dutch and the French. Major areas of the world that started out as economic colonies (and monopolies carved out among the three trading powers) subsequently became political colonies (including North America). Numerous wars were fought in Europe and elsewhere over international trading rights, trade routes, and maintenance of trading monopolies. During these activities and the prevalent philosophy of political economy in those days was mercantilism that is, the philosophy that, from the standpoint of a nations welfare, it is better to export than to import. v. Industrial Revolution: By the late eighteenth century, propelled by the Industrial Revolution, Britain had become the undisputed world economic power. Economic historians have attributed a combination of factors, such as the technical progress and innovations in textiles, coal, iron and steel, the harnessing of steam, the displacement of agricultural workspace to meet the needs of a fast-expanding industrial base, the Protestant ethic, riches plundered from colonies, and so forth, as among the reasons why Britain became the worlds first industrial country. For instance, by the mid9

nineteenth century, Britain accounted for about 40% of the world export of manufacturers. vi. Growth of MNCs: Globalization via the development and spread of the MNCs through direct foreign investment is a more recent phenomenon. The earliest MNCs were mainly European firms, setting up manufacturing facilities in the colonies to extract primary resources for conversion to finished goods back home. However, by the mid-nineteenth century, many US firms began to globalize for example, Singer Sewing Machines set up a joint venture in France in 1855, Westing House, which set up a plant in Paris in 1878, and Kodak set up a plant in London in 1889. The expansion of US firms was furthered after World War II when both European and Japanese industrial infrastructure was largely destroyed by the war. Resource transfers for rebuilding these economies through programs such as the Marshall plan gave US firms the ability to consolidate their position even more firmly. Japanese firms were relatively late entrants into the world of MNCs. Although they were major exporters prior to World War II, most did not begin to set up subsidiaries abroad until well into the second half of this century. The process of globalization propelled by the MNCS as an organizational from had broken free; it had acquired a life of its own and become irreversible. In terms of its ability to move knowledge, people, capital, goods and service, and technology access borders, the process of globalization, led by MNCs, had done far beyond the reach of any national sovereign government or international agreement. To borrow a phrase from scholar of international business, Raymond Vernon, the MNCs had reached a level of maturity and influence worldwide whereby it could keep sovereignty at bay. Until recently, nearly all major multinationals were American, Japanese or Western European, such as Nike, Coca-Cola, Wal-Mart, AOL, Toshiba, Honda and BMW. Now, the emerging economies are adding home grown MNCs into the scene. With the development of a truly global economy by the 1990s, opinion with respect to the multinational corporations in home and host countries varied considerably. Multinationals have often been viewed abroad as purveyors of technology and business efficiencies and as bearers of products meeting an insatiable appetite for American goods. But a more negative image also developed. The growing competitiveness of the new world economy and a heightened emphasis on cost efficiencies, job reductions, retooling, and relocation led to complaints in home and host nations about declining market shares and lost jobs. The transnational character of the multinationals proved irksome to the Government officials who sensed a loss of their sovereignty because of the ability of these
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corporations to move their operations, transactions, and profits upstream or downstream as their self- interests dictated. By the beginning of the twentyfirst century more and more of the national economies were dominated by a relatively few multinational giants. Transfers of technology were another issue pitting MNCs and host and home governments against one another, as they jockeyed to maintain or gain control of technological breakthroughs for reasons of national security and profits. Despite, the jurisdictional disputes, cultural differences, nontariff barriers to trade, international agreements among the multinational corporations, and conflicting political agendas on such matters of principle as the environment, energy, human rights, accessibility to proper medical treatment and high-cost pharmaceuticals, sweatshops, and child labor laws, MNCs are galloping their clout over the economy of the world. vii. International Agreements: Alongside the development of the MNCs through direct investment abroad, the numerous international agreements and institutions that were set up after World War II acted as further catalysts to the process of globalization. Such institutions included the international fixed-exchange rate monetary arrangement under the Bretton Woods Agreement, the International Monetary Fund (IMF), the World Bank, the General Agreement on Tariffs and Trade (GATT), the World court and WTO. Although these institutions represented the outcome of voluntary acceptance of worldwide agreements among member countries, they seemingly provided the basis for a more stable worldwide environment in which MNCs could conduct their business.

Issues and Concerns of Globalization Issues and concerns of globalization are: change, efficiency, stability, development, sustenance and equity. These are elaborated below: i.Change: : The globalization process emphasized change-change from inefficiency to efficiency; change from bureaucratic delay to business like speed; change from structural rigidity to developmental flexibility; change from rules-frame to profit orientation; change from governmental intervention to market determination; change from plural layers of decision to de-layered decision process; change from inward- looking policy to outward-looking policy; change from import-substitution to export maximization; change from insulated economy to a competitive economy; change from local resource dependence to access to global resource; change
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from government ownership to private (people) ownership, change from centralization to decentralization; change from high taxation to low taxation and so on. ii.Efficiency: Efficiency is the ratio of output to input. Higher this ratio, greater is efficiency. Efficiency drive is very important in todays context of limited global resources, but unlimited global needs. So, global resources must be efficiently used. Efficiency becomes the driving force of industry, trade, institutions and firms. Capital efficiency labour efficiency and managerial efficiency lead to operative efficiency resulting in cost efficiency. Cost efficiency helps reaping market efficiency leading to profit efficiency. With profit efficiency developmental efficiency takes place, for with profit modernization, expansion and diversification are possible leading to efficiency. iii.Stability: Stability of economies is one of the concerns of globalization. Economies must be able to stand on sound footing. Every economy must have economic, political and social stabilities. In other words, the crises of the Mexican type or the South East Asian type should not occur or recur. This needs effective management of globalization. Fiscal stability, structural stability, macro-economic stability, financial stability, etc are certain forms of stability. Globalization process should address these, if the latter has to be in the agenda of all countries. iv.Development: One of the concerns of globalization is global development. Now a basic question arises. What is development? Development is growth plus change. Growth in national/global income, in national/global savings, in national/global investment, in employment, in exports, forex reserve, in return on investment in public sector, in infrastructural facilities and so on constitute one aspect of development. The other is positive change in composition of gross global product, in exports, in imports, in public and private sector, change in government finances, change in tax base, tax structure and tax level, change in technology and employment pattern and so on constitute another aspect of development. This development is sought to be achieved with local and global resources, with global trade and technology, with less government intervention and more people participation, with more private sector role and less public sector distortion, with more transparent policy and less control, with reduced tax and increased opportunity and so forth. The development goal is to be achieved with people namely the savers, investors, bankers, business persons, trading community, managers, workers and of course with
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responding bureaucrats. In other words, development goal should be made top on the agenda for action of people. v.Sustenance: Sustained development is much more important than quickfix development. Sustainable development ensures balance on all resources physical and human. There is no over-exploitation of any resource. Globalization should ensure this. Otherwise, globalization might lead to collapse of economies. vi.Equity: Equity refers to fairness. In the economic globalization context, equity refers to equity in sharing the rewards of globalization across countries, sectors, and business units and all stake-holders. Usually the globalization process is tilted in favor of the west and the non-primary sectors and against the less developed and primary sector this issue must be seriously addressed sooner than later so that globalization process goes at the right pace. Effect of globalization on business More and more foreign businesses have entered local markets so the competition has been intensified.

Increasing competition

Meeting consumer Consumers have choices for products and services. needs in more They can buy the best products for the best prices effective ways Being able to enjoy Businesses can enjoy as large scale of production in economies of scale the whole world. Their production costs can thus be reduced.

Affecting the choice Businesses can choose the most favorable place for of location production or business operation. The production of Motorola company in China can reduce the production costs of labor and eliminate the tariff restrictions of exports Increasing mergers Businesses have more partners worldwide. They can or joint- join together to produce goods and services or to development penetrate foreign markets opportunities in the
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world market

International Business Environment:

International Business Environment is individual and organization that exist outside the business and have influence direct and indirect to the business.
In international environment of business, we can comprise all the factors which affect international business. These factors are international financial system, exchange rates, international lending operations, International organizations which control foreign business. To know international business environment is very necessary because after knowing it, we can know its effect on Indian business. For example, we have to study WTO's rules and regulations. Check whether, these rules and regulations are in the favor of Indian business or not. There are also other international organizations like IMF and World Bank. We also study their changes and its effect on Indian business. Foreign aid and foreign investment is also developing international factor in developing countries. We should study whether it is helpful for development of developing countries or not.

Economic Environment: The economic environment influence international business decisions. This is because the decision trade or to locate manufacturing operations varies from one host country to the other, depending on the form of the economic system existing there and on the various economic parameter prevailing there for example 1. Level of income and inflation 2. Health of industrial, financial and external factors 3. Fiscal and monetary policies and many others Economic environment is very complex in nature. It is very dynamic A) Forms of economic system: There are 3 types of economic systems 1)Centrally planned economy (CPE): A CPE is defined as an economy where decisions regarding production and distribution of goods is taken by a central authority, depending upon the fulfillment of particular
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economic, social and political objective. The government designs the investment and coordinates the activities of the different economic sectors. Ownership of the means of production and the whole process or production lies in the hands of the government. 2)Market based economy: In the market based economic system, the decision to produce and distribute goods is taken by individual firm based on the forces of demand and supply. The means and factors of production are owned by individual and firms and they behave according to the market forces. The firms are quite free to take economic decisions. They take such decisions for the purpose of maximizing their profit or wealth 3) Mixed economy: Mixed economy is a compromise between the two. In other words, the system of mixed economy possesses the features of the first two systems. Thus mixed economy which represents a mixture of state control on one hand is the natural outcome. It is more common form of the economic system insofar as neither of the first two systems is found in the purest form. To cite an example the Indian economy represents a mixed economic system economic activities that are fraught with social considerations are owned and regulated by the government. The others are owned and performed in the private sector. B)Preliminary economic indicators: Whenever a firm moves abroad for international business it takes into account some preliminary economic indicators of the host country at a particular point of time as well as over a particular period. These economic indicators help the firm know among other things. 1. The size of demand for its products 2. The expected cost of production and the net earnings so as to ascertain its competitive edge 3. Whether it will be able to smoothly repatriate its earnings back to its home country. The important economic indicators are: I) Level of income and its distribution: The size of demand for a product is dependent upon the size of its buyer. This is why a firm doing business with a foreign country evaluates the income level existing in that foreign country. The level of income is normally represented by the gross national
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product or gross domestic product. Thus the income level in particular country should better be evaluated in terms of per capital income. It is on the basis that the World Bank has classified different countries as Country Classifications Low income Country Middle income country High income country Per capital Income US $ 875 or less US $ 876- 10725 US $ 10726 or above

Based on the level of income and some other economic and socio economic indicators one can group the countries into Developed Developing

The distribution of income in the host country is important for multinational firms for attending market segmentation. They can market a simple version of a particular product at low prices among low income consumers. At the same time, they can market a sophisticated version of the same product at very high price among the wealthy people in the same country. II) Inflation: It is a fact that the size of demand for a product depends not only on the level of income and its distribution, but it is also subject to the level of inflation in the country. It is because the purchasing power of the consumers depends on their real income. The higher the level of inflation the lower is the real income and the purchasing power of the consumers. Thus when a multinational firm decides to set up a manufacturing unit in a foreign country, it has to take into account the rate of inflation in the host country. III) Consumption Behavior: Consumption behavior or the pattern of consumption influences the demand for a particular product to a sizeable extent. In a low income country, where the consumers care more for price rather than for the quality of the goods, multinational firms find it very difficult to sell their improved quality, high price products even if they are for the daily use of common people. IV)Availability of human and physical resources: Easy availability of human and physical resources makes the manufacturing process easier
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and at the same time lowers the cost of production so as to confer upon the firm a competitive edge. This because if such resources are in abundance they are available with no difficulty and at a lower cost. V) Network of infrastructure: Building up of supportive infrastructure is prerequisite for the development of industry. For successful operation, affirm needs uninterrupted power supply good road / rail line, efficient communication system and so on. This is whey multinational firms must take into account the availability of infrastructure while analyzing the economic environment in a host country. VI) Fiscal, Monetary, and industrial policies: Various forms of economic policies pursued in the host country make the economic environment either congenial or act as a deterrent to the operation of a multinational firm. Corporate income tax, excise duty and tariff on import in the host country do influence international trade and investment.

Fiscal policy: The fiscal policy does not deal simply with various taxes and duties, but it is more concerned with the budgetary deficit of fiscal deficit. Monetary policy: With regard to the monetary policy, it is found that it has definite influences on the money supply and the rate of inflation, rate of interest and the cost of credit and on the general health of the financial sector. If the monetary policy is such that it keeps inflation within manageable limits

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Country Attractiveness The ability to get others to do what you want through attraction rather than coercion or payments," elaborating that soft power "arises from the attractiveness of a country's culture, political ideas, and policies.

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C u t yAt atv n s o nr t r ci e es

Bnf s e eit
S e o e o o ylik ly iz f c n m e e o o icgo th cnm r w

C ss ot
Oeal vr l At a tv n s t r ci e es C rru tio L c o o p n ak f In a tru tueL g l fr s c r e a Cs o ts

Rk : is s
P l tc l rs S c l u r s oi i a i k: o ia n e t/ A ti B s e s tr n s n u in s ed Eo o i c nm c rs E o o ic m mn g mn i k: c n m is a a e e t L g l rs F ilu e to s fe g ad po e e a i k: a r a ur r p rty rig ts h

Country attractiveness analysis A country attractiveness assessment is based on 3 dimensions Market opportunities Market opportunities Market opportunities assessment measures the potential demand in the country for a firms products or services based on: (1) Market size (2) Growth (3) Quality of demand Industry opportunities Industry opportunities assessment determines profitability potential companys presence in a country given the following factors: Quality of industry competitive structure Resource availability of a

Country risks
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Many organizations publish country assessment results based on various economic/political/social factors. Political risks Political risks are probable disruptions owing to internal or external event or regulations resulting from political action of governments or societal crisis and unrest. Economic risks Economic risks expose business performance to the extent that the economic business drivers can vary and therefore put profitability at stake. Competitive risks Competitive risks are related to non-economic distortion of the competitive context owing to cartels and networks as well as corrupt practices. The competitive battle field is not even and investors who base their competitive advantage on product quality and economics are at disadvantage. Operational risks Operational risks are those that directly affect the bottom line, either because government regulations and bureaucracies add costly taxation or Constraints to foreign investors or because the infrastructure is not reliable

Frame work for risk analysis:

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Fram work for countryrisk analy e sis

P litic l ris o a k
S a e h ld rs e p s re hr o e x ou
Assets des truction Assets spoliation Assets Im obility ( T fer) m rans

E p y e e p s re m lo e s x o u
Kidnapping G sterism ang Harassm ent(Irrita tion)

O e a n l E p s re p r tio a x o u
Mark disruption et Labour unres t S upply S hortag es

E o o ic R k c n m is s
.E conom g ic rowth .V ariability .Inflation

C u tryris on k aa s n ly is

C m e eris s o p titiv k
Business Log ic: .C orruption . Network

O e a n l ris s p r tio a k
In a tru tu fr s c re
.Pow telecom unication er, m .T ransport

R g la n e u tio s
. Nationalistic preferences .C onstraints on local capital . Local em ploym ent .T es ax

Components & Analysis of International Business Environment

Definition of Business Environment: The aggregate of all conditions, events and influences that surround and affect business(David Keith) International Business Environment (1) Economic (2) Political (3) Legal (4) Financial (5) Technological (6) Socio-Cultural (7) Demographic (8) Natural Prospects of a business depend not only on the resources but also on the environment. Hence an analysis of the environment is required for policy formulation and strategy formulation. Every business enterprise consists of a set of internal factors and ios confronted with a set of external factors. The internal factors are generally regarded as controllable, while the external factors are by and large beyond the control of the business. As environmental/external factors are beyond the control of a firm, its success depends to a large extent on the adaptability to the environment. (I.e. its ability to design and adjust the internal controllable variables to take advantage of the opportunities and combat the threats in the environment.) 30

Thus the business environment comprises of both a micro and a macro environment. The former consists of actors in the immediate environment that affects the performance of the firm, such as suppliers, competitors, marketing intermediaries, customers etc. The macro environment consists of larger societal forces that affect the actors in the company's micro environment, such as demographic, economic, natural, legal, technical, political and cultural forces.

Analyzing aspects of international business environment Environmental analysis is defined as "the process by which strategists monitor the economic, governmental, legal, market, competitive, supplier, technological, geographical and social settings to determine opportunities and threats to the firm." TOOLS: PEST PEST analysis stands for Political, Economic, Social, and Technological analysis and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT; inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the UK.The model, has recently been further extended to STEEPLE and STEEPLED, adding education and demographic factors. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. Political Factors. The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as: 1. How stable is the political environment? 2. Will government policy influence laws that regulate or tax your business? 3. What is the governments position on marketing ethics? 4. What is the governments policy on the economy? 5. Does the government have a view on culture and religion?
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6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?

Economic Factors. Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at: 1. Interest rates. 2. The level of inflation Employment level per capita. 3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on. Socio cultural Factors. The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include: 1. What is the dominant religion? 2. What are attitudes to foreign products and services? 3. Does language impact upon the diffusion of products onto markets? 4. How much time do consumers have for leisure? 5. What are the roles of men and women within society? 6. How long are the population living? Are the older generations wealthy? 7. Do the population have a strong/weak opinion on green issues? Technological Factors. Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points: 1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?

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2. Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc? 3. How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc? 4. Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc? SWOT SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies. The SWOT analysis provides information that is helpful in matching the firms resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection. The SWOT Matrix A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firms strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity. To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below: SWOT Analysis Framework Environmental Scan / Internal Analysis /\ Strengths Weaknesses
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\ External Analysis /\ Opportunities Threats

SWOT Matrix

Strengths: A firms strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include: Patents, strong brand names, good reputation among customers, cost advantages from proprietary know-how, exclusive access to high grade natural resources, and favorable access to distribution networks. Weaknesses: The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses: lack of patent protection, a weak brand name, poor reputation among customers, high cost structure, and lack of access to the best natural resources, lack of access to key distribution channels. In some cases, a weakness may be the flip side of strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be a considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment. Opportunities: The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include: an unfulfilled customer need, arrival of new technologies, loosening of regulations, and removal of international trade barriers Threats: Changes in the external environmental also may present threats to the firm. Some examples of such threats include: shifts in consumer tastes away from the firms products, emergence of substitute products, new regulations, and increased trade barriers SWOT / TOWS Matrix Strengths Opportunities Threats S-O strategies S-T strategies Weaknesses W-O strategies W-T strategies

S-O strategies pursue opportunities that are a good fit to the companys strengths. W-O strategies overcome weaknesses to pursue opportunities.
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S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. W-T strategies establish a defensive plan to prevent the firms weaknesses from making it highly susceptible to external threats.

Liberalization

Liberalization of global business environment Economic reforms/environment affects the business and industry directly. Business plans and programmers are directly influenced by economic factors, such as, interest rates, money supply, price level, consumers credit etc. Economic conditions leading to inflation or deflation affect the business activities. Inflation leads to rise in general price-level, whereas deflation leads to fall in price level. Higher petrol prices in the country reacted a trend in favor of small like Maruti car. State of industrial trade and business booms and slumps constitute the economics of market environment. Recently Government initiated various economic policies. As such the impact of these reforms changes on business and industry in the following manner:

Buyer's market Export is required for survival Corporate vulnerability Threat from multinational companies Overall competition World class technology Future not guided by past failures

Buyer's market
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In the liberalized policy regime shortages of goods are no more, but there are surplus of goods. This arises due to competition, reduction in cost, upgradation of technology, improvement in quality and customer convenience. Removal of government restrictions on capacity creation and capacity utilization has also helped increase in the supply of goods. Industry has been given total freedom to expand and diversify. Price control has been removed. Investment now takes place in the areas of demand. All these changes have been made the buyer, the sovereign of the market.

Export is required for survival Implementation of new trade policy has linked imports to exports. The enterprises should earn foreign exchange by exports and use the same foreign exchange for importing raw material spares and equipments. For example: Reliance Group, Essar World Trade, Ceat, Videocon, Eicher, MRF etc, are being benefited by the new policy. Corporate vulnerability Due to pressure from multinationals Indian companies are facing takeover, subordinate position in joint venture, unequal battle among the competitors and financial weakness. For instance, DCM Daewoo had to change only 6 crores as investment in the joint venture, whereas Daewoo pumped 468 crores equity which is about 92% of the total investment. Threat from multinational companies Due to the present policy of liberalization of our government, massive entry of multinationals in the country has started. The vast resources and the modern technology of the present multi-national company have enabled their subsidiary Indian companies to boost sales and enjoy strategic advantage over their competitors. The presence of multinational companies has been rendering valuable services to our economy. It is supplying superior quality of goods, generating more employment opportunities, promoting modern technology and awakening our business community. Overall competition The new competitive environment has thrown the economy open. There is tough competition between multinationals and there are also competitions between Indian enterprises and foreign enterprises. Competition has now become global. It is not confined to national boundaries. For instance, Weston Electronics Company which held about 18% of the television market
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has been virtually thrown out of the market due to cut throat competition and technological backwardness. World class technology Changes in government policy regarding business and industry have provided us with world class technology. Indian companies have also started making investment in research and development. Pharmaceutical industries made 2% investment in R & D. In developed countries investment in research and development goes to about 12%. Multinationals are also bringing world class technology in the country. This has enabled faster growth of industries.

Future not guided by past failures It is rightly said that future starts afresh for Indian companies. Future now needs new strategies, high technologies, determined efforts, enthusiasm, organization and leadership. New approaches, systems structures and new leadership must emerge to compete with the multinationals. We must forget the past, bury its failures and start working with new endeavor, approaches and leadership.

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