INTERNATIONAL BUSINESS MANAGEMENT

UNIT I

INTRODUCTION

International Business –Definition –

Internationalizing business-Advantages – factors
causing globalization of business- international
business environment – country attractiveness –
Political, economic and cultural environment –
Protection Vs liberalization of global business
environment.
CONCEPTS:

 EXPORTS
 IMPORTS

LPG:
• Liberalization
• Privatization
• Globalization
CONCEPTS & ABBREVIATIONS:
 Local Business (or) Company (LC)
 Regional Business (or) Company (RC)
 Domestic or National Business (or) Company (NC)
 International Business (or) Company (INC)
 Multi-national Business (or) Company (or) Enterprise
(MNE)
 Multi-national Business (or) Corporations (MNC)
 Trans-national Business (or) Corporations (TNC)

 Home Country
 Host Country
UNIT-I: INTRODUCTION
DEFINITION:
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.

Other Definitions:

1) IB field is concerned with the issues facing international companies

and governments in dealing with all types of cross border transactions.
2) IB involves all business transactions that involve two or more
countries.
3) IB consists of transactions that are devised and carried out across
borders to satisfy the objectives of individuals and organizations.
4) IB consists of those activities private and public enterprises that
involve the movement across national boundaries of goods and
services, resources, knowledge or skills.
An international business has many options for doing
business, it includes,
 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.
 Providing managerial services to companies in the host
country.
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 :
 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 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.
5.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.
6.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.
7.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. has 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.
ADVANTAGES OF INTERNATIONAL BUSINESS:
 Potential Customer can be perused frequently to
try the product and hence the Entry is made
possible even in the established Supply Chain.
 Product flexibility
 Less Competition
 Competitor’s information and Trend analysis and
updated Product Information, which are currently
available in the market, can be made available to
the Client on Demand.
 Local offices located at the Destination, provides
good Moral Support to Consumers and Customers
when it comes to after Sales Service or
complications.
 Protection from National trends and Events
 Learning new methods in production & sales
FACTORS CAUSING GLOBALIZATION OF BUSINESS/ NEED FOR
INTERNATIONAL BUSINESS:
More and more firms around the world are going global,
including:
 Manufacturing firms
 Service companies (i.e. banks, insurance, consulting firms)
 Art, film, and music companies

International business:

 causes the flow of ideas, services, and capital across the

world
 Developing markets have huge markets
 offers consumers new choices
 permits the acquisition of a wider variety of products
 facilitates the mobility of labor, capital, and technology
 provides challenging employment opportunities
 reallocates resources, makes preferential choices, and
shifts activities to a global level
COUNTRY ACCTRACTIVENESS:
• It is a multidisciplinary concept at the crossroads of
development economics, financial economics,
comparative law and political science
• it aims at tracking and contrasting the relative
appeal of different territories and jurisdictions
competing for ―scarce‖ investment inflows, by
scoring them quantitatively and qualitatively across
ad hoc series of variables such as GDP growth, tax
rates, capital repatriation
• There are multiple factors determining host country
attractiveness in the eyes of large foreign direct
institutional investors, notably pension funds and
sovereign wealth funds
COUNTRY ACCTRACTIVENESS: (MAKE IN INDIA)
1. Guide to analyze country‘s attractiveness
2. Managerial Implications
3. Two broad implications for IB
• Political, economic, and legal systems of a country
raise important ethical issues that have implications
for the practice of international business
• The political, economic, and legal environment of
a country clearly influences the attractiveness of
that country as a market and/or investment site.
4. Attractiveness Return
A country attractiveness assessment is based on
two dimensions
• Market and industry opportunities
• Country risks (many organizations publish country
assessment results based on various
economic/political/social factors)
COUNTRY ACCTRACTIVENESS:
5. Country attractiveness analysis
a. Market opportunities
• Market opportunities assessment measures the
potential demand in the country for a firm‘s
products or services based on:
b. Market size
c. Growth
d. Quality of demand.
e. ndustry opportunities
Industry opportunities assessment determines
profitability potential of a company‘s presence in a
country given the following factors:
• Quality of industry competitive structure (Porter‘s
five-force Industry Analysis Framework)
• Resource availability (Porter‘s diamond framework)
COUNTRY ACCTRACTIVENESS:
6. Framework for country market and industry
attractiveness assessment MARKET – How important
is the demand in this country? + Growth? + Size? +
Customer quality
• Resources
• Skilled personnel?
• Raw materials?
• Components?
• Labor?
• Technology?
• Innovation?
• Quality of infrastructure supporting services
• Location
COUNTRY ACCTRACTIVENESS:
7. Country attractiveness analysis:
a. Political risks
• Political risks are probable disruptions owing to internal or
external events or regulations resulting from political action of
governments or societal crisis and unrest.
b. Economic risks
• Economic risks expose business performance to the extent
that the economic business drivers can vary and therefore put
profitability at stake.
c. 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 battlefield is not even and
investors who base their competitive advantage on product
quality and economics are at disadvantage.
d. 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.
COUNTRY ACCTRACTIVENESS:

8. Framework for country risk analysis

• Political risks operational risks competitive risks economic risks
• Shareholders exposure
• Assets destruction (war, riots)
• Assets spoliation (expropriation)
• Assets immobility (transfer, freeze )
• Operational Exposure
• Market disruption
• Labor unrest
• Racketing
• Supply shortages
• Employees Exposure
• Kidnapping; Gangsterism; Harassment
• Variability; Inflation; Cost of inputs
• Exchange rates
• Business logics
• Corruption
• Cartels (Unions, lobby)
• Networks etc.
COUNTRY ACCTRACTIVENESS:

9. Infrastructure - Power, Telecommunication,

Transport - Supplier Country Risk Analysis
• Regulations
• Nationalistic preferences
• Constraints on local capital, local content, local
employment
INTERNATIONAL BUSINESS ENVIRONMENT:
 In the context of a business firm , environment can be defined
as various external factors and forces that surround the firm
and influence its decisions and operations. These are
uncontrollable , the firm can do little to change them.
 Economic Environment
 Political Environment
 Technical Environment
 Cultural Environment
Economic Environment:
 The economic environment represents the economic
conditions in the country where the international organization
operates.
 Economic conditions, economic policies and the economic
system are the important external factors that constitute the
economic environment of a business.
 An analysis of economic environment enables a firm to know
how big the market is and what’s it nature.
 Economic development is directly related to the
development of marketing in a country.
 Countries characterized by high level of economic
development not only have a high demand for a variety of
products but also have better infrastructure and more
developed marketing systems.
 In the less developed countries, on the other hand, not only
demand is low, but infrastructure is also poor. It is therefore
becomes quite difficult and more expensive to do business in
such nations.
 INCOME: It’s an important indicator of the country’s level of
development and also its market size. Gross national product
and per capita income are among the major measures of
income.
 While sale of most of the industrial goods capital equipment
generally co-relate with GNP, demand for consumer products
depends on per capita income
 If the majority of the country’s income come from agriculture
then its agriculture based country and it have good demand
for seeds, fertilizers, agro machineries and tools.
Political Environment:
 The critical concern Political environment has a very
important impact on every business operation no
matter what its size, its area of operation.
 Whether the company is domestic, national,
international, large or small political factors of the
country it is located in will have an impact on it.
 its rightly said that a foreign business firms operates
only as a guest and at the convenience of the host
country government.
 the government reserves the right for allowing the
firm to operate in the country as well as laying
down the manner in which a foreign firm can
conduct business.
 Structure of Government
Ideology :
• Communism – government ownership
• Capitalism- private ownership
• Socialism – both private and government
ownership
Political Parties:
• Single Party – one party
• Dual Party – two parties
• Multiple Party – more than two parties
Concept of Political Environment:
This environment is the outcome of interacting influences of
various interest groups. Those main groups are such as
• Individual households
• Firms
• Politicians,etc.
Democracy versus Totalitarianism:
 The political scenario differs between the two extremes-
democracy and totalitarianism.
 Democracy involves direct involvement of citizens in
policy making.
 Totalitarianism represents monopolization of political
power in the hands of an individual or group of
individuals.
Technical Environment:
 The technological environment comprises factors
related to the materials and machines used in
manufacturing goods and services.

 Receptivity of organizations to new technology and

adoption of new technology by consumers influence
decisions made in an organization.
Cultural Environment:
There are some obvious ways culture influences an international
business:
 The way how we present ourselves
 How we express opinions
 Assumptions based on the environment and context
 Perceptions of voice, and other personal physical details.
Elements of Culture:
• Language
• Religion
• Education
• Attitudes and Values (a settled way of thinking or feeling
about something); (worth, or usefulness of something)
• Customs (a habitual practice; the usual way of acting in given
circumstances)
• Aesthetics (nature and appreciation of beauty)
• Social institutions (Society in where we lives)
• Material elements (refers to the physical objects, resources,
and spaces that people use to define their culture) eg. Home,
school, office, neighborhood, stores, factories, etc.
Language:

 Language is the medium through which message is

conveyed.
 It may be verbal or non-verbal.
 The same word or phrase contains several
meanings.
Religion:

 Religion sets the ideals of life.

 It thus add the values and attitude of individuals
living in a society.
 These values manifest in the behavior and
performance of individuals.
Education:
 Education depends primarily on the rate of literacy and
on enrolment in schools and colleges.

 If the education level is high in a society it is easy for the

multinational firms to operate there.

Attitudes and Values:

 Attitudes and values determine the attitude and value

of individuals towards work, status,change etc.

 The values are the beliefs and norms.

 The attitude in societies differ from countries.

Customs:
 Customs and manners vary from one society to
another.

 It is imperative for international managers to be

aware of varying manners and customs.

Aesthetics:
 Aesthetics is concerned with the sense of beauty,
good taste, and symbolism of colors.
For example:
 color symbolism is very prominent in international
business.
Social Institutions:
 Social institutions form an integral par of culture.
 It is mainly concerned with the size of family and
social stratification.
Material Elements:
 Material elements is related to the economic,
financial, and social infrastructure enjoyed by
people.
For example:
 If the consumers are uneducated their
consumption pattern will be different.
Culture Business:
 Culture is the entire set of social norms shaping
human behavior.

 Cultural boundaries may differ from national or

political boundaries because of varying cultural
backgrounds of individuals.

 Culture is not inborn. The learning persists

throughout his/her life.
 LIBERALISATION/PROTECTION OF GLOBAL BUSINESS
ENVIRONMENT:
The main aim of liberalization was to dismantle the
excessive regulatory framework which acted as a
shackle on freedom of enterprise. Over the years,
the country had developed a system of “license-
permit raj.”
 The aim of the new economic policy was to save
the entrepreneurs from unnecessary Harassment of
seeking permission from the bureaucracy of the
country to start an undertaking.
 The major purpose of liberalization was to free the
large private corporate sector form bureaucratic
controls. It, therefore, started dismantling the regime
of industrial licensing and controls.
The Principle Measures Initiated By The Government To
Liberalize The Indian Economy:
 The structural change in economic growth (change in
sectorial shares of the national income) in the Indian
economy.
 This is evident in the form offer shift in the sectorial composition
of production (income), diversification of activities and a
gradual transformation of a feudal and colonial economy in
to a modern industrial economy.
 While the share of agriculture and activities fell from 55%
during the first plan period to 32% during the seventh plant
period the sharing of manufacturing rising from 12% during the
first plan period to 18% during the seventh plan period.
 The share of service sector increase from 28% to 38% the
expansion of service sector has not only been reducing for
employment generation but also for greater efficiency of the
system and better quality of life.
 Thus express structural changes have taken place in the Indian
economy during the period 1952-90 when we go by sectorial
partition of life. Thus by income criterion structural change in
the Indian economy has been very graceful.

 Now, Let us consider structural changes by liberalize criterion.

It is normally accepted that one of the structural changes that
occur in the course of economic development in a
progressive shift of labor from agriculture and allied activities
to secondary activities.

 The interesting fact about these structural shifts in economic

activities for our purpose is not so much the ultimate decline in
the significance of agriculture (in relative terms) as the rate at
which it occurred.
 The above Historical Experience knows us that the
sectoral redistribution of the active population is a
time taking process. Dislike structural change based
on income criterion, structural change based on
employment in a slow process.

 This is demo by Indian Experience also. The work

force engaged in primary sector (agriculture, live
stock, fishing, hunting, plantations, etc.) reduce
from 71% in 1901 and in 1981 68%.
Two Structural Features

The Indian economy two structural features clearly from the

above account:

1) Liberalize agriculture continues to be important in the Indian

economy. A little more than 30% of national income
occurred in the agricultural sector.

2) There is only little structural change in economy when we go

by the employment criterion. Agriculture still accounted for more
than 65% of work force in early 90’s.

 The under developed nature of the Indian economy became

evident when we distinguish the employment structure of the
Indian economy with that of a developed country Japan
agriculture in Japan in 1986 accounted for only 7% of total
labor force.