International Business Management

C o n f i d e n t i a l
Unit-1 Introduction to International Business
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Program : MBA
Semester : 4
th
Semester
Subject Code : MB0053
Subject Name : International Business Management
Unit number : 1
Unit Title : Introduction to International Business

Lecture Number : 1
Lecture Title : Introduction to International Business
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C o n f i d e n t i a l
Unit-1 Introduction to International Business
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The objectives of this lecture are to:

• describe the evolution of international business
• explain the concept of international business
• analyse the difference between domestic, international and global
business
• explain the dynamics of globalisation
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Objectives
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Introduction to International
Business
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Unit-1 Introduction to International Business
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Lecture Outline
• Introduction
• Introduction to International Business
• Elements of International Business
• Globalisation
• Summary
• Check Your Learning
• Activity
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C o n f i d e n t i a l
Unit-1 Introduction to International Business
• World economy is globalising at an accelerating pace as countries
previously closed to foreign companies have opened up their markets.
• Geographic distance is shrinking because of the Internet, as the
ambitious companies aim for global leadership.
• International business is mainly concerned with issues related to
international companies and governments’ cross border transactions.
• International business involves multiple countries to satisfy the objectives
of every individual as well as the organisations.
• International business management is a process of achieving the global
objectives of a firm by effectively managing the human, financial,
intellectual and physical resources.
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Introduction
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Unit-1 Introduction to International Business
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• International business: Any business that crosses the national borders
of a country.

Introduction to International Business
(Contd…)
International Business
includes:
Importing and exporting
Licensing
Technology
Employees
Import of goods from one foreign
Country to a second foreign
country: Subsequent local sale
Franchising of intellectual property
(trademarks, patents, copyright
Investment in financial and immovable
assets in foreign countries
Contract manufacturing or assembly of
products for local sale or for export
to other countries
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Unit-1 Introduction to International Business
Factors affecting international business
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• In a rapidly changing global economic scenario under World Trade
Organisation, starting an international business is considered to be more
complex than starting a domestic business.
• There are various factors that affect international business.
• International business is considered to be more complex than starting a
domestic business in a changing global economic scenario under World
Trade Organisation. There are two reasons for this.
 Firstly: Numbers of parties involved in international trade are more
than domestic business.


(Contd…)
Introduction to International Business
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Unit-1 Introduction to International Business
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• Secondly: Distances involved in trade transaction, differences in business
etiquettes and practices in different countries, varied cultures, languages,
preferences and currencies complicate the process.
• Following are some advantages in conducting successful business:
 Speedy delivery of internationally traded goods
 Quicker release of payments in trade transactions

(Contd…)
Introduction to International Business
Agencies involved in entire international trade process

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Evolution
• Origins of international trade can be traced thousands of years back to the
Babylonians, who used to ply their wares to distant lands.
• The well-known Silk Road and Spice Routes were the epitome of
international business.
• Industrial revolution in the eighteenth century gave way to innovation and
technology, which led to mass production facilities and took the British
Empire to global markets.
• The WTO is the only international body that deals with the rules of trade
between nations. Its main objective is to facilitate smooth international
trade.
Introduction to International Business
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• Various factors differentiate international business from domestic
business.
Domestic vs. International business: The fundamental objective of any
business is to generate good profits from its operations.
Elements of International Business
(Contd…)
Legal and regulatory framework
• This framework refers to companies having to comply with the law of
the land they operate in.

• Companies involved in international business may have to comply with
laws of more than one country.
Financial management
• In a domestic scenario, all the payments of a business involve the local
currency.
• A company has to deal with multiple currencies, exchange rate
mechanisms, hedging of currencies, banking systems, fluctuating
interest rates and so on.
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Elements of International Business
(Contd…)
Trade barriers and tariffs
• In a domestic scenario, a company can move its goods and services almost
freely within the country.
• In international trade, companies face issues like licensing, anti-dumping
laws, quota restrictions and tariffs for their business operations in a foreign
country or region.
Accounting and taxation
• Domestic businesses need to comply with the accounting and taxation
standards prevailing in that country.
• A company with international operations has to comply with the accounting
standards and tax laws of the foreign country as well.
Culture
• In a domestic market, a business deals with a homogenous culture
• A company with international business has to deal with heterogeneous
cultures in multiple countries.
Market Forces
• An international company has to face the challenges of multiple regional
customers, each with unique requirements.
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Elements of International Business
(Contd…)
•Company can take advantage of low cost production
outside its domestic operations by identifying a nation
where the labour is cost effective and in abundant supply.
• Example: Countries like China, Philippines and Mexico
offer such low cost production opportunities.
Low cost
production
• A company utilises many valuable resources available in a
foreign country either by importing from that country or by
setting up a subsidiary, manufacturing, or production plant
in that country.
• Example: Australia boasts of rich mineral deposits and so
it houses the world’s largest mining companies.
Strategic
resources
•Expanding into markets of foreign countries leads to
exposure to more customers, better revenues, increased
profits and lateral growth.
• Example: Sweden based IKEA is the world’s largest furniture
retailer and operates in 37 countries after a modest
beginning in Sweden.
Large Customer
base
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Elements of International Business
(Contd…)
•A company with unique competencies and capabilities gain
benefits in the international market.
• Example: Intel’s (USA) competencies and capabilities in
semiconductors and chips have propelled it to global
market leadership in microprocessors.
Competitive
advantage
• Any company can dilute its business risk by spreading its
operations to a number of different and diverse countries
rather than depending on any one market or region
• Example: During the 1997 Asian financial crisis,
companies with exposure in European and American
countries were able to sustain far better than their
counterparts in Asia.
Diversify risk
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(Contd…)
• Some of the factors that drive international business are:
Global Marketplace
• International business has become easier since the advent of internet and
the emergence of e-business

• A company must have a good product, the right strategy and an appetite
to take risk at the global marketplace in order to do business
internationally.
Emerging markets
• It provides an unexplored marketplace with unlimited potential and scope
for business.
• Foreign Direct Investment (FDI) policy of a nation lays down the
foundation for competitive and prosperous market conditions.
Small Domestic market
• A company, which is mature in its domestic market, is driven to sell in
more than one country because the sales volume achieved in its own
domestic market is not large enough to fully capture the manufacturing
economies of scale.

• Example Nokia is an international company based in Finland.
Elements of International Business
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(Contd…)
Diminishing trade and investment barriers
• The lowering of barrier to trade and investments (by most countries
around the world) also provides an opportunity to companies looking for
expanding their business.

• Companies have a chance to set up subsidiaries in low-cost countries for
manufacturing their products.
Technological innovation
• The advent of internet and e-commerce, advancement of
telecommunication, information technology and improvement in logistics
have changed the dynamics of business operations.

• Constant innovation in technology has enhanced information flow between
geographically remote areas, thus bringing the markets of different
countries
closer and paving the way for international business.
Elements of International Business
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(Contd…)
Changing demographics
• Most developed countries face challenges in sourcing workforce as the
average age of the population is getting older.

• India alone produces close to five lakh engineers and one million English
speaking graduates and other diploma holders per year.
Trading blocs
• It promote business within their scope by facilitating free trade zones,
which literally eliminates any trade or investment barriers.
• Regional trading blocs also facilitate easy movement of goods, services,
and human resources within the region, thus providing a uniform
opportunity to all the countries (in the region) for proper allocation of
resources.
Elements of International Business
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(Contd…)
Entry to international business: A company that wants to expand
internationally, there are several available entry options.
Export strategy:
• This method remains the most common means of entry into
international markets.
• Export strategy is a very attractive option that is merely an extension
of domestic operations.
Licensing:
• By licensing, the domestic company need not bear any costs and risks
of entering foreign markets on its own, yet it is able to generate income
from royalties.
• Monitoring licenses and safeguarding company’s Intellectual Property
Rights can prove to be challenging in an international scenario.
Elements of International Business
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(Contd…)
Franchising:
• Franchising is a better option for international expansion
efforts of service or retailing companies.
• Franchising has the same advantages as licensing.
• The franchisee bears almost all the costs and risks in
establishing the foreign operations.
Foreign Direct Investment (FDI):
• It is the investment made by a company in a foreign country
to start its operations. Various options available for an FDI are
as follows:
 Whole owned subsidiary: This option is viable if a
company is willing to take all the risks of all the
operations pertaining to its business in a foreign country.
Elements of International Business
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Joint Ventures (JV):
• This is a very popular mode of entry into foreign markets,
as it minimises business risk and investment.
• It is owned by one or more firms in proportion to their
investment.
• If a JV is done with an existing competitor, it could be
termed as a strategic alliance.
Merger or acquisition:
• A company can merge into or acquire an existing
company with established operations in a foreign country.
Strategic investment:
• Any firm can purchase a stake in a foreign company,
whereby they are entitled to a share in the profits, if any.
Elements of International Business
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(Contd…)
Globalisation
• It is a process where businesses are dealt in markets around the world,
apart from the local and national markets.
• It promotes prosperity in the countries that embrace globalisation.
International vs. global business
• International companies: Companies that deal with foreign countries for
their business are considered as international companies. They can be
exporters or importers who may not have any investments in any other
country, apart from their home country.



Globalisation
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(Contd…)
Globalisation
• It is a process where businesses are dealt in markets around the world,
apart from the local and national markets.
• It promotes prosperity in the countries that embrace globalisation.
International vs. global business
International companies:
• Companies that deal with foreign countries for their business are
considered as international companies.
• They can be exporters or importers who may not have any investments in
any other country, apart from their home country.



Globalisation
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Unit-1 Introduction to International Business
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(Contd…)
Global companies
• Companies, which invest in other countries for business and also operate
from other countries, are considered as global companies.
• They have multiple manufacturing plants across the globe, catering to
multiple markets.
• Multinational strategy and global competitive strategy are the two types of
competitive strategy.
Multinational strategy:
• Companies adopt this strategy when each country’s market needs to be
treated as self contained. One of the reason can be:
• Customers from different countries have different preferences and
expectations about a product or a service.
• Examples for multinational competition include beer, life insurance and food
products.



Globalisation
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(Contd…)
Global competitive strategy
• Companies adopt this strategy when prices and competitive conditions
across the different country markets are strongly linked and have common
synergies.
• A company’s business gets affected by the changing environments in
different countries.
• A company’s overall competitive advantage is gauged by the cumulative
efforts of its domestic operations and the international operations
worldwide.
Globalisation
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(Contd…)
Differences between international and global strategies:

Globalisation
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(Contd…)
Differences between international and global strategies:

Globalisation
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Benefits of Globalisation:
Some of the benefits of globalisation are as follows:
• Promotes foreign trade and liberalisation of economies.
• Increases the living standards of people in several developing countries
through capital investments in developing countries by developed
countries.
• Increases sales as the availability of cutting edge technologies and
production techniques decrease the cost of production.
Some of the ill-effects of globalisation are as follows:
• Leads to exploitation of labour in several cases.
• Causes unemployment in the developed countries due to outsourcing.
• Causes destruction of ethnicity and culture of several regions worldwide in
favour of more accepted western culture.


Globalisation
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Unit-1 Introduction to International Business
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• International business involves cross border movement of
goods and services. It includes exporting, importing,
franchising, licensing etc. International business dates back
to the Babylonians who plied their goods across distant
lands.
• International business differs from domestic business in
some important features like the financial management of
the business, the legal and regulatory framework and the
market forces that dictate the demand of products. Some of
the entry modes for international business include exports,
licensing, franchising and FDI.
• International business and globalisation are two different
things.
• Globalisation involves companies that invest and operate in
other countries. It promotes economic growth and
prosperity in the countries that embrace globalisation. Some
of the benefits of globalisation include liberalisation of
economies and the free flow of information.
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Summary
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Unit-1 Introduction to International Business
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1. Define Regional Trading blocks.
Ans: Regional trading blocs facilitate easy movement of
goods, services and human resources within the region,
thus providing a uniform opportunity to all the countries
(in the region) for proper allocation of resources.

2. List four available entry options for a company to expand
internationally.
Ans: Four available entry options are:
• Export Strategy
• Licensing
• Franchising
• Foreign Direct Investment (FDI)
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Check Your Learning
C o n f i d e n t i a l
Unit-1 Introduction to International Business
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Activity 1
Visit Internet and find out the list of international companies
who have their franchises in India.
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Activity