UNIT I INTERNATIONAL BUSINESS Meaning International business is a term used to collectively describe all commercial transactions (private and governmental, sales, investments, logistics, and transportation) that take place between two or more regions, countries and nations beyond their political boundary. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons. It refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc. International usiness 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 e!ports and imports. International usiness is also known, called or referred as a "lobal International #arketing. Definition
The e!change of goods and services among individuals and businesses in multiple
usiness or an
$ specific entity, such as a multinational corporation or international business company
that engages in business among multiple countries. $n international business has many options for doing business, it includes, %. '. (. +. .. &!porting goods and services. "iving license to produce goods in the host country. )tarting a *oint venture with a company. ,pening a branch for producing - distributing goods in the host country. /roviding managerial services to companies in the host country.
Features of International Business The nature and characteristics or features of international business are01 1. Large scale operations In international business, all the operations are conducted on a very huge scale. /roduction and marketing activities are conducted on a large scale. It first sells its goods in the local market. Then the surplus goods are e!ported. !. Intergration of econo"ies International business integrates (combines) the economies of many countries. This is because it uses finance from one country, labour from another country, and infrastructure from another country. It designs the product in one country, produces its parts in many different countries and assembles the product in another country. It sells the product in many countries, i.e. in the international market. #. Do"inate$ %& $e'elope$ countries an$ MN(s International business is dominated by developed countries and their multinational corporations (#23s). $t present, #23s from U)$, &urope and 4apan 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 (5 - 6). They have highly skilled employees and managers because they give very high salaries and other benefits. Therefore, they produce good 7uality goods and services at low prices. This helps them to capture and dominate the world market. ). Benefits to participating countries International business gives benefits to all participating countries. 8owever, the developed (rich) countries get the ma!imum benefits. The developing (poor) countries also get benefits. They get foreign capital and technology. They get rapid industrial development. They get more employment opportunities. $ll this results in economic development of the developing countries. Therefore, developing countries open up their economies through liberal economic policies. *. +een co"petition International business has to face keen (too much) competition in the world market. The competition is between une7ual partners i.e. developed and developing countries. In this keen competition, developed countries and their #23s are in a favourable position because they
produce superior 7uality goods and services at very low prices. 6eveloped countries also have many contacts in the world market. )o, developing countries find it very difficult to face competition from developed countries. ,. Special role of science an$ tec-nolog& International business gives a lot of importance to science and technology. )cience and Technology help the business to have large1scale production. 6eveloped countries use high technologies. Therefore, they dominate global business. International business helps them to transfer such top high1end technologies to the developing countries. .. International restrictions International business faces many restrictions on the inflow and outflow of capital, technology and goods. #any governments do not allow international businesses to enter their countries. They have many trade blocks, tariff barriers, foreign e!change restrictions, etc. $ll this is harmful to international business. /. Sensiti'e nature The international business is very sensitive in nature. $ny changes in the economic policies, technology, political environment, etc. has a huge impact on it. Therefore, international business must conduct marketing research to find out and study these changes. They must ad*ust their business activities and adapt accordingly to survive changes. INTERNATIONALI0IN1 BUSINESS Definition The process leading to identifying and entering international markets or a process of increasing involvement of enterprises in international markets. In real terms0 Usually implemented by0
9irms acting alone : set up subsidiary (sales - production) by buying an e!isting company or creating a new one. 9irms acting with others : establish strategic alliance with one or more partners (local or internatonal).
A$'antages of Internationali2ation
Benefits of going International
)preading business risk. ,pportunity to e!ploit an e!isting competitive edge in new markets. &!pansion of brand awareness to new audiences. Increased revenue generation. /ossibility of accessing new technologies ; information. usiness can be conducted via the internet thus shortening the communication channels between customers and markets.
3ultural and language barriers. &!change rate fluctuations. 5eligious beliefs. "overnment regulations ; policy on profit repatriation. /olitical instability. &conomic downturn.
FA(TORS (AUSIN1 1LOBALI0ATION OF BUSINESS Meaning usiness globali<ation means companies and businesses have begun their trade and production on international arena. usinesses are shifting their boundaries from domestic to international ones. 3-&sical an$ societal factors
• • • •
#a*or advantage in price, marketing, innovation, or other factors. 2umber and comparative capabilities of competitors 3ompetitive differences by country
The main and important causes for the recent business globali<ation are0 Increase in global competition. 5apid increase and e!pansion of technology. =iberali<ation of cross border movement and 6evelopment of supporting services. The pressure of increased foreign competition can force a company to e!pand its business into international market. 2ow day>s companies can respond rapidly to many foreign sales opportunities. They can e!change production 7uickly among countries if they are e!perienced in foreign market and because they can transport goods efficiently from one place to other. The pace of the technology advances has accelerated to greater heights and the knowledge of product and services is available more 7uickly and due to communication and transportation technology. y increasing the demand of new products and services, Technology has tremendous impact on International business as the demand increases and so do the number of International business transactions. There has been growth in globali<ation in recent decades due to the following eight factors0
• • • • • • • •
Technology is e!panding, especially in transportation and communications. "overnments are removing international business restrictions. Institutions provide services to ease the conduct of international business. 3onsumers know about and want foreign goods and services. 3ompetition has become more global. /olitical relationships have improved among some ma*or economic powers. 3ountries cooperate more on transnational issues. 3ross1national cooperation and agreements.
INTERNATIONAL BUSINESS EN4IRONMENT International business environment operates in different countries, varied cultures, and under disparate political1 legal environments. The environment of international business is regarded as the sum total of all the e!ternal forces working upon the firm as it goes about its affairs in foreign and domestic markets. Nee$ for International Business ? #ore and more firms around the world are going global, including0
: : : ? : :
#anufacturing firms )ervice companies (i.e. banks, insurance, consulting firms) $rt, film, and music companies causes the flow of ideas, services, and capital across the world offers consumers new choices permits the ac7uisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities reallocates resources, makes preferential choices, and shifts activities to a global level.
International Business Meaning International business consists of transactions that are devised and carried out across national borders to satisfy the ob*ectives of individuals, companies, and organi<ations. 1lo%al Business En'iron"ent (ulture En'iron"ent 3ulture is an integrated system of learned behavior patterns that are characteristic of the members of any given society. Ele"ents of Social an$ (ulture =anguage (verbal and nonverbal) 5eligion @alues and $ttitudes #anners and 3ustoms #aterial &lements &ducation )ocial Institutions
3olitical En'iron"ent T-e 5o"e (ountr& 3erspecti'e #a*or areas of governmental activity that are of concern to the international business manager0 : : : : &mbargoes and )anctions &!port 3ontrols 5egulation of International usiness ehavior
5ost (ountr& 3olitical an$ Legal En'iron"ent /olitical $ction and 5isk 1 @aries widely from country to country. T-ree T&pes of 3olitical Ris6 o O7ners-ip Ris6 &!poses property and life o Operating Ris6 Interference with the ongoing operations of a firm o Transfer Ris6 =imitations on the outflow of funds 3olitical Ris6 Ma& In'ol'e ? ? ? (onfiscation : :
The government takeover of a firm without compensation to the owners. $ form of government takeover in which the firm>s owners are compensated. The government demands transfer of ownership and management responsibility.
&conomic 5isk o =ess dangerous, but more common Econo"ic En'iron"ent
? ? ? ?
&conomic )i<e &conomic )ystems Aey #acroeconomic Indicators &conomies in Transition
(OUNTR9 ATTRA(TI4ENESS Two broad implications for I 1
/olitical, 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. (ountr& attracti'eness anal&sis 1. A countr& attracti'eness assess"ent is %ase$ on t7o $i"ensions ? #arket and industry opportunities. ?3ountry risks (many organi<ations publish country assessment results based on various economic ; political ; social factors). !. Mar6et opportunities #arket opportunities assessment measures the potential demand in the country for a firm>s products or services based on0 ?#arket si<e ?"rowth ?Buality of demand. #. In$ustr& opportunities
Industry opportunities assessment determines profitability potential presence in a country given the following factors0 ?Buality of industry competitive structure ?5esource availability ). (ountr& ris6 ? /olitical risks
of a company>s
/olitical risks are probable disruption so wing to internal or e!ternal events or regulations resulting from political action of governments or societal crisis and unrest. ? &conomic risks &conomic risks e!pose business performance to the e!tent that the economic business drivers can vary and therefore put profitability at stake. ? 3ompetitive risks 3ompetitive risks are related to non1economic distortion of the competitive conte!t to wing to cartels and networks as well as corrupt practices. The competitive battlefield is not even and investors who base their competitive advantage on product 7uality and economics are at disadvantage. ? ,perational risks ,perational risks are those that directly affect the bottom line, either because
government regulations and bureaucracies add costly ta!ation or constraints to foreign investors or because the infrastructure is not reliable. Figure of (ountr& Attracti'eness
Benefits )i<e of &conomy =ikely &conomic "rowth 3orruption
=ack of infrastructure =egal 3osts
O'erall Attracti'enes s
Ris6s /olitical :)ocial unrest;$nti business trend &conomic : &conomic mismanagement =egal : 9ailure to safeguard property rights 3ROTE(TION 4S LIBERALI0ATION OF 1LOBAL BUSINESS EN4IRONMENT Sustaina%le $e'elop"ent: international la7 an$ en'iron"ental protection In terms of environmental protection, the most potentially far1reaching aspect of sustainable development is that for the first time it makes a states management of its own domestic environment a matter of international concern in a systematic way ( ernie and oyle 'CC'). 6espite this however, the various social, political and economic value *udgements in determining what is sustainable has made it difficult for an international court to review national legislation and conclude that it falls short of a standard of Dsustainable development> ( ernie and oyle 'CC'). Ehile international law may not re7uire development to be sustainable, it does re7uire that decisions made about economic development be the outcome of a process that promotes
sustainable development. In order to achieve sustainable development, states are encouraged to implement the main elements employed by the 5io 6eclaration and other instruments for facilitating sustainable development. The conducting of &nvironmental Impact $ssessments (&I$s), public participations, integrating of development and environmental considerations and the inclusion of inter1 and intra1generational e7uity in decision1making are some of the elements re7uired to achieve sustainable development.