International Business unit 1
Content
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.
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.
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.
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 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
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 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 extremesdemocracy 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 • Customs • Aesthetics • Social institutions • Material elements
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.
throughout his/her life.
The
learning
persists
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 “licensepermit 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.
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.
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.
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 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
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 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 extremesdemocracy 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 • Customs • Aesthetics • Social institutions • Material elements
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.
throughout his/her life.
The
learning
persists
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 “licensepermit 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.
