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K. C.

College

International Business
Individual Project

Submitted to:
Ms. Lalita Khurana.

Q. 1. What is International Business? Discuss its need and importance in current global scenario. Ans.: 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 nations. 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 involves 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 Business is defined as activities that buys and sells goods and services across two or more national boundaries, even if the management is located in one country. It is related only with those big enterprises which have operating units outside their own country. There are institutional arrangements that provide some managerial direction of economic activity taking place abroad. International business has become massive in scale and has come to exercise a major influence over political, economic and social developments. Need and Importance of International Business: International business comprises a large and growing portion of the world's total business. Today, almost all companies, large or small, are affected by global events and competition because most sell output to and/or secure suppliers from foreign countries and/or compete against products and services that come from abroad. More companies that engage in some form of international business are involved in exporting and importing than in any other type of business transaction. Another core issue is the company's growth and the importance of networking and interaction. This view looks at the way in which companies and organizations interact and consequently network with each other to gain commercial advantage in world markets. The network can be using similar subcontractors or components, sharing research and development costs or operating within the same governmental framework. For example, a crucial market network is that of the Middle East. Middle East countries are rich, diverse markets, with a vibrant and varied cultural heritage. This means that although there has been a harmonization process during the past few years, differences still exist. Rather than business being simpler as a result, it should be recognized that because of regulations and the need those countries have to restructure as they enter the global market, performing any kind of business can be highly complex. It should be remembered though that the Middle-Eastern countries have a low-income average and like to have their cultural differences recognized. Those firms that will or have recognized these facts have a good chance of developing a successful marketing strategy to meet their needs. Fortunately some firms have realized these important differences and reacted adequately when strategic decisions had to be made regarding their penetration to this kind of markets. Every company is trying to expand its business by entering foreign markets. The following are the reasons for growing importance of International Business: 1. Globalization: Current trends are towards the increasing globalization and interdependence of firms, markets and countries.

2. Competition: Intense competition among countries, industries and firms on a global level is

a recent development.
3. Growth strategy: Geographic expansion may be used as a business strategy. Even though

companies may expand their business at home.


4. Managing product life cycle: Every product has to pass through different stages of product

life cycle-when the product reaches the last stages of life cycle in present market; it may get proper response at other markets. 5. Technology advantages: Some companies have outstanding technology advantages through which they enjoy core competency. This technology helps the company in capturing other markets. 6. New business opportunities: Business opportunities in overseas markets help in expansion of many companies. They might have reached a saturation point in domestic market. 7. Global Capital Flows: Global capital flows have become a major factor in shaping the world economy and international trade in 1990s. There was an unprecedented rise in global FDI flows between 1992 and 1998 and also an increase in global bank lending. 8. Industrial Developments: Restructuring the economy in accordance with the global economy has become really important for the industrial countries and the developing countries. At the same time, sustainable development also remains a challenge with these countries. 9. Proper use of resources: Sometimes industrial resources like labor, minerals etc. are available in a country but are not productively utilized. 10. Social Responsibility: The increased importance of social responsibility corresponds with the increased importance of global activities undertaken by the multinational enterprises. 11. Availability of quality products: When markets are open, better quality goods will be available every where. Foreign companies will market latest products at reasonable prices. Good product will be available in the markets. 12. Earning foreign exchange: International business helps in earning foreign exchange which may be used for strategic imports .India needs foreign exchange to import crude oil, deface equipment, raw material and machinery. 13. Helps in mutual growth: Countries depend upon each other for meeting their requirements. India depends on gulf countries for its crude oil supplies. 14. Investment in infrastructure: International business necessitates proper development of infrastructure. A company entering international business must invest in roads.

Q. 2. Discuss various Environmental Factors affecting International Business. Ans.: Business Environment means all the factors which affect the business activities. A detailed study of this business environment enables a Global company to formulate plans, policies and strategies to run business effectively in the competitive global market. Environmental factors for international business comprise the external relations a firm will face in going global. These include, most importantly, the economic, political and legal environments, each of these always entangled with the others. The central issues for the decision to go global are concerned with minimizing risk. A company, when considering the environment that it will deal with when entering a new market, has to deal with certain variables. These concerns, for example, the cultural barriers to investment, the ability to reach a competitive edge with new investments and the strategic use of new technologies and natural resources that international investment might bring. 1. The Economic Environment This element comprises the nature of the economic system and institutions of a particular country or region. It also takes into account the nature of human and natural resources within the target market. A firm will function very differently in a libertarian environment than within a highly statist one. Here, the activities and functions of local economic elites are also very important. 2. The Political Environment Closely tied to the economic environment is the political one, itself also dealing with the nature of systems and institutions. Many variables to consider here are the stability of the political system, the existence of local or international conflict, the role of state enterprises and the nature of the bureaucracy. 3. The Legal Environment The existence of bureaucratic systems and cultures is central in making the decision to invest globally. The nature of corruption, local values and assumptions that are built into national ideologies are major variables in this field. A great concern is the extent to which there is a culture of law or a culture of personal patronage, where negotiations are done on a personal rather than a legal basis. The impact of international lending agencies such as the International Monetary Fund or the World Bank is also important in creating a legal culture that a business will have to take seriously. 4. Social Structure Experts such as Robert Brown and Alan Gutterman hold that social structure comprises the basic values of a people and transcends the institutions mentioned above. Issues such as the relation between the individual and the collective, religion, family life and even time concepts and gender roles are all significant in terms of dealing with a new population. Being sensitive to these might be the difference between success and failure.

Q. 3. Discuss the impact of Technology on International Business.


Ans.: Technology has revolutionized the lives of consumers and businesses alike. The

increased array of products on the shelves, the lowered cost of goods and services, and the ease of accessing information are just a few of the ways technology has enhanced society. The field of international business is particularly sensitive to technological innovations. Many companies are changing the way they do business internationally by utilizing the latest advancements in information and communication technology. New devices like smart phones and tablet computers, the latest software and media applications, and the popularity of social networking sites make it easy for businesses to communicate with colleagues and customers around the world, evaluate product performance and sales, and market and promote their products more effectively, all of which play an increasingly large role in international business. The most important modes of technology in international business include electronic communication such as emails, texts, faxes and virtual conferences. Tracking methods for shipping and purchasing is another huge technological innovation, as it allows businesses to verify the delivery of goods and the quantity of inventory purchased. Electronic spreadsheets and databases are other inventions that allow international companies to manage and store their information with greater ease. The improvement in technology regarding communication is a linchpin of international business. The ability to instantaneously communicate with a manager in China or a factory in Singapore, for example, allows companies to expand overseas. Though multinational companies existed before the Internet, the ease of communication allows companies to outsource their operations with greater assurance: Video monitoring of factory and working conditions, inexpensive conference calls to consultants working in different countries, emailed reports to foreign vendors, and cheap long-distance phone calls are just a few of the ways technology has facilitated international business trade and operations. Multinational corporations have much more complex supply chains than local brick-andmortar businesses. International companies often have vendors, factories, customers and consultants in different parts of the globe. Keeping track of how a product is developed, manufactured, shipped and purchased can involve hundreds of steps in several countries. Technological innovations streamline the supply chain by allowing up-to-the-minute results on the assembly of a product, and global tracking technology highlights where the product is moving. RFID technology assists companies such as Wal-Mart Stores with inventory control. Jack Plunkett, author of "Plunkett's Transportation, Supply Chain and Logistics Almanac," states that Wal-Mart mandated 600 of its suppliers to implement RFID technology to track and monitor deliveries and shipments. There are many things to consider when approaching information technology from an international business perspective. A study at the Massachusetts Institute of Technology suggests three ways a business worker can view this technology; as he makes the decision of whether to enter an industry, as he considers how to improve his business, and as he considers how to get ahead of the competition.

Q. 4. Discuss the role of history in the Development of International Business in 21st Century. Ans.: In the 21st century, barriers to the free flow of goods, services and capital have come down. The volume of cross-border trade and investment has been growing more rapidly than global output, indicating that national economies are becoming more closely integrated into a single, interdependent and global economic system. The move towards a global economy has been further strengthened by the widespread adoption of liberal economic policies by countries that had firmly opposed them for two generations or more. Thus, in keeping with the normative prescriptions of liberal economic ideology, country after country are privatizing their stateowned business, adopting widespread deregulation and opening markets for more competition and increased commitments to removing barriers to cross- border trade and investment. The global trade which was just 12 percent of the world GDP in 1962 has increased to 30 percent of the world GDP in 1993. The globalization helped Indian companies to operate in various countries like USA, UK, Japan, Australia, Kenya and Nepal more freely than before. Management of International business in the 21st century is the primary and decisive factor whereas the other factors of production like land, capital and human resource are secondary in the transactional economy. Money markets and capital markets have also become transactional. The goal of the transnational business is market expansion rather than profit maximization. Information has been flowing through advanced information technology. There is a flow of money, capital and investment across the national boundaries. Business houses see the entire globe as a single market for production and market for goods and services. The world trade organization was meeting to try to launch a new round of talks to cut barriers to cross- border trade and investment. The important concern about globalization is that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as US and UK. The falling trade barriers allowed firms to move their manufacturing activities to countries where wage rates were much lower. Global trade rules have fostered global production networks and an associated rise in intra firm trade by progressively lowering trade barriers. Foreign capital has played a catalytic role in pushing policies in the right direction and controlling number of resources to the development effort. Globalization is praised for the new opportunities such as access to new markets and technology transfer, increased production and higher living standards. There is widespread reduction and removal of trade barriers, deregulation of internal markets, privatization and liberalization of technology and investment flows at national level. The global corporations have become the central players of the world economy and in linking foreign direct investment, trade, technology and finance. They are a driving force of world growth.

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