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International Business: An

What is International Business
International business consists of transactions that are devised and
carried out across national borders to satisfy the objectives of
individuals, companies, and organizations.
IB refers to business transactions crossing national borders at any stage
of the transaction. Transaction of economic resources include capital,
skills, people etc. for international production of physical goods and
services such as finance, banking, insurance, construction etc.

Objectives of IB:-
1. To understand the global economy
2. Understand the major arguments in the debate over the impact of
3. Be familiar with the main drivers of globalization
Features of IB
Large scale operations
Integration of economies (uses different resources from different
Dominated by developed countries and MNCs (as they have the
best financial, human and technical resources)
Benefits to participating countries (foreign capital, technology,
industrial dev, employment)
Keen competition (weak position of developing countries)
Special role of science and technology
International restrictions (on capital and technology flow; barriers,
duties, trade blocks are there)
Sensitive nature (Any changes in the economic policies, technology,
political environment, etc. have a huge impact)
Reason for growth of IB
Profit advantages
Growth opportunities
Domestic Market constrains
To minimise the competition
To acquire the resources
Why enter into IB
The reasons for entering overseas markets can be categorized into push and pull
Push factors
Saturation in domestic markets
Economic difficulty in domestic markets
Near the end of the product life cycle at home
Risk diversification
Excess capacity

Pull factors
The attraction of overseas markets
Increase sales
Enjoy greater economies of scale
Extend the product life cycle
Exploit a competitive advantage
Personal ambition
Constraints and difficulties in entering
overseas markets
Scarcity of Resources
Market uncertainty
Marketing costs
Cultural differences
Linguistic differences
Trade barriers
Regulations and administrative procedures
Political uncertainties
Exchange rates (transactions costs & risks)
Problems of financing
Working capital problems
Cost of insurance
Distribution networks
Steps into internationalization
Deciding whether to go globally
Deciding what market to entre
Deciding how to entre market
Entry strategies
Adjusting the management process
Selecting a Managerial approach
Deciding an organizational structure
Legal clearance of internationalization
Entry strategies to foreign market (IB)

Exporting Import Trading

Joint Venture
Direct Investment
Foreign Branches
Management Contracts
Exporting-Import Trading
Exporting is the marketing and direct sale of domestically-
produced goods in another country. Exporting is a traditional and
well-established method of reaching foreign markets. Since
exporting does not require that the goods be produced in the
target country, no investment in foreign production facilities is
required. Most of the costs associated with exporting take the
form of marketing expenses.
An export is the sale of goods to a foreign country, while
an import is the purchase of foreign manufactured goods in the
buyer's domestic market.
Exporting commonly requires coordination among four players:
Exporter, Importer, Transport provider and Government
Licensing essentially permits a company in the target
country to use the property of the licensor. Such property
usually is intangible, such as trademarks, patents, and
production techniques. The licensee pays a fee in
exchange for the rights to use the intangible property and
possibly for technical assistance.
Because little investment on the part of the licensor is
required, licensing has the potential to provide a very
large ROI. However, because the licensee produces and
markets the product, potential returns from manufacturing
and marketing activities may be lost.

This is a special form of licensing which

allows the franchisee to sell a highly
publicized product or service using the
parents brand name or trademark, carefully
developed procedures and marketing
strategies. In exchange the franchisee pays a
fee to the parent company typically based on
the volume of sales of franchisor in its defined
market area e.g. Coca Cola
Foreign Branching

This is an extension of the company in its foreign

market- a separately located strategic business
unit directly responsible for fulfilling the
operational duties assigned to it by corporate
management including sales, customers service
and physical distribution. Host countries may
require that branch companies to be domesticated
i.e. have managers in middle and higher level
positions to come from the host country.
Joint Venture

There are five common objectives in a joint

venture: market entry, risk/reward sharing,
technology sharing and joint product
development, and conforming to government
regulations. Other benefits include political
connections and distribution channel access
that may depend on relationships.
Management Contract
An agreement between investors or owners of a
project and a management company hired for
coordinating and overseeing a contract. It spells
out the conditions and duration of the agreement
and the method of computing management fees.
IB-Major Components
Globalization: Definition, Market & Production
Global Institutions
GATT, WTO, IMF, World Bank, UN
New Government policies
Foreign Direct Investment
Trade Agreements like ASEAN
Other Trade Blocks
Trade block is a type of intergovernmental agreement, often part
of a regional intergovernmental organization, where regional
barriers to trade, (tariffs and non-tariff barriers) are reduced or
eliminated among the participating states)
Eg:- NAFTA (North American Free Trade Agreement)
EFTA (European Free Trade Association)
Globalization; Meaning
IMF defines globalization as: the growing economic
interdependence of countries worldwide through increasing
volume and variety of cross- border transactions in goods
and services, freer international capital flows, and more rapid
and widespread diffusion of technology.
Globalization is the movement towards the expansion of
economic and social ties between countries through the
spread of corporate institutions and the capitalist philosophy
that leads to the shrinking of the world in economic terms.
It is characterized by growing economic, financial, trade,
and communications integration.
Globalization : Dimensions
Economic: global finance and economy,
multinational networking, international trade and
business, new labour markets, new development
Political: human rights, international terrorism, war
and new security problems.
Democracy: good governance by peoples
participation, Human rights.
Ecological: sustainable globalization: use of
common resources and legislation (biosphere; water,
forest, earth, air, atmosphere).
Cultural: multicultural society of different identities:
local, political, gender, family, religious and national
International Business Terms
International companies are importers and exporters and have no
investment outside their country.
Multinational companies have investment in other countries, but do not
have coordinated product offerings in each country. They more focused
on adapting their products and services to each individual local market.
Global companies have invested and are present in many countries.
They market their products through the use of the same coordinated
image/ brand in all markets. Generally one corporate office that is
responsible for global strategy. Emphasis is on volume, cost management
and efficiency.
Transnational companies are much more complex organizations they
have invested in foreign operations have a central corporate facility but
give decision making, R&D and marketing powers to each individual
foreign market.
International Business Terms
Multidomestic industries: firms compete in each national market independently of
other national markets. Involves products tailored to individual countries innovation
comes from local R&D. There is decentralization of decision making within the
These corporations have been oriented into four types:
Ethnocentric: governance is top down, strategy is global integration, products
development is determined primarily by the needs of home country customers and people
of home country are developed for key positions everywhere in the world.
Polycentric: governance is bottom up where each subsidiary decides on local objectives,
strategy is national responsiveness, local products are developed based on local needs
and people of local nationality are developed for key positions in their own country.
Regiocentric: governance is mutually negotiated between regions and its subsidiaries,
strategy is regional integration and national responsiveness, products are standardized
within region but not across regions, regional people are developed for key positions
anywhere in the region,
Geocentric: governance is mutually negotiated at all levels of the corporation, strategy is
global integration and national responsiveness, global products with local variation, best
people everywhere in the world are developed for key positions everywhere in the world.
Further Study
Deference between International
Business and Domestic Business