Definition: International Business

Any business transaction that involves

persons of firms of more than one country may be described as International Business An international business is any business that intentionally buys, sells or invests internationally International business includes all business activities that involve business organizations from two or more countries

international business
Methods of buying and selling products internationally a. Exporting and Importing b. Licensing-i.e. granting foreign firms permission to produce your product for a fee c. Franchising-licensing plus operational controls

 India's exports rose 37.5% in 2010-11 to touch a

record $246 billion as traders targeted new markets and gained from improved sentiments in the US and Europe oil appeared to be the main culprit when it came to imports, which rose 21.5% to $350.3 billion during the last financial year In March, exports went up by 43.9% to $29.1 billion, while imports rose 17.3% to 34.7 billion, resulting in a trade deficit of $5.6 billion.

 MNCs

Is that only MNCs who play the role in ib??

Globalization
The term globalization describes the increased mobility of goods, services, labor, technology and capital throughout the world. Although globalization is not a new development, its pace has increased with the advent of new technologies, especially in the area of telecommunications. Globalization has resulted in economic restructuring Resources have flowed out of one country into another Jobs have been lost and new jobs are created Some resource owners have been winners and some have been losers Some evidence demonstrates that globalization brings great benefits as well as costs.

Global Institutions
To manage, police, and regulate the international

business GATT General Agreement on Tariffs and Trade WTO World Trade Organization IMF World Bank UN- to preserve peace through international cooperation

British call centre to return home from costly Mumbai (Times of India 5/6/11
New Call Telecom, a UK company says

outsourcing in India is no longer cheaper. Increasing prices, salaries "We did a cost and service analysis of returning home and there was an absolute parity between what we are paying for a third-party call centre in India and here in the UK," says New Call's chief executive Nigel Eastwood. "In India in the past decade, as call centres have grown, real-estate prices have gone up massively, while salaries have also crept up."

 New Call will pay four pounds a square foot for a

space in Burnley, which Eastwood says is similar to that in Mumbai and New Delhi. "In the UK, we will pay workers the minimum wage. Given the current economic environment, we will get good 'sticky' employees who will also receive bonuses linked to performance." New Call Telecom, which competes with BT and Sky to offer home telephone services, broadband and lowcost international calls, is opening a call centre in Lancashire after being attracted by low commercial rents and cheap labour costs

Facets of globalization
Globalization of market single market
Falling barriers Offer same product

Globalization of product sourcing of goods &

services from locations around the globe to take advantage of cost , quality Ex- Boeing, IBM, Sony, Microsoft. Global rivalry

Drivers ofGlobalization
The General Agreement on Tariffs and Trade

(typically abbreviated GATT) GATT was signed in 1947 and lasted until 1993, when it was replaced by the World Trade Organization in 1995 WTO ensures trade among nations operates smoothly, freely and orderly
Ministerial Conference highest level

decision making body , meets once in every two years

Drivers of globalization
Decline in the barriers of trade
GATT WTO (Doha round)Cutting tariffs, phasing out subsidies to agricultural products ..

Technological change communication, transportation Restrictions in FDI removed FDI firm invest in another country in business activities Foreign Direct Investment (FDI) is one of the mostly used ways of internationalization which plays an important role as an engine of employment, technological development, productivity enhancement, economic intensification, and more importantly, as an instrument of technology transfer especially from developed to developing countries. India still 2nd FDI spot Decline 2008 2010.

Types of FDI
Horizontal FDI refers to when firms invest in the

same industry in which they work in their homeland

For example, the automobile company Ford builds

an automobile manufacturing facility in Mexico

Vertical FDI, on the other hand, is divided into two

different types: Backward Vertical FDI - when the abroad sales of a company serve as inputs for the downstream operations of domestic companies

 Forward Vertical FDI - when there is investment

into a foreign industry that sells the output of a company's domestic production processes EX: if Ford builds an engine production facility in Mexico which ships engines to its manufacturing unit in U.S.A., this would be backward vertical FDI Ford buys ten dealers in Mexico to distribute cars made in the U.S.A., this would be forward vertical FDI

 The third type of FDI, conglomerate FDI

involves companies operating in different

businesses

IB Environments
Cultural Environment Culture is concerned with beliefs and values on the

basis of which people interpret experiences and behave, individually and in groups. "culture" refers to a group or community with which you share common experiences that shape the way you understand the world Culture is the "lens" through which you view the world. It is central to what you see, how you make sense of what you see, and how you express yourself

cultural difference

Different communication styles Americans Europeans

do not like loud people Want more quality products Punctuality important

Culture Shock
Failure to identify cultural issues and take action can lead to a culture shock. In order of priority, the most often found symptoms of culture shock are: feeling isolated anxiety and worry reduction in job performance high nervous energy helplessness. Not coping with culture shock symptoms when they appear can lead to a very negative situation

Geert Hofstedes model

Study of How culture relates to value in the

workplace (conducted at IBM) power distance high in India Individualism vs collectivism US Uncertainty avoidance France high Masculinity vs femininity the Swedish culture is one of the societies that have the lowest score on masculinity. The role of the women in society is almost equal to the role of men.

 Mexico has the highest score on the masculine

dimension, this means that the society of this country is more assertive, aggressive and decisive

 High context culture ex china, France High-context means that most of the information is either in the

physical context or initialized in the person, while very little is in the coded, explicit, transmitted part of the message. Words are not so important as context, which might include the speakers tone of voice, facial expression, gestures, posture and even the persons family history and status. A Japanese manager explained his cultures communication style to an American: We are a homogeneous people and dont have to speak as much as you do here. When we say one word, we understand ten, but here you have to say ten to understand one. High-context communication tends to be more indirect and more formal

 Low context culture US, Germany low-context communication - the mass of information

is vested in the explicit code Solving a problem means lining up the facts and evaluating one after another. Decisions are based on fact rather than intuition. Discussions end with actions. And communicators are expected to be straightforward, concise, and efficient in telling what action is expected. To be absolutely clear, they strive to use precise words and intend them to be taken literally

Political , Technological & Economic Environments

When FDI is made in a host country, the political

situation is explained from two perspectives, from one angle there are the socio-political risks such as political instability 'political risk' refers to the possibility that political decisions or events in a country will affect the business climate in such a way that investors will lose money or not make as much money as they expected when the investment was made.
The political risk of the host country is one of the most

important determinants in investment decision making

Factors that determine political risk

Nationalization

-the process of shifting the ownership of private property from private individuals to the government Confiscation - the process of nationalization of a property without compensation Expropriation - the process of nationalization of a property with compensation

 Hostilities between countries affect IB

country trade policies such as tariffs and rigid

quotas have to be studied before a company enters a foreign market

Technological Environment
Technology is a systematic application of scientific or other organized knowledge to particular tasks
Changes at a fast rate Brings change in the society, economy and politics One of the significant factor which determines the

level of economic development of a country Difference between a country is reflected by the level of the technology

Economic Environment
Economic Systems
Economic system is an organization of institutions established to satisfy human needs Three types of Economic systems :
1) market economy all production privately owned Production is determined by the interaction of supply & demand Consumer is the king

Monopoly of single producer is restricted Government encourages free and fair competition in order to avoid the monopoly Ex- USA

 2) command economy government owns /

controls production (communism) Businesses are state owned

Mixed Economy major factors of production and distribution are owned and controlled by the state - benefits equally divided - believes in full employment and rewards for the employees India , Brazil, Italy..