College Of Business Management.

BA9109 - INTERNATIONAL BUSINESS MANAGEMENT

Meaning : International Business consist of transactions that are devised and carried out across
boundaries to satisfy the objectives of individuals, companies, and organization.
Definition: International Business is defined as all business transactions that involve two or more
countries.
-DANIEL.
Methods of doing internationalizing business
Exports
Selling goods to foreign country e.g. china exporting electronic items to foreign.
Licensing
In licensing the firm gets into overseas business by giving technology, trade
name, brand and process of manufacturing against a fee or / and royalty to the
local firm, of the country the firm wants to do business with the firm gains entry
in the foreign market without much investment. The firm taking the license gets the
technology of manufacturing a well-known brand in the world , a proven technology.
Eg :Maruti- Suzuki , Aleatel Modi.
Franchising
The franchiser provides entire product marketing concepts, branding building
Plans and processes. The firm pays the franchiser a fee and invests in the venture,
Like the Mc Donald Franchise arrangements. And G&G products.
Joint venture
Two company, one local and the other foreign , join hands and they form a third
Company to exploit the strengths of the respective company. Eg : Hero Honda.
Wholly owned subsidiary
Separate own plant in host countries like India and China have been the focus of Western
world as these
countries are welcoming foreign direct investments ( FDIs ) in their countries.
Eg Pepsi having own plant across world.
Stages in internationalizing Business
Domestic Company operations within national boundaries E.g.: Arasan Soap,
International Company
-Focus on domestic practices but extend the wings
to foreign countries Eg: ULL.
Multinational Company
-Different strategies for different countries Eg :
Yamaha, Toyota.
Global Company
-Produce in one country and market globally
E.g. Harley Davidson.
Transnational Company
Invest, Produce, Market & Operates across world
E.g.: Coco Cola.
Advantages of International Business.
High Living Standard

G.Saravanan

College Of Business Management.

Comparative cost theory indicates better resource utilization and its lead to better quality and
quantity standards. Eg apple phone, swizz watches,
Wider Market
Increase market size from local to global eg; Pepsi have market across world
Increase Socio Economic Welfare
Country economic like income, production, money circulation increases eg. china developed
lot after enter into in International business
Reduce Effects of Business Cycle
When company in international business its operating across globe different country different
economic condition when all comes under in one umbrella its effects will not much.eg countrys may
in depression, boom, recession and recovery.
Optimum and Proper Utilization of world resources
In word differentcountryshaving different resource international business helps to merge
these resources; many US software companies using Indian workers.
Potential Untapped markets
Giving opportunity to sell same product in different country with different price.eg Bata shoe
1200 in India 8000 in UK.
Division of Labor& Specialization
IB leads for specialized market for specialized country products.eg Brazil-coffe, Belgiumdiamond, Japan -electronic items etc.
Provide the Opportunities& Challenges to domestic market.
Domestic company can get a deal with international companies.
Economic growth of world
Cultural Transformation
Less cost due to the use of modern technology
Factors Causing Globalization:
Establishment of WTO
World Trade Organization (WTO) heeling the membership countrys to enter in
international business.eg Uruguay round is an important concern on international business.
Emergence and growth of Regional Integration
Regional integrations between countrys help the membership countrys to enter in
international business.eg SAARC, BRICS, ASEAN, OPEC, EFTA, NAFTA, NATO etc
Decline in Trade Barriers
International trade occurs when the goods flow across the country the member of
GATT countrys agreed to reduce tariff rates. Eg India after 1991.
Decline in Investment Barrier
Foreign government imposesbarriers on foreign investmentin order to protect
domestic industry but to attract foreign investment remove restriction on trade. Eg from 1991
to 2013 India made nearly 1500 laws on foreign trade.
Increase In FDI
In FDI companys Enter in new plant or new market. These growth increase
international businesses. E.g in 2013 Indian government allows FDI in retail sector in India.
Technological Changes
G.Saravanan

College Of Business Management.

Micro-processor and telecommunication leads to speed and cost free information handling.
Internet and WWW is a back bone of all business related information transactions through
email, voicemail, video-conference.
Transportation technology like commercial jets, shipping, port handling is minimizing the
operational risk.
International business environment
The sum total of all the external forces working upon the firm as it goes about its affairs in
foreign and domestic markets.
-J.H. Taggart.
Framework of International business environment
I.
Political environment
II.
Legal environment
III.
Economic environment
IV. Social and cultural environment
V. Technological environment
I)

Political environment
Intervention of government and judiciary system on international business is called political
environment.
Forms of political system.

I) .Democracy
Parlimentry
Democracy

II).Totalitarian System
Presidential
Democracy

Secular
Democracy

Theocratic
Democracy

I). Democracy.
The purest form of democracy represents direct involvement of citizens in
policy making. This is because, the democratic set-up is "of the people, for the people,
and by the people". But with the growing time and distance barriers over time, it did
not remain feasible for all citizens to participate in the political process, and as a result,
democracy turned into a representative democracy where only the elected
representative have a say in political decision. Whatever may be the form of
democracy, the people enjoy fundamental rights of various kinds of freedom and civil
liberties.
A) Parliamentary Democracy: In parliamentary democracy, political decisions are
influenced by widely varying interest groups.
B) Presidential Democracy: On the contrary, they are comparatively centralized in
presidential democracy, although the head of the government is an elected
representative.

G.Saravanan

College Of Business Management.

II)

Totalitarianism :
Totalitarianism, at the other extreme, represents monopolization of political
power in the hands of an individual or a group of individuals with virtually no
opposition. The policy is simply the dictates of the ruler. Constitutional guarantee are
denied by the citizens.

Totalitarianism - power in the hands of an individual or a group of individuals with

virtually no opposition.

Secular totalitarianism
Fascist totalitarianism
Authoritarian totalitarianism
Communist totalitarianism Cuba, venizula
Theocratic totalitarianism

Problems in Political Environment

MNCs required to pay bribes

Totalitarian countries twist the law
Two party system U.S. , U.K
Multiparty system India
Single party system Egypt , Indian congress
One party system dominant party rules the system

Political Risks
Confiscation
Expropriation
Nationalism
Domestication
Operation risk
Management of Political risks
I.
Employing locals
II.
Sharing ownership
III.
Increasing economic benefits
IV. Follow political neutrality
V. Assume social responsibility
VI.
Adapting to local environment Mc Donalds
VII.
Local equity and debt
VIII.
Development assistance quality of life
IX.
Lobbying represent a firms interest
X. Insurance and guarantees
XI.
Export credit Guarantee corporation
XII.
Multilateral Investment Guarantee Agency
XIII.
Currency transfer restrictions
XIV. Civil disturbances

G.Saravanan

College Of Business Management.

XV.

Other indirect measures

II) ECONOMIC ENVIRONMENT

The economic environment consists of factors that affect consumer purchasing power and
spending patterns. Economic factors include Business Cycle , inflation , unemployment,
Interest rate and income.

Types of economic system:

I) Capitalism.
II) Communism.
III) mixed economic system.
Capitalism
these kind economic of economic system followed by America, Canada, France etc. their
everything under private parties control.
- Private property
- Profit motivation
- Freedom of enterprise
- Perfect competition
- Price Mechanism
- Role of the government
Merits of Capitalism
i)
Increase in productivity
ii)
Liberty and equal rights
iii)
Best utilization of resources
iv)
Flexibility
Demerits of Capitalism
i)
Economic inequality
ii)
Formation of monopolies
iii)
Wastage of resources
iv)
Increase in production
v)
Poverty
vi)
Disregard to human welfare
vii)
Insecurity and unrest of labor.
Socialism
An economic system in which the means of production are owned by the state and
Operated by the government. E.g. Venezuela, China, North Korea etc.
Features of Socialisms

G.Saravanan

College Of Business Management.

-collective ownership
-Central economic planning
-Well defined social objectives
-Economic equality
-Equal opportunity
Merits of Socialism
i)
Best utilization of resources
ii)
Elimination of unemployment
iii)
Economic inequality
iv)
Maximum social welfare
Demerits of Socialism
i)
Misallocation of resources
ii)
Loss of efficiency
iii)
Complexity of administration
iv)
Loss of liberty
Mixed economy
A mixed economy is a system in which economic decisions are largely market driven
and ownership is largely private.India following mixed economic system.
Features of mixed economic
-Privatization
-Deregulation
-Property rights protection
-Fiscal and monetary reform
-Antitrust legislation
Economic risk in international business
1. Exchange control- depends upon economical position countrys impose restriction to
stabilized countrys exchange rates. e.g. now India doing these to stabilized its money
rate.
2. Local - content laws-company often required a portion of any product sold in a country
to have a local content. E.g. NAFTA impose 62% local content requirement.
3. Import restriction selective restriction on import of certain raw material, machines and
spare parts are common strategies used to force foreign companies to purchase more
materials with host country crating market for local producer.
4. Tax control-to save domestic market and economy tax have been changed.eg 15% tax in
gold import in India.
5. Price control- government directly involves in price fixation eg government fixing price
for fuels.
III)

CULTURAL ENVIRONMENT
Culture is a system of values and norms that are shared among a group of people.

DETERMINANTS OF CULTURE
1. Social Structure :
G.Saravanan

College Of Business Management.

Individual
Group
2. Social stratification
It refers to the extent to which individuals vary significantly from society to
Society.
3. Religious and ethical systems:
Ethical system refers to a set of values or moral principles that are used to
Guide and shape behavior.
CHRISTIANITY:
Protestant
Roman Catholic
Eastern Orthodox
ISLAM
750 million followers
Started in AD 610 by Prophet Mohammed
HINDUISM
500 million followers
Started 4000 years ago
BUDDHISM
They stress spiritual growth and afterlife.
250 million followers
It is followed in Southeast Asia, China , Korea and Japan
CONFUCIANISM
It is followed in China , Korea and Japan
It follows a high moral and ethical standard
4. Language
English is the language for International business
Unspoken language is by body language
5. Education
Schools are part of the social structure of a society.
Knowledge base training and education opportunities are available to citizens to
Give them advantages in the market.

Cultural Influences on International Business.

Influence of culture on consumption patterns, living style, and the priority of needs
are all distracted by culture. E.g. Brahmins are not eat non-veg and they are not

G.Saravanan

College Of Business Management.

willing to purchase non-veg mixed items. Like Coalgate paste selling 100%
vegetarian paste.
PROTECTION
Government actions and policies that restrict or restrain international trade often done with
intent of protecting local business and jobs from foreign competition.
METHODS OF PROTECTIONare,
Tariffs- fixing tax to save economy.
Quotas- physical restriction on the no goods coming into country.
Non- tariff barriers-rules and regulation e .g setting standard on fuel emission car.
REASONS FOR PROTECTION
to protect domestic market
protect domestic employment
strategic reason
political pressure and diplomacy
to protect culture
to prevent from dependence.
LIBERALIZATION
Removal of restriction on free exchange of goods between nations, the eradication of
restrictions is often referred to promoting free trade. Countries like US, UK,CANADA,FRANCEetc.
are following liberalization.
Liberalizationbenefits to
Proper Utilization of world resources, Economic growth of world etc.

PROTECTION VERSUS LIBERALIZATION

Basis of Difference
Meaning

Protectionism
Protectionism is the economic policy
Of restraining trade between states
through methods such as tariffs on
Imported goods, restrictive quotas
and verity of other measures to
protect domestic industries.

Liberalization
The removal or reduction of
Restrictions on the free trade or
Goods between nations is called
as Liberalization

Technique

Reasons / Motive

It includes measures like tariffs,

Import quotas, local content
Requirement , subsidies, etc.
Main motive of protectionism is to
Encourage domestic industry

Removal of trade quotas , tariffs,

Regulations , causes , face access
To market information
With liberalization many players
Enter the market which enhances

G.Saravanan

College Of Business Management.

Compliance to
International Rules
And Regulations

Pre-Requirement

Advantages

Disadvantages

The policy of protectionism on the

other hand does not consider rules
and regulations of the other country.
However, domestic rules and
regulations have to complied with
Protectionism on the hand revolves
Around considering the culture of
domestic country and domestic
economy

Investment climate of the

economy .Enhanced investment
climate gives way to investment
in infrastructure.
A country following the policy of
Liberalization has to consider the
Rules and regulations of foreign
Country with which it is trading

A country following the policy of

Liberalization has to carefully
observe and understand a
countrys culture before trading
with it.
Protectionism protects domestic
Liberalized trade can help to
Industry and encourages employment lower prices and broaden the
and growth opportunities in home
range of quality goods and
country.
Services available to consumer
Protectionism reduces the overall
Liberalization leads to
volume of world trade, thereby
unsustainable utilization of
lowering global income and
natural resources of host country
employment opportunities. Moreover, And have adverse effect on the
it reduces variety of goods available
domestic industries.
to domestic country.

G.Saravanan

College Of Business Management.

G.Saravanan