Business

• Business is the organized effort of individual to produce and sell for the profit the goods and services that satisfy the society’s needs.

• Business is an activity where two parties, two firms or two persons interact with each other to achieve certain economic and monitory goals.

• An activity carried out with the objective to earn profit.

• Any legal activity is business.

Economics of business

• What is to be produced, how much, when and where?

• Economics of business deals with production, distribution, and consumptions.

• The study of wealth generating and its distribution is the economics of business.

International Business.• Is the study of transaction taking place

across national borders for the purpose of satisfying the needs of individuals and organizations.

• International business is all business activities that involve exchanges across national boundaries.

• Any firm engages in international trade or investment.

Thus a firm is engaged in international business when it buys some portion of its inputs from, or sells some portion of its outputs to, organization that is located in a foreign country.

The most common types of international business activities are:

• Export

• Import

• foreign direct investment (FDI)

• Joint Investment

Exporting:-

• Exporting is selling and shipping raw materials or products to other nations.

• Product produced by a firm in one country and then sent to another country.

Importing:-

• Importing is purchasing raw material or products in other countries or nations and bringing them into one’s own country.

• Product produced in one country and bought in by another country.

Foreign Direct Investment (FDI)

Equity funds invested in other nations.

The FDI is undertaken by MNEs who exercise control of their foreign affiliates.

Like exports and imports, FDI is a driver of international business.

Many companies use FDI to establish footholds in the world market place by setting up operations in markets of other nation or by acquiring business there.

The names of some world famous MNEsGeneral Motors (US)Ford Motors (US)Toyota (Japan)Shell Group (Britain)CitiGroup (US)Fuji (Japan)British Petroleum (Britain)Wal-Mart (US)

International trade

Occurs when a firm exports goods or services to consumers in another country

International marketing

International marketing is the performance of business activities that direct the flow of company’s goods and services to consumers or users in more than one nation for a profit.

WHY STUDY INTERNATIONAL BUSINESS• A simple answer is that international

business comprises a large and growing portion of the world’s total business.

• Today, global events and competition affect almost all companies –large and small---because most sell output to and secure supplies from foreign countries.

• Many companies also compete against products and services that come from abroad..

• Thus most managers, regardless of industry or company size, need to approach their operating strategies from an international standpoint.

To some extent study requires regarding to:

1.Understanding the EnvironmentSocial and Physical Factors.

1.Political and Legal practices.

2.Cultural factor.

3.Economic forces. Competitive Factors.

1.Competitive Product Strategy

2.Company Resources and

Experience.

Reasons to move beyond domestic market.• Potential in foreign market.

• Technological advantage.

• Higher profit opportunity.

• Reduce dependency on any one market.

• Saturation of domestic market.

Reasons for International Business

• Increase sales and profits • Enter rapidly growing markets• Reduce costs • Gain a foothold in a economic block.• Protect domestic markets• Protects foreign markets• Acquire technological and managerial

know-how.

Enter Rapidly Growing Markets

Some international markets are growing much faster, and FDI provides MNE, either the chance to take advantage of these opportunities. China is good example. Objective is to seek an adequate return of its investment.

Reduce cost

Low cost of unit produced is the effort of every business organization. Cost comes by utilization of resources specially raw material and labor. Mostly MNEs may be well advised to took to other geographic areas where the goods can be produced at a much lower labor cost, lower raw material price, low transport cost.

Gain a foothold in economic blocks.

“As we know there are three major international economic blocks EU, USA, Japan, Companies invest in any one of these economic strongholds can obtain a number of benefits including the right to sell their outputs without having to be burdened by import duties or other restrictions.

Protect Domestic MarketsAn other reason for FDI is to protect one’s domestic

market. Many MNE’s are now entering an international market in order to attack potential competitors and thus prevent them from expanding their operations overseas. These multinationals reason that a competitor is less likely to enter a foreign market when it is busy defending its home market position in order to bring pressure on a company that has already challenged its own home market. Similarly sometimes an MNE will enter a foreign market.

For Example; 10 days after Fuji began building its first manufacturing facility in the US, Kodak announced it s decision to open a manufacturing plan in Japan.

Increase sales and profits

When one firm has captured local and regional market, then would like to enter in some more new international markets to boost their operations. Ultimate objective is to increase sale to have maximum profit and urge to capture every market for their product.

• Balance of payment:-

The total flow of money into a country less the total flow of money out of country, over some period of time.

• Balance of trade:-

The total value of nation’s exports less the total value of its imports, over some period of time.

If a country imports more than it exports, its balance of trade is negative and is said to be unfavorable (a negative balance of trade is unfavorable because the country must export money to pay for its excess imports)

• Trade deficit:-

An unfavorable, or negative, balance of trade.

• Tariffs:-

Perhaps the most commonly applied trade restriction is a custom duty; or import duty. An import duty is a tax that therefore is lived on a foreign product entering a country. This tax, which is also called tariff, has a effect of raising the price of the product in the importing nation. Because fewer units of the product will be sold at the increased price, and fewer units will be imported.

• Quotas:-

An import quota is a limit on the amount of a particular good that may be imported into a country during a given period of time. The limit may be set in terms of either quantity or value.

QUIZ.• International Business is the study of…….• The most common type of international

business activities are………• Import can be described as……………• Export can be described as………….• Why study international business?.......... • Reasons to move beyond domestic

market…………• Reasons for international business…………..

• Is the study of transaction taking place across national borders for the purpose of satisfying the needs of individuals and organization.

• Export, foreign direct investment (FDI),Joint Investment

• Importing is purchasing raw material or products in other countries or nations and bringing them into one’s own country.

Exporting.

• Exporting is selling and shipping raw materials or products to other nations.

• --------------------------------------------------

• Potential in foreign market.

• Technological advantage.

• Higher profit opportunity.

• Reduce dependency on any one market.

• Saturation of domestic market.

To some extent study requires regarding to:

1.Understanding the EnvironmentSocial and Physical Factors.

1.Political and Legal practices.

2.Cultural factor.

3.Economic forces. Competitive Factors.

1.Competitive Product Strategy

2.Company Resources and

Experience.

Reasons for int. business• Increase sales and profits • Enter rapidly growing markets• Reduce costs • Gain a foothold in a economic block.• Protect domestic markets• Protects foreign markets• Acquire technological and managerial

know-how.

CHAPTER-------2

 

THE CULTURAL ENVIRONMENTS.

• ENVIRONMENT

Government rule, regulation and legislation together make Political and Legal Environment.

Culture:-

• Is the acquired knowledge that people use to interpret experience and to generate social behavior. Additionally, culture is shared by a member of group, organization, or society and a result, we learn to form the values and attitudes that shape our individual and group behavior.

• To be successful in the international business, manager must understand the culture of other countries and learn how to adapt to them.

•   In most cases, managers are home- country oriented; they like to do things the way they do in their home market. The challenge they must meet is learning how to broaden their perspective, adapt to other cultures, and make decision that reflect the needs and desires of those cultures.

• Elements of culture.

Culture and multidimensional subject and, in understanding its nature, we need to examine seven elements;

• Language.• Religion.• Values and attitudes.• Customs and manners.• Material goods.• Aesthetics.

• Education.

• LANGUAGE.

• Language is critical element to culture because it is the primary mean used to transmit and interpret information and ideas.

• Knowledge of the local language can help in three ways.

• First, it permits a clearer understanding of the situation. With direct knowledge of language, a businessperson does not have to rely on someone else to interpret or explain things.

• Second, language provides direct access to local people, who are frequently more open in their communications when dealing with someone who speaks their language

• Third, an understanding of the local language allows the person to pick up nuances, implied meanings, and other information that is not stated outright.

 

• RELIGION.•  There are a number of major religions in

the world, Catholic, Protestant, Jewish, and Islamic.

• Religion influence lifestyle, beliefs, values, and attitude, and can have a dramatic effect on the way people in a society act toward each other and toward those in the society.

• Religion can also affect the work habits of the peoples, as well as social customs.

•  

• Religion also affects politics and business.

• For example; when the AYATOLLAH KHOMEINI assumed control of IRAN, WESTERN businesses soon left the country because of the government’s attitude toward them.

• VALUES & ATTITUDES.

• Values are basic convictions that people have regarding what is right and wrong, good and bad, important and unimportant.

•  An attitude is a persistent tendency to feel and behave in a particular way toward object.

•  The attitude that emanate from value directly influence international business.

 

• For example.

•  Russians believe that McDonald’s cuisine is superior to their own (value judgment) and are thus willing to stand in long lines in order to eat at these units (attitude).

•  Swiss chocolate manufacturers know that US customers believe Swiss chocolate products are of high quality (value), so that companies emphasize their Swiss origin and thus generate high sales (attitude).

• Customs and Manners.

•  Customs are common or established practices.

•  Manners are behaviors that are regarded as appropriate in a particular society.

•  Customs dictate how things are to be done.

•  Manners are used in carrying them out.

For example,

• It is customary in many countries for dinners to eat a salad first before turning to the main course. In carrying out this custom, they use knives and forks, finish all the food on their plate, and, in many cases, have been taught non to talk with food in their mouth.

At the same time, there are many differences in customs and manners.

• For example,

• In Arab countries, it is considered bad manners to attempt to shake hands with a person of higher authority unless this individual makes the first gesture to do so, unlike in the US where a person would not hesitate to offer his or her hand regardless of the person’s rank.

• Economic Infrastructure

• such as the country’s transportation, communication and energy capabilities.

• Social infrastructure, which consists of the country’s health, housing, and education systems. financial infrastructure, which provides banking, insurance, and financial services to the population

• Education. •  Education influences many aspects of

culture.• Literate people read widely and have a

much better understanding of what is happening in the world.

•  Higher rates of literacy usually result in greater economic productivity and technological advances.

 

• Education also helps to provide the infrastructure needed for developing managerial talent.

• As a result, education is critical factor in understanding culture.

•  It is also likely that MNEs doing business in other countries will find educated people for their business

• CHAPTER --------3• THE POLITICAL AND LEGAL ENVIRONMENT

• Government rule, regulation and legislation together make Political and Legal Environment

What is International Politics?

It is a branch of political Science that is concerned with the foreign affairs of and relations among countries.

• Or, the study of foreign affairs and legal issues among states within the international system, including the roles of state, inter-government organizations (IGOs), Non- governmental organizations (NGOs), and multinational corporations(MNCs).

INTRODUCTION In last chapter we discussed that the cultural issues

facing international businesses differ from those domestic firms.

In this chapter, we carry this analysis forward, focusing on the fact that, once a company leaves its home country, it operates in markets with different political and legal systems.

Political and Legal factors contribute to the environment in which managerial decisions must be made.

• In this chapter we are going to look at the major current political system and their impact on the world of international business. We begin by examining political ideologies.

Political ideologies: • An ideology is a set of integrated beliefs,

theories, and doctrines that helps to direct the actions of a society.

• Or, an ideology is a set of aims and ideas, especially in politics.

• An ideology can be thought of as a comprehensive vision, as a way of looking in society.

Political ideologies. Many political parties base their political action

and programmed on an ideology. A political ideology is a certain ethical set of:• ideal,• principles,• doctrines,• myths,• or symbols of a social movement .

Political Systems:

• There are two types of political systems.

• Democracy.

• Totalitarianism

• Democracy:• Democracy means freedom of opinion

• Democracy is a form of government in

which power is held directly or indirectly

by citizens under a free electoral

system.• Even though there is no universal accepted definition

of ‘democracy’, but there are two principles that any definition of democracy includes;

1. The first principle is that all the citizens have equal access to power.

2. The second that all the citizens enjoy universally recognized freedoms and liberties.

Democracy includes:

• Fair and competitive elections.

• Power of elected representatives.

• Ability to organize.

• Safeguards on rights of minorities.

• Varieties of ‘DEMOCRACY’.• Parliamentary democracy. Parliamentary democracy where government is

appointed by parliamentators.

• Liberal democracy. A liberal democracy is a representative democracy in which the

ability of the elected representatives to exercise decision-making power is subject to rule of law, and usually moderated by a constitution that emphasizes the protection of the rights and freedoms of individuals, and which places constraints on the leader and on the extent to which the will of the majority can be exercised against the rights of minorities.

Democracy: • Is a system of government in which the people,

either directly or through their elected officials, decide what is to be done.

• Good examples of democratic governments include the US, Canada, England, and India.

• Common features of democratic governments include

• The right to express opinions freely.• Election of representatives for limited terms of

office,• An independent court system that protects

individual property and rights, and• A relatively non-political bureaucracy and defense

infrastructure that ensure the continued operation of system.

Totalitarianism: • Is a system of government in which one

individual or political party maintains complete control and either refuses to recognize other parties or suppresses them.

•  There are a number of types of totalitarianism that currently exist. The best-known is communism, in which the government owns all property and makes all decisions regarding production and distribution of goods and services. The best example is Cuba.

•

• Another form is theocratic totalitarianism, in which a religious group exercises total power and represses or persecutes non-orthodox factions.

• Some of the sheikhdoms of the Middle East are good example.

• A third form is secular totalitarianism, in which the military controls the government and makes decisions which it deems to be in the best interests of the country.

The Legal Environment. The legal environment becomes more complicated as

organizations expand globally and face government legislation quite different from those within Pakistan. Legislature affecting business around the world has increased a lot over the years. Business laws are imposed for number of reasons

The major purpose of business legislation include protection of companies from unfair competition, protection of consumers from unfair business practices and protection of the interests of society from unrestrained business behavior.

• First is to protect companies from each other. Although economists (government) favor healthy competition but sometimes try to neutralize it when it threatens to the interest of society or common people.

• Therefore laws are passed to avoid unfair competition.

• Secondly, to protect consumer from unfair business practice. A firm can make, below standard product, tell lies in ads and make deceptive packaging

For example:-

Daewoo motors were assigned the project to construct motorway in Pakistan during Nawaz government. When the government changed, new government was not inclined in such projects so the company had to suffer a lot. But when Nawaz government came in power again, it accelerated the task and rest of the project was completed in the record period time.

QUIZ.

• What is international Politics…………

• What is political ideology……………..

• Describe democracy…………………..

• Describe totalitarianism… ………..

• Describe Legal environment………..

• It is a branch of political Science that is concerned with the foreign affairs of and relations among countries.

• ------------------------------------------------------------------• An ideology is a set of integrated beliefs, theories, and

doctrines that helps to direct the actions of a society.• Or, an ideology is a set of aims and ideas, especially in

politics. • An ideology can be thought of as a comprehensive

vision, as a way of looking in society. • Democracy:• Democracy means freedom of opinion• Democracy is a form of government in

which power is held directly or indirectly

by citizens under a free electoral

system.

Totalitarianism:

• Is a system of government in which one individual or political party maintains complete control and either refuses to recognize other parties or suppresses them.

The Legal Environment. The legal environment becomes more complicated as

organizations expand globally and face government legislation quite different from those within Pakistan. Legislature affecting business around the world has increased a lot over the years. Business laws are imposed for number of reasons

The major purpose of business legislation include protection of companies from unfair competition, protection of consumers from unfair business practices and protection of the interests of society from unrestrained business behavior.

Chapter .4

ECONOMIC ENVIRONMENT

• Introduction.• Earlier chapters looked at how cultural, political

and legal systems influence a company’s decisions on where and how to do business internationally. This chapter completes this profile by presenting the perspectives and tools that managers use to evaluate economic environment.

• The importance of this chapter follows from the fact that different countries have different levels of economic development, performance, and potential.

• In some countries there is prosperity, where as in some countries recession in their business life cycle.

• Thus estimating the attractiveness of a country as a place to do a business and then, once there, making prudent investment and operational decisions depend on how well managers understand economic performance and trends.

• An economic environment is a means of deciding;• What goods and services will be produced• How they will be produced• For whom they will be produced

• When a company wants to do a business in another country, it must answer standard questions about; Wealth Income Stability Poverty

Managers need to monitor or assess the foreign markets in which they operate or in those they don't yet.

What they are assessing?

Economic performance and revised economic policies.

Why?

Because countries economic policies give a clear indication of a government goals and the economic tools and market reforms it must adopt.

• In summary, understanding the economic environments of a country helps managers better apprise, how developments and trends have and will likely affect their companies performance.

Features / Elements of Economic Environment• Managers use different measures to assess a country’s

level of performance and potential. They consider the issues like; InflationUnemploymentDebtProductivityWagesBalance of payment Income distributionGrowth ratepoverty

We now examine these factors.

Inflation:• Inflation is a measure of the increase in the

cost of life.• A general sustained rise in a price measured

against a standard level of purchasing power is called inflation.

• In mainstream economics, inflation results when aggregate demand grows faster than aggregate supply.

• A persistent increase in the level of prices in an economy.

why inflation?

According to Austrian School of Economics;

“Inflation of overall prices is the consequence of an increase in the supply of money by central banking authority”.

• Inflation and cost of living.

consider the impact of inflation on the cost of living.

“ Rising prices make it more difficult for consumers to buy products unless their incomes rise at the same or faster pace.”

• Implications of inflation.

Chronic or hyperinflation has bleak implications for companies;

• Neither they nor their customers can effectively plan long-term investments.

• They have no incentive to save

• Ordinary investment instruments like;

• Insurance policies

• Pensions

• And long-term bonds become speculative.

• How to reduce the inflation?

Almost Government is responsible to reduce the

inflation by;• Raising interest rates• Installing wage • Price control• Imposing protectionist trade policies• Currency policies

Quiz.• Describe Economic ENVIRONMENT………….

• An economic environment ia mean of deciding………..• When a company wants to do a business in another country, it

must answer standard questions about…..

• An economic environment is a means of deciding;• What goods and services will be produced• How they will be produced• For whom they will be produced.• ----------------------------------------------When a company wants to do a business in another country, it

must answer standard questions about; Wealth Income Stability Poverty

• Unemployment.• Unemployment is a measure of the number of workers who

want to work but do not have job.

• Countries that are unable to create jobs for their citizens create a risky environment.

• People out of work and unable to find jobs;

• Depress economic growth,

• Create social pressures,

• and provoke political uncertainty.

• DEBT.

debt, the sum total of a government’s financial obligations, measures the state’s borrowing from its:

• Population,• Foreign organizations• Foreign Governments• International institutions.

• The larger the total debt becomes, the more uncertain a country’s economy becomes, both in the present, as interest expenses divert money from more productive uses, and the future, as people worry about the ability of future generations to pay back the debt.

• Types of Debt. A country’s debt has two parts:• Internal and External

INTERNAL DEBT. Internal debt results when the government spends more

than it collects in revenues.

Because of internal debt there will be internal deficit. Internal deficits occur for any number of reasons, including;

when an imperfect tax system prevents the government from collecting revenues,

when state-owned enterprises deficits, When costs of security and social programs exceed

available tax revenues.

Consequently, every government struggles with; • setting spending priorities, • better controlling expenses, • improving budget management, • and refining tax policy.

The resulting pressure to revise government policies, in the

face of growing internal debt, can create economic uncertainties, for investors and companies.

• EXTERNAL DEBTExternal debt results when a government borrows money

from foreign lenders

• Income Distribution income distribution is a description of the fractions of a

population that are at various levels of income.

Income Distributions: per capita income.

• Productivity: the amount of output created per unit input used.

• Balance of Payment: the total flow of money into a country less the total flow of money out of country, over some period of time.

• Balance of trade:-

The total value of nation’s exports less the total value of its imports, over some period of time.

If a country imports more than it exports, its balance of trade is negative and is said to be unfavorable (a negative balance of trade is unfavorable because the country must export money to pay for its excess imports)

• Trade deficit:-

An unfavorable, or negative, balance of trade.

• Poverty• . What is Poverty?

Poverty has many dimensions. In general terms, it is a condition in which a person or community is deprived of, or lacks the essentials for, a minimum standard of well-being and life.

• What and Why essentials?

these essentials can be life-sustaining material resources such as;

food, safe drinking water, and shelter.

• Why these essentials?

They may be social resources such as access to information, education, heath care, and social status; they may be the opportunities to develop meaningful connections with other people in society.

This text takes an income prospective in which a person is defined as being poor when his or her income is below the threshold (start, beginning) considered a minimum to satisfy specific needs and wants.

• Productivity. Companies refine their interpretation of

labors costs by considering productivity.Specifically, the amount of output created

per unit input used.In terms of labor, productivity is the

quantity produced per person labor hour.

• Tariffs:-

Perhaps the most commonly applied trade restriction is a custom duty; or import duty. An import duty is a tax that therefore is lived on a foreign product entering a country. This tax, which is also called tariff, has a effect of raising the price of the product in the importing nation. Because fewer units of the product will be sold at the increased price, and fewer units will be imported.

• Quotas:-

An import quota is a limit on the amount of a particular good that may be imported into a country during a given period of time. The limit may be set in terms of either quantity or value.

• Economic Systems:

There are three basic economic systems.

• 1. Capitalism,

• 2. Socialism,

• 3. Mixed.

• Market-driven economy.• An economy in which goods and services

are allocated on the basis of consumer demand or on demand and supply bases. If consumers express any product will be offered for sale. If consumers refuse to by will cease to be offered.

• The US and EU nations have market driven economies .

•  

• Market-driven economies are characterized by private ownership. Most of assets of production are in the hands of privately owned companies.

• Centrally determined economy:

• An economy in which goods and services are allocated based on a plan formulated by a committee that decides what is to be offered.

• Centrally determined economies are characterized by public ownership.

• Most of the assets of production are in the hands of the state.

 CUBA and to a large degree CHINA are example. In these economies people are able to purchase only what the government determines should be sold.

• Mixed economy:

• Economic systems characterized by a combination of market-driven and centrally driven planning.

 

• Government control of assets: means to own and manage the organizations by state, or the organizations under control of government. This process also called nationalization.

 

Reasons for countries to control business assets.

• Promoting economic development. (For example by coordinating the assets of many businesses into one overall master plan.

• Earning profits for the national treasury,

• Preventing companies from going bankrupt and closing their doors,

• Enhancing programs that are in the national interest,

• Increasing the political or economic control of those in power,

• Ensuring goods and services to all citizens regardless of their economic status.

• Privatization.

•  The process of selling government assets to private buyers:

•  Privatization has two forms.

• Divestiture: the most common form in which the government sells its assets.

• Contract management: the govt. transfers operating responsibilities of an industry without transferring the legal title and ownership.

The major trend today is toward divestiture.

 

•  

• Primary reasons of privatization:

• It is more efficient to have the goods and services provided by private business than by govt.-run companies,

• A change in the political culture brings about a desire to sell off these assets,

• The company has been making money and the govt. feels that there is more to be gained by selling now than by holding on;

• The purchase price can be used to reduce the national debt;

• The company is losing money and the govt. has to assume the losses out of the national treasury;

• The company needs research and development funds but govt. is unwilling to make this investment;

• International funding agencies are making assistance to the country conditional on a reduction in the size of the govt.

• Economic integration:

• Economic integration is the establishment of transnational rules and regulations that enhance economic trade and cooperation among countries. At one extreme, economic integration would result in one world wide free trade market in which all nations had a common currency and could export anything they wanted to any other nation.

• Levels of economic integration:• Free Tade Area: a free trade is an

economic integration arrangement in which barriers to trade (such as tariffs) among member countries are removed.

• Under this arrangement each participant will seek to gain by specializing in the production of those goods and services for which it has a comparative advantage and importing for which it has a comparative disadvantage.

 

• Customs union:

• A custom union is a form of economic integration in which all tariffs b/w member countries are eliminated and a common policy toward non-member countries is established.

3. Common market:• A common market is a form of economic

integration characterized by,

1. No barriers to trade among member

countries,

2. A common external trade policy,

3. Mobility of factors of production among member countries. A common market allows reallocation of production resources such as capital, labor, and technology, based on the theory of comparative advantage.

•  

4. Economic union.• An economic union is a deep form of

economic integration is characterized by free movement of goods, services, and factors of production b/w member countries and full integration of economic policies. An economic union ;

• unifies monetary and fiscal policy among the member countries,

• has a common currency ,• Employs the same tax rates and structures for

all members.•  

5. Political union.

• A political union goes beyond full economic integration, in which all economic policies are unified, and has a single govt. this represents total economic integration, and it occurs only when countries give up their national powers to leadership under a single govt.

At the end of world war II, the united states and 22 other nations organized the body that came to be known as GATT. GATT was an international organization whose goal was to reduce or eliminate tariff and other barriers to world trade.

The general agreement on tariffs and trade (GATT):-

• World trade organization (WTO):-

An international organization that deals with the rules of trade among member countries.

One of the most important functions is to act as a dispute- settlement mechanism.

WTO is the second form of GATT.

Continued

WTO helps stimulate international business transactions and to prevent countries from discrimination against others.

WTO liberalize trade and to negotiate trade concessions among member countries.

• Multinational enterprises (MNEs):-

A company headquartered in one country but having operations in other countries.

• Triad:-

The three major trading and investment blocks in the international arena: the united states, the EU, and Japan

There are fifteen members of the European Union. • Austria• Belgium• Denmark• Finland• Germany• Greece• France

• Ireland• Italy• Luxembourg• Netherlands• Portugal• Spain• Sweden• UK

• GNP (Gross national product):-

The market value of all the final goods and services produced by a national economy.

• GDP (Gross domestic Product):-

The market value of country’s output attributable to factors of production located in the country’s territory.

Why are the companies making FDI?

Because to improve its market position. This is being done in three ways;

1. By establishing plant in other country is helping the company produce a low- cost product.

2. Market expenditures are helping the firm gain the product recognition needed for growth.

3. Direct investments in facilities closer to the market are reducing delivery time and eliminating associated expenses.

Factors to be considered to enter in Global

Market 1. Government stability 2. Right policies (Tax, Tariff)3. Consistency in policy4. Understanding of policies to foreigners5. Easy rules and regulations 6. Low interest rate on borrowing loans7. Regular funfairs, exhibition, seminars,

conferences8. + role of private sector9. Good relationship with surrounding countries10. Research oriented education11. I.T education12. Controlled law and order situations13. Revaluation in banking system14. Long term planning15. Advanced media16. Cost efficiency

• Global and Regional Strategy:-

When any organization is going to commence manufacturing, trading, or service business in any other country has to determine strategy specially local, regional and global. In fact, their success comes most heavily from formulating and implementing strategies. Therefore according to business thinker “porter” four (4) factors are important to be considered before to establish business across.

• Factors required as inputs:- First to look for three important factors

of production; land, labor, and capital companies locally, regionally, and globally to meet market demand is using land and capital to produce product by new plants that are more efficient. It is working to improve the effectiveness of the labor force by getting the personnel to become more market oriented and to sell the product more vigorously throughout world.

• Demand condition (customer orientation):-

Second condition looks for customer need, want, and demand. The success is think locally, regionally, and globally and act accordingly (focus customer).

• Related and supporting industries:-

While to run the business operations some stakeholders are playing significant role. Suppose; supplier, bank, and other supporting and relevant industries.

• Firm strategy, structure, and rivalry:-

Porter’s fourth broad determination of national advantage is the context in which the firms are created, organized, and managed, as well as nature of domestic rivalry. Companies establish their international business according to the host countries market size, and design organizational structure.

Export strategy factors

Essentially, for international business, strategy deals with the interplay of three forces, known as the strategic Cs’: the customer, the competition, and own company. Business should devise ways in which firm can differentiate itself effectively from the competitors to deliver better value to the customer.

A good business strategy should be characterized by :

• A clear definition of market (customer).

• A good match between firm’s strengths and the needs of the market.

• Superior performance, relative to the competition, is the key success factors of the business.

Continued

Export strategy decisions

Based on the interplay of the strategic three Cs, the formation of an export strategy requires the following three decisions to be made:

• Where to compete i.e. selection of the country and designation of specific target segments within the country.

• How to compete i.e. means for competing; for example, low price.

• When to compete i.e. timing of market entry.

a. Who are my customers?My customers are middle class householders in Iran, Saudi Arabia, Egypt and other countries in the region.b. Why do they buy my fans?Customers buy my fan to seek cool air.c. What sort of product do customers prefer?Customers want a sturdy fan which can be used for long hours without being serviced.d. When do they my product?Customers buy my product in spring, just as hot weather sets in.e. Where do they buy?Customers buy my product at a local retailer that deals in electrical supplies.f. How do they buy?Customers appreciate some sort of credit accommodation. They will prefer buying on Installment, if feasible. They would want the seller to repair the fan if it failed to run

during warranty period.

To establish international business one should have to develop customer knowledge. The box below illustrates how a company will develop knowledge of his customers in middle east.