Ib overview(1)

INTERNATIONAL BUSINESS ENVIRONMENT

PGDIB - I

INTRODUCTION

Topics for the day :- What is International business? What International business Includes? Why study International Business? Why companies engage in

International Business? Modes of entry into International

business.

What is International business?

The business or commercial transactions between two or more countries may be between Individual, Government, or other entities.

International Business means carrying on business activities beyond national boundaries.

What International business Includes?

The parties involved in such transactions may include individuals, companies, group of companies or Government agencies.

IB includes the transaction of economic resources such as goods, capital, services (comprising Technology, skilled Labor, transportation etc.) and International Production.

What International business Includes?

International Business includes not only international trade of goods and services but also Foreign Investment, especially foreign direct Investment.

Why study International Business?

IB comprises a large & growing portion of the world’s total business;

Companies sells its output to & secure supplies from foreign countries;

Companies are competing against product and services that come from abroad;

Small businesses are also becoming more involves in IB.


E-commerce has opened up new opportunities;

Examining the practices, problems, solutions relating to managerial function in foreign countries;

Need to know the culture, values & social norms along with business processes/ practices in foreign countries.


Training managers to acquire skills & knowledge that are global in character;

Keep pace with your future competitors;

Helps in acquiring latest business techniques and tools.

Why companies engage in International Business?

Expand Sales: Higher Sales – Higher Profit Many of World’s largest companies

derive over half of their sales from outside their home countries.

Example: Nestle (Switzerland), Nokia (Finland), Ericsson (Sweden), Sony (Japan).


Acquire Resources: A company may acquire something

not readily available in its home country.

Reduce the cost:Many firms have located facilities in LCDs (Less developed countries) or developing countries to lower firm’s production cost.

Why companies engage in International Business? Seek New Markets: Somehow related for expanding sales Domestic markets matures (Eg:

Procter & Gamble, Unilever & Colgate Pamolive)

Expansion into new markets carries with it two other benefits:

Economies of scale Diversifies a firm’s revenue system

Why companies engage in International Business? Competition: Enter foreign markets to better compete

with industry rivals (Eg: Coca-Cola and Pepsi)

A protected market in India till 1991. Since liberalization, many Indian

companies are now planning to go international in a big way.

Eg: Tata-Corus TakeoverBirla’s Takeover of Novelis


Rapid Technology Emergence of supportive

Institution Openness of economic policies

among large number of countries

Modes of Entry into International Business

1. Exports and Imports:-- Merchandise Exports and Imports or

Visible Trade i.e. Exports and Imports of Tangible goods.

-- Service Exports and Imports or Invisible Trade i.e. Trade of ServicesEg: Tourism and transportation Banking, Insurance, Engineering,

Management services


2. International Investments:

-- Foreign Direct Investment (FDI): Investment which is made to acquire a lasting (long term) interest in an enterprise operating in an economy other than that of the investor, the investor’s purpose being to have an effective voice in the managementof enterprise”


-- Portfolio Investment: Purchase of foreign financial assets (stocks, bonds, etc.) to raise rate of return on the asset portfolio.It is not made with the intension of controlling a company’s decision making.

FDI v/s Portfolio Investment

Long term Perspective

Productive activity Intension of

managerial control (or participation in the management of foreign enterprise)

Short term perspective

Motivated by profit

Does not seek management control


3. Licensing: (permission)A legal arrangement (binding by a contract) whereby a firm in one country licenses the use of its intellectual property to a firm in a second country in return for a royalty payment.


Intellectual Property could be patents, trademark, brand names, copyright, manufacturing designs, etc.

The firm transferring its intellectual property is known as Licensor and the firm receiving it is known as the Licensee.

Example: Mickey Mouse Harry potter


4. Franchising: (Extension of Licensing)A firm in one country (the Franchisor) authorizes a firm in another country (the franchisee) to utilize its operating system as well as its brand names, trademark, logos, etc. In return Franchisor receives royalty payment.Example: Mc.D, Pizza Hut, Dominos, Kodak, KFC, Mark & Spencer, etc.


5. Management Contract: An arrangement where A firm in one country agrees to operate facilities or provide other management services to a firm in another country for an agreed upon fees.


Operational control of the enterprise is vested by contract in a separate enterprise which performs the necessary managerial functions.

It involves a wide range of functions such as technical operations of a production facility, management of personnel, accounting, marketing services and training.


Example: Disney receives management fees

from managing theme parks in France & Japan.

Taj group will manage the Peirre in New York.


6. Turnkey Projects: A firm agrees to construct an entire

plant in a foreign country and make it fully operational.

Agreement for Turnkey projects normally takes place where the initial construction part of the plant is more complex then the operational part.

Example: Larsen & Tourbo – Giant construction & engineering group.

References

International Business By V. Sharan

Ib overview(1)

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