International Business unit 1

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UNIT-I: INTRODUCTION

DEFINITION:

International Business conducts businesstransactions all over the world. These transactionsinclude the transfer of goods, services, technology,managerial knowledge, and capital to other countries.

International business involves exports and imports.International Business is also known, called or

referred as a Global Business or an InternationalMarketing.


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An international business has many options for doingbusiness, it includes,

Exporting goods and services.

Giving license to produce goods in the host country.

Starting a joint venture with a company. Opening a branch for producing & distributing goods in

the host country.

Providing managerial services to companies in the hostcountry.

FEATURES OF INTERNATIONAL BUSINESS:

1.Large scale operations :

In international business, all the operations are

conducted on a very huge scale. Production and marketing activities are conducted on a

large scale.

It first sells its goods in the local market. Then the surplusgoods are exported.


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2.Integration of economies :

International business integrates (combines) theeconomies of many countries. This is because it usesfinance from one country, labor from another country,and infrastructure from another country.

It designs the product in one country, produces its partsin many different countries and assembles the product inanother country.

It sells the product in many countries, i.e. in theinternational market.

3.Dominated by developed countries and MNCs : At present, MNCs from USA, Europe and Japan

dominate (fully control) foreign trade. This is becausethey have large financial and other resources.

They also have the best technology and research and

development (R & D). They have highly skilled employees and managers

because they give very high salaries and other benefits.

Therefore, they produce good quality goods andservices at low prices. This helps them to capture anddominate the world market.


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4.Benefits to participating countries :

International business gives benefits to all participatingcountries. However, the developed (rich) countries get themaximum benefits.

The developing (poor) countries also get benefits. They getforeign capital and technology. They get rapid industrialdevelopment. They get more employment opportunities.

All this results in economic development of the developingcountries. Therefore, developing countries open up theireconomies through liberal economic policies.

5.Keen competition : International business has to face keen (too much)

competition in the world market. The competition is betweenunequal partners i.e. developed and developing countries.

In this keen competition, developed countries and their MNCs

are in a favorable position because they produce superiorquality goods and services at very low prices.

Developed countries also have many contacts in the worldmarket. So, developing countries find it very difficult to facecompetition from developed countries.


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6.Special role of science and technology :

International business gives a lot of importance to

science and technology. Science and Technology (S &

T) help the business to have large-scale production.

Developed countries use high technologies. Therefore,they dominate global business. International business

helps them to transfer such top high-end technologies to

the developing countries.

7.International restrictions : International business faces many restrictions on the

inflow and outflow of capital, technology and goods.

Many governments do not allow international businesses

to enter their countries.

They have many trade blocks, tariff barriers, foreign

exchange restrictions, etc. All this is harmful to

international business.


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Sensitive nature :

The international business is very sensitive in nature.Any changes in the economic policies, technology,

political environment, etc. has a huge impact on it. Therefore, international business must conduct

marketing research to find out and study thesechanges.

They must adjust their business activities and adaptaccordingly to survive changes.


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ADVANTAGES OF INTERNATIONAL BUSINESS:

Potential Customer can be perused frequently totry the product and hence the Entry is made

possible even in the established Supply Chain.

Competitors information and Trend analysis andupdated Product Information, which are currently

available in the market, can be made available tothe Client on Demand.

Local offices located at the Destination, providesgood Moral Support to Consumers and Customerswhen it comes to after Sales Service orcomplications.


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FACTORS CAUSING GLOBALIZATION OF BUSINESS/ NEED FORINTERNATIONAL BUSINESS:

More and more firms around the world are going global,including:

Manufacturing firms Service companies (i.e. banks, insurance, consulting

firms)

Art, film, and music companies

International business:

causes the flow of ideas, services, and capital acrossthe world

offers consumers new choices

permits the acquisition of a wider variety ofproducts facilitates the mobility of labor, capital, and

technology provides challenging employment opportunities reallocates resources, makes preferential choices,

and shifts activities to a global level


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INTERNATIONAL BUSINESS ENVIRONMENT:

In the context of a business firm , environment can bedefined as various external factors and forces thatsurround the firm and influence its decisions andoperations. These are uncontrollable , the firm can dolittle to change them.

Economic Environment

Political Environment

Cultural EnvironmentEconomic Environment:

The economic environment represents the economicconditions in the country where the internationalorganization operates.

Economic conditions, economic policies and theeconomic system are the important external factors thatconstitute the economic environment of a business.

An analysis of economic environment enables a firm toknow how big the market is and whats it nature.


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Economic development is directly related to thedevelopment of marketing in a country.

Countries characterized by high level of economicdevelopment not only have a high demand for a variety of

products but also have better infrastructure and moredeveloped marketing systems.

In the less developed countries, on the other hand, not onlydemand is low, but infrastructure is also poor. It is thereforebecomes quite difficult and more expensive to do business in

such nations. INCOME: Its an important indicator of the countrys level of

development and also its market size. Gross national productand per capita income are among the major measures ofincome.

While sale of most of the industrial goods capital equipmentgenerally co-relate with GNP, demand for consumer productsdepends on per capita income

If the majority of the countrys income come from agriculturethen its agriculture based country and it have good demand

for seeds, fertilizers, agro machineries and tools.


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Political Environment:

The critical concern Political environment has a veryimportant impact on every business operation no

matter what its size, its area of operation. Whether the company is domestic, national,

international, large or small political factors of thecountry it is located in will have an impact on it.

its rightly said that a foreign business firms operatesonly as a guest and at the convenience of the hostcountry government.

the government reserves the right for allowing the

firm to operate in the country as well as layingdown the manner in which a foreign firm canconduct business.


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Structure of Government

Ideology : Communismgovernment ownership

Capitalism- private ownership Socialismboth private and government

ownership

Political Parties: Single Partyone party

Dual Partytwo parties

Multiple Partymore than two parties

Concept of Political Environment:

This environment is the outcome of interacting influences of

various interest groups. Those main groups are such as Individual households

Firms

Politicians,etc.


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Democracy versus Totalitarianism:

The political scenario differs between the two extremes-democracy and totalitarianism.

Democracy involves direct involvement of citizens in

policy making. Totalitarianism represents monopolization of political

power in the hands of an individual or group ofindividuals.

Technical Environment:

The technological environment comprises factorsrelated to the materials and machines used inmanufacturing goods and services.

Receptivity of organizations to new technology and

adoption of new technology by consumers influencedecisions made in an organization.


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Cultural Environment:There are some obvious ways culture influences aninternational business:

The way how we present ourselves

How we express opinions Assumptions based on the environment and context

Perceptions of voice, and other personal physicaldetails.

Elements of Culture:

Language Religion

Education

Attitudes and Values

Customs

Aesthetics Social institutions

Material elements


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Language:

Language is the medium through which message is

conveyed. It may be verbal or non-verbal.

The same word or phrase contains severalmeanings.

Religion:

Religion sets the ideals of life.

It thus add the values and attitude of individuals

living in a society. These values manifest in the behavior and

performance of individuals.


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Education:

Education depends primarily on the rate of literacy and

on enrolment in schools and colleges.

If the education level is high in a society it is easy for the

multinational firms to operate there.

Attitudes and Values:

Attitudes and values determine the attitude and value

of individuals towards work, status,change etc.

The values are the beliefs and norms.

The attitude in societies differ from countries.


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Customs:

Customs and manners vary from one society toanother.

It is imperative for international managers to beaware of varying manners and customs.

Aesthetics:

Aesthetics is concerned with the sense of beauty,good taste, and symbolism of colors.

For example:

color symbolism is very prominent in internationalbusiness.


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Social Institutions:

Social institutions form an integral par of culture.

It is mainly concerned with the size of family and

social stratification.

Material Elements:

Material elements is related to the economic,financial, and social infrastructure enjoyed by

people.

For example:

If the consumers are uneducated theirconsumption pattern will be different.


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Culture Business:

Culture is the entire set of social norms shaping

human behavior.

Cultural boundaries may differ from national or

political boundaries because of varying cultural

backgrounds of individuals.

Culture is not inborn. The learning persists

throughout his/her life.


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LIBERALISATION/PROTECTION OF GLOBAL BUSINESSENVIRONMENT:

The main aim of liberalization was to dismantle the

excessive regulatory framework which acted as ashackle on freedom of enterprise. Over the years,the country had developed a system of license-permit raj.

The aim of the new economic policy was to savethe entrepreneurs from unnecessary Harassment ofseeking permission from the bureaucracy of thecountry to start an undertaking.

The major purpose of liberalization was to free thelarge private corporate sector form bureaucraticcontrols. It, therefore, started dismantling the regimeof industrial licensing and controls.


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The Principle Measures Initiated By The Government ToLiberalize The Indian Economy:

The structural change in economic growth (change insectorial shares of the national income) in the Indianeconomy. This is evident in the form offer shift in the sectorialcomposition of production (income), diversification ofactivities and a gradual transformation of a feudal and

colonial economy in to a modern industrial economy.

While the share of agriculture and activities fell from 55%during the first plan period to 32% during the seventh plantperiod the sharing of manufacturing rising from 12% during the

first plan period to 18% during the seventh plan period.

The share of service sector increase from 28% to 38% theexpansion of service sector has not only been reducing foremployment generation but also for greater efficiency of the

system and better quality of life.


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Thus express structural changes have taken place in the Indianeconomy during the period 1952-90 when we go by sectorialpartition of life. Thus by income criterion structural change in

the Indian economy has been very graceful.

Now, Let us consider structural changes by liberalize criterion.It is normally accepted that one of the structural changes that

occur in the course of economic development in aprogressive shift of labor from agriculture and allied activitiesto secondary activities.

The interesting fact about these structural shifts in economicactivities for our purpose is not so much the ultimate decline inthe significance of agriculture (in relative terms) as the rate atwhich it occurred.


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The above Historical Experience knows us that thesectoral redistribution of the active population is a

time taking process. Dislike structural change basedon income criterion, structural change based onemployment in a slow process.

This is demo by Indian Experience also. The workforce engaged in primary sector (agriculture, livestock, fishing, hunting, plantations, etc.) reducefrom 71% in 1901 and in 1981 68%.


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Two Structural Features

The Indian economy two structural features clearly from theabove account:

1) Liberalize agriculture continues to be important in the Indianeconomy. A little more than 30% of national incomeoccurred in the agricultural sector.

2) There is only little structural change in economy when we goby the employment criterion. Agriculture still accounted for morethan 65% of work force in early 90s.

The under developed nature of the Indian economy becameevident when we distinguish the employment structure of theIndian economy with that of a developed country Japanagriculture in Japan in 1986 accounted for only 7% of totallabor force.

International Business unit 1

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