By By Izza Shahzad Izza Shahzad

International Business AnalysisInternational Business AnalysisLecture - 2Lecture - 2

What is International Business ?

• The exchange of goods  and services among individuals and  businesses  in multiple countries.

• A  specific entity,  such  as  a multinational corporation or international  business company that  engages  in business among multiple countries.

(Business Dictionary.com :2011)

What is International Business ?

• International Business involves– Commercial activities that cross  international frontiers.

– Deals with international movement of goods, capital, services, employees , technology, importing and exporting, cross-border transactions in intellectual property.

Why Study International Business?

• Importance for International Firms .• Importance for Managers of MNCs.• Help to Individuals.• Awareness• Understanding of Cultures

– How companies operate in such cultures?

International Business Environment

Why Firms Engage in International Business?

• Firms Take international operations to – Increase sales .– Acquire Resources. – Diversify activities.

• Other reason’s include – Saturation of Domestic markets.– Discovery of lucrative Opportunities abroad.– Technologies and Products not available in Home

country.– Desire to obtain economies of scale contd….

Why Firms Engage in International Business?

• Commercial risk can spread across several countries.

• Experience Curve facilitation• Economies of Scope • Compulsion due to higher costs of production

in domestic market.• Intense competition in domestic market.• Easier cross border trade.

Urbanization

Dubai – 1991. 2006 …..

(Carter and Lee: 2011)

World’s Mega Cities

• By 2015, the top 5 largest cities will be:– Tokyo -Japan26.4 million– Mumbai -India 26.1 million– Lagos -Nigeria23.2 million– Dhaka-Bangladesh21.1 million– São Paulo -Brazil20.4 million

• By 2010, 50% of people will live in urban areas• What are the implications for international

business?

The World Economy: 1970 and 1995

GDP Projections

International Operations of Small Businesses

• Benefits – Expanded Trading Via e.g. The Internet.– Internationalization of Banking Systems.

• Problems – can be lack of resources, Limited Time, Restricted

Knowledge of the International Market.

International Operations of Small Businesses

• Characteristics of Operations of Small Firms – Area and Scope of Operation.

• Mostly Low intensity with Operations limited to Franchising and Exporting.

– Limited Products and Services.– No Special Products for International Markets.– Lack of Strategic Vision and Direction. – Poor knowledge of International Markets as

compared to domestic ones.

Process of Internationalization

• Export/Import Department is the first step towards internationalization of business.

• Employment of Skilled staff.– Their Competencies include financing

international transactions, shipping and other transport documents etc.

– Should know international marketing operations and bilingual capabilities would always be an added advantage.

Process of Internationalization

• Expansion of scope and operation of exports department :– Now is the time to go international . – Better knowledge of the international market.– Setup of subsidiaries, branches and possibly

production operations.– Own international marketing research– Buying of international media directly– Above all raising finance from foreign sources..

Process of Internationalization

• Next stage can be international joint venture with foreign partners

• A permanent local production base is sometimes necessary because of size of production and length of distribution.

• As profits become generally dependent upon international operations the firm becomes an MNC.

Theories of Internationalization(Market Estimation)

Why firms export ?

Regional Trading BLOCS

• The Triad– Consists of NAFTA , EU and Pacific Rim– USA, EU and Japan – Lucrative markets exist between all three regions– Ignoring one means ignoring an opportunity– The triad includes such characteristics as

• Aging Population • Common tastes and Buying habits• High Consumer incomes • Rapid rate of technological development within firms

Regional Trading BLOCS

• Advantages for companies becoming TRIAD Powers :– Constant Interaction with the worlds most important

markets – The ability to develop a universal product attractive to

customers throughout the triad.– The capacity to penetrate very quickly into new

markets within the triad– Capacity to respond to competitors threatening

behaviour.

International Organisations

• OECD (the organisation for economic cooperation and development)– Established in 1961– Forum for Governments – Economic and Social Policy– Seeks to expand international trade – Seeks international assistance for developing or

underdeveloped countries .– Publishes statistical data on member states

International Organisations

• G-10 – Established in 1962– 10 leading OECD Members – Acts as a forum for international monetary

arrangements.– Followed by the G-7 – Heads of states meet each year to discuss political

economic situations

G-10

WTO

• Known as GATT (General Agreement for Tariffs and trade) prior to 1994.

• Was founded in 1947 in Geneva • Was their to minimize tariff levels and non

tariff barriers• Members include 116 countries including

Industrial Economies and Eastern Europe states

CONTD….

• WTO Rules 90 percent of world trade and is based on following principles:

– Non-discrimination

– Resolution of Disputes via consultation

– Non-legality of quantitative restrictions on imports

The Uruguay Settlement

• It is termed as the most significant agreement so far

• Tariffs would fall by 40 percent by 2000• 50 percent reduction in tariffs of each others

products by EU and USA.– Measures related to Intellectual property rights and

counterfeiter goods were included– The reform of national and agricultural subsidies – Trade in services

The Uruguay Settlement• 20 years patent protection• Limitations on use of compulsory licensing• Copyright protection for at least 50 years (include

compiled data bases and software's)• Laws to prevent disclosure of trade secrets • Equal treatment for foreign and domestic

intellectual property rights• Developed countries have one year were as

developing countries 5 years to introduce legislation.

Group Discussion

• UN (United Nations) • IMF (International Monetary Fund)• ILO (International Labour Organisation)

Lecture – 2