4.1 International Business

4.
1 INTERNATIONAL BUSINESS
4.1 INTERNATIONAL BUSINESS

MODULE 1: INTERNATIONAL BUSINESS ENVIRONMENT 10 HOURS
Evolution of International Business Environment
To understand major incidences happened during evolution of International Business or Internationalization
 19th Century: The broader concept of the integration of economies and societies evolved
 1870: Began first phase of Globalization
 1913: GDP was 22.1
 After 1913: Increased Trade Barriers to Protect Domestic Production
 1919: World War I: End of the first phase of Globalization, the Industrial Revolution in the UK,
Germany and the USA
A sharp increase in the trade with import and export by colonial empires
 1930’s: Declined Trade Ratio, GDP was 9.1
 After the 1930s: World Nations felt the need for International Co-operation in global trade and balance
of payments affairs
Establishment of IMF and IBRD (World Bank)
IMF: International Monetary Fund
IBRD: International Bank for Reconstruction and Development
 1947: 23 countries conducted negotiations in order to prevent the protectionist policies and to revive the
economies from recession aiming at the establishment of the World Trade organization
 1947: Establishment of GATT (General Agreement on Trade and Tariffs)
 The 1980s: efforts to convert GATT into WTO
 1995: GATT was replaced by WTO (World Trade Organization) on Jan 1, 1995 Trade Liberalization
 1990 – 2000: The Term International Business (IB) has emerged from the term International Marketing.
Two Phases of The Evolution Of International Business
There are two Phases of the evolution of the term International Business
1. International Trade to International Marketing
2. International Marketing to International Business
 After 1990: Rapid Internationalization add globalization
 Today: Interpreting the PESTIN factors of International Trade environment more clearly.
Drivers and Challenges of IB as compared to Domestic Business
Challenges in International Business
Businesses are expanding and diversifying overseas to reach new clients, enhance their customer base, and
increase overall earnings.
 Company’s Structure: A proper team should be in place if the company willing to be globally
competitive for which it shall consider the structure of the organization and location from where the expertise
team operates.
Page 1
 Foreign Laws: After determining the proper structure, businesses going global shall have a
comprehensive understanding of the local laws and rules that prevail in that country.
 Accounting: Accounting is very critical when it to multinational business liable to pay corporate tax in
the countries they operate.
 Tax Liabilities: Company is liable to pay tax on its income in the country of its operations and
sometimes also its resident country. Paying multiple taxes can burden the company with double taxation
reducing its overall revenue.
 Pricing: Price quoted for products and services that are served abroad can be another significant
challenge while doing business overseas. The company shall ensure to keep its cost-competitive along with
ensuring its profits.
 Payment Methods: Business working abroad shall determine the acceptable payment method along with
its accuracy and security, which is a key challenging factor for any business as payment is the key-category
of any running business.
 Currency: Fluctuation in the currency rate is one of the challenges to be considered by the business
operating abroad. Exchange Rates shall be monitored throughout as major fluctuations can affect the
expense and profits.
 Cultural Differences: Communication skill is very efficient for business strategy, either operating in
the home country or abroad. However, the difference in cultures and languages across the world is a major
challenge faced.
Drivers of International Business
 Higher Rate of Profits: For example, Hewlett Packard in the USA earns more than half of its profits
from the foreign markets as compared to that of domestic markets.
 Expanding the Production Capacities beyond the Demand of Domestic Country: Toyota of Japan
 Limited Home Market: For example, most of the Japanese automobiles & electronics firms entered the
USA, Europe & even African markets due to the smaller size of the home market. ITC entered the European
market due to the lower purchasing power of the Indians with regard to high-quality cigarettes.
 Political Stability vs. Political Instability: The Political stability doesn‘t simply mean that the
continuation of the same party in power, but it means that continuation of the same policies of the
Government for a quite long period.
 Availability of Technology & Competent Human Resources: The Availability of advanced technology
& competent human resources in some countries act like pulling factors for business firms from other
countries.
 High Cost of Transportation: Initially the companies enter foreign countries for their marketing
operations Foreign Direct Investment (FDI) route to satisfy the demand of either one of the countries or the
group of neighboring countries.
Page 2
 Availability of Raw Materials: The source of highly qualitative raw materials & bulk raw materials is a
major factor in attracting companies from various foreign countries.
 Liberalization & Globalization: Most of the countries around the globe liberalized their economies
&opened their countries to the rest of the globe.
 Growth in Market Share: Some of the large-scale business firms[1] would like to enhance their
market share in the global market by expanding & intensifying their operations in various foreign countries.
National and organizational competitive advantage over the world
National competitive advantage - Porter’s Diamond
Michael Porter tried to explain why a nation achieves international success in a particular industry and identified
four attributes that promote or impede the creation of competitive advantage:
 Factor endowments
 Demand conditions
 Relating and supporting industries
 Firm strategy, structure, and rivalry
Determinants of National Competitive Advantage: Porter’s Diamond
Factor Endowments :
 Factor endowments refer to a nation‘s position in factors of production necessary to compete in a given
industry
 A nation's position in factors of production can lead to competitive advantage These factors can be either
basic (natural resources, climate, location) or advanced (skilled labor, infrastructure, technological know-
how)
Demand Conditions
 Demand conditions refer to the nature of home demand for the industry‘s product or service
 The nature of home demand for the industry‘s product or service influences the development of capabilities
 Sophisticated and demanding customers pressure firms to be competitive
Relating And Supporting Industries
Page 3
 Relating and supporting industries refer to the presence or absence of supplier industries and related
industries that are internationally competitive
 The presence supplier industries and related industries that are internationally competitive can spill over and
contribute to other industries
 Successful industries tend to be grouped in clusters in countries - having world class manufacturers of semi-
conductor processing equipment can lead to (and be a result of having) a competitive semi-conductor
industry
Firm Strategy, Structure, And Rivalry
 Firm strategy, structure, and rivalry refers to the conditions governing how companies are created, organized,
and managed, and the nature of domestic rivalry
 The conditions in the nation governing how companies are created, organized, and managed, and the nature
of domestic rivalry impacts firm competitiveness
 Different management ideologies affect the development of national competitive advantage
Vigorous domestic rivalry creates pressures to innovate, to improve quality, to reduce costs, and to invest in
upgrading advanced features
Modes of entry
 Exporting: Exporting means producing/procuring in the home market and selling in the foreign market.
Exporting is not an activity just for large multinational enterprises; small firms can also make money by
exporting. In recent days, exporting has become easier though it remains a challenge for many firms.
 Licensing: A licensing is an agreement whereby a licencor grants the rights to intangible property (patents,
intentions, formulas, processes, designs, copyrights and trademarks) to another entity (licensee) for a
specified period and in return the licencor receives a royalty/fee from the licensee.
 Franchising: Franchising is basically o specialized form of licensing in which the franchiser not only sells
intangible property to the franchisee but also insists that the franchisee agrees to abide by strict rules as to
how it does business.
 Joint venture: A JV entails establishing a firm that is jointly owned by two or more independent firms.
 Management Contracts: 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.
 Turnkey projects: In a turnkey project, the contractor agrees to handle every details of the project for a
foreign client, including the training of operating personnel. At completing of the contract the foreign client
handles the ‗key‘ of a plant that is ready for full operation
 Strategic international alliances: A strategic international alliance is a business relationship established by
two or more companies to cooperate out of mutual need and to share risk in achieving a common objective.
 Direct foreign investment: Direct foreign investment is another important form of international business.
Companies may manufacture locally to capitalize on low cost labor, to avoid high import taxes, to reduce the
high cost of transportation to market, to gain access to raw materials or gaining market entry.
Page 4
Active players in multinational business

Active players Why they are most successful brands in the world
 Apple  Customer does have to really value a product before they invest their money in it.
 Google  It helps when a brand has a clear identity. This will help the customer associate the
 Coca Cola marketing with the brand.
 Microsoft  Customer loyalty is an important thing to earn. This will ensure a customer only
 Toyota purchases a product or service from your company.
 IBM  Management styleThe companies that get ahead do so because of the way they are run
 Samsung and controlled.
 Amazon  Staying ahead of the competition
 Mercedes-Benz  Consistency Ensuring a company‘s marketing is consistent is vital
 General Electric  Company has to focus on what they‘re good at, without expanding and stretching itself
too thin.
The International environment of IB
International Business Environment means trading across the globe. In layman‘s terms, it means
selling and buying goods and services around the world. International business connects with transactions
taking place across two or more borders while keeping the management located in a single country.
Political, Legal, Technological, Cultural, Demographic and Economic environment
Six factors that affect international business
 Legal liabilities Cross-country businesses have to deal with the legal framework of two or more countries.
They may differ in terms of age, disability discrimination, wage rates, employment, environment, and
others. Hence, it affects the working of the MNCs to abide by all the rules of all the countries. In addition,
many international lending agencies could affect legal culture and working policies.
 Political factors The different political considerations of the countries involved in the global business
either facilitate or hinder the business. The trade agreements entered between the governments of countries
are the ones that are the most affected by political stability, foreign trade regulations, change of actions of
the new governments, and many more.
In addition, doing businesses with countries that lack political stability will directly influence the
operations of the MNCs.
 Technological factors Technology factors are what increases the economic growth and the social change
to happen. Hence, they have both positive and negative impacts on the countries due to cross border
businesses. In addition, it could threaten the existence of the local businesses to the level of extinction or
increase their level to global standards.
 Economic factors that directly affect the international business includes among others:
 Fiscal policies  Allocation of government budget
 Inflation rates  The purchasing power of the customers
 Interest rates  Demand for various products
 Income distribution  Value of the country's currency
 Employment level
Page 5
 Social factors The social environment and culture, like the peoples' customs, lifestyles have a direct
impact on international business. The social factors, like education, awareness, status, and trends of the
people in society, determine the consumers' behavior for purchasing goods and services.
 Environmental factors The external environmental factors have become significant issues for global
business in the last few years due to an increase in environmental awareness. The factors like climate
change, weather, temperature affects the demand pattern of many goods and services.
Cross-cultural management
What is Culture? “
Culture is that complex whole which includes knowledge, belief, art, morals, law, custom, and other
capabilities acquired by man as a member of society.‖ - Edward Tylor
―A system of values and norms that are shared among a group of people and that when taken together
constitute a design for living.‖ - Hofstede, Namenwirth, and Weber
What is cross-cultural management?
Cross-cultural management can be understood as the administration of individuals and activities that
include an alternate culture backdrop and dynamic background. The study related to cross-culture focuses on
the crucial notions such as training and encouraging how to deal with clashes of the diverse culture and initiate
viable and sound management.
Steps to execute cross-cultural management
 Better understanding with everyone
 Recognize the cultural fluctuation of a group
 Set transparent benchmarks
 Enhancing the individual connection
 Settling the disputes
Levels of Culture
International Culture: International culture is culture that extends beyond national borders. It's not confined
to a country, a people group, or even a continent! With this definition in mind, it's not surprising to know that
international culture is sometimes also referred to as universal.
National Culture: Our next layer of culture is national culture. As you can probably guess from the name,
this represents the beliefs and practices shared by the citizens of the same nation. It's what makes an American
an American and an Italian an Italian.
Sub Culture: Subculture is often defined as the beliefs and attitudes that separate groups within the same
broad culture. As a layer of culture, subculture is often made up of differences in religion, socioeconomic
status, and even race. As Americans, we are very familiar with subcultures.
Elements of culture Characteristics of Culture
• Language • Corporate culture • Culture is learned
• Nationality • Family • Culture is unconscious
• Sex • Values • Culture is shared
Page 6
• Education • Norms • Culture is integrated
• Profession • Attitudes • Culture is Symbolic
• Ethnic group • folkways • Culture is a way of life
• Religion • Customs • Culture is Dynamic
• Social class • Culture is Relative
• Culture is universal
Models of Culture
Hofstede’s framework for Assessing culture
Hofstede‘s studies of the interactions between national cultures and organizational cultures demonstrated
that there are national and regional cultural groupings that affect the behaviors of societies and organizations,
and that are very persistent across time
Hofstede’s four dimensions of culture
Power distance - cultures are ranked high or low on this dimension based on the particular society‘s ability to
deal with inequalities
Individualism versus collectivism - this dimension focuses on the relationship between the individual and
his/her fellows within a culture
Uncertainty avoidance - this dimension measures the extent to which a culture socializes its members into
accepting ambiguous situations and tolerating uncertainty
Masculinity versus femininity - this dimension looks at the relationship between gender and work roles
Halls and Halls
Halls and Halls in 1987 provided another basis for cross cultural classification. They divided the world into
two cultures:
High context Culture Low context Culture
 Long-lasting relationships  Shorter relationships
 Exploiting context  Less dependent on context
 Spoken agreements  Written agreements
 Insiders and outsiders clearly  Insiders and outsiders less distinguished clearly distinguished
 Cultural patterns ingrained  Cultural patterns change slow change faster
Trompenaars Cultural Dimensions – The 7 Dimensions of Culture
1. Universalism vs. particularism.
2. Individualism vs. communitarianism.
3. Specific vs. diffuse.
4. Neutral vs. affective.
5. Achievement vs. ascription.
6. Sequential time vs. synchronous time.
7. Internal direction vs. external direction.
Page 7
Universalism - belief that ideas and practices Particularism - belief that circumstances dictate how ideas
can be applied everywhere in the world without and practices should be applied and something cannot be
modification done the same everywhere
Focus on formal rules and rely on business Focus on relationships, working things out to suit the
contacts parties
Individualism - people regard themselves as Communitarianism - people regard themselves as part of a
individuals Rely on individuals to make group Seek consultation and mutual consent before making
decisions decisions
Neutral - culture in which emotions are held in Emotional - culture in which emotions are expressed openly
check People try not to show their feelings and naturally People smile, talk loudly, greet each other with
enthusiasm
Specific - culture in which individuals have a Diffuse - culture in which both public and private space are
large public space they readily share with others similar in size and individuals guard their public space
and a small private space they guard closely carefully, because entry into public space affords entry into
and share with only close friends and associates private space as well People often appear indirect and
People often are open and extroverted Work introverted, and work and private life often are closely
and private life are separate linked
Achievement - culture in which people are Ascription - culture in which status is attributed based on
accorded status based on how well they perform who or what a person is
their functions
Sequential approach to time - people do one Synchronous approach - people do more than one thing at
thing at a time, keep appointments strictly, a time, appointments are approximate
follow plans to the letter
Inner-directed People believe in controlling Outer-directed People believe in allowing things to take
environmental outcomes their natural course
The GLOBE project’s nine dimensions of culture

More recent research has built on the Hofstede and Trompenaars research. The Global Leadership and
Organizational Behavior Effectiveness (GLOBE) project began in 1992 and continues today. It has involved
150 researchers collecting data on cultural values and management and leadership attributes from 18,000
managers across 62 countries in the telecommunications, food, and banking industries.13 In the same way as
Hofstede and Trompenaars before them, the researchers place countries along a standard 1 to 7 scale.
The GLOBE project, however, ends up with nine key cultural dimensions:
1. Assertiveness. The United States, Austria, Germany, and Greece are high; Sweden, Japan, and New
Zealand are low.
Page 8
2. Future orientation. A propensity for planning, investing, delayed gratification: Singapore,
Switzerland, and the Netherlands are high; Russia, Argentina, and Italy are low.
3. Gender differentiation. The degree to which gender role differences are maximized: South Korea,
Egypt, India, and the China are high; Hungary, Poland, and Denmark are low.
4. Uncertainty avoidance. A reliance on societal norms and procedures to improve predictability, a
preference for order, structure, and formality: Sweden, Switzerland, and Germany are high; Russia,
Bolivia, and Greece are low.
5. Power distance. Russia, Thailand, and Spain are high; Denmark, the Netherlands, and Israel are low.
6. Institutional collectivism (individualism vs. collectivism). Promoting active participation in social
institutions: Sweden, South Korea, and Japan are high; Greece, Argentina, and Italy are low.
7. In-group/family collectivism. A pride in small-group membership, family, close friends, etc.: Iran,
India, and China are high; Denmark, Sweden, and New Zealand are low.
8. Performance orientation (much like achievement orientation). Singapore, Hong Kong, and the
United States are high; Russia, Argentina, and Italy are low.
9. Humane orientation. An emphasis on fairness, altruism, and generosity: Ireland, Malaysia, and Egypt
are high; Germany, Spain, France, Singapore, and Brazil are low.
Page 9
MODULE 2: GLOBALIZATION 8 HOURS

MEANING OF GLOBALISATION
Globalisation is a process of interaction and integration among the people, companies, and
governments of different nations, a process driven by international trade and investment and aided by
information technology.
This process has effects on the environment, on culture, on political systems, on economic
development and prosperity, and on human physical well-being in societies around the world.
Globalization refers to rapid increase in the share of economic activity taking place across national
borders. It goes beyond the international trade includes the way in which goods/ services are produced
/created, delivered &sold & movement of capital
DEFINITION OF GLOBALISATION
―The growing economic interdependence of countries worldwide through increasing volume and
variety of cross border transactions in goods and services and of international capital flows and also through
the more rapid and widespread diffusion of technology‖ - IMF
STAGES OF GLOBALISATION
Domestic company Market potential is limited to the home country. Production and marketing
facilities are located at home only. Surplus may or may not be exported. There are no overt efforts to develop
foreign markets. It may add new product lines, serve new local markets but whole planning is limited to
national markets only.
International company (ETHNOCENTRIC) Some ambitious efficient domestic companies after
going beyond their domestic marketing capacities start thinking of expanding their operations in International
Markets. The main strategies for entering international market is: a) Off-shoring/global outsourcing (seeking
cheaper source of raw material or labor) b) Exporting c) Licensing d) Franchising e) Joint
Ventures/Acquisitions f) Direct Investments
MNC (POLYCENTRIC) After sometime, international companies realize that the domestic model
and practices adopted through extension policies do not serve the purpose. The foreign customers may not
prefer the products that are sold in domestic market. Hence, these companies respond to the needs of different
customers in different countries and produce such goods and services that will satisfy them.
Global company (REGIOCENTRIC) The global company adopts global strategy for marketing its
products. It may produce either in the home country or in any other single country and market its products
throughout the world. It may also produce the products globally and market them domestically.
Transnational company ( GEOCENTRIC) It operates at the global level by way of utilizing global
resources to serve the global markets. It has geocentric orientation and has integrated network. Its key assets
are dispersed and every sub-unit of the company contributes towards achievement of the company objectives.
It produces best quality raw materials from the cheapest source in the world, process them in the country
wherever it is economical and sells the finished products in those markets where prices are favorable.
Page 10
Routes of globalization
 Imports and Exports
 Portfolio investment
 Licensing and franchising for use of assets
 Tourism and transportation
 Direct investment
 Joint venture
 Wholly-owned subsidiary
 Fees from performance of services
Modes of International Business
EXPORTING AS MANUFACTURING STRATEGIES MANUFACTURING
ENTRY WITHOUT FDI STRATEGIES WITH FDI
 Direct Exporting  Franchising  Mergers
 Indirect Exporting  Licensing  Acquisitions
 Turn Key Projects/ Operations  Strategic Alliances
 Contract Manufacturing  Assembly Operations
 Management Contracts  Joint Ventures
 Wholly Owned Subsidiary
Exporting
Exporting is defined as the sale of products and services in foreign countries that are sourced or made in
the home country. Importing is the flipside of exporting. Importing refers to buying goods and services from
foreign sources and bringing them back into the home country.
Export business means a good or service that is produced in one country and then sold to and consumed
in another country. In International Trade, ―export‖ refers to selling goods and services produced in home
country to the markets in foreign countries
Direct export A company capitalizing on economies of scale in production concentrated in the home
country, establishes a proper system for organizing export functions and procuring foreign sales.
Indirect export involves exporting through domestically based export intermediaries. The exporter has
no control over his product in the foreign market.
Licensing
Definition: Licensing is defined as a business arrangement, wherein a company authorizes another
company by issuing a license to temporarily access its intellectual property rights, i.e. manufacturing process,
brand name, copyright, trademark, patent, technology, trade secret, etc. for adequate consideration and under
specified conditions.
It‘s a fast way to generate income and grow a business, as there is no manufacturing or sales involved.
Instead, licensing usually means taking advantage of an existing company‘s pipeline and infrastructure in
exchange for a small percentage of revenue.
An international licensing agreement allows foreign firms, either exclusively or non-exclusively, to
manufacture a proprietor‘s product for a fixed term in a specific market.
Page 11
Types of Licenses
1. Open General Licensed Items: While normal items and traded goods like textiles, consumer durables,
Handicrafts, electronics items, Food articles, Drugs etc are generally allowed to be imported and exported
by all countries freely without restrictions.
2. Imports against Specific Import Licenses Many items like second hand capital equipment, plant and
machinery, engines etc are traded, transferred and imported normally by developing and under developed
economies.
3. Import - Quantity Restrictions or Quota Some countries like USA do allocate quantity restrictions for
import of items like textile on certain countries and exporters would have to adhere to the quota norms,
which are periodically reviewed and amended as required.
4. Export Licenses While the domestic industries are engaged in export of some important natural resources
and raw materials like iron and steel, certain kinds of herbs etc, Governments control and restrict the
export through issuing Export Licenses.
5. Negative List Most countries maintain a negative list of items which prohibit import and export of certain
items like animal hides and other wildlife, precious wild life, live stock, narcotics and many more sensitive
items.
Franchising
Under franchising, an independent organization called the franchisee operates the business under the
name of another company called the franchisor. In such an arrangement the franchisee pays a fee to the
franchisor.
Franchising is a form of Licensing but the Franchisor can exercise more control over the Franchisee as
compared to that in Licensing.
 Franchisee: A holder of a franchise; a person who is granted a franchise.
 Franchising: The establishment, granting, or use of a franchise.
 Franchise: The authorization granted by a company to sell or distribute its goods or services in a certain
area.
 Franchiser: A franchisor, a company which or person who grants franchises.
Contract Manufacturing
Contract manufacturing in international markets is used in situations when one company arranges for
another company in a different country to manufacture its products; this is also known as international
subcontracting or international outsourcing.
The company provides the manufacturer with all the specifications, and, if applicable, also with the
materials required for the production process. This type of contract sets out the requirements, which the
manufacturer must meet concerning the quality of the products, certification, quantities, conditions and dates
of delivery, etc.
Page 12
Forms of contract mfg
 Manufacturing of entire product from one company to another
 The hiring of service and labour
 Manufacturing of a part of a product from one provider to another
 Using facility and equipment
Turn Key Projects
A company may expand internationally by making use of its core competencies in designing and
executing infrastructure, plants, or manufacturing facilities overseas. Conceptually, ‗turnkey‘ means‘ handing
over a project to the client, when it is complete in all respect and is ‗ready to use‘ on ‗turning the key‘.
International turnkey projects include conceptualizing, designing, constructing, installing, and carrying
out preliminary testing of manufacturing facilities or engineering projects at overseas locations for a client
organization. It often includes providing training to the chent‘s personnel to operate the plant.
The major types of turnkey project include the following:
 Build and transfer (BT):
 Build, operate, and transfer (BOX):
 Build, operate, and own (BOO):
MANAGEMENT CONTRACTS
―Agreement between investors or owners of a project, and a management company hired for
coordinating and overseeing a contract‖.
Management contracts are legal agreements that enable one company to have control of another
business' operations. Business owners often sign these written agreements directly with the management
company.
FUNCTIONS OF MANAGEMENT CONTRACTS
 Marketing functions, including promoting products.
 Financial management functions of the organization, including the accounting function.
 Human resources function of the organization, including training personnel.
 Technical operations of the organization, including production processes of the organization.
Foreign Direct Investment
A foreign direct investment (FDI) is an investment made by a firm or individual in one country into
business interests located in another country. Generally, FDI takes place when an investor establishes foreign
business operations or acquires foreign business assets in a foreign company.
Methods of Foreign Direct Investment
 Acquiring voting stock in a foreign company
 Mergers and acquisitions
 Joint ventures with foreign corporations
 Starting a subsidiary of a domestic firm in a foreign country
Page 13
Merger = two companies come together "permanently" for mutual gains or to reduce competition
Acquisition = one company buys another company which may or may not be doing well
Takeover = same like "acquisition", but generally a company buys another company which is not doing
well or has gone bankrupt.
Joint Venture = two companies come together "temporarily" for mutual gains for a particular project/job
after the project/job is completed the joint venture is dissolved.
Mergers, Acquisitions and Joint Ventures

MERGER
A transaction where two firms agree to integrate their operations on a relatively co-equal basis because
they have resources and capabilities that together may create a stronger competitive advantage. •The
combining of two or more companies, generally by offering the stockholders of one company securities in the
acquiring company in exchange for the surrender of their stock Example: Company A+ Company B=
Company C.
ACQUISITION
A transaction where one firms buys another firm with the intent of more effectively using a core
competence by making the acquired firm a subsidiary within its portfolio of business It also known as a
takeover or a buyout It is the buying of one company by another. In acquisition two companies are combine
together to form a new company altogether. Example: Company A+ Company B= Company
JOINT VENTURE
Joint venture is the co operation of two or more individuals or business in which each agrees to share
profit, loss and control in a specific enterprise. A joint venture (JV) is a business arrangement in which two or
more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a
new project or any other business activity.
In a joint venture (JV), each of the participants is responsible for profits, losses, and costs associated
with it. However, the venture is its own entity, separate from the participants' other business interests.
STRATEGIC ALLIANCES
A strategic alliance is a business arrangement whereby two or more firms choose to cooperate for their
mutual benefit. A strategic alliance is an arrangement between two companies to undertake a mutually
beneficial project while each retains its independence.
The agreement is less complex and less binding than a joint venture, in which two businesses pool
resources to create a separate business entity
Organizing international business Organisational structure international designs
 Geographic area division structure
 International divisions structure
Page 14
 Product division structure
 Functional divisions structure
 Matrix division structure
 Mixed structure
International division structure:
As the foreign operations of a company grow,
businesses often realize the overseas growth
opportunities and an independent international
division are created which handles all of a
company‘s international operations. The head of
international division, who directly reports to the
chief executive officer, coordinates and monitors all foreign activities.
Although an international structure provides much greater autonomy in decision-making, it is often used during
the early stages of internationalization with relatively low ratio of foreign to domestic sales, and limited foreign
product and geographic diversity.
Global functional division structure:
It aims to focus the attention of key functions of a
firm, wherein each functional department or
division is responsible for its activities around the
world. For instance, the operations department
controls and monitors all production and
operational activities; similarly, marketing,
finance, and human resource divisions co-ordinate
and control their respective activities across the world.
Such an organizational structure takes advantage of the expertise of each functional division and facili-
tates centralized control. MNEs with narrow and integrated product lines, such as Caterpillar, usually adopt the
functional organizational structure.Such organizational structures were also adopted by automobile MNEs but
have now been replaced by geographic and product structures during recent years due to their global expansion.
Global product structure:
Under global product structure, the corporate
product division is given worldwide responsibility for
the product growth. The heads of product divisions do
receive internal functional support associated with the
product from all other divisions, such as operations,
finance, marketing, and human resources. They also
enjoy considerable autonomy with authority to take
Page 15
important decisions and operate as profit centres.
Such a structure is extremely effective in carrying out product modifications so as to meet rapidly
changing customer needs in diverse markets. It enables close coordination between the technological and
marketing aspects of various markets in view of the differences in product life cycles in these markets, for
instance, in case of consumer electronics, such as TV, music players, etc.
Global geographic structure:

Under the global geographic structure, a
firm‘s global operations are organized on the basis of
geographic regions, as depicted in Fig. 17.6. It is
generally used by companies with mature businesses
and narrow product lines. It allows the independent
heads of various geographical subsidiaries to focus on
the local market requirements, monitor environmental
changes, and respond quickly and effectively.
The corporate headquarter is responsible for
transferring excess resources from one country to
another, as and when required. The corporate human resource division also coordinates and provides synergy to
achieve company‘s overall strategic goals between various subsidiaries based in different countries.
Global matrix structure:
It is an integrated organizational structure, which
super-imposes on each other more than one dimension.
The global matrix structure might consist of product
divisions intersecting with various geographical areas or
functional divisions (Fig. 17.7). Unlike functional,
geographical, or product division structures, the matrix
structure shares joint control over firm‘s various
functional activities.
Transnational network structure:

Such a globally integrated structure represents
the ultimate form of an earth-spanning organization,
which eliminates the meaning of two or three matrix
dimensions. It encompasses elements of function,
product, and geographic designs while relying upon a
network arrangement to link worldwide subsidiaries
(Fig. 17.8). This form of organization is not defined
Page 16
by its formal structure but by how its processes are linked with each other, which may be characterized by an
overall integrated system of various inter-related sub-systems.
GEOGRAPHIC AREA DIVISION STRUCTURE
Factors influencing choice of a design

1. Strategy. Strategy dictates the strategic priorities of an organization. This is the most important
influencing factor of organizational structure and design.
2. Environment. The environment a company operates in influences its strategy but also dictates how it
positions itself. In a rapidly-changing environment, the organization has to design for more flexibility, or
adaptability, while in a stable environment the organization can optimize for efficiency.
3. Technology. Information technology is a key enabler for decision making. The state of IT impacts
organizational design as well. When systems are in place and decision making is based on data, the
organizational structure and design – including the potential for hierarchical control – will be different from
an organization where most of the data is stored in unorganized Excel sheets.
4. Size & life cycle. The organizational size and life cycle also impact the organizational structure and
design. A 20-person company has very different challenges when it comes to design compared to a 200,000-
person company.
5. Culture. The organizational culture is another key element that impacts organizational structure and
design – and, vice versa, design also impacts culture.
Issues in Organization Design
 Role of Information Technology
 Cultural influences in IB
 Use of subsidiary board of directors
 Integrating mechanisms
 Managing change in IB
 Centralisation vs decentralization
 Control systems
1. Degree of uncertainity
2. Differences in approach
3. Diversity
 Non-traditional Organisational arrangements
Page 17
Conflict management
Conflict can be defined in many ways and can be considered as an expression of hostility, negative
attitudes, antagonism, aggression, rivalry and misunderstanding. It is also associated with situations that involve
contradictory or irreconcilable interests between two opposing groups.
Conflict management is the practice of being able to identify and handle conflicts sensibly, fairly, and
efficiently. Since conflicts in a business are a natural part of the workplace, it is important that there are people
who understand conflicts and know how to resolve them.
This is important in today's market more than ever. Everyone is striving to show how valuable they are to
the company they work for and at times, this can lead to disputes with other members of the team. Conflict
management is the approach and strategies geared towards achieving a positive outcome and resolution amongst
the parties involved in matters relating to conflicts.
Conciliation
Conciliation is the most important method for prevention and settlement of industrial disputes through
third party intervention. It is an attempt to reconcile the views of disputants to bring them to an agreement.
It is a process by which representatives of the workers and the employers are brought together before a
third person or a group of persons with a view to persuade them to arrive at an agreement among themselves by
mutual discussion between them.
Arbitration
The term arbitration refers to the settlement of industrial dispute between the two parties by means of a
decision of an impartial body when efforts at conciliation have failed. In conciliation , the wishes or point of
view of the parties are very important and an agreement is arrived at in accordance with their wishes.
Adjudication
―Adjudication involves intervention in the dispute by a third party appointed by the government for the
purpose of deciding the nature of final settlement‖ When the government gets a report of the failure of
conciliation, it has to decide whether it would be appropriate to refer the dispute to adjudication
Conflict management issues
 Contrasting Styles
 Cultural And Gender Differences
 Personality Clashes
 Sharing Resources
 Poor Communication
Supporting Institutions
 World trade organisation (WTO)
 Organisation for economic co-operation and development (OECD)
 United Nations (UN)
 European Union (EU)
 Organisation for security and cooperation in Europe (OSCE)
 World bank
Page 18
RECONCILIATION OR RESOLUTION OF CONFLICTS IN IB:

 Arbitration
 Adjudication
 Negotiation
 Problem solving Negotiation
 Competitive Negotiation
 Mediation
 Litigation
Negotiations
Negotiation is a method by which people settle differences. It is a process by which compromise or
agreement is reached while avoiding argument and dispute.
In any disagreement, individuals understandably aim to achieve the best possible outcome for their
position (or perhaps an organisation they represent). However, the principles of fairness, seeking mutual benefit
and maintaining a relationship are the keys to a successful outcome.
Stages of Negotiation
In order to achieve a desirable outcome, it may be useful to follow a structured approach to negotiation.
For example, in a work situation a meeting may need to be arranged in which all parties involved can come
together.
The process of negotiation includes the following stages:
1. Preparation
2. Discussion
3. Clarification of goals
4. Negotiate towards a Win-Win outcome
5. Agreement
6. Implementation of a course of action
Page 19
MODULE 3: WTO AND TRADING BLOCKS 8 HOURS

WTO and LPG policies Its Implications on India
World Trade Organization (WTO)
―The World Trade Organization is ‗member-driven‘, with decisions taken by General agreement among
all member of governments and it deals with the rules of trade between nations at a global or near-global level.
But there is more to it than that.‖
They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases,
industrial standards and product safety, food sanitation regulations, intellectual property, and much more. The
WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities.
Introduction
The World Trade Organization (WTO) is an organization that intends to supervise and liberalize
international trade. The WTO is the only global international organization dealing with the rules of trade
between nations.
At its heart are the WTO agreements, negotiated and signed by the bulk of world‘s trading nations and
ratified in their parliaments. The goal is to help producers of goods and services, exporters and importers conduct
their business.
The world trade organization was constituted in lieu of The General Agreement on Trade and Tariff
(GATT). In 1948, GATT was established with an association of 23 countries as a global trade organization to
administrate all international and multinational trade agreements by providing equal opportunities to all the
countries in international markets to encourage trading between the countries. This lead to a few transactional
problems.
Some functions of the WTO are,
 The main function of WTO was to administrate ―Trade review Mechanism‖
 World Trade Organization was the facilitator for implementation, operation, and administration of all relevant
objectives of multilateral trade agreements.
 World Trade Organization was the administrator of ―Understanding the rules, procedures and governing the
settlement disputes‖
 WTO acted as the watchdogs of international trade and ensured all trade-related rules are followed and
examine the trade regimes of individual members.
 WTO had its own dispute settlement court to resolve all matters which cannot be resolved through bilateral
talks and discussions.
 It is the management consultant in the international market. The economists in WTO keep a close look at the
global economy and provide studies on main issues for the day.
Page 20
WTO and its impact on Indian economy

IMPLICATIONS OF WTO ON INDIAN BUSINESS
POSITIVE IMPLICATIONS NEGATIVE IMPLICATIONS
 Settlement of disputes.  Price rise.
 Boost to exports.  No export push.
 Promotion of competition.  Tramples labor and human rights.
 Security and predictability.  Prominence to developed nations.
 Policy assurance.  Erosion of autonomy.
 Trade links.  Danger to services sector.
 Special concessions.  Not really free trade.
 Sustainable development.  Increasing inequality.
 Technical assistance.
 Policy review mechanisms.
Introduction to LPG
LPG stands for Liberalization, Privatization, and Globalization. India under its New Economic Policy
approached International Banks for development of the country. These agencies asked Indian Government to
open its restrictions on trade done by the private sector and between India and other countries.
India‘s New Economic Policy was announced on July 24, 1991 known as the LPG or Liberalization,
Privatization and Globalization model.
Liberalization- It refers to the process of making policies less constraining of economic activity and also
reduction of tariff or removal of non-tariff barriers.
Privatization- It refers to the transfer of ownership of property or business from a government to a privately
owned entity.
Globalization- It refers to the expansion of economic activities across political boundaries of nation states.
Indian Government agreed to the conditions of lending agencies and announced New Economic Policy
(NEP) which consisted wide range of reforms. Broadly we can classify the measures in two groups:
1. Structural Reforms
With long-term perspective and eyeing for improvement of the economy and enhancing the international
competitiveness, reforms were made to remove rigidity in various segments of Indian economy.
2. Stabilization Measures (LPG)
These measures were undertaken to correct the inherent weakness that has developed in Balance of
Payments and control the inflation. These measures were short-term in nature. Various Long-Term Structural
Reforms were categorized as:
 Liberalization
 Privatization and
 Globalization
Page 21
 SALIENT FEATURES OF LPG POLICIES
 Abolition of Industrial licensing  Abolition of phased manufacturing programmes for new
 Public sector role diluted projects
 MRTP limit goes  Reduction in import tariffs
 Beginning of privatisation  Deregulation of markets
 Free entry to foreign investment  Reduction of taxes
 Industrial location policy liberalized  Technology
POSITIVE OUTCOMES OF LPG REFORMS

 India’s GDP growth rate increased. During 1990-91 India‘s GDP growth rate was only 1.1% but after
1991 reforms GDP growth rate increased year by year and in 2015-16 it was estimated to be 7.5% by IMF.
 Since 1991, India has firmly established itself as a lucrative foreign investment destination and FDI
equity inflows in India in 2019-20 (till August) stood at US$19.33 billion.
 In 1991 the unemployment rate was high but after India adopted new LPG policy more employment got
generated as new foreign companies came to India and due to liberalisation many new entrepreneurs started
companies.
 Per Capita income increased due to an increase in employment.
 Exports have increased and stood at USD 26.38 billion as of October, 2019
NEGATIVE OUTCOMES OF LPG REFORMS

 In 1991, agriculture provided employment to 72 percent of the population and contributed 29.02 percent
of the GDP. Now the share of agriculture in the GDP has gone down drastically to 18 percent. This has
resulted in a lowering the per capita income of the farmers and increasing the rural indebtedness.
 Due to opening up of the Indian economy to foreign competition, more MNCs are competing with local
businesses and companies which are facing problems due to financial constraints, lack of advanced
technology and production inefficiencies.
 Globalization has also contributed to the destruction of the environment through pollution by emissions
from manufacturing plants and clearing of vegetation cover. It further affects the health of people.
 LPG policies have led to widening income gaps within the country. The higher growth rate is achieved
by an economy at the expense of declining incomes of people who may be rendered redundant.
Liberalization
Liberalization refers to the loosening of government controls. In particular, it refers to reductions in
restrictions on international trade and capital.
Liberalisation (or liberalization) is a method by which any country removes limitations on private
individual ventures.
Page 22
IMPLICATIONS OF LIBERALISATION ON INDIA
 Improvement in healthcare.  Destabilization of the economy
 Political Risks Reduced  Reduces economic freedom.
 Liberalization and employment.  Threat from Multinationals
 Impact on Agriculture  Reduced profits.
 Liberalization and mergers in India.  Mergers and Acquisitions
 Stock Market Performance  Effects on capital.
 All round competition.  Impact of FDI in Banking sector
 Export became matter of survival.  Exploitation of workers.
 World class technology.  Technological Impact
 Increase in production capacity  Short-term adjustments.
 Diversification for Investors
 Liberalization and economic growth.
Privatization
This is the second of the three policies of LPG. It is the increment of the dominating role of private sector
companies and the reduced role of public sector companies. In other words, it is the reduction of ownership of
the management of a government-owned enterprise. Government companies can be converted into private
companies in two ways:
 By disinvestment
 By withdrawal of governmental ownership and management of public sector companies.
 Improved efficiency  Natural monopoly
 Minimizes corruption  Loses the mission.
 Accelerates competitive sectors.  Government loses out on potential revenue
 Increased competition  Ignores social objectives.
 Fosters sustainable competitive advantage  Fragmentation of industries
 Lack of political interference  High employee turnover.
 Improves financial health.  Public interest
 Upliftment of underperforming PSUs.  High level of secrecy.
 Shareholders  Problem of regulating private monopolies
 Government will raise revenue from the sale  Conflict of interest.
 Beneficial for the growth of employees.  Rise in price inflation.
 Better customer services.  Short-termism of firms
 Support to unfair practices.
Globalization: It refers to the integration of markets in the global economy, leading to the increased
interconnectedness of national economies. Globalization is a process of interaction and integration among
the people, companies, and governments of different nations, a process driven by international trade and
investment and aided by information technology
Page 23
Globalization as a term has a very complex phenomenon. The main aim is to transform the world towards
independence and integration of the world as a whole by setting various strategic policies. Globalization is
attempting to create a borderless world, wherein the need of one country can be driven from across the globe and
turning into one large economy.
 Removal of restrictions from capital flow.  Cut-throat competition.
 Boosts the economy.  Reduced jobs and incomes.
 Increased rate of employment.  Developed countries become more wealthy and powerful.
 Adaptation of foreign taste and trend.  Improper labor practices and environmental policies.
 Availability of goods and services.  Loss of culture.
 Boost in industrialization.  Inequality.
 Balanced development of world economies.  Inflation.
 Availability of advanced technology. 
Regional Trade Blocks
A regional trading block (RTB) is a co-operative union or group of countries within a specific
geographical boundary. RTB protects its member nations within that region from imports from the non-
members. Trading blocs are a special type of economic integration.
Regional trade blocks are associations of nations at a governmental level to promote trade within the
block and defend its members against global competition.
A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental
organization, where regional barriers to trade, (tariffs & non-tariff barriers) are reduced or eliminated among the
participating states. A regional trading bloc is a group of countries within a geographical region that protect
themselves from imports from non-members. A trade bloc is basically a free-trade zone, or near-free-trade zone,
formed by one or more tax, tariff, & trade agreements between two or more countries.
Reasons for formation of regional trade blocks
 Economic consideration
 Removal of trade barriers
 Trade gains
 Security
 Coordination and bargaining power
 Increased returns and increased competition
 Investment
Advantages of regional trading blocs Disadvantages of regional trading blocs
 Free trade within the bloc:  Loss of benefits:
 Market access & trade creation:  Distortion of trade:
 Economies of scale:  Inefficiencies & trade diversion:
 Jobs:  Retaliation:
 Consensus & cooperation:  Employment shifts & reductions:
 Protection: 
Page 24
Integration between countries

 European Union (EU).
 North American Free Trade Agreement (NAFTA).
 Association of South-East Asian Nations (ASEAN).
 South Asian Association for Regional Cooperation (SAARC).
o South Asian Free Trade Area (SAFTA – An extension to SAARC).
Levels of integration and impact of integration
 Free trade. Tariffs (a tax imposed on imported goods) between member countries are significantly reduced,
some abolished altogether. Each member country keeps its own tariffs regarding third countries. The general
goal of free trade agreements is to develop economies of scale and comparative advantages, promoting
economic efficiency.
 Custom union. Sets common external tariffs among member countries, implying that the same tariffs are
applied to third countries; a common trade regime is achieved. Custom unions are particularly useful to level
the competitive playing field and address the problem of re-exports (using preferential tariffs in one country
to enter another country).
 Common market. Services and capital are free to move within member countries, expanding scale
economies and comparative advantages. However, each national market has its own regulations, such as
product standards.
 Economic union (single market). All tariffs are removed for trade between member countries, creating a
uniform (single) market. There are also free movements of labor, enabling workers in a member country to
move and work in another member country. Monetary and fiscal policies between member countries are
harmonized, which implies a level of political integration. A further step concerns a monetary union where a
common currency is used, such as with the European Union (Euro).
Page 25
 Political union. Represents the potentially most advanced form of integration with a common government
and where the sovereignty of a member country is significantly reduced. Only found within nation-states,
such as federations where there are a central government and regions (provinces, states, etc.) having a level
of autonomy.
International strategic alliances
An international strategic alliance is formed when two or more companies from different domestic
backgrounds come together and integrate their resources to achieve a common goal and keep their individual
identities at the same time.
NATURE OF INTERNATIONAL STRATEGIC ALLIANCES
 Delivery of a customized blend of products and services to meet a specific set of business needs and
customer needs.
 Coordination of inter-company operations so as to achieve predefined performance targets.
 Longer-term, three to five year contract timeframes for the alliance partners to work together.
 Prospects for mutually profitable business growth over the life of the contract.
Benefits of International strategic alliances Limitations of International strategic alliances
1. Gain location-specific assets. 1. Access to information.
2. Overcome governmental constraints. 2. Poor choices and selection.
3. Spread and reduce costs. 3. Distribution of earnings.
4. Specialize in competencies. 4. Uncertainties like crisis/ Changing circumstances.
5. Secure vertical and horizontal links. 5. Moral hazards.
6. Minimize exposure in risky environments. 6. Potential loss of autonomy
7. Avoid or counter competition
HOW TO MAKE ALLIANCES WORK

 Making the right Partner choice/ selection
 Alliance structure considerations
 Managing the alliance effectively
MANAGING THE ALLIANCE EFFECTIVELY
 Choosing partners carefully  Perform Due Diligence
 Building a friendly structure  Create Flexible Teaming Agreements
 Measuring portfolio growth  Create Measurement Processes for Measuring growth
 Winding down a strategic alliance  Drive Toward Joint Profitability
 Create an Alliance Strategy That Meets  Create a Culture of Alliance Knowledge Sharing
 Establish and Follow Alliance Processes  Understand When to Terminate the Relationship
 Organizational Objectives and Needs
Page 26
MODULE 4: GLOBAL TRADE AND INVESTMENT 10 HOURS

Theories of global trade and investment
1. Mercantilism: mid-16th century Theory
This theory was popular in the 16th and 18th Century. During that time the wealth of the nation only
consisted of gold or other kinds of precious metals so the theorists suggested that the countries should start
accumulating gold and other kinds of metals more and more. The European Nations started doing so.
Mercantilists, during this period stated that all these precious stones denoted the wealth of a nation; they believed
that a country will strengthen only if the nation imports less and exports more. They said that this is the favorable
balance of trade and that this will help a nation to progress more.
Mercantilism thrived during the 1500's because there was a rise in new nation-states and the rulers of
these states wanted to strengthen their nations. The only way to do so was by increasing exports and trade,
because of which these rulers were able to collect more capital for their nations. These rulers encouraged exports
by putting limitations on imports. This approach is called ―protectionism‖ and it is still used today.
Though, Mercantilism is one the most old-fashioned theory, it still remains a part of contemporary thinking.
Countries like China, Taiwan, Japan, and so on still favor Protectionism. Almost every country, has implemented
protectionist policy in one way or another, to protect their economy. Countries that are export oriented prefer
protectionist policies as it favors them. Import restrictions lead to higher prices of good and services. Free-trade
benefits everyone, whereas, mercantilism's protectionist policies only profit select industries.
Trade theory holding that nations should accumulate financial wealth, usually in the form of gold (forget things
like living standards or human development) by encouraging exports and discouraging imports
2. Absolute advantage (Classical) Theory

 Adam Smith: Wealth of Nations (1776) argued:
 Capability of one country to produce more of a product with the same amount of input than another
country
 A country should produce only goods where it is most efficient, and trade for those goods where it is
not efficient
 If two countries specialize in production of different products (in which each has an absolute
advantage) and trade with each other, both countries will have more of both products available to
them for consumption
 Trade between countries is, therefore, beneficial
 Assumes there is an absolute balance among nations
 Destroys the mercantilist idea since there are gains to be had by both countries party to an exchange.
 Questions the objective of national governments to acquire wealth through restrictive trade policies.
 Measures a nation‘s wealth by the living standards of its people.
3. Comparative advantage Theory
 1817, David Ricardo - Even if one country has an absolute advantage in producing two products over
another country, trading with that other country will still yield more output for both countries than if the
more efficient producer did everything for themselves.
Page 27
 The country with the absolute advantage in producing both products would still produce both products,
but less of the one they would trade for, allowing them to essentially allocate more resources to
producing the product that they‘re comparatively most efficient at producing
 Assumes many things:
 Only 2 countries and 2 goods
 No transportation costs
 No price differences for resources in both countries
 Resources can move freely from producing one product to producing another product
 Constant returns to scale
 Fixed stock of resources
 Free trade does not affect production efficiency
 No effects of trade on income distribution within a country
 There are some descriptions of potential outcomes of relaxing some of these assumptions, but I‘ll leave
this as a thought exercise for you, the reader
4. Factor Proportions Trade Theory Is also called Heckscher (1919) - Olin (1933) Theory
 Export goods that intensively use factor endowments which are locally abundant
Consequence: import goods made from locally scarce factors
Note: Factor endowments can be impacted by government policy - minimum wage
 Patterns of trade are determined by differences in factor endowments - not productivity
 Remember, focus on relative advantage, not absolute advantage
 Trade theory holding that countries produce and export those goods that require resources (factors) that
are abundant (and thus cheapest) and import those goods that require resources that are in short supply
Example:
 Australia – lot of land and a small population (relative to its size)
 So what should it export and import?
Considers Two Factors of Production Labor Capital
A country that is relatively labor abundant (capital abundant) should specialize in the production and export of
that product which is relatively labor intensive (capital intensive)
5. International Product Cycle Theory

The international product cycle concerns the stages of product development in the international market. It is best
explained by the Product Life Cycle theory, developed by researcher Raymond Vernon. According to Vernon,
products go through five stages of production:
 Introduction, Growth, Maturity, Saturation, Decline.
6. Product Life Cycle Theory of International Trade Theory
Raymond Vernon, a Harvard Business School professor, developed the product life cycle theory in the 1960s.
Products come into the market and steadily depart all over again. According to Raymond Vernon, each
manufactured goods has a definite life cycle that begins with its expansion and ends with its decline. Product
Page 28
Life Cycle is defined as, ―the sequence through which every product goes through from introduction to removal
or ultimate downfall.‖
The theory, originating in the field of marketing, stated that a Product life cycle has three distinct stages:
 New product,
 A maturing product, and
 Standardized product.
(A) New product

In this stage, a firm in a developed or developing country will innovate or manufacture a fresh product for their
customers. The market for these manufactured goods will be little and sales will be comparatively small as a
result. The firm‘s marketing executives have to strongly observe buyer reactions to ensure that the new product
satisfies customer needs. Characteristics of this stage include:
 Vast promotional costs are compulsory to enhance the consciousness of customers.
 A marketer has to undertake procedural and manufacture troubles.
 The sale is low and growing at a lesser rate.
 There is a loss or an insignificant profit.
(B) Maturity Stage

In the maturity stage of the Product Life Cycle, the manufactured goods are generally known and are bought by
many customers. The innovating firm builds new factories to enlarge its competence and convince home and
overseas demand for the products. Characteristics of this stage include:
 Sales enlarge at a decreasing rate.
 Profits initiate to decline.
 Marginal competitors put down the market.
 Customer preservation is given more prominence.
(C) Standardized product stage

The market for manufactured goods stabilizes. The product becomes more of a commodity, and firms are
pressured to lesser their industrialized costs as much as probable by shifting production to facilities in countries
with small labor costs. Characteristics of this stage include:
 Sales reduce quickly.
 Profits reduce more quickly than sales.
 Steadily, the company prefers to move resources to new products.
 Most of the sellers remove from the market.
The decline stage – At some point, however, the market becomes saturated and the product is no longer sold and
becomes unpopular.
TVs, calculators and mobile phones are the most general examples of products which undergo the three-phase
cycle. Although products which endure this life-cycle may be found, the legality of this theory is very limited.
7. New Trade Theory

New trade theory suggests that the ability of firms to gain economies of scale (unit cost reductions associated
with a large scale of output) can have important implications for international trade
New trade theory suggests that:
Page 29
 Through its impact on economies of scale, trade can increase the variety of goods available to consumers and
decrease the average cost of those goods
 In those industries when output required to attain economies of scale represents a significant proportion of
total world demand, the global market may only be able to support a small number of enterprises
Increasing Product Variety and Reducing Costs
 Without trade, nations might not be able to produce those products where economies of scale are important
 With trade, markets are large enough to support the production necessary to achieve economies of scale
 So, trade is mutually beneficial because it allows for the specialization of production, the realization of scale
economies, and the production of a greater variety of products at lower prices
Economies of Scale, First Mover Advantages, and the Pattern of Trade
 The pattern of trade we observe in the world economy may be the result of first mover advantages (the
economic an strategic advantages that accrue to early entrants into an industry) and economies of scale
 New trade theory suggests that for those products where economies of scale are significant and represent a
substantial proportion of world demand, first movers can gain a scale based cost advantage that later entrants
find difficult to match
Implications of New Trade Theory
 Nations may benefit from trade even when they do not differ in resource endowments or technology
 A country may dominate in the export of a good simply because it was lucky enough to have one or more
firms among the first to produce that good
 While this is at variance with the Heckscher-Ohlin theory, it does not contradict comparative advantage
theory, but instead identifies a source of comparative advantage
 An extension of the theory is the implication that governments should consider strategic trade policies that
nurture and protect firms and industries where first mover advantages and economies of scale are important
8. National competitive advantage - Porter’s Diamond Theory
Michael Porter tried to explain why a nation achieves international success in a particular industry and identified
four attributes that promote or impede the creation of competitive advantage: 1 Factor endowments, 2 Demand
conditions,3 Relating and supporting industries ,4 Firm strategy, structure, and rivalry
Determinants of National Competitive Advantage: Porter’s Diamond
Page 30
Factor Endowments
 Factor endowments refer to a nation‘s position in factors of production necessary to compete in a given
industry
 A nation's position in factors of production can lead to competitive advantage
 These factors can be either basic (natural resources, climate, location) or advanced (skilled labor,
infrastructure, technological know-how)
Demand Conditions
 Demand conditions refer to the nature of home demand for the industry‘s product or service
 The nature of home demand for the industry‘s product or service influences the development of capabilities
 Sophisticated and demanding customers pressure firms to be competitive
Relating And Supporting Industries
 Relating and supporting industries refer to the presence or absence of supplier industries and related
industries that are internationally competitive
 The presence supplier industries and related industries that are internationally competitive can spill over and
contribute to other industries
 Successful industries tend to be grouped in clusters in countries - having world class manufacturers of semi-
conductor processing equipment can lead to (and be a result of having) a competitive semi-conductor
industry
Firm Strategy, Structure, And Rivalry
 Firm strategy, structure, and rivalry refers to the conditions governing how companies are created, organized,
and managed, and the nature of domestic rivalry
 The conditions in the nation governing how companies are created, organized, and managed, and the nature
of domestic rivalry impacts firm competitiveness
 Different management ideologies affect the development of national competitive advantage
 Vigorous domestic rivalry creates pressures to innovate, to improve quality, to reduce costs, and to invest in
upgrading advanced features
Evaluating Porter’s Theory
 Government policy can:
 Affect demand through product standards
 Influence rivalry through regulation and antitrust laws
 Impact the availability of highly educated workers and advanced transportation infrastructure.
The four attributes, government policy, and chance work as a reinforcing system, complementing each other
and in combination creating the conditions appropriate for competitive advantage
Implications for Managers

There are three main implications for international businesses:
 Location implications
 First-mover implications
 Policy implications
Location
 Different countries have advantages in different productive activities
 It makes sense for a firm to disperse its various productive activities to those countries where they can be
Page 31
performed most efficiently
 International trade theory suggests that firms that fails to do this, may be at a competitive disadvantage
First-Mover Advantages
 Being a first mover can have important competitive implications, especially if there are economies of scale
and the global industry will only support a few competitors
 Firms that establish a first-mover advantage may dominate global trade in that product
Government Policy
 Government policies with respect to free trade or protecting domestic industries can significantly impact
global competitiveness
 Businesses should work to encourage governmental policies that support free trade
 Firms should also lobby the government to adopt policies that have a favorable impact on each component of
the diamond
FOREIGN DIRECT INVESTMENT (FDI) in World Economy
―FDI is an investment that is made to acquire a lasting 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 management of the
enterprise‖.- International Monetary Fund‘s (IMF) Balance Of Payment Manual
Horizontal and Vertical FDI
Horizontal: a business expands its domestic operations to a foreign country. In this case, the business
conducts the same activities but in a foreign country. For example, McDonald‘s opening restaurants in Japan
would be considered horizontal FDI.
Vertical: a business expands into a foreign country by moving to a different level of the supply chain. In
other words, a firm conducts different activities abroad but these activities are still related to the main business.
Using the same example, McDonald‘s could purchase a large-scale farm in Canada to produce meat for their
restaurants.
Benefits of FDI to home Country Benefits of FDI to Host Country
 Creates new employment opportunities.  Technology transfer
 Improved political relations.  Brings in important factors of production.
 Access to latest and New technology.  Boost international Trade.
 Improved political relations.  Employment generation.
 Improves the balance of payment conditions.  Impact of FDI on macroeconomic growth.
 Increases income earning potential. 
FDI- Indian Scenario
India attracted highest ever total FDI inflow of US$ 81.72 billion during 2020-21, 10% more than the last
financial year India is expected to attract foreign direct investments (FDI) of US$ 120-160 billion per year by
2025, according to CII and EY report. Over the past 10 years, the country witnessed a 6.8% rise in GDP with
FDI increasing to GDP at 1.8%.
Page 32
EXIM TRADE
Export Import
Exports are goods and services that are produced Imports are the goods and services that are
domestically, but then sold to customers residing in other purchased from the rest of the world by a
countries. Exports lead to an inflow of funds to the seller‘s country‘s residents, rather than buying
country since export transactions involve selling domestic domestically produced items. Imports lead to an
goods and services to foreign buyers. outflow of funds from the country since import
Export can be defined as a form of trade in which transactions involve payments to sellers residing
domestically manufactured goods are sent to the foreign in another country.
country, on demand of the overseas buyer. The process Import refers to a type of foreign trade in
followed for exporting the goods to another country is given which goods or services are brought into the
as under: home country from a foreign country, for the
 Enquiry and Sending Quotations receipt: purpose of reselling them in the domestic
 Order receipt: market. The following procedure is followed for
 Determination of creditworthiness of the importer:
the import of the goods:
 Obtaining license:
 Pre-shipment finance  Trade Enquiry
 Production of goods:  Obtaining import license
 Pre-shipment inspection:  Procurement of foreign exchange
 Obtaining a certificate of origin:  Placement of order
 Shipping space reservation:  Acquiring letter of credit
 Packing and Forwarding:  Arranging funds:
 Insurance of Goods:  Receipt of shipment advice
 Obtaining mates receipt:  Retirement of import documents
 Payment of freight:  Arrival of goods
 Preparation of Invoice:  Customs clearance and release:
 Securing Payment:
Export and Import financing
Export financing is a cash flow solution for exporters. Export Finance facilitates the commerce of goods
internationally. The seller agrees on the payment terms of the cross border buyer. Thus, there is a cash flow
issue. The supplier ships the goods overseas while the payment will be received at a later stage.
Export finance allows the businesses that sell products to another country to get access to working capital
before their clients pay for the products purchased.
Types of export financing methods:
1. Pre-shipment finance:
i. Packing credit.
ii. Packing credit against incentives receivables from the government of India.
iii. Advance against cheques/drafts received as advance payment.
2. Post-shipment finance:
i. Negotiation of export documents drawn under L/C.
Page 33
ii. Purchase of export documents drawn under export order.
iii. Advances against export bills sent on collection.
iv. Advance against goods sent on consignment basis.
v. Advance against undrawn balance.
vi. Advance against retention money.
vii. Advances against claims of duty drawback.
Import financing includes financial transactions that are destined to provide funding for the purchase of
goods into one country from another one. Import financing solves this problem by allowing importers to borrow
money or get cash advances while they wait for the products they bought to arrive.
TYPES OF IMPORT FINANCING METHODS
1. Financing import under letter of credit.
i. Requesting bank to open a letter of credit.
ii. Retiring documents under letter of credit; and
iii. Import trust receipt facility.
2. Financing against bills under collection.
3. Financing imports against deferred payment.
4. Financing under foreign credit.
i. Letter of commitment method.
ii. Reimbursement method.
5. Import loans by export-import Bank of India.
Export marketing
Export marketing is the practice by which a company sells products or services to a foreign country. Products
are produced or distributed from the company‘s home country to buyers in international locations. Export
marketing is a process of distributing and developing services and goods in overseas markets.
Export marketing includes the management of marketing performance for goods which cross the national
limits of a country. Export marketing includes the management of marketing behavior for products which cross
the public limits of a nation.
NATURE OF EXPORT MARKETING FUNCTIONS OF EXPORT MARKETING
 Challenging.  International marketing research.
 Complex.  Export production.
 Time taking.  Export packaging.
 High finance needed.  Export pricing.
 Risky task.  Advertising.
 Systematic process.  Sales promotion.
 Large-scale operations.  Export risk management.
 Dominance of multinational corporations.  Financing.
 Customer focus.  Branding.
 Trade barriers.  Transporting.
Page 34
EXIM policy
The foreign trade policy (FTP) also known as EXIM (export-import) policy is regulated by the Foreign Trade
Development and Regulation Act, 1992. The main governing body in the matters concerning the EXIM policy is
DGFT (Directorate General of Foreign Trade).
Vision, Mission and objectives:
The vision is to make India a significant partner in world trade by 2020. Government aims to increase India‘s
exports of merchandise and services from USD 465.9 billion in 2013-14 to approximately USD 900 billion by
2019-20.
Raise India‘s share in world exports from 2 percent to 3.5 percent. Initiatives such as ―Make in India‖,
―Digital India‖ and ―Skills India‖ to create an ―Export Promotion Mission‖ to provide a stable and sustainable
policy environment for foreign trade.
Functions of Exim Bank
 The bank offers immediate monetary help to exporters of the plant, equipment, and corresponding services
by means of medium-term credit.
 To guarantee the issue of stocks, bonds, shares, and debentures of any organization involved in exports.
 The bank put forward rediscount of export bills for a duration no longer than 90 days against short period
usage export invoices depreciated by commercial banks.
 It also provides foreign buyers a credit to overseas importers for import of Indian industrial products and
concerning services.
 To create and fund export-oriented enterprises.
 To accumulate and assemble the market and credit particulars about foreign trade.
Roles of Institutions connected with EXIM trade.

Its functions are to act as a nodel agency for interacting with state government or Union territories on matters
concerning export or import from the state or Union territories. It provides guidance to state level export
organizations. It assists them in the formulation of export plans for each state.
Page 35
MODULE 5: GLOBAL ETHICS AND E-COMMERCE 10 HOURS

Ethical Issues in International Business
Ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of
a profession, or the actions of an organization Often a function of differences in economic development, politics,
legal systems, and culture Certain practices in one country may be unethical when judged by other countries
(Western) standards
Some of the most common ethical issues in international business include outsourcing, working
standards and conditions, workplace diversity and equal opportunity, child labor, trust and integrity,
supervisory oversight, human rights, religion, the political arena, environmental regulations, moral
obligation of MNCs, bribery and corruption. International business ethics has a number of open questions and
dilemmas.
Today it is characterized by the following elements:
 Every culture and nation has its own values, history, customs and traditions, thus it has developed own
ethical values and understanding of ethical principles;
 There is no international ethical code of conduct, accepted and followed by all the countries;
 There is a lack of governments‘ initiative to create ethical cooperation framework and thus to enhance
ethical behavior in international business.
EMPLOYMENT PRACTICES When work conditions in a host nation are clearly inferior to those in a
multinational‘s home nation, what standards should be applied—those of the home nation, those of the host
nation, or something in between? Examples: Apple iPode and Hongfujin in China; Nike in Vietnam; Levi
Strauss and Tan family China International business implications: Establish minimal acceptable working
standards and audit foreign subsidiaries and subcontractors on a regular basis
HUMAN RIGHTS • Rights that we take for granted in developed nations, such as freedom of association,
freedom of speech, freedom of assembly, freedom of movement, freedom from political repression, and so on,
are by no means universally accepted • Examples: South Africa until 1994; China‘s human rights record;
Myanmar (formally known as Burma); Royal Dutch Shell in Nigeria • What is the responsibility of an MNC
when operating in a country where basic human rights are violated? Should the company be there at all?
ENVIRONMENTAL POLLUTION • Ethical issues arise when environmental regulations in host nations are
inferior to those in the home nation. • Should a multinational feel free to pollute in a developing nation? ‗tragedy
of the commons‘ occurs when individuals overuse a resource held in common by all (Garrett Hardin) Examples:
foreign oil companies in Nigeria; Coca Cola plant in Kerala
CORRUPTION ―corruption has been a problem in almost every society in history, and it continues to be one
today.‖ • Corruption is bad, and it may harm a country‘s economic development, but there are also cases where
payments to government officials can remove the bureaucratic barriers to investments that create jobs Examples:
Bofors case; Enron; Lockheed case in US • The US Foreign Corrupt Practices Act of 1977 • Convention on
Combating Bribery of Foreign Public Officials in International Business Transactions (OECD, 1997)
Page 36
MORAL OBLIGATIONS Social responsibility for MNCs to give something back to the societies that enable
them to prosper and grow. Example: BP, company policy to undertake ―social investments‖ in the countries
where it does business Sometimes multinationals may abuse their power for private gain Example: the British
East India Company (1600)
Ethical Dilemmas What is the accepted ethical principle in international business perspective? Argument 01:
ethical depends upon one‘s cultural perspective. – American and European views on capital punishment; Gift
giving practices viewed in Asian and Western nations Ethical dilemmas —they are situations in which none of
the available alternatives seems ethically acceptable – Employing child labor was not acceptable, but neither was
denying the child his/her only source of income
Determinants of Business Ethics (1) Social Factors,(2) Economic Factors,(3) Cultural Factors,(4) Political
Factors,(5) Organization Factors,(6) Institutional Codes.
Social Responsibility in International Business
Corporate social responsibility (CSR) aims to optimise the benefit to an enterprise‘s stakeholders and to
prevent or dampen the potential adverse effects of its activities. CSR therefore covers a broad spectrum of issues
that must be taken into account in business conduct. This includes working conditions, human rights, the
environment, preventing corruption, corporate governance, gender equality, occupational integration, consumer
interests and taxes.
Human Rights: An enterprise‘s responsibility to respect human rights relates to internationally recognised
human rights, particularly those of the United Nations. Human rights due diligence enables enterprises to
identify any adverse effects resulting from its activities and in its value chain in good time and to prevent or
reduce them. The shape it takes in practice depends above all on the size of the enterprise and on certain risk
factors such as the region and sector.
Working Conditions: By ensuring the best possible employment conditions based on the applicable statutory
provisions and international labour standards, in particular those of the International Labour Organization,
enterprises can play a role in creating high-quality jobs. This primarily concerns the granting of trade union
rights, the abolition of child and forced labour and the elimination of employee discrimination (e.g. based on
where they come from, their social background, skin colour, religion or political views). Constructive
cooperation with social partners is also an important part of this.
The Environment: Responsible environmental management aims to continuously improve an enterprise‘s
impact on the environment. This includes a progressive internal environmental management system based on
high standards, environmental due diligence, an environmentally friendly strategy with closed cycles, consistent
reduction of greenhouse gas emissions and a contingency plan for reducing harmful effects on the environment.
Combating Corruption: Corruption has an extremely harmful effect on democratic institutions, good corporate
governance, investments and international competition. Enterprises can play a key role in combating corruption
by introducing internal control mechanisms to avoid and expose it. It is also important to publish the policy on
combating corruption supported by the management and to train employees.
Page 37
Disclosing Information: As part of a transparent reporting process, enterprises inform the public about their
business activities and their effects in terms of the economy, society and the environment. The regular, timely
and pertinent disclosure of information improves an enterprise‘s transparency and credibility. The reporting
process also gains the trust of the enterprise‘s stakeholders (e.g. shareholders, financial institutions, employees
and interest groups) and can facilitate access to capital.
Corporate Governance: Good corporate governance involves striving towards transparency and a balanced
ratio of management and control while protecting the decision-making power and efficiency at the topmost
corporate level. These are underpinned by good accounting und reporting practices, supervision by the Board of
Directors and respect for shareholder rights and the concerns of key stakeholders.
Consumer Interests: For consumers, it has become increasingly difficult to compare products and services and
to make informed decisions about purchases, particularly due to the increasing numbers of products on offer and
the complexity of many markets. They are therefore reliant on enterprises adopting fair business and marketing
practices and guaranteeing the safety and quality of their products and services. This involves providing accurate
and clear product information, promoting sustainable consumption and taking customer concerns seriously.
Gender Equality: As part of their activities, enterprises should be guided by the basic principle of gender
equality in employment and, in this regard, should refrain from any discrimination towards their employees
based on gender. Balancing work and family and equal pay are key corporate challenges.
Occupational Integration: By identifying its employees‘ health issues early on and quickly taking the
appropriate measures, enterprises can safeguard their staff's employability. This will reduce the number of
people leaving the job market due to health problems as much as possible. Employees with a health problem
should be supported throughout the reintegration process.
Taxes: If an enterprise lawfully pays its taxes both in Switzerland and also on its overseas business transactions,
it is contributing to public finances and to the development of its host countries. It also avoids putting its
finances, reputation and supervision by authorities at risk. It is also important for enterprises to cooperate well
with the competent authorities so that these can apply the relevant taxes.
National differences in ethics and social responsibility
National culture and social institutions affect how businesses manage ethical behavior and social responsibility.
 Cultural norms & values influence conformity to laws, and bribery, among others.
 Social institutions such as religion and the legal system are key institutions that affect what ethical issues are
important to a society and how they are managed.
 Although there are differences between societies, some actions are universally condemned (i.e., harming
children).
Reasons for national differences in business ethics:
(1) Culture (2) Attitudes (3) Religious believes (4) Education (5) Nature of government (6) Competitive
environment (7) Work environment
National differences in ethics and social responsibility
Page 38
 Differences in value systems
 Differences in national legal systems
 Differences in the interpretation of international legal and regulatory frameworks
 Differences in the institutional structure of the country or region, including the economic system and the
system of government
 Differences in the organisation of public-sector and private-sector research and innovation (R&I)
systems, including differences in institutional structure, government control, expenditure, knowledge
intensity, sectorial orientation, and others
 Differences in the historical development of R&I and public and political discussions of its significance,
social impacts and ethical aspects
Code of Conduct for MNC‘s
 MNCs must respect the national sovereignty of host countries and observe their domestic laws,
regulations and administrative practices
 Adhere to host nations economic goals, development objections and sociocultural values
 Respect human rights
 Not interfere in internal political affairs or in intergovernmental relations
 Not engage in corrupt practices
Global E-Business
Global e-commerce is basically about leveraging electronic networks to capture global markets, and it
includes all transactions taking place in the worldwide electronic market space. Transactions between global
purchaser and sellers can take the form of business-to business (B2B), business-to-consumer (B2C), consumer-
to-consumer (C2C), business to-government (B2G), and other hybrid forms of transactions.
Global E-business refers to a broader definition associated with e-commerce, not just the investing of
goods and solutions, but also servicing customers, collaborating with business spouses, conducting e-learning,
and finalizing electronic transactions. Here briefly explain How IT Changes Business Process, and give some
examples like: Ordering a book, paying bills, Capturing and sharing employee knowledge and so on. Finally
discuss Basic Functions of Information Systems: Transaction Processing Systems (TPS), Management
Information Systems (MIS), Decision Support Systems (DSS) and Executive Support Systems (ESS).
Global E-Business Models:
(i) Business to Business (B-to-B): It involves intra-firm transactions using an electronic network. Business to
business (B-to-B or B2B) transactions account for about 80 per cent of total electronic transactions and are
predicted to move faster compared to the B-to-C segment.
(ii) Business to Consumers: Business to consumers (B-to-C or B2C) is the second largest and the earliest form
of e-business, the origin of which can be traced to e-tailing or online retailing. B2C e-commerce is often
Page 39
used for purchasing products and information, mainly personal finances and investments, with the use of
online banking and investment tools.
(iii) Consumers to Business: In a complete reversal of traditional business models, consumers to business (C-
to-B or C2B) e-business allows individuals, especially professionals, such as lawyers and accountants, to
offer their services to businesses as well as sites that allow individuals to offer their services or products to
businesses.
(iv) Consumers to Consumers: It involves horizontal interaction between consumers, who generally share their
experiences with the product by way of chat rooms.
(v) Business to Government/Government to Business: Application of e-business between government
agencies with businesses may be categorized under government to business (G2B) or business to
government (B2G) e-business. It is often used for public procurement, regulatory procedures and
approvals, and other government-related operations using ICT tools
(vi) Citizens to Government/Government to Citizens: Governments often use ICT to enhance interaction with
their citizens under citizens to government (C2G) or government to citizens (G2C) models. These are
generally used to disseminate to its citizens a variety of government information such as general rules and
regulations directly concerned with the citizens and other information of public departments.
Global E-Business Applications:
(i)E-auctions: (ii) E-banking: (iii) E-directories: E-business Research: (vi) E-governance:
(iv) E-manufacturing: E-manufacturing involves Computer-Added Designs (CAD), robots, automated guided
vehicles. Computer Numerical Control (CNC) machines, Automated Storage and Retrieval Systems (ASRS),
and Flexible Manufacturing Systems (FMS).
E- Commerce in India
E-commerce stands for electronic commerce. Dealing in goods and services through the electronic
media and internet is called as E-commerce. E-Commerce or E-business involves carrying on a business with the
help of the internet and by using information technology like Electronic Data Interchange (EDI). It relates to a
website of a vendor selling or providing services directly from its portal to the customers. They use a digital
shopping cart system and allow payment through credit card, debit card or electronic fund transfer payments.
Concept of E–commerce in India
Multi product E-commerce – Some e-commerce portals provide almost all categories of goods and
services under one roof, targeting customers of every possible products and services. Indian e-commerce portals
provide products like apparel and accessories for men and women, health and beauty products, books and
magazines, computers and peripherals, vehicles, collectibles, software, consumer electronics, household
appliances, jewellery, audio/video entertainment goods, gift articles, real estate and services, business and
opportunities, employment, travel tickets, matrimony etc.
Single Product E-commerce – Automobiles sector portals providing selling and buying of vehicles
including two wheelers, comes under this. Stocks and share market sites, also offers their services through these
Page 40
types of portals, with options for comparisons and research. Other major industries offering their products and
services are real estate and travel and tourism. Besides these, matrimony and employment websites are a big hit
across India.
Types of E-commerce
Business to Business (B2B) – It involves the full spectrum of online business occurring between two
organizations, including purchasing and procurement, supplier management, inventory management, channel
management, sales activities, payment management, and service and support.
Business to Consumer (B2C) – Business to Consumer E-commerce refers to the exchanges between
Business and Consumer. It changes the traditional way of doing business with customer by getting goods from
Manufacturer/Retailer to the consumer directly.
Consumer to Consumer (C2C) – Consumer to Consumers involves transactions between and among
consumers. These transactions may or may not include a third party involvement.
Consumer to Business (C2B) – Consumer to Business is relatively a new model of commerce and is a
reverse of the traditional commerce models. Here, consumers provide services or goods to businesses and create
value for the business.
Business to Business to Consumer (B2B2C) – This is a variant of the B2B2C model wherein there is an
additional intermediary business to assist the first business transacts with the end consumer.
Atma nirbhar and International Business
Atmanirbhar Bharat Abhiyaan or Self-reliant India campaign is the vision of new India envisaged by
the Hon'ble Prime Minister Shri Narendra Modi. On 12 May 2020, our PM raised a clarion call to the nation
giving a kick start to the Atmanirbhar Bharat Abhiyaan (Self-reliant India campaign) and announced the Special
economic and comprehensive package of INR 20 lakh crores - equivalent to 10% of India‘s GDP – to fight
COVID-19 pandemic in India.
The aim is to make the country and its citizens independent and self-reliant in all senses. He
further outlined five pillars of Aatma Nirbhar Bharat – Economy, Infrastructure, System, Vibrant Demography
and Demand. Finance Minister further announces Government Reforms and Enablers across Seven Sectors
under Aatmanirbhar Bharat Abhiyaan.
The government took several bold reforms such as Supply Chain Reforms for Agriculture, Rational Tax
Systems, Simple & Clear Laws, Capable Human Resource and Strong Financial System.
How GOVT can reorient its foreign trade policy to align it with Atmanirbhar Bharat Abhiyan
 Adding depth to exports
 Exploiting competitive advantage in exports
 Integration with Global Value Chain
 Leveraging Foreign Trade Agreements (FTAs)
 Establishing linkages with the Micro, Small and Medium Enterprises (MSMEs) sector
Page 41
Sectors in India
India, one of the fastest growing economies, offers a plethora of investment opportunities across various sectors
 Agriculture & Forestry Gross Value Added by Agriculture, Forestry and Fishing estimated at $276.37 bn in
FY20. The share of agriculture and allied sectors in gross value added (GVA) of India at current prices stood
at 20.2% in FY20.
 Auto Components Auto Components industry turnover to reach $200 bn by 2026
 Automobile India is the world's 4th largest vehicle market
 Aviation India is the 5th largest market in terms of aircraft passengers (domestic and international) BFSI –
Fintech & Financial Services
 India has the highest FinTech adoption rate globally of 87% which is significantly higher than the global
average rate of 64%
 Biotechnology India is the 3rd largest biotech destination in the Asia Pacific Region Capital Goods
 Capital goods contribute 12% to the overall manufacturing in India
 Chemicals India ranks 6th in the world in Chemicals sales and contributes 3% to global chemical industry
 Construction 100 smart cities
 Defence Manufacturing Indian government endeavours to boost indigenous defence manufacturing.
 Electronic Systems India is one of the largest consumer electronics markets in Asia Pacific Region
 Fisheries & Aquaculture Food Processing World's largest milk producing nation
 Healthcare Healthcare industry in India is projected to reach $372 bn by 2022 IT & BPM India is the world's
largest BPM destination
 Leather India is the world's 2nd largest footwear producer
 Media India has 5th largest media and entertainment market in the world
 Medical Devices India is the 4th largest market for medical devices in Asia Metals & Mining Second
largest producer of steel globally
 Oil & Gas India is the 2nd largest refiner in Asia
 Pharmaceuticals India is the 3rd largest pharmaceuticals industry in the world by volume
 Ports & Shipping Maritime transport in India handles 95% of the trade by volume Railways
 Railways India has the world's largest rail network in terms of passenger traffic
 Renewable Energy India has the largest renewable energy expansion plan globally
 Retail & E-commerce Indian retail market is projected to reach $1.5 tn by 2030
 Roads & Highways India has the world's 2nd largest road network
 Telecom India has the world's 2nd largest mobile market
 Textiles & Apparel 6th largest exporter of Textiles and Apparel
 Thermal Power India has the 5th highest installed thermal power capacity globally
 Tourism & Hospitality India ranks 3rd in WTTC Travel & Tourism Power and Performance ranking
Page 42
MODULE 6: GLOBAL BUSINESS OPERATIONS 10 HOURS

Global Operations management and competitive advantage
Global Operations Management (GOM) concentration prepares graduates with state-of-the-art knowledge
of managing operations in a global context. The focus will be on contemporary issues related to operations
function which are of relevance in a firm‘s ability to effectively collaborate with its supply chain partners in
order to remain competitive in a global economy. The GOM concentration prepares students for careers with
global manufacturing, service, and consulting organizations by offering a variety of courses in management of
materials, quality, supply chains, services, global projects, and operations strategy.
OPERATIONS MANAGEMENT AND COMPETITIVE ADVANTAGE
 Competing on differentiation
 Competing on cost
 Competing on response {a. flexible response b. reliability of scheduling c. quickness}
IMPORTANCE OF MANAGING GLOBAL OPERATIONS 1. Reduce cost 2. Reduce risk 3. Secure supply
sources 4. Improve customer services 5. Attract new markets 6. Learn to improve operations 7. Attract global
talent
Strategic Issues in Operations Management
When an international company possesses a particular technology and decides to begin manufacturing, it
needs to adopt a sound operation strategy so as to enjoy competitive advantage. Manufacturing involves
transformation or conversion of new materials and inputs into good and services. It is therefore associated with
activities or decisions related with manufacturing.
Manufacturing Management International manufacturing management provides an unparalleled opportunity
for companies to grow into new markets while at the same time boosting their competitiveness. However, most
of today‘s networks are legacy structures only a fraction was strategically planned. As a result, there is huge
potential to be captured from rethinking traditional structures, approaches and supply relations, and huge
potential for getting it wrong.
Forces Accelerating Global Manufacturing
1. Huge factor cost differences 2.High growth in emerging markets 3.Lower transaction cost
Key Issues In International Manufacturing Management
1. Geographical dimension 2. Regulatory regimes dimension 3. Working issues for labour force 4. Location
issues 5. Increase in cost of production
Logistics Management Global Logistics is the process of planning, implementing and controlling the flow
and storage of goods and services and related information from a point of origin to appoint of consumption
located in a different country. The global logistics function management function is naturally more complex than
the logistics function managed within one particular country.
Page 43
Components Of Global Logistics: International Logistic Decision
1. International transportation 1. Warehouse managements
2. International insurance 2. Packaging
3. Packaging needs 3. Inventory management
4. International means of payment 4. Material handling
5. Teams of trade 6. The crossing of borders 5. Information systems
7. Inventory 6. Transportation: railway transportation ,road transportation ,
8. Environment of international logistics water transportation , air transportation
7. Insurances
Procuring Global procuring or sourcing occurs when buyers purchase goods and services from sellers located
anywhere in the in the world. Global sourcing of goods, crops and other commodities has been common for
many years in industries such as manufacturing and agriculture, used as appositive strategy to reap economic
advantage.
Enabling Factors Of Global Procuring 1. Growing pools of highly skilled resources 2. State-of-the-
art facilities 3. Advances in telecommunications 4. Improvement in collaborative tools and platforms 5. Maturing
delivery models
Modes Of Global Proccuring 1. Importation 2. Establishment of international procurement offices
(IPOs) 3. Sourcing through direct investment
Other Issues In Managing Global Operations
 Make or buy  Strategic role of foreign plants
 International standardisation of production facilities  Managing technology transfers
 Robotics and flexible manufacturing  Internationalization of R&D
 Contract manufacturing  International quality standards
Technology Transfer
Technology transfer is the process of sharing of skill, knowledge, technologies, methods of manufacturing,
sample of manufacturing and facilities among governments and other institutions to ensure that scientific and
technological developments are accessible to a wider range of users who can then further develop and exploit the
technology into new products, processes, applications, materials or services.
Reasons for Technology Transfer
1. Profit from selling technology 2. Location and logistics advantage 3. Competitive edge 4. Grants and
subsidiaries 5. Limitations of home country 6. superior capital market 7. Enhance competence
Method of Technologic Transfer 1. FDI 2. Licensing 3. Franchising 4. Management Contracts 5.
Contract manufacturing 6. Joint Venture 7. Technological consortium and joint R&D projects
Importance of Technological Transfer 1. Encourage use of technology 2. Create competitive
advantage 3. Promote research and development 4. Enhance capability and innovations 5. Leverage business
environment
Page 44
Marketing Management Responsibilities of Marketing Management 1. Market analysis 2. Set Goals 3.
Forecast sales & profits 4. Strategies, policies & procedures 5. Evolve appropriate marketing mix 6. Organize
marketing activities 7. Organize resources 8. Participation in product planning 9. Managing Supply chain 10.
After Sales activities
Benefits of International Marketing
• Provides higher standard of living • Ensures rational & optimum utilization of resources • Rapid industrial
growth • Benefits of comparative cost • International cooperation and world peace • Facilitates cultural exchange
• Better utilization of surplus production • Availability of foreign exchange • Expansion of tertiary sector •
Special benefits at times of emergency
Major Activities in International Marketing
• Market Assessment • Product decisions • Promotion strategies • Pricing decisions • Place or distribution
strategies
International Finance –Balance of Payments
International finance analysis addresses international macroeconomics; which means, its concerned with
economies as being a complete instead of specific financial markets. Organizations and financial
institutions perform inter-national finance analysis range from the International Finance Corp. (IFC), World
Bank, National Bureau of Economic Research (NBER) and International Financial Investment (IMF).
international finance components
 Marketplace.
 Foreign trade plus political.
 Expanded opportunities.
International finance, sometimes known as international macroeconomics, is the study of monetary
interactions between two or more countries, focusing on areas such as foreign direct investment and currency
exchange rates.
The balance of payments (also known as balance of international payments and
abbreviated BOP or BoP) of a country is the difference between all money flowing into the country in a
particular period of time (e.g., a quarter or a year) and the outflow of money to the rest of the world. These
financial transactions are made by individuals, firms and government bodies to compare receipts and payments
arising out of trade of goods and services.
The balance of payments consists of two components: the current account and the capital account. The
current account reflects a country's net income, while the capital account reflects the net change in ownership
of national assets
Current account − It denotes the final net payment a nation is earning when it is in surplus, or spending
when it is in deficit. It is obtained by adding the balance of trade (exports earnings minus imports
expenses), factor income (foreign investment earning minus expenses for investment in a foreign country) and
other cash transfers. The current word denotes that it covers transactions that are happening "here and now".
Page 45
Capital account − It shows net change in foreign-asset-ownership of a nation. The capital account
consists the reserve account (the net change of foreign exchange of a nation's central bank in market
operations), loans and investments made by the nation (excluding the future interest payments and dividends
yielded by loans and investments). If net foreign exchange is negative, the capital account is said to be in deficit.
Human Resource Management: Approaches
International human resource management is the
process of employing, training and developing and
compensating the employees in international and global
organizations.
An international company is one which has
subsidiaries outside the home-county which rely on the
business expertise or manufacturing capabilities of the parent
company. Generally, an MNC is considered to have a number
of businesses in different countries but managed as a whole
from the headquarters, located in one country.
A. Ethnocentric: Refers to an approach in which all strategic decisions are made at headquarters and
foreign subsidiaries are endowed with very little autonomy. PCNs or expatriates occupy key positions at
headquarters as well as in subsidiaries. They control all the critical areas of operation, such as finance,
production, and quality. McDonald‘s is an organization that follows the ethnocentric approach.
B. Polycentric: Refers to an approach in which MNCs treat each foreign subsidiary as a distinct entity.
Therefore, each foreign subsidiary is provided with little autonomy to make its own decisions. The MNCs, which
follow polycentric approach recruits HCNs in their foreign subsidiaries. The staff at headquarters comprises
PCNs because HCNs are rarely promoted to key positions at the headquarters.
C. Geocentric: Refers to an approach in which the focus is on staffing the best employee for a
particular position. The geocentric approach is based on an integrated global philosophy. The MNCs following
the geocentric approach may recruit PCNs, HCNs, or TCNs for any position in the headquarters or subsidiaries.
The nationality of the candidate is not the key to staffing because the MNCs focus on the ability of the candidate.
D. RegioCentric Approach In Regino-Centric approach, MNCs believe that though there is a
difference in various aspects of culture from country to country yet there are similarities in a particular region.
Dimensions of IHRM are: Challenges in IHRM are:
 HR Activities for recruitment, selection,  Variation in-country environment
training, development, compensation, performance  Perception of HR
management, employee relations etc.  Attitudes and actions of headquarters towards HR
 Types of employees  Resistance to change
 Types of Countries  Balance
Page 46
Expatriation and Repatriation Process

Expatriation is the voluntary departure from one's native country to another country to live there
permanently or for an extended period of time. A person who does this can be called an expatriate. So
expatriation is the act or process of becoming an expatriate. Honeymoon, Crisis phase – culture shock,
Adaptation phase, Integration phase, Cultural backlash phase ―cultural backlash‖ to refer to this critical
phase, often experienced as one of the first sources of dissatisfaction on the part of expatriates.
Four Stages Model for Expatriates’ Cross-Cultural Preparation

Repatriation: Repatriation is the process of bringing expatriates back to the home country after the
completion of the international assignments. For expatriates, the return of expatriates to the headquarters of the
organization within the parent country is accompanied with certain fears and anxieties pertaining to readjustment
in the old position and job responsibilities.
Repatriation Process
1. Preparation: before 3-4 months of expatriate return
 Developing plans for future and info about new position
 Checklist of items before leaving (closure of bank a/c, bills etc.)
2. Physical Relocation
 Removal of personal belongings , breaking ties with friends, colleagues before returning
 Re-entry training for home country‘s update, socio-cultural contrast orientation, psychological aspects etc.
3. Transition:
 Finding accommodations, school for children, opening bank A/c etc. for comfortable living.
 Relocation consultants used.
4. Readjustment
 Coping with aspects as company changes , reverse culture shock and career demands
 Eg. Repatriate returning from country where power distance is large as Thailand may experience stress on
returning to small power distance countries like Denmark.
Training
The International HR managers will provide the training and development to the new expatriate going to
the host country. They are provided with pre-departure training before they depart for the host country. The
expatriate are provided with cultural training, language training and practical training. This will help in reducing
expatriate failure.
Page 47
1. Level 1 training focuses on the impact of cultural differences and on raising trainees‘ awareness of such
differences and their impact on business outcomes.
2. Level 2 aims at getting participants understand how attitudes (negative and positive) are formed and how
they influence behavior (For example, unfavorable stereotypes may subconsciously influence how a new
manager responds to and treats his or her new foreign subordinates)
3. Level 3 training provides factual knowledge about the target country and
4. Level 4 provides skill building in areas like language and adjustment and adaptation skills.
Compensation Compensating Expatriates in International Assignments:
One of the most important and complex aspects of IHRM is related to expatriate compensation
(compensation given to employees posted abroad). Different norms of compensation are followed by different
countries. An organization often adheres to the compensation laws of the country in which the expatriate is
posted. Compensation is an important motivational tool for employees.
While designing the compensation package of expatriates, their needs and aspirations must be taken into
consideration, as different expatriates have different sets of needs. An expatriate may feel that money is the sole
motivator, whereas another expatriate may feel that non-financial rewards in the form of recognition, challenging
tasks, and innovative projects are far more motivating.
Expatriate compensation must be just, fair, and equitable and in accordance with the international
compensation norms. There are numerous factors, such as country‘s compensation laws, cost of living, taxation
policies, and currency value, which play an important role in determining the compensation packages of an
expatriate. In addition, health benefits and insurance can be a part of expatiate compensation. An expatriate can
also be compensated for the cost of housing and schooling of children.
Industrial Relations
―Industrial Relations‖ refers to all types of relations between employers and workers, be they at national,
regional or company level; and to all dealings with social and economic issues, such as wage setting, working
time and working conditions.
.International industrial relations deals with the complex relationships among employers employing
foreign national, employees of different nationalities, home and host country governments and trade unions of
the organizations operating in various countries and their national & international federations.
Page 48

4.1 International Business

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

4.1 International Business

Uploaded by

Copyright:

Available Formats

4.

4.1 INTERNATIONAL BUSINESS

Active players in multinational business

The GLOBE project’s nine dimensions of culture

MODULE 2: GLOBALIZATION 8 HOURS

Mergers, Acquisitions and Joint Ventures

Global geographic structure:

Transnational network structure:

Factors influencing choice of a design

RECONCILIATION OR RESOLUTION OF CONFLICTS IN IB:

MODULE 3: WTO AND TRADING BLOCKS 8 HOURS

WTO and its impact on Indian economy

POSITIVE OUTCOMES OF LPG REFORMS

NEGATIVE OUTCOMES OF LPG REFORMS

Integration between countries

HOW TO MAKE ALLIANCES WORK

MODULE 4: GLOBAL TRADE AND INVESTMENT 10 HOURS

2. Absolute advantage (Classical) Theory

5. International Product Cycle Theory

(A) New product

(B) Maturity Stage

(C) Standardized product stage

7. New Trade Theory

Implications for Managers

Roles of Institutions connected with EXIM trade.

MODULE 5: GLOBAL ETHICS AND E-COMMERCE 10 HOURS

MODULE 6: GLOBAL BUSINESS OPERATIONS 10 HOURS

Expatriation and Repatriation Process

Four Stages Model for Expatriates’ Cross-Cultural Preparation

You might also like