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TOPIC 1.
INTRODUCTION TO INTERNATIONAL
BUSINESS & INTERNATIONAL ENTRY

MIB 203
MODES

1 Unit 1: Introduction to international Business

LEARNING OUTCOME
AFTER COMPLETING THE TOPIC STUDENT WILL ABLE
TO:

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CO Outcome PO KL

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Definition of International PO1 & PO4 K2
Business.

Explain the reasons of PO1 & PO4 K2

going International.

CO1
Understand the patterns PO1 & PO4 K2
of internationalisation.

Understand international PO1 & PO4 K2

entry modes. 2
 LETS DISCUSS

Countries are dependent on each other for varieties

of goods and services, we also enjoy the privilege
of using international products in India. Assume
the situation, when this exchange will not
happen.

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Why studying international business?

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 WHY STUDYING INTERNATIONAL
BUSINESS?

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 Most companies are either international or
compete with international companies.

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 Modes of operation may differ from those used
domestically.
 Best way of conducting business may differ by
country.
 An understanding helps you make better career
decisions.
 An understanding helps you decide what
governmental policies and support.
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DEFINITION

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According to Michael H Moffett:

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“International business is the process of focusing on
the resources of the globe and objectives of the
organizations on the global opportunities and
threats in order to produce, buy, sell or exchange of
goods and services world wide”.

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According to Michael R Czinkota

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“International business consists of transactions that
are devised and carried out across national borders
to satisfy the objectives of individuals, companies
and organizations”.

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According to Roger Bennett

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“International business involves commercial
activities that cross national frontiers. It
concerns that international movement of goods,
capital, services, employees and
technology. It comprises Importing &
Exporting, cross border transactions in
intellectual property via licensing and
franchising, investment in physical and
financial assets in foreign countries and buying
and selling in foreign countries”. 8
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International business consists of all commercial
transactions between two or more countries.

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Commercial transaction includes:
 Sales

 Investment and

 transportation

 Goal of private business is to make money.

 Government business may or may not be
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motivated by profit.
 GLOBALIZATION DEFINED

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Globalization implies the opening of local and
nationalistic perspectives to a broader outlook of an
interconnected and interdependent world with

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free transfer of:
 Capital

 Goods and

 Services across national frontiers.

However, it does not include unhindered

movement of labor.

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 FACTORS IN INCREASED GLOBALIZATION

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Factors that have contributed to the increased
growth in globalization in recent decade are:

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 Increased in and expansion of technology.

 Liberalization of cross border trade and resource

movement.
 Development of services that support
international business.
 Growing consumer pressures.

 Increased global competition.

 Changing political situations.

 Expanded cross- national cooperation. 12

 WHY COMPANIES ENGAGE IN
INTERNATIONAL BUSINESS?

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 Expanding sales

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 Acquiring resources

 Minimizing risk

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PATTERN OF INTERNATIONALIZATION

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A. Impetus for international business.
 From passive to active search for opportunities.
B. Internal v/s external handling of foreign

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operations.
 Other firms handle external contracts to company handle by its
own.
C. Modes of operation.
 Limited foreign function to extensive production abroad with all
functions.
D. Number of foreign countries in which firm does
business.
 One to many.
E. Degree of similarity between foreign and domestic
countries. 14
 Quite similar to very dissimilar.
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ANALYZING INTERNATIONAL
ENTRY MODES
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 DETERMINANTS OF MODE OF ENTRY

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1. Corporate objective
2. Corporate capability

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 Financial position
 Manager’s capability

3. Host country environment

 Regulatory
 Cultural (values, belief, customs, language and
religion of target market)
 Political
 Economic

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Economic environment
 Shipping cost

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 Production cost
 Size of market (larger & ever expanding)
4. Perceived risk
 Trading
 Control over entire operations (investment, wholly
owned foreign subsidiary)

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 MODES OF INTERNATIONAL BUSINESS

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 Trade (Direct/ Indirect)
 Service (export/import)

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 Tourism and transport
 Asset use

 Licensing (Exclusive, Non exclusive, Cross)

 Franchising (Direct/ Indirect)

 Service performed

 Turnkey projects

 Management contract (contractual entry modes)

 Merchandise (export/import)

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 Counter trade (Bilateral trade)
 Commercial

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 Classic barter
 Counter purchase (accept wide range of goods)

 Pre- compensation (export value is entered in evidence

account)
 Industrial
 Buy back
 Develop for imports

 Framework agreement (generally done between

governments, debtor sell agreed upon commodity in the

international market to pay the creditor)

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 Investment
 Foreign direct investment (FDI) (Horizontal/
Vertical)

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 Green field investment (GI)
 Fully owned subsidiary (100%)

 Partially owned (50% or more)

 Equity alliance (reciprocal)

 Merger & acquisition (M&A)

 Brownfield investment (GI + M&A)

 Firm acquires another firm, after acquisition it

completely replaces plant, equipment, labour and product
line.
 Foreign portfolio investment (FPI)
 Stocks
 Loan (GDR) 20
 CLASSIFICATION OF FDI ON THE BASIS OF MOTIVES

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 Market seeking
 Per capita income

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 Size of market
 Resource seeking
 Raw material
 Manpower

 Efficiency seeking
 Strategic asset seeking (acquiring new
technology to improve productivity)

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LETS SUM UP
International business involves commercial
activities that cross national frontiers. It concerns
that international movement of goods, capital,
services, employees and technology. It comprises
Importing & Exporting, cross border transactions
in intellectual property via licensing and
franchising, investment in physical and financial
assets in foreign countries and buying and selling
in foreign countries
Roger Bennett

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REFERENCE

Daniel John, Radhebaugh Lee, Sullivan Dainel,

Salwan P (2016), International Business 15/e,
Pearson Education

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THANK YOU
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