INTRODUCTION

INTERNATIONAL
BUSINESS TRADE
 OBJECTIVES:

On completing the module, you should able to:

 Know how the concept of international business evolved

 State the nature of international business
 Describe the influences and goals of international business
 Identify the problems of international business

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 International business

International business is all commercial transactions

private and governmental between two or more countries.
◉ Private companies undertake such transactions for
profits;
◉ Governments may or may not do the same in their
transactions.
These transactions include sales, investments and
transportation.
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 International business
◉ Multinational companies have investment in other
countries, but do not have coordinated product offerings in
each country.
◉ A Multinational Corporation (MNC) or Multinational
Enterprise (MNE) is a corporation enterprise that manages
production or delivers services in more than one country. It
can also be referred to as an international corporation.

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EXAMPLES

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 International business

◉ Global companies have invested and are present in

many countries. They market their products through
the use of the same coordinated image/brand in all
markets.
Generally one corporate office that is responsible for
global strategy. Emphasis on volume, cost management
and efficiency.

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Examples of Global
Companies

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 International business
◉ Transnational companies are much more complex
organizations. They have invested in foreign operations, have
a central corporate facility but give decision making, R&D and
marketing powers to each individual foreign market.
Example: An example of a TNC is Nestlé who employ senior
executives from many countries and try to make decisions from
a global perspective rather than from one centralized
headquarters. However, the terms TNC and MNC are often used
interchangeably.
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 Evolution of International
Business
◉ The analytical framework of international business is built
around the activities of Multinational Enterprises (MNEs)
enunciated by the process of internationalization. The FDI on the
part of an MNE attempts to overcome the obstructions to trade
in foreign countries.
◉ The strategies relating to the functional areas, such as
production, marketing, finance and price policies, are adopted by
the MNEs in such a manner that an amicable relationship
between home and host nations is created.
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 Evolution of International
Business
◉ Foreign direct investment can be distinguished from the other
forms of international business, such as exporting, licensing,
joint ventures and management contracts.
◉ Before the emergence of the MNEs, foreign trade and
international business were regarded as synonymous, and
international trade doctrines based on labor cost differentials
and free trade guided the international transactions among
different trading partners.

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 International Marketing to
International Business:
◉ The multinational companies which were producing the
products in their home countries and marketing them in various
foreign countries before 1980s, started locating their plants and
other manufacturing facilities in foreign/host countries. Later,
they started producing in one foreign country and marketing in
other foreign countries.
For example, Unilever established its subsidiary company in India, i.
e. Hindustan Liver Limited (HLL), HLL produces its products in India
and markets them in Bangladesh, Sri Lanka, Nepal, etc.
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 Nature of International
Business
◉ The study of international business focuses on the particular
problems and opportunities that emerge because a firm is
operating in more than one country.
Example: Foreign legal systems, foreign exchange markets, cultural
differences, and different rates of inflation.
◉ The distinguishing feature of international business is that
international firms operate in environments that are highly
uncertain and where the rules of the game are often ambiguous,
contradictory, and subject to rapid change, as compared to the
domestic environment.
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 Nature of International
Business
◉ The guiding principles of a firm engaged in (or commencing)
international business activities should incorporate a global
perspective.
◉ A firm’s guiding principles can be defined in terms of three
board categories products offered/market served, capabilities,
and results.
◉ International business are felt in all relevant stages of evolving
and implementing business plans.

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 Influences and Goals of
International Business
Companies engage in international business to:
◉ Expand Sales: Companies’ sales are dependent on
(a) the consumers’ interest in their products or
service.
(b) the consumers’ willingness and ability to buy
them.
◉ Acquire Resources: Manufacturers and distributors also look for
foreign capital, technologies and information that they can use
at home, to reduce their costs.
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 Influences and Goals of
International Business
◉ Minimize Risk: Companies seek out foreign markets to
minimize swings in sales and profits arising out of
business cycle recessions and expansions which occur
differently in different countries.
Example: Sales decrease or grow more slowly in a country
that is in recession and increase or grow more rapidly in one
that is expanding rapidly in one that is expanding
economically.
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 Understanding a Company’s
Physical and Social Environments

◉ To operate within a company’s external environment, its managers

should have in addition to knowledge of business operations, a
working knowledge of basic social sciences, political sciences, law,
anthropology, sociology, psychology, economies and geography.
Politics helps shape business worldwide because political leaders
control shaping of international business.
◉ Domestic law includes regulations in both the home and host
countries on matters such as taxation, employment and foreign
exchange transactions.
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 Problems of International
Business
1. Political and Legal Differences:
◉ The political and legal environment of foreign markets is
different from that of the domestic. The complexity
generally increases as the number of countries in which a
company does business increases.
◉ It should also be noted that the political and legal
environment is not the same in all provinces of many
home markets.
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 Problems of International
Business
2. Cultural Differences
◉ The cultural differences, is one of the most difficult problems in
international marketing. Many domestic markets, however, are also not
free from cultural diversity.
3. Economic Differences
◉ The economic environment may vary from country to country.
4. Differences in the Currency Unit
◉ The currency unit varies from nation to nation. This may sometimes
cause problems of currency convertibility, besides the problems of
exchange rate fluctuations. The monetary system and regulations may 18
 Problems of International
Business
5. Differences in the Language
◉ An international marketer often encounters problems arising out
of the differences in the language.
◉ Even when the same language is used in different countries, the
same words of terms may have different meanings.
◉ The language problem, however, is not something peculiar to the
international marketing.
Example: The multiplicity of languages in one country.
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 Problems of International
Business
6. Differences in the Marketing Infrastructure
◉ The availability and nature of the marketing facilities available in
different countries may vary widely.
For example, an advertising medium very effective in one market
may not be available or may be underdeveloped in another market.
7. Trade Restrictions
◉ A trade restriction, particularly import controls, is a very
important problem, which an international marketer faces.

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 Problems of International
Business
8. High Costs of Distance
◉ When the markets are far removed by distance, the
transport cost becomes high and the time required for
affecting the delivery tends to become longer.
◉ Distance tends to increase certain other costs also.
9. Differences in Trade Practices
◉ Trade practices and customs may differ between two
countries.
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