Introduction To International Business

International mostly means something that involves more than one country. The term international as a word means involvement of, interaction between or encompassing more than one nation, or generally beyond national boundaries.

A business (also known as enterprise or firm) is an organization engaged in the trade of goods, services, or both to consumers. The regular production or purchase and sale of goods undertaken with an objective of earning profit and acquiring wealth through the satisfaction of human wants.

International business is defined as activities that buys & sells goods and services across 2 or more national boundaries, even if the management is located in one country. International business = Business transactions crossing national borders at any stage of the transaction. International business deals with business activities (both production and services) that crosses the national boundaries. This activity includes movement of goods, services, capital or personnel, transfer of technology, etc.

Importance of International Business

Domestic Environment The economic, political, social, cultural, technological environment are known, hence one can take necessary precautions. Currency Local Currency is used for transactions. Profits : There is lower rate of profits in domestic market.

International
The environment is not fully known. Innumerable hidden factors which may emerge at times to pose threats.

Transactions are carried out in various currencies. There is higher rate of profits in international market.

Domestic Transportation : Companies in the domestic market have to spend less cost of transportation becoz their distribution network is at local, regional or national level. Size : The size of the domestic market is limited either due to smaller size of population or due to lower purchasing power of the people.

International Companies in the international market have to spend more cost of transportation.

The international market is wide & has greater scope as compared to the domestic market.

Research : It is reasonable and easy to conduct business research and customer survey. Legal Aspect : Only local regulations are fully applicable to conduct business. There is no minimum adherence to international regulations. Investments : Depending on the size of the business one can start with minimum investments

Domestic

International
It is very difficult and costly to conduct research and surveys. International regulations and host countries regulations are applicable. Advanced countries impose strict regulations. All overseas operations call for huge investments to set up and expand the business in many countries.

Promotion: Advertising, personal selling and other promotional methods are restricted thru strict legal framework.
Logistics : Domestic players are involved in all activities. Risk Business risk in future can be predicted and will not have major impact on business houses.

Domestic

International Different countries have different restrictions, for ex. Advertisement of liquor & cigarettes are not permitted in some countries. International players with advanced technology are involved. It is difficult to predict future business risk and may crop any time due to political instability or other unknown factors.

Environment means the surroundings, its the aggregate of all conditions, events and influences that surround and effect it. Environment is an inseparable part of business. In fact business cannot work without environment. Environment is dynamic, and it keeps on changing & developing continuously. It does not remain the same. All these changes affects the working of the business.

Global companies have to formulate strategies based on mission, objectives & goals. The study of business environment helps the management to formulate strategies & run the business efficiently in the competitive world. Environment has significant & crucial impact on business. Environment provides the opportunities to business to produce & sell a particular product. Sometimes it poses threats and challenges to the business.

 Social

& Cultural Environment. Technological Environment. Economic Environment. Political Environment.

Importance of Economic & Political Environment in International Business

International Business is directly influenced by the economic environment of various countries. Economic environment includes investment trends, inflation, monetary policy, fiscal policy, budget deficits, balance of trade, balance of payment, economic planning, commercial policies etc. There are 3 types of economic environment based on resource allocation : Capitalism, Communism and Mixed Economy.

Under Capitalistic Economic System customers allocate the resources. Customers choice for product or services decides what will be produced by whom. This system provides ownership of production and distribution facilities. Ex : USA, Japan, and UK. Under Communistic Economic System the private property and property rights to income are abolished. The state owns all the factors of production and distribution. The resource allocation decisions are taken by the government planners. Ex : Russia, China, Rumania, Poland etc.

Under the Mixed Economy, major factors of production and distribution are owned, controlled and by the government. The purpose is to provide benefits to the people on equity basis. Ex : India.

Different countries in the world are at different stages of development. These countries are segment based on GNP per capita.
1.

These countries are having less than US $400per capita GNP. These countries have high birth rates, ltd industrialization, low literacy rates, political instability, technological backwardness, and poverty. Ex Countries in Africa and south Sahara.
2.

Low Income countries :

Lower- Middle Income Countries :

These countries are having GNP per capita of US $ B/w 400 and 2000. These are known as Less Developed Countries. These countries are in early stage of industrialization, expansion of consumer markets, availability of cheap labour, competitive advantage over labour intensive products. Domestic markets are dominated with the products like clothing, batteries, tyres, bldg material and packaged food.

3. Upper Middle Income Countries : These countries are having GNP per capita of US $ ranging from 2000 to 12000. These are known as Industrializing Countries. These countries are less dependent on agriculture, increase in literacy, low wage costs, high exports and rapid economic developments. Ex : Philippines, Peru, Turkey, Jordan, Poland etc. 4. High Income Countries : These countries are industrialized countries having per capita GNP more than US $ 12000. These countries are high in income, industrialization, service sector, dev of technology etc. Ex: USA, UK, Japan, Australia, France, Germany etc.

It also influences the operations of international business. It refers to the 3 political institutions i.e. legislature, executive & judiciary. Legislature means the group of people who make a countrys law. They decide a particular course of action. Executive means government, it implement whatever was decided by the parliament. Judiciary keeps a watch to see that both the legislature & executive function in public institute & within the limits of the constitution.

The success & growth of international business depends upon stable, dynamic, honest, people oriented government, political system in the country, policies & characteristics of political parties, donations given to political parties, scandals, corruptions, war etc. Political friendship & diplomatic relations help in growth of trade.

Political environment is favorable when there is political stability, which means a strong party in power and responsible opposition. The press and publicity also plays and important part. Countries with stable government and political system have enjoyed successful and efficient business operations. USA is the best example.

In four decades since the commencement of the planned economic development in 1951, Indias performance was not so impressive. The New Economic Policy in 1991 reflected Indias determination to facilitate the introduction of foreign capital, management methods, industrial technology and economic information and its commitment to the modernization of its economy. The reforms included abolition of industrial licensing for most of the industries, relaxation of regulations relating to FDI and technical collaboration measures to improve the efficiency of public sector enterprises.

These reforms have increased the role of the market and the private sector as well opened up the economy to greater external and internal competition.

Country
1. OECD a) European Union b) North America c) US 2. OPEC UAE

2005-06
45.80 22.40 18.40 17.40 15.20 8.6

2006-07
52.10 25.80 20 18.90 20.70 12

Variation % 2006-07
13.6 15.3 9 8.8 35.6 39.8

3. Developing Countries
Asia China Singapore Total Exports

39.70
31 6.8 5.40 103.10

50.70
37.60 8.3 6 126.30

27.6
21.3 22.7 11 22.5

Country 1. OECD

2005-06 51.80

2006-07 69.50

EU
Germany UK North America

25.20
6 3.90 1.40

33.50
12.7 4.20 14.10

US
2. OPEC UAE

9.50
11.20 4.40

12.60
56.10 8.60 59.60

3. Developing Countries 37.90

Asia
China Singapore South Korea

30.50
10.90 3.40 4.60

47.20
17.40 5.50 4.80

Total Imports

149.20

190.60

SELF STUDY