International business

Saranya S/AP/FT/KSRCT

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International business - Introduction
• International business is referred to the business
across the countries.
• It involves transfer of good, services, capital,
knowledge & information across the boundaries of
nation with a view to satisfy the needs of individual,
organization & government.

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International business - Introduction
• According to Daniel, “International business includes
all commercial transactions, private or governmental
between two or more countries.
• These transaction includes sales, investment, &
transportation.
• International business is significant at both micro &
macro economical development of a country”

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Concept of international business
• Exporting and importing
• Balance of trade
• Balance of payment
• Exchange rate

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 Exporting and importing
• Exporting is concerned with the selling of
domestic goods in another country.
• Importing is concerned with purchasing
goods made in another country.

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 Balance of trade
The Balance of trade represents the difference
between the visible export and import. It may
be shown in the following way.
• Balance of Trade= Visible export-Visible
import.
• Favorable balance of trade: Favorable
balance of trade indicates that a country’s
export is higher than its import.
• Unfavorable balance of trade: When a
country’s imports are higher than its
exports, then it is called the unfavorable
balance of trade.

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 Balance of payment
A Balance of payment represents the difference
between visible plus invisible export and visible
plus invisible import. It may be shown by the
following equation.
• Balance of payment = (Visible export + invisible
export)-(Visible import +invisible import)
• Favorable balance of payment: If more money
is flowing in the country than flowing out of the
country.
• Unfavorable balance of payment: An
unfavorable balance of payment exists when
more money is flowing out of the country than
flowing in

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 Exchange rate
It is the rate at which one country can exchange its
currency with other country’s currency.
The exchange rate is of four types:
• Devaluation: Reducing the value of nation’s
currency in relation to currencies of other
nations.
• Revaluation: revaluation increased the value of
a country’s currency in relation to that of the
other countries.
• Fixed exchange rate: It is an unvarying exchange
rate, which is set by the government.
• Floating exchange rate: An exchange rate that
fluctuates with market conditions.

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 Nature and importance of international business

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Nature of international business
• Need accurate & timely information to make appropriate
decision
• Size of a International Business should be large in order
to have impact on foreign economies. Most MNC’s are
large in size.
• Most International Business firms segment their market
based on the geographical market segmentation.
• International market present more potential then the
domestic market.
• International Business firms should consider consumer
willingness to buy & also ability to buy the product.

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Nature of international business
• International Business studies the
– business opportunity,
– threats,
– consumer preferences,
– behavior,
– culture of societies,
– employees,
– business environment,
– location,
– management style &impact and
– human resource management practices in various countries.

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Importance of international business
• Growth opportunity
• Higher ROI (RATE OF RETURN/Return On Investment)
• Expanding production beyond demand of domestic
market
• Expanding market (purchasing power)
• Availability of technology to aid development of
business
• Liberalization and globalization

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Domestic Vs. International business
Domestic business International business
Limited business activities Unlimited business opportunities
Only economic, political, socio- cultural Wide range of environment
environment.
Less risk Higher risk
Not affected by exchange rates Highly affected by exchange rates
Functional areas are limited Differs from country to country
Old technology Latest technology
No delusion of control Delusion of control
Law, tax & regulation of single country Law, tax & regulation of many country &
international laws
Limited scope Wide scope
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5 common modes of entry to international
business
• Exporting
• Licensing and Franchising
• Partnering and Strategic Alliance
• Acquisition
• Greenfield Venture (Launch of a new, wholly owned
subsidiary)

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Exporting
• Exporting is a typically the easiest way to enter an
international market, and therefore most firms begin
their international expansion using this model of entry.
• Exporting is the sale of products and services in foreign
countries that are sourced from the home country.
• The advantage of this mode of entry is that firms avoid
the expense of establishing operations in the new
country.

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Exporting
• Firms must, however, have a way to distribute and
market their products in the new country, which they
typically do through contractual agreements with a local
company or distributor.
• When exporting, the firm must give thought to labeling,
packaging, and pricing the offering appropriately for the
new market.
• In terms of marketing and promotion, the firm will need
to let potential buyers know of its offerings, be it through
advertising, trade shows, or a local sales force.

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Licensing and franchising
• Franchising means that you're allowing another
person to duplicate your business in another
location, and
• Licensing is when you allow someone else to sell
your products.
• With both licensing and franchising, you will receive
a fee from the person duplicating your business or
selling your product.

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Licensing
Licensing is an agreement between two parties, a licensor and a
licensee.
The licensor, who owns a piece of intellectual property, allows
the licensee to use this property in exchange for a licensing fee.
Licensing fees can come in several forms:
• Lump sums.
• Continuing royalties.
• A percentage of what the licensee makes using the
intellectual properties.
One of the main goals of companies is to create items that they
can license to individuals and businesses.

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Licensing
Businesses can benefit from licensing in a variety of
ways:
• Improving their market share.
• Shaping customer preferences and developing loyalty
to the business's brand.
• Optimizing exposure.
• Generating revenue.

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Franchising
With franchising, a franchisor will allow the franchisee, to
open and operate a branch of their business in exchange for
a fee.
After paying this fee, the franchisee has their permission to
duplicate their entire business operations.
An entrepreneur that opens a franchise can receive multiple
benefits not available when starting a new business:
• Instant recognition with customers.
• Already-established employee training.
• Built-in support for marketing and advertising.

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Partnership and strategic alliance
• Another way to enter a new market is through a strategic
alliance with a local partner.
• A strategic alliance involves a contractual agreement
between two or more enterprises stipulating that the
involved parties will cooperate in a certain way for a
certain time to achieve a common purpose.
• To determine if the alliance approach is suitable for the
firm, the firm must decide what value the partner could
bring to the venture in terms of both tangible and
intangible aspects.

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Partnership and strategic alliance
• The advantages of partnering with a local firm are
that the local firm likely understands the local
culture, market, and ways of doing business better
than an outside firm.
• Partners are especially valuable if they have a
recognized, reputable brand name in the country or
have existing relationships with customers that the
firm might want to access.

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Acquisition
• An acquisition is a transaction in which a firm gains
control of another firm by purchasing its stock,
exchanging the stock for its own, or, in the case of a
private firm, paying the owners a purchase price.
• Cross-border acquisitions have risen dramatically.
• In recent years, cross-border acquisitions have made up
over 60 percent of all acquisitions completed worldwide.
• Acquisitions are appealing because they give the
company quick, established access to a new market.

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A whole newly owned subsidiary
• The process of establishing of a new, wholly owned
subsidiary (also called a greenfield venture) is often
complex and potentially costly, but it affords the firm
maximum control and has the most potential to provide
above-average returns.
• The costs and risks are high given the costs of
establishing a new business operation in a new country.
• The firm may have to acquire the knowledge and
expertise of the existing market by hiring either host-
country nationals either from competitive firms or
consultants.

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 Type of
Advantages Disadvantages
Entry
Low control, low local knowledge,
Exporting Fast entry, low risk potential negative environmental
impact of transportation

Less control, licensee may become a

Licensing and competitor, legal and regulatory
Fast entry, low cost, low risk
Franchising environment (IP and contract law)
must be sound

Shared costs reduce investment Higher cost than exporting, licensing,

Partnering and
needed, reduced risk, seen as local or franchising; integration problems
Strategic Alliance
entity between two corporate cultures

Fast entry; known, established High cost, integration issues with

Acquisition
operations home office
Greenfield Venture
Gain local market knowledge; can be
(Launch of a new, High cost, high risk due to unknowns,
seen as insider who employs locals;
wholly owned slow entry due to setup time
maximum control
subsidiary)
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 THANK YOU

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