INTRODUCTION TO

INTERNATIONAL BUSINESS
UNIT - 1
International Business
by Charles Hill or
Aswathappa

Lesson – 01
GLOBALISATION

Prof. R. Srinivasan
 Learning Objectives:
• Meaning of International Business
• Importance of International Business
• Problems in IB
• Need for IB
• Theories of IB

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What is International Business ?
• International Business is all business transactions that
involve two or more countries.

• International Business comprises a large and growing

portion of the world’s total business.

• International Business usually takes place within a more

diverse external environment.

• What does it cover ?

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 It cover--------
• Export and Import of goods and Services
• Investments – FDI, FII
• Human resources
• IPR- Intellectual Property Rights-
Licensing, Franchising.
• Manufacturing
• Commercial Borrowings

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IB is the whole gamut of business
activities that crosses national
borders:

• IB can effect people in many broad ways

such as,
• People's economic well being,
• Political status
• Skill level or knowledge

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 Definition:
• IB is a field of study and practice that
encompasses public and private business
activity affecting the persons or institutions
of more than one national state, territory or
colony

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 Problems or Challenges in
International Business:

• Language, law, customs and regulations

• Country information may be difficult to
obtain
• Foreign Exchange transactions
• Cultural differences

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• Broader range of managerial skills
required
• Need to take help from intermediaries
• Monitoring trends in foreign market may
be difficult.
• Control & communication systems
• Market risks

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 Why Firms engage in IB ?
• To expand sales/ market – PLC
• To acquire resources
• To diversify sources of sales and supplies
• To minimise competitive risk
• Rapid increase in and expansion of technology
• Development of the institutions needed to
support and facilitate international trade
• Increased global competition

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 What is globalization?

 The shift towards a more integrated and

interdependent world economy
 Two components:
 The globalization of markets
 The globalization of production
 Globalization of markets

 The merging of distinctly separate national

markets into a global marketplace
 Tastes and preferences converge onto a global
norm
 Firms offer standardized products worldwide
creating a world market
 Globalization of markets

 Significant differences still exist between

national markets on many relevant dimensions

 These differences require that marketing and

operating strategies and product features be
customized to best match conditions in a
country.
 Globalization of markets

 Countries are different

 Range of problems are wider and more
complex
 Government intervention in trade and
investment creates problems
 International investment is impacted by
different currencies
 Globalization of production

 Refers to sourcing of goods and services from

locations around the world to take advantage
of
 Differences in cost or quality of the factors of
production
 Labor
 Land
 Capital
 Emergence of global institutions

 Globalization has created the need for

institutions to help manage, regulate and
police the global marketplace
 GATT
 WTO
 IMF
 World bank
 United Nations
 Global drivers

 Macro factors that underlie trend towards

greater globalization

 Decline in trade barriers

 Technological change
WORLD TRADE ORGANISATION

• Successor to GATT in 1995

• GATT established in 1947
• Headquartered in Geneva.

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 INTERNATIONAL MONETARY
FUND
• Established in 1947 to manage fixed
exchange rates and liquidity problems of
countries.
• Each country deposited with IMF a certain
amount so that IMF accumulated a large
pool of foreign exchange.
• Countries with Balance of Payment
problems would borrow from IMF.
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 IMF’s objectives :
• Promote exchange rate stability
• Maintain orderly exchange arrangements
• Avoid competitive currency devaluations
• Establish multilateral system of payments
• Eliminate exchange restrictions
• Create standby resources

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UNITED NATIONS CONFERENCE
ON TRADE AND DEVELOPMENT

• Formed in 1964 as a permanent body

attached to UNO
• To bridge the gap between developing and
developed nations.
• Conferences held once in 4 years.

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 Functions of UNCTAD
• Promote international trade
• Speed up economic development of
developing nations
• Negotiate multilateral trade agreements.
• Co-ordinate the activities of other
insitutions.

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 Declining barriers to trade

 Globalization of markets and production has

been facilitated by
 Reduction in trade barriers
 Removal of restrictions to foreign direct
investment
 Globalization debate-Pro

 Lower prices for goods and services

 Economic growth stimulation
 Increase in consumer income
 Creates jobs
 Countries specialize in production of goods
and services that are produced most
efficiently
 Globalization debate-Con

 Destroys manufacturing jobs in wealthy,

advanced countries
 Wage rates of unskilled workers in advanced
countries declines
 Companies move to countries with fewer
labor and environment regulations
 Loss of sovereignty
The drivers of globalisation
The drivers of globalisation
The drivers of globalisation
The drivers of globalisation
The drivers of globalisation
The drivers of globalisation