International Business Chapter01

International Business
Environments and Operations
Background For International Business
1-1
Copyright © 2011 Pearson Education
Chapter 1
Globalization
and International
Business
1-2
Chapter Objectives
• To define globalization and international

business and show how they affect each other
• To understand why companies engage in
international business and why international
business growth has accelerated
• To discuss globalization’s future and the major
criticisms of globalization
• To become familiar with different ways in which
a company can accomplish its global objectives
• To apply social science disciplines to
understanding the differences between
international and domestic business
1-3
Contd…
• Introduction to International Business
• Nature & Scope & Feature of International
Business
• Importance of International Business
• Approaches of International Business
• Problems in International Business
• Advantages & Disadvantages of International
Business
• Reasons for recent International Business Growth
• International organisations
1-4
Introduction
Globalization is the ongoing process

that deepens and broadens the
relationships and interdependence
among countries. International
Business is a mechanism to bring
about globalization.
1-5
International business consists of all

commercial transactions—including
sales, investments, and transportation
—that take place between two or more
countries
Increasingly foreign countries are

a source of both production and sales
for domestic companies
1-6
What is International Business ?
• The exchange of Goods & Services, Resources, Knowledge, &
Skills, among individuals & businesses in two or more countries.
• Transaction that are carried out across national borders to satisfy
the objectives of individuals and organization
• All Commercial transactions that take place between two
or more countries.
1. Private & Government
2. Sales
3. Investments
4. Logistics
5. Transportation
1-7
Studying International Business is
Important
• Most companies are either international or
compete with international companies
• Modes of operations may differ from those used
domestically
• The best way of conducting business may differ
by country
• An understanding helps you make better career
decisions
• An understanding helps you decide what
government policies to support
1-8
Nature
• Accurate Information & timely

• The size of the international business
• Market segmentation
• International markets have more potential
than domestic markets
1-9
Scope
• International Marketing
• International Finance and Investments
• Foreign Exchange
• Global HR
1-10
Features
• Large scale operations

• Integration of economies
• Dominated by developed countries and MNCs
• Benefits to participating countries
• Keen competition
• Special role of science and technology
• International restrictions
1-11
Importance
• Earn foreign exchange

• Optimum utilization of resources
• Achieve its objectives
• To spread business risks
• Improve organization's efficiency
• Get benefits from Government
• Expand and diversify
• Increase competitive capacity
1-12
International Business:
Operations and Influences
1-13
Measuring Globalization
• A.T. Kearney/Foreign Policy Globalization Index

Economic
Technological
Personal Contact
Political
1-14
Factors Contributing to Rapid Growth of
1. Increase in and expansion of technology
2. Liberalization of cross-border trade and
resource movements
3. Development of services that support
international business
4. Growing consumer pressures
5. Increased global competition
6. Changing political situations
7. Expanded cross-national cooperation
1-15
What’s Wrong with Globalization
• Threats to national sovereignty

• Economic growth and environmental stress
• Growing income inequality and personal stress
• Offshoring – the transferring of production
abroad – is controversial in terms of who
benefits when costs are reduced and whether
the process exchanges good jobs for bad ones.
1-16
Companies Engage in International
Business
• To Expand Sales: pursuing international sales
increases the potential market and potential
profits
• To Acquire Resources: may give companies
lower costs, new and better products, additional
operating knowledge
• To Diversify or Reduce Risks: international
operations may reduce operating risk by
smoothing sales and profits, preventing
competitors from gaining advantage
1-17
Approaches of IB
Ethnocentric
Polycentric
Regiocentric
Geocentric
1-18
Contd.
Ethnocentric approach: Under this approach, target market is own country ,
Excessive production will export due to change in customer taste, preference
Polycentric approach: Under this approach, the companies customizes the

marketing mix to meet the taste, performance and needs of the customers of
each international market
Regiocentric approach: Under this approach, the company operating

successfully in a foreign country thinks of exporting other neighboring
countries of the host country. At this stage, the concerned subsidiary
considers the regional environment ( such as laws, culture, policies etc.) for
formulating the policies & strategies
Geocentric approach: Under this approach, the company analyses the
tastes, preference and needs of the customers in all foreign markets and
then adopts a standardized marketing mix for all the foreign markets.
1-19
Modes of Operation in International
Business
• Merchandise exports and imports

• Service exports and imports
 Tourism and Transportation
 Service Performance
 Asset Use
• Investments
 Foreign Direct Investment (FDI)
 Portfolio Investment
1-20
Multinational Enterprises
Multinational Enterprises (MNEs) take a

global approach to markets and
production. Sometimes they are referred
to as multinational corporations or
companies (MNCs) or transnational
companies (TNCs).
1-21
Difference Between International and
Domestic Operations
When operating abroad companies may
have to adjust their usual methods of
carrying out business.
Foreign conditions often dictate a more

suitable method, and the operating modes
used for international business differ from
those used on a domestic level.
1-22
Physical and Social Factors Affecting
International Business Operations
To operate within a company’s external

environment, its managers must have
knowledge of business operations and a
working knowledge of social sciences,
and how they affect all functional
business fields.
1-23
Problems
• Political factors
• High foreign investments and high cost
• Exchange instability
• Entry requirements
• Tariffs, quota etc.
• Corruption and bureaucracy
• Technological policy
• Quality Management
1-24
Physical and Social Factors Affecting
International Business Operations
1-
1-25
Copyright © 2011 Pearson Education 156
Competitive Factors Affecting
• A company’s competitive strategy

influences how and where it can best
operate.
• A company’s competitive situation may

differ in terms of its relative strength and
which competitors it faces.
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Competitive Factors Affecting
1-27
Advantages & Disadvantages
• Faster growth • Increased costs

• Access to cheaper inputs • Foreign regulations and
standards
• Increased quality and
efficiency • Delays in payments
• New market opportunities • Complex organizational
structure
• Diversification
1-28
Reason for recent growth in IB
• Expansion of technology
• Business is becoming more global because
• Transportation is quicker
• Communications enable control from afar
• Transportation and communications costs are more
conducive for
• international operations
• Liberalization of cross-border movements
• Lower Governmental barriers to the movement of goods,
services, and resources enable Companies to take better
advantage of international opportunities
1-29
Future of International Business and
Globalization
• Further globalization is inevitable.

• International business will grow primarily along
regional rather than global lines.
• Forces working against further globalization and
international business will slow down both
trends.
1-30
All rights reserved. No part of this publication may
be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording,
or otherwise, without the prior written permission
of the publisher. Printed in the United States of
America.
1-31

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International Business

Environments and Operations

Background For International Business

• To define globalization and international

Globalization is the ongoing process

International business consists of all

Increasingly foreign countries are

• Accurate Information & timely

• Large scale operations

• Earn foreign exchange

• A.T. Kearney/Foreign Policy Globalization Index

• Threats to national sovereignty

Polycentric approach: Under this approach, the companies customizes the

Regiocentric approach: Under this approach, the company operating

• Merchandise exports and imports

Multinational Enterprises (MNEs) take a

Foreign conditions often dictate a more

To operate within a company’s external

• A company’s competitive strategy

• A company’s competitive situation may

• Faster growth • Increased costs

• Further globalization is inevitable.

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