Unit I

Introduction to
International business
 International Business- Meaning
The exchange of goods and services among individuals and
businesses in multiple countries.
International Business is the process of focusing on the
resources of the globe and objectives of the organizations on
global business opportunities and threats.
Scope of International Business
1. International Marketing
2. International Finance and Investments
3. Global HR
4. Foreign Exchange
Need for International Business

1. To achieve higher rate of profits

2. Expanding the production capacity beyond the demand of the
domestic country
3. Severe competition in the home country
4. Limited home market
5. Political conditions
6. Availability of technology and managerial competence
7. Cost of manpower, transportation
8. Nearness to raw material
9. Liberalization, Privatization and Globalization (LPG)
10. To increase market share
11. Increase in cross border business is due to falling trade
barriers (WTO), decreasing costs in telecommunications and
 Reasons for Recent International Business Growth

1. Expansion of technology

2. Business is becoming more global because

•Transportation is quicker
•Communications enable control from afar
•Transportation and communications costs are more conducive for international
operations
3. Liberalization of cross-border movements
4. Lower Governmental barriers to the movement of goods, services, and resources
enable Companies to take better advantage of international opportunities
Reasons for Internationalism
Pull factors
 Growth
 Profitability
 Achieving economies of
scale
 Risk spread
 Access to imported inputs
 Economic integration and
free markets
 Emergence of WTO
 Unifying effect and peace
Push factors
 Uniqueness of product or
service
 Marketing opportunities
due to life cycles
 Spreading R & D costs
 Resource utilization
 Competition and costs
 Quality improvements
 Government policies and
regulations
Internationalizing Business
License
Export via agent or distributor
Export through own sales representative or sales
subsidiary
Local packaging or assembly
FDI
Ethnocentric:
 Home country is superior, sees similarities in foreign
countries
Polycentric:
 Each host country is unique, sees difference in foreign
countries
Regiocentric:
 Sees similarities and difference in a world region
Geocentric
 World view, sees similarities and differences in home and
host countries
International Business Environment
The International Business Environment imposes several
constraints on a international enterprise and has considerable
impact and influence on the scope and direction of its activities.

The international environment is basically determined by the

growth of the world economy, distribution of world GDP,
economic relations and inter dependence between between
nations and international economic policies of major industrial
market economies, mncs, banks and multilateral institutions like
International Monetary Fund, World Trade Organization, world
bank and International Labor Organization.
Factors affecting International Business Environment

Economic environment
International social environment
International cultural environment
International political environment
International legal and regulatory environment
International technological environment
International ecological/natural environment
 Political Environment
The political environment in international business
consists of a set of political factors and government
activities in a foreign market that can either facilitate or
hinder a business' ability to conduct business activities in
the foreign market.

There is often a high degree of uncertainty when

conducting business in a foreign country and this risk is
often referred to as political risk or sovereign risk.
 Multiplicity of political environments
Domestic environment
 It consists of the controllable and uncontrollable forces
whose origin is in the home country.

Foreign environment
 They operate differently for several reasons including
 Different force values
 Changes difficult to assess
 Decision making more complex
 Forces are interrelated
Political System
A political system is a system of politics and government.
It is usually compared to the legal system, economic
system, cultural system, and other social systems. However,
this is a very simplified view of a much more complex
system of categories involving the questions of who should
have authority and what the government's influence on its
people and economy should be.
Classification of political system
Political system as the basis: one way to classify
 Parliamentary governments
 Absolutist system
Another way to classify
 Two party system
 Multiparty system
 Single party
 Dominated one party
Classification of political system
Economic system as the basis
 Communist theory
 Socialism theory
 Capitalism theory
Impact of political environment on
international business
Political ideology of government
Political stability in the country
Relation of government with other countries
Defense and military policy
Thinking of opposition parties towards business
Policies towards MNCs
Government control and restrictions
Treatments of foreign investors
Economic Environment
Economic Environment refers to all those economic
factors, which have a bearing on the functioning of a
business.
Business depends on the economic environment for all the
needed inputs.
It also depends on the economic environment to sell the
finished goods.
Naturally, the dependence of business on the economic
environment is total and is not surprising because, as it is
rightly said, business is one unit of the total economy.
Economic System
An economic system is a system of production and
exchange of goods and services as well as allocation of
resources in a society. It includes the combination of
the various institutions, agencies, entities (or even
sectors as described by some authors) and consumers
that comprise the economic structure of a given
community.
Types of economic system
Planned economy/command allocation
Market based economy/market allocation
Mixed economic system/mixed allocation
Determinants of economic development
Economic factors in economic development
 Capital formation
 Natural resources
 Marketable surplus of agriculture
 Conditions in foreign trade
 Economic system
Non economic factors in economic development
 Human resources
 Technical know how and general education
 Political freedom
 Social organization
 Corruption
 Desire to develop
 Impact of economic environment on international
business
The current state of global economy and what is likely to be in the near future
Economic indicators of local economy
Demand dynamics for a particular product or service at a particular time
Situation with respect to the factors affecting the pricing of products and services
Degree of competiveness in a particular market.
Likelihood of short term and long term profitability because of multifarious
factors
Depression of economies that result in the rise or decline or stability in economic
growth rates at global and national levels
Availability of foreign investment in the form of FDI and FII.
Extent of regulation and management of national economies and financial sector
by the government.
World food production levels at a particular time
Rate of inflation in an economy
Extent of liberalization, globalization and integration with global economy
 Impact of Culture on International Business
Culture determines goods and services
Culture determines attitude to work
Culture and global business
Culture and competitive advantage
Culture and strategy
Digital interface in international business
The organizational dimension: Specific functional
concepts related to the information age like
“algorithm,” “artificial intelligence,” and “e-
commerce” have received some attention in IB.
some studies also appeared on the role of Information
and communications technology (ICT) on the
international organization of companies
The regulatory dimension: More generic and
governance-related concepts like cyberspace
Information and communication technologies have given rise to both a
new type of firms offering a platform for users to interact with each
other and generate value through user co-creation of content, and to
new business models. What defines the success of these business
models from an international and comparative perspective?
• The international fragmentation of production systems and the
geographic dispersion of the value chain have opened up novel
opportunities and related growth scenarios for new actors. How has the
relative importance of location factors and geographical hierarchies
changed? How are emerging market countries capturing these
opportunities to catch up and shift their role in global supply/value
chains? How have recent processes of back-sourcing and back-
shoring been affected (and possibly facilitated) by the information and
digital age?
Increasing de-verticalization and modularity of products and
processes foster complex and dispersed network organizations. How
do firms manage multifaceted portfolios, including various forms of
corporate partnering, external collaboration, and non-equity
forms across borders? What governance structures have been adopted
to manage cross-country inter-organizational networks? What creative
value chain orchestration and governance approaches are needed in
this landscape?
Technological revolutions and the transformation of industrial
structures: How do information and communication, as well as new
digital technologies, change sectoral boundaries (e.g., between
manufacturing and non-manufacturing industries), deconstruct
traditional industries, and stimulate the emergence of new sectors
and/or cross-industry convergence?
Organizations evolve and adapt to their technological
and institutional environments, and these changes are
not unidirectional.
How, and to what extent, does the emergence of new
manufacturing technologies, the Internet of Things,
3D printing (Additive Manufacturing), and Industry
lead to the international reorganization of production
networks? How, and to what extent, do information
technologies and increasing flexibility impact upon
labor market and employment practices?
Framework of Country Attractiveness