INTERNATIONAL BUSINESS

IB is the business between borders IB has been in existence throughout history Today no country can claim it can prosper without IB -International Business means the transnationalisation of the world economy. -International Business is the attitude of mindit is mind set which views the entire world as a single market and corporate strategy is based accordingly.
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When did International Business Start?

IB is not a new idea. Evidence suggests China, India, and Japan were trading products throughout the world 15,000 years ago. Africans also traded with South Americans several thousand years ago.

International Business Terminology,

contd.

International Business
A business whose activities are carried out across national boarders

Foreign Business
The operations of a company outside its home or domestic market

Multidomestic Company
An organization with multicountry affiliates
Each formulates its own business strategy on perceived market differences
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International Business Terminology,

contd.

Global Company
an organization that attempts to standardize and integrate operations worldwide in most of all functional areas

International Company
A global or multidomestic company

History of International Business

Early traders
Well before the time of Christ, Phoenician and Greek merchants China stimulated the emergence of an internationally integrated trading system
all roads lead to China

17th Century mercantilism/colonialism

British East India Company Dutch East India Company Portugal and France
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Environments of International Business

Environment
All the forces influencing the life and development of the firm

Forces
External Forces (Uncontrollable) Forces over which management has no direct control Internal Forces (Controllable) Forces that management can use to adapt to external forces

External Forces
Competitive
Kind, number, location

Distributive
For distributing goods and services

Economic
GNP, unit labor cost, personal consumption expenditure

Socioeconomic
Characteristics of human population

Financial
Interest rates, inflation rates, taxation
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External Forces, contd.

Legal
Laws governing how international firms must operate

Physical
Topography, climate, and natural resources

Political
Forms of government, and international organizations

Sociocultural
Attitudes, beliefs, and opinions

Labor
Skills, attitudes of labor

Technological
Equipment and skills that affect how resources are converted to products
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Internal Environmental Forces

Factors of Production
Capital, raw materials, and people

Activities of the organization

Personnel, finance, production, and marketing

Why Is International Business Different?

Domestic Environment
All the uncontrollable forces in the home country that surround and influence the firms life and development

Foreign Environment
All the uncontrollable forces originating outside the home country that surround and influence the firm
different values difficult to assess interrelated

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Why Is International Business Different? contd.

International Environment
Interaction between domestic and foreign environmental forces or between sets of foreign environmental forces Increased complexity for decision-making

Decision making more complex

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IB through Globalization
Trade and investment barriers are disappearing. Perceived distances are shrinking due to advances in transportation and telecommunications. Material culture is beginning to look similar. National economies merging into an interdependent global economic system.
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TYPES OF INTERNATIONAL BUSINESS

Trading:- Import and export of goods and services. Manufacturing and Marketing:- Manufacturing the goods first and then doing export. Sourcing and Marketing:- Outsourcing the product then market at home and abroad. Global sourcing for Production:- when firm source the raw material, intermediates etc required for their manufacturing globally.
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 Services:- Providing services like tourism, transportation, it, banking, consultancy etc. Investment:- doing investment in the foreign economy for manufacturing, marketing and other services.

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GEOGRAPHY location climate terrain waterways natural resources

ECONOMICS technology education inflation exchange rate infrastructure

THE INTERNATIONAL BUSINESS ENVIRONMENT

CULTURE language family religion customs traditions food

POLITICALLEGAL FACTORS government system political stability trade barriers

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 Custom Duties:- Imposing heavy taxes on the imported items. Example:- as we export cars or bike manufactured in the foreign we have to pay 120% taxes. Quotas Restriction:- Putting quota restriction on import and export. Example:- such as gold we can bring the gold upto a particular amount. Complete Embargo:- Banned the product completely. Trade Policy:- Trade policy can also hinders the operations of the company.
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 Political Risk Technological Risk Legal Risk Economical Risk Environmental Risk Cultural Risk

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Components of International Business Environment

Global Environment Foreign Environment Domestic Environment

Micro Environment

Internal Environment

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External Environment
Micro Environment Macro Environment

Micro Environment: Actors in the firms immediate environment. Influence the firms decisions & operations directly. Do not affect all the firms in an industry in the same way. Macro environment: Wider societal forces, which affect the firm and also the players in the firms micro environment.
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Micro Environment
Competitors General Public
Marketing Intermediaries

Customers

Suppliers Financial Institutions

Actors in the firms immediate environment.

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Macro Environment
Economic Env National Business Political Socio-cultural Demographic Technological Non Economic Env

Global

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Macro Environment
Forces operate at home (domestic) country, host (foreign) country and global levels. Comprises of economic and non-economic environmental forces. Economic environment of business both national and global is of strategic importance. 1. A firm is an economic unit. 2. Business activities are economic activities. 3. Business decision making are economic in nature.
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Major Critical Economic Forces

Economic indicators (GNI, GNI PPP, GDP, GNI Per Capita, GDP Growth Rate etc) Economic system Economic plans and policies- Monetary, fiscal, trade and commerce. Economic problems and prospects

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Domestic Environment
All the uncontrollable forces originating in the home country that surrounds and influence the life and development of the firm.

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Domestic Environment

Competitive Structure

Economic climate

Political & Legal forces Uncontrollable

IMPACT ?
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Domestic firms venture into international business Lack of domestic demand and/or
Intense Competition Export Promotion Measures and/or Economic Incentives
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Foreign Environment
Geographical factors Economic conditions Socio-Cultural environment Political environment Technological environment Legal forces
Uncontrollable forces originating outside the home country that surround and influence the firm.
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Non-Economic Environment

Political

Socio-Cultural

Legal

Technological Ecological

Geographical

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Need for International Business

International business:
causes the flow of ideas, services, and capital across the world offers consumers new choices permits the acquisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities reallocates resources, makes preferential choices, and shifts activities to a global level
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CULTURAL ENVIRONMENT

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 To the world of business- Culture is 2Ms, 2Ds, 3Fs-

Culture

movies, music, dance, drama, fashion, food, festivals American culture influences the lifestyle of people worldwide. They have huge income from food chains, pop culture (70% sales from outside US), TV shows (Europe gives $600m yearly) and of course- Hollywood! Bond, Madonna, 50 Cent- more popular than Gandhi, Da Vinci, Mandela and most important world leaders. Malaysia truly asia.
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Culture
Culture is the set of values, beliefs, rules, and institutions held by a specific group of people It is learned and shared, its elements are interrelated, and it defines group boundaries Subcultures exist within larger cultural Contexts One can acquire cultural literacy Ethnocentricity is a belief that ones own culture is universally superior to others
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Element of Culture
A. Language Spoken Language Written Language Official Language Body Language International Language

B. Religion
Beliefs and Norms Sacred Objects Philosophical Systems Prayer/ Rituals Leading Religious of the World
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C. Values and Attitudes Time (Monochronic (V.S) Polychronic) Achievement Work Change Risk Taking D. Education Literacy Level Formal Education Vocational Training Human Resource Planning Primary / Secondary / High education

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E. Social Organization Social Institutions Authority Structure Interest Groups Status Systems Social Mobility F. Technology and Material Culture

Science Invention Energy Systems Communications Tools and Objects Urbanization

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G. Politics Nationalism National Interests Power Ideologies Political Risks Sovereignty H. Law Common Law Code Law Foreign law Home / Host Country Law Regulation / Antitrust Policy International Law
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Cross-Culture Comparisons
A. Edward Halls High-Context (V.S) Low-Context Cultures B. Hofstedes Classification Scheme Individualism (V.S) Collectivism Power Distance Uncertainty Avoidance Masculinity Long-Termism C. Deal-Oriented (V.S) Relationship Oriented Cultures

Deal Oriented Cultures Relationship Oriented Cultures

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Cross-Culture Training Methods (Ascending Order) Area Briefing Books Sensitivity Training Field Trips Experiential Field Experience Impact of Globalization Globally competent employees Ability to work with diverse cultures Overcoming the self-reference criterion (SRC)

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Cross- Cultural Negotiations Non-Task sounding Task-Related Information Exchange

Persuasion Concessions and agreement Try to access 3 videos produced by Big world UW-W library Cross-cultural communicating Cross-cultural understanding Cross-cultural negotiating

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ORGANISATIONAL CULTURE
Components of Organizational Culture Routine ways of communicating Norms shared by individuals and teams Dominant values held by an organization Guiding philosophy for managements policies and decision making Rules of the game for getting along in the organization Climate of the organization

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7 dimensions of culture

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Layers of Organizational Culture

Cultural Symbols

Shared Behaviors

Cultural Values

Shared Assumptions
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How Cultures Emerge

Top Management Agrees on shared assumptions of human behavior Develops a shared vision of cultural values

Behaviors Employees behave in ways that are consistent with shared values and assumptions

Results Financial performance Market share Employee commitment

Culture Strong culture emerges Traditions are maintained Socialization practices for new employees

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Requirements for Successfully Changing Organizational Culture

Understand

the old culture first Support employees and teams who have ideas for a better culture and are willing to act on those ideas Find the most effective subculture in the organization and use it as a model Help employees and teams do their jobs more effectively Use the vision of a new culture as a guide for change Recognize that significant cultural change takes time Live the new culture

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Framework of Types of Cultures

Flexible Formal Control Orientation Stable

Clan Culture

Entrepreneurial Culture

Bureaucratic Culture

Market Culture

Internal Forms of Attention

External

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Attributes of a Bureaucratic Culture * Long-term concerns are predictability, efficiency, and stability * Members value standardized goods and services * Managers view their roles as being good coordinators, organizers, and enforcers of written rules and standards * Tasks, responsibilities, authority, rules, and processes are clearly defined
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Attributes of a Clan Culture

* Members

understand that contributions to the organization exceed any contractual agreements * A clan culture achieves unity with a long and thorough socialization process * Members share feelings of pride in membership, as well as feelings of personal ownership of a business, a product, or an Idea * Peer pressure to adhere to important norms is strong * Success is assumed to depend substantially on sensitivity to customers and concern for people * Teamwork, participation, and consensus decision making are believed to lead to success

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Attributes of an Entrepreneurial Culture

* There

is a commitment to experimentation, innovation, and being on the leading edge * This culture does not just quickly react to changes in the environmentit creates change *Effectiveness depends on providing new and unique products and rapid growth * Individual initiative, flexibility, and freedom foster growth and are encouraged and well rewarded

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Attributes of a Market Culture

Contractual

relationship between individual and organization Independence and individuality are valued and members are encouraged to pursue their own financial goals Does not exert much social pressure on an organizations members, but when it does, members are expected to conform Superiors interactions with subordinates largely consist of negotiating performance reward agreements and/or evaluating requests for resource allocations Has a weak socialization process Few economic incentives are tied directly to cooperating with peers Often tied to monthly, quarterly, and annual performance goals based on profits
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Organizational Uses of Culture

Organizational culture has the potential to enhance organizational performance, individual satisfaction, and a variety of expectations, attitudes, and behaviors in organizations If an organizations culture is not aligned with the changing expectations of internal and/or external stakeholders, the organizations effectiveness can decline Organizational culture and performance are related, although the evidence regarding the exact nature of this relationship is mixed Organizational culture affects employee behavior and performance Assessing which attributes of an organizations culture need to be preserved and which ones need to be modified is a constant organization need

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Levels of Culture
National culture- dominant in a country. May be plural in countries like India. Biz. Culture- etiquettes, norms, values, beliefs What to wear, shake hands, embrace, smile, showing feet, asking about family, gifts, discussing religion,, being punctual, using first name etc. Malaysia- buildings designed to keep out ghosts and ve energy, spirits. India- vaastu saasthra, god pics in office room etc. US-family members pics kept in office Org. Culture- P& G, Tata, doctors, autos etc.
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Maintaining good Organizational culture

Greeting- handshake Frequent interactions- inter personal relation Promoting feelings of equalityraces/religion/language Reducing culture shock among new members Group bonding techniques Frequent research and updating of changes in the workforce Matching changes in the work to the culture of the office
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Cultural aspects
Cultural adaptation- Nothing is permanent but change Cultural shock- new world, new life Cultural transmission- It is cumulative every generation. Films, tv, fashion, economy, politics play a role. Cultural conformity- need to reduce outcasts Cultural lag- rapid change in one part of the culture does not confirm the same about all parts eg. Moral policing
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Cultural traits
Masculine culture (success depends on individuals achievements, material focused, efficiency, time driven, emphasis on written) Feminine (more emphasis on personal relationships, contacts, friends & relatives, shy, sympathy for less fortunate, life long, emphasis on word) Individualism (people see themselves as individuals) while communitarianism (people see themselves as a group) Neutral (hides emotions eg. Japan, UK) and Emotional (Arabia, India)- World becoming more neutral as modernization continues..
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POLITICAL ENVIRONMENT

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Political

Form of Government

Political Party System

Political Ideology

Role of Government

Political Stability
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Socio-Cultural

Language

Education

Attitude & values

Religions & Superstition

Social groups & Organizations

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IMPACT OF POLITICAL ENVIRONMENT ON BUSINESS

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Home and Host Country Political Environments

The Uncontrollable

Sovereignty of nations and nationalism Stability of government policy Political risks in global business Confiscation Expropriation Domestication Embargoes, Boycotts and Sanctions Violence
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 Economic and Commercial risks Exchange controls Import restrictions Local-content laws

Price controls Labor problems Tax controls Commercial risks

Assessment of potential political risks Politically sensitive products

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 Reducing political vulnerability

Good corporate citizenship Managing citizen affairs (PR) Understand the differences in political ideologies Strategies to lessen political risks
Joint venture Expanding the investment base (Local financial partner)

Marketing and distribution Licensing Planned domestication (Greater local participation) Use risk reduction through adequate insurance [Ex-im Bank Foreign Credit insurance association, Overseas Private Investment Corporation (OPIC), and Agency for International Development (AID)] Political payoffs (U.S. Foreign corrupt practices act)
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 Strategies to reduce commercial risks Joint venture Investment base expansion Marketing and distribution Licensing Planned domestication (Greater local participation) Other

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 Role of Government in Encouraging Global Trade Trade liberalization Attract FDI Create and promote free trade zones

Open up the market for foreign products Promote transfer of technology Tax holidays for FDI Special incentives for importation of State of the art technologies Provide market information and incentives for local SMEs to seek foreign markets Host or encourage trade missions Promote competitiveness of target industries Provide/Invest in necessary business infrastructure development

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Home and Host Country Legal Environment Bases for legal systems Common law (British/English) Code law (Roman law) Islamic law Socialist law Legal dispute situations Between governments Between companies and governments

Between companies

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 Determination of legal jurisdiction Jurisdictional clauses included in contract Location of contract agreement Location of contract performance International dispute resolution Conciliation of mediation

Arbitration
Arbitration centers Arbitration clauses

Enforcement of Arbitration
Litigation
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Patent Law The United States vs. Japan United States Japan

Protects individual inventors Promotes technology sharing Patents applications are secret Protects application are public Patent granted in up to 24 Patent granted in 4 to 6 years months
Patent valid for 17 years form Patent valid 20 years from date issued application date

Source: Crossing-boarders 7-4, p175.

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Commercial law within Countries/Regions Marketing laws Green marketing legislation Antitrust laws USA Sherman act (1890)

Clayton act (1914)

Robinson-Patman (1936) European Union Treaty of Rome Articles 85-86 (Private Companies) Articles 92, 93, 37 (Government/States) Articles 222 and 90 (Public enterprises)

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The Political Environment

Relatively uncontrollable factors outside the firm that influence its decision-making
Legal and Political Environment Technological Environment

Factors in government, the law and the regulatory system that affect the way an organisation operates
Environment Economic Socio-Cultural Environment

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The Political Environment

SYSTEM

STABILITY
Legal and Political Environment

POLICIES

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SYSTEM
Includes the structures, processes, and activities by which a nation governs itself.

Political System

Autocratic state Democratic state

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SYSTEM
Autocratic state Democratic state Imposed authority Freedom Lack of constitutional guarantees Rights Restricted participation

Companies light need to pay bribes to government The business law is vague
Doing business seems to be a risky proposition

Stable business environment thanks to laws Freedom and no censorship

Doing business in a democratic state seems to be safer than in a totalitarian state

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SYSTEM
Political Ideology
Capitalist System Capitalist system Socialist system

Socialist System

- Private ownership of business - Public ownership of business is encouraged is the norm The political ideology affects - foreign government attitude towards profit repatriation. - foreign government attitude towards foreign direct investment
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SYSTEM
Political relationships
Favorable political relationships foster stable business environments

increase international cooperation in many areas

lead to increase business opportunities and lower risk

The World Trade Organisation can facilitate political relationships

The WTO ensures that trade flows as smoothly, predictably and freely as possible.
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STABILITY
Political Stability : A subjective governance indicator aggregated from a variety of sources and measuring perceptions of the likelihood of destabilization.

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POLICIES
PROPERTY
Intellectual Property
Property that results from peoples intellectual talent and abilitie.

Industrial Property Industrial property includes patents and trademarks.

Copyrights Copyrights give creators of original works the freedom to publish or dispose of them as they choose.

The problem is that laws in some countries are softer than in others
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POLICIES
PRODUCT SAFETY AND LIABILITY Product liability holds manufacturers, sellers, and others, including individual company officers, responsible for damage, injury, or death caused by defective products.
The United States has the toughest product liability laws in the world following by Europe.

Enforcement of product liability laws differs from nation to nation.

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Legal Environment of Business

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LEGAL ENVIRONMENT OF BUSINESS

Law is the command of the sovereign.. and its body of rules recognized and enforced by courts of law. . Law is a rule relating to the actions of human beings. .

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Purpose of Law
To maintain status quo in society ensuring stability and security of social order, enable individuals , maximum of freedom to assert themselves and determine the sphere within which the existence and activity of each individual will be secure and free

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Advantages of Law
The principle of law provide uniformity and certainty to the administration of justice The existence of fixed principles of law avoids the dangers of arbitrary, biased and dishonest decisions The fixed principles of law protect administrators of justice from the errors of individual judgment
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Sources of Law
Formal sources- law derives its force and
validity from the time immemorial

Legal sources- statues , precedents,

legislation

Historical sources- juristic writings,

literary works, commandments of the god

Legislations- Parliament, state assemblies

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Law of Contracts
Human beings live together in a society. A number of relations are established between different persons. These relations may be natural, social or contractual relations. The relationship created by nature like mother and child, brothers, sisters are called as natural relations.

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Law of Contracts
Relations created by the society between the individuals such as neighbors, classmates etc are called as social relations The relations created by individuals with their own willingness to do or not to do something between them is know as contractual relations. A number of legal principles are framed to regulate these contractual relations between individuals.

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FUNDAMENTAL DUTIES
It shall be the duty of every citizen of India (a) to abide by the Constitution and respect its ideals and institutions, the National Flag and the National Anthem; (b) to cherish and follow the noble ideals which inspired our national struggle for freedom; (c) to uphold and protect the sovereignty, unity and integrity of India; (d) to defend the country and render national service when called upon to do so; (e) to promote harmony and the spirit of common brotherhood amongst all the people of India transcending religious, linguistic and regional or sectional diversities; to renounce practices derogatory to the dignity of women;
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FUNDAMENTAL DUTIES
(f) to value and preserve the rich heritage of our composite culture; (g) to protect and improve the natural environment including forests, lakes, rivers and wild life, and to have compassion for living creatures; (h) to develop the scientific temper, humanism and the spirit of inquiry and reform; (i) to safeguard public property and to abjure violence; (j) to strive towards excellence in all spheres of individual and collective activity so that the nation constantly rises to higher levels of Endeavour and achievement.

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National law
National law is the law of the land. The constitution of India is the supreme law of the nation. It provides the rights, duties, and the liberties of the citizens. The laws made by the state exercising their legislative powers under the constitution have to be in consonance with those of the supreme law

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International law
While the national law is the law of a nation ,also known as municipal law, International law is the law of nations. Where as International law is the body of rules which are legally binding on states in their intercourse with each other. International law is considered to be a weak law because it is not founded on the sovereign authority

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The need for International law

International law has witnessed a great impetus in the present scenario than ever before.1.Human rights and their violation2.filing of pleadings, adducing evidence, oral arguments before International court of justice, Hague (The de facto (de jure) capital of the Netherlands) 3.contracts entered by transnational companies, Intellectual property rights,4. issues like nuclear deals, poverty, maritime, air, space laws, refugees problem, border disputes, bilateral agreements, extradition treaties, UNO, Amnesty international, UNESCO,WTO,W.B,IMF, Curbing terrorism, global peace. etc.,
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Mercantile law
Merchants have their separate courts called courts of piepoudrous (courts of Speedy justice) and the courts were incident to fairs and market places. The common law courts in England envying the jurisdiction exercised by these non-official courts, grappled it. The source of mercantile law is LEX MERCATORIA, (an unwritten law) consisted of only the customs and usages or practices of the trade

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Civil Law
It governs the litigation arising between individuals over properties, monetary affairs, partnership, accident cases etc, The Nature of penalty is civil in nature. Liability to compensate the affected party will be in the monetary form

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Criminal law
In criminal cases, the government for violation or injury to public rights files suits. The State takes initiative to file the case. Criminal law governs cases arising out of theft ,murder, cheating etc., The nature of punishment is monetary and imprisonment, and capital punishment in rare cases.

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Economic Environment

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Elements of Economy
Political Systems Economic System Economic policies Economic planning Growth strategy Industry Agriculture Infrastructure
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Elements of Economy
Financial and fiscal Sectors Foreign Trade Balance of Payment Economic Development Sustainable Development

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Economic Environment (EE)

EE includes: The structure and nature of economy The stage of development of economy. Economic resources The level of income The distribution of income and assets Global economic linkage and Economic policies

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Nature of Economy
Economies

depend on the nature and size of demand, govt. Policies of

business. Economies are divided into 3 according to the per-capita income 1.Low Income Economies: economies with Low per-capita Gross National Income $825 or low. 59 countries in 2004 Third world countries 2.High Income Economies: GNI Income $10,066 or above. 56 countries in the world First World. 3.The middle Income Economies: Per capita GNI between $826 to $3255 (lower middle) GNI with $3256 to $ 10065 (Upper middle Income) 96

Structure of Economy
1.Primary Sector: Agriculture 2.Secondary Sector: Industry 3.Tertiary sector: service sector(small, medium, and large sectors)

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Economic policies
1.Industrial policy IP is defined- the scope and role of - different sectors like, private, public, - joint and cooperative, large, medium and Scope small industries. Till 1991 of large private sector was limited. 17 major important industries -were owned by the state. In 12 major -industries state had a dominant role, joint sector, Lot of licensing regulations for the entry and growth of private sector-companies limited scope Liberalization gave enormous business opportunities new 98 business, growth and expansion

2. Trade policy
3. Foreign Exchange Policy
4. Foreign investment and technology policy

5. Fiscal Policy- Govt policy of taxation

6. Monetary policy control the cost, credit availability

RBI / central bank and

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