CHAPTER 1-

INTRODUCTION TO
INTERNATIONAL
6.53
BUSINESS
A.
INTRODUCTION
International business is all commercial
transactions private and governmental between
two or more countries.
important because (i) It comprises a large and
growing portion of the world’s total business.
(ii) All companies are affected by global events
and competition, whether large or small, since
most sell output to and secure raw materials
and supplies from foreign countries.

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The company’s external environment
conditions such as physical, societal and
competitive affect the way business
functions such as marketing,
manufacturing and supply chain
management are carried out.

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B. GLOBAL, MULTINATIONAL
AND TRANSNATIONAL
COMPANY
MULTINATIONAL GLOBAL COMPANIES
Multinational
investment companies
in other have but do
countries, have invested
present in manyand are
not have
coordinated
country. Moreproduct
focusedofferings
on in each
adapting their countries.
their Theythrough
products market
products
local and
market.
Corporation
service
A to each
Multinational individual the use of theimage/brand
coordinated same
(MNC)
(MNE)
manages
oraMultinational
is
production
Enterprisethat
corporation enterprise
or delivers services
in all markets.
Generally one corporate
than
to as one country. It can also bein more
referred office that is responsible
an international corporation. for global strategy.

TRANSNATIONAL COMPANIES
are much more complex organizations. They
have invested in foreign operations, have a
central corporate facility but give decision-
making, R&D and marketing powers to each
individual foreign market.

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C. EVOLUTION OF
INTERNATIONAL BUSINESS
The analytical framework of international
business is build around the activities of
Multinational Enterprises (MNEs)
enunciated by the process of
internationalisation.
The FDI on the part of an MNE attempts to
overcome the obstructions to trade in
foreign countries. The strategies relating to
the functional areas, such as production,
marketing, finance and price policies, are
adopted by the MNEs in such a manner
that an amicable relationship between home
and host nations is created.
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Before the emergence of the MNEs,
foreign trade and international business
were regarded as synonymous, and
international trade doctrines based on
labour cost differentials and free trade
guided the international transactions
among different trading partners. The
multinationals undertook FDI abroad,
and their innovative efforts in
technological development and
management techniques, in a way,
refuted the traditional trade theories.
Several FDI theories Notes have been
developed in
support of international business for the
improvement and welfare of world
economies.
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 D. NATURE OF
INTERNATIONAL BUSINESS

The distinguishing feature of international

business is that international firms operate in
environments that are highly uncertain and where
the rules of the game are often ambiguous,
contradictory, and subject to rapid change, as
compared to the domestic environment. In fact,
conducting international business is really not like
playing a whole new ball game, however, it is like
playing in a different ball park, where
international managers have to learn the factors
unique to the playing field. Managers who are
astute in identifying new ways of doing business
that satisfy the changing priorities of foreign
governments have an obvious and major
competitive advantage over their competitors who
cannot or will not adapt to these changing
priorities.
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 E. INFLUENCES AND GOALS OF
INTERNATIONAL BUSINESS
EXPAND SALES:
Companies’ sales are dependent on (a) the consumers’ interest in
their products or service and (b) the consumers’ willingness and ability to
buy them. The number of people and the extent of their purchasing powers
are higher for the world as a whole than for a single country.

ACQUIRE RESOURCES:
Manufacturers and distributors also look for foreign capital, technologies
and information that they can use at home, to reduce their costs.
Sometimes, a company operates abroad to acquire something not readily
available in the home country so as to improve its product quality and
differentiate itself from competitors, potentially increasing market share
and profits.

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 UNDERSTANDING A COMPANY’S PHYSICAL AND SOCIAL
ENVIRONMENTS

To operate within a company’s external environment, its mangers should

have in addition to knowledge of business operations, a working
knowledge of basic social sciences, political sciences, law, anthropology,
sociology, psychology, economies and geography.

International law in the form of legal agreements between two countries

governs how the earnings are taxed by both. International law may also
determine how and whether companies can operate in certain locales.

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 F. PROBLEMS OF INTERNATIONAL
BUSINESS
POLITICAL AND LEGAL DIFFERENCES:
The political and legal environment of
foreign markets is different from that of the
domestic. The complexity generally increases
as the number of countries in which a
company does business increases.
CULTURAL DIFFERENCES:
The cultural differences, is one of the most
difficult problems in international
marketing. Many domestic markets,
however, are also not free from cultural
diversity.

ECONOMIC DIFFERENCES:
The economic environment may vary from
country to country.
DIFFERENCES IN THE CURRENCY
UNIT:
The currency unit varies from nation to nation.
This may sometimes cause problems of currency
convertibility, besides the problems
of exchange rate fluctuations. The monetary system
and regulations may also vary.
 DIFFERENCES IN THE MARKETING
DIFFERENCES IN THE LANGUAGE:
INFRASTRUCTURE:

An international marketer often encounters The availability and nature of the

problems arising out of the differences in the marketing facilities available in different
language. countries may vary widely.
TRADE RESTRICTIONS:
A trade restriction, particularly import
controls, is a very important problem, which
an international marketer faces.
HIGH COSTS OF DISTANCE:
When the markets are far removed by
distance, the transport cost becomes high
and the time required for affecting the
delivery tends to become longer. Distance
tends to increase certain other costs also.
DIFFERENCES IN TRADE PRACTICES:

Trade practices and customs may differ between two countries.

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