INTERNATIONAL BUSINESS

The Dimensions of International Business Lecture 1

Lecture Overview
What is International Business Relevance of the Study of International Business Evolution of International Business Nature of International Business Reasons for going international Stages of Internationalization International Business Approaches Advantages & Problems of International Business Major Decisions in International Business

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Text
International Business Text & Cases
Francis Cherunilam

International Business Text & Cases

P.Subba Rao

Charles Hill Dr. R. Chandran

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What is International Business?

International Business consists of transactions taking

place across national borders for the purpose of satisfying the objectives of individuals and organizations.
International transactions export-import trade, licensing, franchising, contract manufacturing, management contracts, turnkey projects, foreign direct investments, joint-ventures, Alliances. International Business also includes a growing service industry in areas such as Information technology, transportation, tourism, advertising, construction, retailing, wholesaling, and mass communication.

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The Need to study International Business?

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Evolution of International Business

Cross-country trade has been taking place since prehistoric times. Post world war-II, the growth of international & multinational companies took place International trade to International marketing International marketing to International Business TT to SWIFT settlement system Movement of Capital overtaken Trade
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Nature of International Business

Variations in political, social, cultural and economic factors in countries Accurate and timely information requirement Larger size of Business Geographical market segmentation Increased potential for business because of broader market perspective. Wider scope for business activities Inter-country comparative study
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Reasons for Going International

Profit Advantage Growth opportunities Domestic market constraints Competition Government policies & regulations Political stability vs. Instability Availability of technology & Managerial Competence High cost of transportation Nearness to raw material Availability of Quality Human resource at low cost Liberalization & Globalization Increasing market share

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Stages of Internationalization
Stage-1 Stage 2 Stage 3 Stage 4 Stage 5 : : : : : Domestic Company International Company Multinational Company Global Company Transnational Company

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International Business Approaches

Ethnocentric approach
Sales of domestic products in int. markets. Domestic orientation International Market secondary Firm seeks markets similar to domestic. Little adaptation of product or marketing mix. Usually produced domestically Recognition of difference in overseas markets Decentralization of operations Country by country basis Local marketing input and control

Polycentric approach

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International Business Approaches

Regiocentric approach
Different regions as different markets Strategies formulated for a region

Geocentric approach
Develop product and marketing strategies for world markets. Standardize as far as possible, adapt where necessary. Economies of scale transfer of knowledge and technology, global image, and better competitive position. The world is viewed as the market

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Stages of domestic to global evolution

Management emphasis Focus Marketing strategy Management style Manufacturing stance Investment policy Performance evaluation Stage one Domestic Domestic Domestic Domestic Mainly domestic Domestic Domestic market share Stage two International Ethnocentric Extension Centralized top down Mainly domestic Domestic used worldwide Against home country market share Stage three Multinational Polycentric Adaptation Decentralized bottom up Host country Mainly in each host country Each host country market share Stage four Global Geocentric Extension Integrated Lowest cost worldwide Cross subsidization Worldwide

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Advantages
Higher living standards Increased socio-economic welfare Wider market Reduced effects of business cycles Reduced risks Large scale economies Potential untapped markets Provides opportunities for challenges to domestic market Division of labor and specialization Economic growth of the world Optimum and proper utilization of World resources Cultural transformations Knitting the world into a closely interactive traditional villages

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Problems
Political factors Huge foreign indebtedness Exchange instability Entry requirements Tariff, quotas and trade barriers Corruption Bureaucratic practices of government Technological pirating High cost Cultural sensitivities
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Major decisions in International Business

Deciding Whether to Go Global Deciding Which Markets to Enter
Before going abroad, the company should try to define its international marketing objectives and policies.
  

What volume of foreign sales is desired? How many countries to market in? What types of countries to enter?

Choose possible countries and rank based on market size, market growth, cost of doing business, competitive advantage, and risk level

How to enter (Market entry Strategies)

Exporting Indirect, Direct Joint Venturing


Licensing, Franchising, Management contracting, contract manufacturing, joint ownership, collaboration

Foreign direct investment Representative Office, Branch, Creating a Subsidiary, Merger & Acquisition Foreign Institutional Investments Yen now $ Carry Trade, Portfolio investments, ECBs, ADRs, GDRs, FCCB, FCEB etc

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Major decisions in International Business

Deciding on the Global Marketing Mix
Standardized Marketing Mix:


Selling largely the same products and using the same marketing approaches worldwide. Producer adjusts the marketing mix elements to each target market, bearing more costs but hoping for a larger market share and return.

Adapted Marketing Mix:



Deciding on the Global Marketing Organization

Organize an export department Create international divisions
   

Geographical organizations World product groups International subsidiaries Become a global organization

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Important Trade Items in 2007-08

Exports Engineering Goods Petrolieum procuts Gems & Jewellery Chemicals & Related prod. Share(%) 20.91 15.64 12.36 13.63

Textiles Agriculture & Allied Minerals,Leather,Elect

11.38 8.43 10.00

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Important Trade Items in 2007-08

Imports Petroleum products Machinery Electronic goods Gold Iron & Steel, Peals etc Transport & Org. Chem Share (%) 32.75 13.81 8.55 7.08 7.00 6.00

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Major Trading Partners in 2007-08

Exports US UAE China Spore & UK Imports China Saudi Arabia UAE US Iran Share (%) 13.02 9.66 6.78 8.50 11.3 8.1 5.62 5.51 4.58

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Next Lecture
International Business Environment Globalization Case Study

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