International Business

International business consists of transactions that are

devised and carried out across national borders to
satisfy the objectives of individuals, companies, and
organizations.

The Five Ps of International

Business
1. Product
2. Price
3. Proximity
4. Preference
5. Promotion
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.
Modes of entry into
international business

Exporting and Importing

Contract Manufacturing

Licensing and Franchising

Joint Ventures

Wholly Owned Subsidiaries

Exporting and Importing:

Exporting: It refers to selling Importing: It refers to

of domestic goods and sending purchasing of foreign goods
them from the home country to and services and bringing
foreign country. them into the home country.
There are two important ways in which a firm can
export or import goods and services:
1) Direct exporting/importing:
A firm itself approaches the
overseas buyers/suppliers and
looks after all the formalities
related to exporting/importing
activities(shipment ,
financing,etc)
2) Indirect exporting/importing:
A firm does not directly deal
with overseas
buyers/suppliers. Its
participating in the
export/import operations is
minimum. Most of the tasks
relating to export/import are
carried out by some
middlemen (export houses ,
wholesales importers, etc )
 In the past 30 years, the volume of international
trade has expanded from $200 billion to over $7.5
trillion.

The sales of foreign affiliates of multinational

corporations are now twice as high as global
exports.
 THE CURRENT INTERNATIONAL TRADE
POSITION
Exports and Imports of Goods and Services per Capita
for Selected Countries

Chart Title
$6,000

$5,000

$4,000

$3,000
Exports Per Capita
$2,000 Imports Per Capita
$1,000

$0
 Contract Manufacturing:
It refers to a type of international business where a firm enters into a contract
with manufacturer in foreign countries to get certain components or products.

Advantages: Limitations:
A. To the International Company A. To the International Company
(i) Advantage of getting products
manufactured on large-scale without (i)Not suitable for high tech products.
setting production facilities.
(ii)Risk of developing a potential
(ii)Helps in manufacturing of goods at
cheaper rates. competitor in foreign country
B. To Local Producers B. To Local Producers
(i)Local producers get opportunity (i)Has to sell goods at predetermined
to get involved with international prices resulting in lower profits.
business.
(ii)Local producers in foreign
countries obtain manufacturing jobs on
contract basis
Licensing and Franchising

Franchising : It is a contractual
Licensing : It is a contractual
arrangement in which one party
arrangement in which one firm
grants right to another for use of
grants access to its patents ,
technology, trademark patents in
copyright , trademark to another
return of agreed payments far a
firm in a foreign country for a fee
certain period of time.
called royalty.
The parent company is called the
A firm that grants such permission
franchiser & the other party to
is known as licensor & the other
the agreement is called
firm is known as the licensee.
franchisee.
Eg:Pepsi and Coca Cola are
Eg:McDonald , Pizza Hut are
produced and sold all over
leading franchisers operating
worldwide.
worldwide.
ADVANTAGES OF FRANCHISING

A.To the Franchiser

Less expensive mode: It is less expensive mode of entering into

international business.
Regular fee/Royalty: The franchisee also pays a lump sum amount by
way of fee/royalty fixed in advance as a percentage of production or
sales turnover.

B.To the Franchisee

Financing: The franchisee can also get financial assistance from the
franchiser in form of short-term credit, payment of fee/royalty on
easy terms, etc.
Technological upgradation: The franchisee gets the benefit of
technological upgradation in its own operation without investing
huge amount of capital.
 DISADVANTAGES OF FRANCHISING

A.To the Franchiser

Disclosure of trade secrets: If not maintained properly, trade secrets

can get divulged to others in foreign markets, causing severe losses.
Conflicts: Over time, conflicts may develop between the franchiser
and franchisee on issues such as maintenance of accounts, payment
of royalty and non- adherence to quality norms, etc.

B.To the Franchisee

High fee/royalty payments: The franchisee has to pay fees/royalty on

regular basis.
Limited product line: The franchisee cannot sell varieties of products
as he can sell the franchisers products only.
 Joint Ventures
A joint venture is pooling of resources and expertise by two
or more businesses to achieve a particular goal.
Risks and rewards of company are also shared.

A joint venture may be brought about in three major ways:

(i)Foreign investors buying an interest in local company.
(ii)A local company acquiring an interest in an existing foreign company.
(iii)Both the foreign and local companies jointly form a new company.
The third form is most common of joint venture.

Examples of joint ventures:

O Maruti Company of India and Suzuki Company of Japan joined together to
form Maruti Suzuki India Ltd.
O Hero Cycles of India and Honda Motor Company of Japan established
Hero Honda.
ADVANTAGES OF JOINT VENTURE:
Increased resources and
capacity: Joint ventures adds
existing resources and capacity
enabling the company to grow
and expand more quickly and
efficiently.
Reduces risk: High risk involved
in new and innovative ventures
can be reduced when two
companies join together to share
the risk.
LIMITATIONS OF JOINT VENTURE:
Conflicts: The dual ownership
arrangement may lead to
conflicts , resulting in battle for
control between the two firms.
Lack of coordination: Lack of
proper coordination among the
two firms may affect the
efficient functioning of joint
venture.
 Wholly Owned Subsidiaries
The parent company acquires full control over the foreign company by
making 100 percent investment in its equity capital.
This entry mode of international business is preferred by companies
which want to exercise full control over their overseas operation.
Forms/ways to establish a wholly owned
subsidiary market:
Green field venture-Setting up a new firm altogether
to start operation in a foreign country.
Acquisition/Take-over-Acquiring an established firm in
the foreign country and using that firm to manufacture
and /or promote its product in the country.
Wholly Owned Subsidiaries
ADVANTAGES
The parent firm has full
control over the operation in
foreign countries.
The parent company has no
risk of developing potential
competitors as in case of
licensing/franchising or
contract manufacturing.
LIMITATIONS
Since the parent company
owns 100percent equity in
foreign company ,it alone has
to bear the entire losses in
case of failure of business.
This mode of entering into
international markets is
subject to higher political ricks
since some foreign countries
do not favor 100per cent
foreign investment.
INTERNATIONAL TRADE PROMOTION
MEASURES

Various incentives and schemes available to business

firms to facilitate their export and import operation
are announced by the government in its export-
import (EXIM) policy. Major trade promotion
measures are as follows:

(i)Duty Draw
Back Scheme (vii)Export Finance
(ii)Export (iv)Export (viii)Advance License
Manufacturing processing Scheme
under Bond Zones (EPZs)
(ix)Export Promotion
Scheme (v)Special Capital Goods Scheme
(iii)Exemption Economic (EPCG)
from Payment Zones (SEZs)
of Sales (vi)Export of
Service
FOREIGN TRADE POLICY: OPERATIONAL SUPPORT

Government of India has set up the following organization /institutions to promote foreign trade
in our country:

Indian Trade
Export
Department of Promotion
Promotion
Commerce Organisation
Councils (EPCs)
(ITPO)

Indian Institute
State Trade Commodity
of Foreign Trade
Organisation Boards
(IITE)

Export
Indian Institute
Inspection
of Packaging
Councils (EIC)
INTERNATIONAL TRADE INSTITUTIONS AND TRADE AGREEMENTS
World Trade Organisation (WTO) was set up on 1st
January , 1995, replacing the General Agreement on Tariff
and Trade.(GATT)
The headquarters of WTO is at the Centre William
Rappard , Geneva , Switzerland.
History of
World Trade
Organisation(WTO)
WTO was decided at Bretton Woods
conference to set up International Trade
Organisation (ITO) to promote and facilitate
international trade among various countries
and overcome restrictions and discrimination
as were being practised at that time. But the
idea could not materialise due to stiff
opposition from the United States. Instead of
altogether abandoning the idea , the countries
that were participating to the Bretton Woods
conference agreed upon having some
arrangement among themselves so as to save
the world from high custom tariffs and
various other types of restrictions that were in
vogue at that time.This arrangement came to
be known as General Agreement on Tariff and
Trade.(GATT)
Later on GATT was transformed into WTO , a
much powerful body than GATT.
World Trade Organisation (WTO)

Features Benefits
WTO helps to
WTO is an international promote
Organisation designed to
supervise and liberalise international
international trade. It peace and facilities
deals with regulation of in international
trade between
participation. business.

Objectives Functions
To insure reduction Laying down a commonly
of tariff and other accepted code of conduct
tariff barriers with a view to reducing
imposed by trade barriers including
tariff and eliminating
different countries. discriminations in
international trade
relations.
 WORLD BANK
Formation : 27th December, 1945
Type : International Organisation
Legal status : Treaty
Purpose/Focus : Economic Development, Poverty Elimination
Membership :185 Countries
President : Robert B.Zoellick
Main Group : Board of Directors

The Bank is Accountable

Information sharing essential for effective and
sustainable growth.publicly accountable to
member countries
Staff and management held directly accountable
by its members
OED reviews all Bank-financed projects and
reports directly to the Board
THE WORLD BANK GROUP

1. International Bank for Reconstruction and Development (IBRD)

Est. 1946, aims to reduce poverty in middle-income and creditworthy poorer
countries by promoting sustainable development through loans, guarantees,
risk management products, and analytical and advisory services
2. International Development Association (IDA)
Est.1960, interest free loans and grants
3. International Finance Corporation (IFC)
Est.1956, Private sector arm of the World Bank
4. Multilateral Investment Guarantee Agency (MIGA)
Est.1988, Promotes Foreign Direct Investment in developing countries
5. International Centre for Settlement of Investment Disputes
(ICSID)
Est. 1966, facilitate the settlement of investment disputes between
governments and foreign investors
STRUCTURE OF THE WORLD BANK

Headquartered in Washington D.C.

Over 100 offices all over the world
185 member countries
Membership of the IMF is required
5 Largest shareholders: France, Germany, Japan, UK, and US
Where does the world bank
money go?
INTERNATIONAL MONETARY FUND
IMF is an organisation formed in1995 with a stabilising international exchange
rates and facilitating development .

Headquarters : Washington, D.C.

Managing Directors : Dominique Strauss-Kahn
Currency : Special Drawings Right Objectives; Functions;
Base Borrowing Rate : 3.49% For SDRs 1.To 1.Acting as a
promote reservoir of
international all currencies
monetary of all the
cooperation. member
countries.
THANK YOU FOR GIVING YOUR
KIND ATTENTION !
MAKER OF THE PROJECT:

Yogesh