International

Business
International Business (IB)

 International Business refers to Business

across countries.

 It relates to transactions involving more than

one country.

 It focuses on global resources, opportunities to

buy/sell world wide.
 It may be defined as the business activity
that involves transfers of
• Goods
• Services
• Resources
• Knowledge
• Skills
• Information
across national boundaries with a
view of satisfying the needs of
Individuals, Organization and
Government.
Nature of International Business
• Accurate Information
• Information not only accurate but should be timely
• The size of the international business is large
• Market segmentation based on geographic
segmentation
• International markets have more potential than
domestic markets
Opportunities in IB
Why companies go global?

A) To achieve higher rate of profits:

When the domestic markets do not promise a higher
rate of profits, business firms search for foreign
markets that hold promise for higher rate of return
E.g.-Apple earned $730million from foreign markets
and earned $620 million domestically (US market)
 B) To explore opportunities in Untapped
Markets
 IB provides the chance of exploring & exploiting the
potential markets which are untapped so far.

E.g.- The entry of Coca-Cola to China in the late

1970s is used as an example of exploiting a virgin
market.
 These markets provide opportunity of selling the
product at a higher price than in domestic markets

E.g.- Bata sells shoes in the UK at Rs.8000/- which

price is around Rs.1200/- in India
C) To dispose Surplus Production & Revenue

 Some of the domestic companies expanded their

production capacities more than the domestic
demand. These company thus dispose there surplus
in foreign developed or developing companies.

E.g.- Toyota of Japan sells its produced vehicles (cars)

in US, Asian and European markets
D)Limited Home Market

 Due to smaller size of market, less population or low

PPP companies have to enter in host country market

E.g.- ITC entered in European market due to low PPP

of Indians with regard to the high quality cigarettes
E) Political Stability

 Political stability doesn’t simply means the

continuation of the same party in power, it means
the continuation of the same policies of the Govt. for
a longer period of time

 Business firms prefer to enter the politically stable

countries.
F) Availability of technology

 It acts as pulling factor for business firms

 African, US and European companies in recent
years depended on Indian companies for software
products & services through BPO & IT services

E.g.- Growing IT companies in India such as Wipro

BPO, Tech Mahindra, Mahindra- Satyam, WNS….
G) Availability of Quality Human Resource at
lower Cost
 Companies of developed countries can have experts
and professionals at a less cost in developing
countries.

E.g.- The cost of professionals in India is 10 to 15

times less compared to US & European labor
markets.
H) Severe competition in the Home
Country

 The weak companies which are not able to face cut

throat competition in the domestic market started
entering in the foreign markets
G) Others……

 To earn Forex

 To diversify risk

 Optimum utilization of cheap & natural resources

Scope in International Business
Cont……

• Domestic Company-It operates within the national and

political boundaries.

• International Company- It focuses on domestic

practices, but extends the wings to foreign countries.

• Multinational Company(MNC)- Adopts different

strategies for different markets (country)

• Global Company- either produce in one country and

market globally or produce globally and market
domestically.

• Transnational Company(TNC)- It produces, markets,

invest and operates across the world.
Trends in International Business

1. Rapid growth in world trade and investment

The two indicators are:
a)Foreign direct investment (FDI) i.e international investments in
productive facilities such as plant, machinery and equipment.
b)Export of goods and services

2. Rapid growth in cross-border mergers and acquisitions

There has been a rapid growth in cross-border mergers and acquisition
(M & A) since 1990s. Much of this activity (M & A) has been
concentrated in financial services, insurance, life sciences,
telecommunications and the media, with M & A being a key factor in
accounting for the rise in FDI

3. More liberalised markets on global scale

• Tariff and non-tariff barriers are being gradually dismantled
• Regulatory changes in favour of FDI by national governments.
• Exchange rates are now being determined more by market forces
than by governments or central banks.
4. Bi-polar to Tri-polar (Triad)
The old bi-polar world economy, which was dominated by North
America and Europe, has moved on to a tri-polar world economy
dominated by the ‘triad’ of North America, the European Union
and South-East Asia. These three regions now account for
around 80% of the total value of world exports and 84% of world
manufacturing value added.

5.Growth of regional trading arrangement

• There has been a rapid growth in regional trading blocs and in
associated regional trading arrangements (RTAs), which give
preferential treatment to trade in goods and services between
members of these blocs.
• Examples: European Union(EU), North American Free trade
Agreement(NAFTA)
6.Growth of bilateral investment and trade treaties
• There has been a rapid growth in bilateral (two country) investment and
trade treaties, which can take various forms, the major ones being
bilateral investment treaties (BITs) and double taxation treaties (DTTs)
among countries.

7. New markets
• Growing global markets in services sector – banking, insurance,
transport.
• New financial markets – deregulated, globally linked, working around
the clock, with action at a distance in real time, with new instruments
such as derivatives.

8.New tools of communication

• Internet and electronic communications linking many people
simultaneously.
• Cellular phones and mobile telephony.
• Fax machines.
• Computer-aided design and manufacture
9.New Players
• Multinational corporations integrating their production and marketing,
dominating world production.
• The World Trade Organisation – the first multilateral organisation with
authority to force national governments to comply with trade rules.
• More policy coordination groups : G-7, G-8, OECD, IMF, World Bank
Limitations/Challenges/Problems in
International Business
1. Different Culture: Different customs, languages, lifestyle,
attitudes pose a challenge.

2. 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.

3. Different trade Policies: Varying trade policies adopted by

countries with respect to export and import, artificial trade
barriers

4. Different market conditions: Due to difference in economic,

social, political and legal systems prevailing in each country.
5. Market Competition in Host Country : If best global companies
enter the markets, the competition goes intense and accordingly
inefficient companies have to close their shops.

6. National Controls : The nation build barriers for outside country

manufacturers by increasing trade barriers. Trade barriers will be
direct by way of high customs duties. Indirect barriers will be
licensing procedures, quota system , inspection, certification and
tedious paper work.
7. Domestic Forces : The government or social restrictions imposed
on commerce and industry become hurdle in a company going
global.