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INTERNATIONAL BUSINESSThe Dimensions of International

Business

Lecture 1

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Copyright 1999 by Harcourt Brace & Company

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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 con sists of transactions takingplace across national borders for the purpose ofsatisfying the objectives of i ndividuals andorganizations.

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 industryin areas such as Information technology, transportation, tourism,advertising, construction, retailing, wholesaling, and masscommunication.

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The Need to studyInternational Business?

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Evolution of International Business

Cross-country trade has been taking place since pre-historic 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 ofCapital overtaken Trade

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Nature of International Business

Variations in political, social, cultural andeconomic 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 : Domestic Company

Stage 2 : International Company

Stage 3 : Multinational Company Stage 4 : Global Company

Stage 5 : Transnational Company

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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

Polycentric approach Recognition of difference in overseas markets

Decentralization of operations Country by country basis

Local marketing input and control

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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 competitiveposition.

The world is viewed as the market

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Stages of domestic to global evolution

Management

emphasis

Stage one

Domestic

Stage two

International

Stage three

Multinational

Stage four Global

Focus Domestic Ethnocentric Polycentric Geocentric

Marketing

strategy

Domestic Extension Adaptation Extension

Management

style

Domestic Centralized top

down

Decentralized

bottom up

Integrated

Manufacturing

stance

Mainly domestic Mainly domestic Host country Lowest cost

worldwide

Investment

policy

Domestic Domestic used

worldwide

Mainly in each host

country

Cross subsidization

Performance

evaluation

Domestic market

share

Against home

country market

share

Each host country

market share

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 ofWorld 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, Portfolioinvestments, 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.

Adapted Marketing Mix: Producer adjusts the marketing mix elements to each target market,

bearing more costs but hoping for a larger market share and return.

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 Share(%)

Engineering Goods 20.91

Petrolieum procuts 15.64

Gems & Jewellery 12.36

Chemicals & Related prod. 13.63

Textiles 11.38

Agriculture & Allied 8.43 Minerals,Leather,Elect 10.00

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Important Trade Items in 2007-08

Imports Share (%)

Petroleum products 32.75

Machinery 13.81 Electronic goods 8.55

Gold 7.08

Iron & Steel, Peals etc 7.00

Transport & Org. Chem 6.00

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Major Trading Partners in 2007-08

Exports Share (%)

US 13.02

UAE 9.66

China 6.78

Spore & UK 8.50

Imports

China 11.3

Saudi Arabia 8.1

UAE 5.62 US 5.51

Iran 4.58

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