1 2 introduction of international business environment

Wednesday, April 12, 2023 Dr. S. Jain 1

Introduction of International Business Environment

Domestic v/s International BusinessLiberalization, Privatization and

Globalization


Concept of International Business

• International Trade: Exports of goods and services by a firm

to a foreign-based buyer (importer)

• International Marketing: It focuses on the firm-level

marketing practices across the border, including market

identification and targeting, entry mode selection, and

marketing mix and strategic decisions to compete in

international markets.


• International Investments: Cross-border transfer of

resources to carry out business activities.

• International Management: Application of management

concepts and techniques in a cross-country environment and

adaptation to different social-cultural, economic, legal,

political and technological environments.


• International Business: All those business activities which

involves cross border transactions of goods, services, and

resources between two or more nations

• Global Business: Conduct of business activities in several

countries using a highly co-ordinated and single strategy

across the world.


Reasons for International Business Expansion

• Market-Seeking Motives– Marketing opportunities due to life cycles

– Uniqueness of product or service

• Economic Motives– Profitability

– Achieving economies of scale

– Spreading R&D costs

• Strategic Motives– Growth

– Risk spread


Types of International Business

Export-import trade

Foreign direct investment

Licensing

Franchising

Management contracts


International Business vs. Domestic Business

International business can differ from domestic business for a number of reasons, including the following:– The countries involved may use different currencies, forcing at least

one party to convert its currency into another.– The legal systems of the countries may differ, forcing one or more

parties to adjust their practices to comply with local law.– The cultures of the countries may differ, forcing each party to adjust

its behavior to meet the expectations of the other.– The availability of resources differs by country; the way products are

produced and the types of products that are produced vary among countries.


Differences Between Domestic and International Business

• Socio-Cultural Environment

• Political & Legal Environment

• Economic Environment

• Natural Environment

• Technological Environment

• Competition

• Infrastructure


DIFFERENCE BETWEEN DB AND IB

COUNTRY-SPECIFIC FACTORS: cheap labour, what else?

CULTURE, INSTITUTIONS, LANGUAGE, .. --> NOT A SERIOUS FACTOR IN DB

IMPLICATIONS -in international marketing, consumer behaviour may differ from DB -in production, HRM may differ from DB -standard of living/cost/wages may differ,

but note: NOT ALL FDI GOES TO LOW WAGE COUNTRIES.

-Competent firms are able to take advantage of the above differences by turning them into expanded new opportunities not available from domestic sources.


Liberalization -In general, Liberalization refers to relaxation(s) of government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation.Most often, the term is used to refer to economic liberalization, especially trade liberalization or capital market liberalization. Although economic liberalization is often associated with privatization, the two can be quite separate processes.The economic liberalization in India refers to ongoing economic reforms in India that started on 24 July 1991.


• Privatization means transfer of ownership and/or management of an enterprise from the public sector to the private sector. It also means the withdrawal of the State from an industry or sector, partially or fully. Another dimension of privatization is opening up of an industry that has been reserved for the public sector to the private sector.

Privatization -


Ways of Privatisation

• There are different ways of achieving privatisation.• One of the important ways of privatisation is

divestiture, or privatisation of ownership, through the sale of equity.

• Another way of privatisation is contracting.• Another option for the government is to withdraw from

the provision of certain goods and services leaving them wholly or partly to the private sector.

• Privatisation may also take the form of privatisation of management, using leases and management contracts.


• The important ways of privatisation are the following:

1. Divestiture2. Denationalisation3. Contracting 4. Franchising5. Government withdrawing6. Privatisation of management7. Liquidation


Benefits of Privatisation

• Privatisation benefits the society in several ways. Some of them are

1. reduces the fiscal burden2. enables the government to mop up funds3. result in better management of the enterprises4. encourage entrepreneurship


Managing Business in the Globalization Era

Global strategies adopted by business enterprises may include:

• Global conception of markets

•Multi-regional integration strategy

•Changes in external organisation of multinational firms

•Changes in internal organisation


GLOBALISATION-MEANING

Globalisation of the economy means reduction of import

duties, removal of Non-Tariff Barriers on trade such as

Exchange control, import licensing etc., allowing FDI and

FPI, allowing companies to raise capital abroad and grow

beyond national boundaries and encourage exports. Both

Foreign Trade and Foreign investment volume have grown

rapidly over the last few years.


• The IMF defines globalizations as “the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology.”


TRADE LIBERALISATION AND GLOBALISATION

• First, When Tariffs are lowered and QRs are removed, relative prices change and resources are reallocated to production activities that may raise output. However, increased import of manufactured products will have adverse impact on domestic production.

• Second, larger long run benefits due to the free flow of technology and new production structures.

• Exports and Imports - most dynamic factors in the process of economic growth after 1995.


2 VIEWS on Globalisation

• Those stress the Virtues of Import Substitution and limited

openness ie, View against Free Trade and Globalisation

• Those emphasise the importance of Free Trade.

Arguments a) Achieve International Competitiveness b)

Reduce the price level c)More choice for consumers


GLOBALISATION - PHASES

1870-1914 : First Wave

1914-1945 : Retreat to Nationalism

1945-1980 : Second wave of Globalisation

1980 onwards : Third wave of Globalisation


Globalization – Changing World


Globalization in different ways -

Concept of MultinationalsMNCs now account for over 33% of world output, and 66% of world trade

Capitalist ApproachPrivatization + Deregulation + Globalization = Turbo-capitalism = Prosperity

HomogeneityPrice, Product, Quality, Interest Rates Etc.

Spread and connectednessof production, communication and technologies

BrandingBrands like Coca Cola, Nike, Sony, LG, Intel, Microsoft etc


Main Drivers of Globalization -Lowered the cost of Transportation

Reduced the cost of Communication

Revolution in Information and CommunicationTechnologies

Change in political systemsCollapse of Soviet UnionFall of Berlin WallChina’s Economic Reforms


Stages of GlobalisationOhmae identifies five different stages in the development of a firm

into a global corporation.• The first stage is the arm’s length service activity of essentially

domestic company which moves into new markets overseas by linking up with local dealers and distributors.

• In stage two, the company takes over these activities on its own.• In the next stage, the domestic based company begins to carry

out its own manufacturing, marketing and sales in the key foreign markets.

• In stage four, the company moves to a full insider position in these markets, supported by a complete business system including R & D and engineering.

• In the fifth stage, the company moves toward a genuinely global mode of operation.


Essential Conditions for Globalisation

• Business Freedom• Facilities• Government Support• Resources• Competitiveness• Orientation-


While Globalisation has Several Benefits, it has a Number of Problems.

• Global competition and imports keep a lid on prices, so inflation is less likely to derail economic growth.

• An open economy spurs innovation with fresh ideas from abroad.• Export jobs often pay more than other jobs.• Unfettered capital flows give the US access to foreign investment and keep

interest rates low.• The adverse effects of globalisation according to the survey are:• Millions of Americans have lost jobs due to imports or production shifts abroad.

Most find new jobs that pay less.• Millions of others fear losing their jobs, especially at those companies operating

under competitive pressure.• Workers face pay cut demands from employers, which often threaten to export

jobs.• Service and white collar jobs are increasingly vulnerable to operations moving

offshore.• U S employees can lose their comparative advantage when companies build

advanced factories in low-wage countries, making them as productive as those at home.


Globalisation of Indian Business • India’s economic integration with the rest of the world

was very limited because of the restrictive economic policies followed until 1991. Indian firms confined themselves, by and large, to the home market. Foreign investment by Indian firms was very insignificant.

• With the new economic policy ushered in 1991, there has, however, been a change. Globalisation has in fact become a buzz-word with Indian firms now, and many are expanding their overseas business by different strategies.


Factors Favouring Globalisation• Human Resources• Wide Base• Growing Entrepreneurship• Growing Domestic Market• Niche Markets• Expanding Markets• Transnationalisation of World Economy• NRIs• Economic Liberalisation• Competition


Map of world dominance relations

Source - HIERARCHY STRUCTURES IN WORLD TRADE, by Valentino Piana (2004)

1 2 introduction of international business environment

Documents

international management

international investments

international markets

privatisation of ownership

way of privatisation

economic liberalization

privatisation of management7

privatization privatization