Introduction to international business

International Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – [email protected]

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Definition

“ All institutions have to makeglobal competitiveness astrategic goal. No institution,whether a business, auniversity or a hospital, canhope to survive, let alone tosucceed unless it measures upto the standards set by theleaders in its fields, any placein the world.”

-Management challengesof 21st century by Peterdrucker.

Definition

Although its market isconfined almost entirelyto India, the competitionwhich Nirma encountersis indeed global. Its majorcompetitor include MNCssuch as Unilever, P&G,Colgate, Palmolive andHenkel.

Definition

International businessrelates to any situationwhere the productionor distribution of goodsor services crossescountry borders.

Why go international?

Why go international?

• Survival.• Growth Opportunities.• Sales and profit.• Diversification.• Domestic Market constraints. • Inflation and price moderation.• Employment.• Standard of living.• Competition.

SURVIVAL

• Because most of the countries arenot as fortunate as the UnitedStates in terms of market size,resources, and opportunities,they must trade with others tosurvive; Hong Kong, hashistorically underscored this pointwell, for without food and waterfrom china proper, the Britishcolony would not have survivedalong. The countries of Europehave had similar experience,since most European nations arerelatively small in size. Withoutforeign markets,

GROWTH OPPORTUNTIES

An important reason forgoing international is totake advantage of theopportunities in othercountries. MNCs aregetting increasinglyinterested in a numberof developing countriesas the income andpopulation are rapidlyrising in these countries.

GROWTH OPPORTUNTIESDeveloping countries, in spite ofeconomic and marketing problems,are excellent markets. According toa report prepared for the U.S.CONGRESS by the U.S. traderepresentative, Latin America andAsia/Pacific are experiencing thestrongest economic growth.American markets cannot ignore thevast potential of internationalmarkets. The world is more thanfour times larger than the U.S.market. In the case of Amway corps.a privately held U.S. manufacturer ofcosmetics, soaps and vitamins,Japan represents a larger marketthan the United States.

Example

In recent years, anumber of Indianpharmaceuticalcompanies haveachieved a much fastergrowth of their foreignbusiness than thedomestic. The US marketalone is expected tocontribute as much ashalf of the total sales ofRanbaxy shortly.

SALES AND PROFITForeign markets constitute alarger share of the total businessof many firms that have wiselycultivated markets aboard. Manylarge U.S. companies have donewell because of their overseascustomers. IBM and Compaq, foeex, sell more computers aboardthan at home. According to theUS dept. of commerce, foreignprofits of American firms rose ata compound annual rate of 10%between 1982 and 1991, almosttwice as fast as domestic profitsof the same companies.

SALES AND PROFITThe importantincentive ofinternational businessis the profitadvantage. There arecases of companieswhich earned morethan 100 % of thetotal profit fromforeign market.

ExampleMNCs are lured tochina by cheap labor.Philips now has 23factories in China andexports $ 5 billion ingoods produced everyyear. Chine is makingmore than 50 % ofcameras, 30 % of ACand TVs, 25 % ofwashing machines soldworld wide.

DIVERSIFICATION• Demand for mast products is

affected by such cyclical factors asrecession and such seasonalfactors as climate. Theunfortunate consequence ofthese variables is salesfluctuation, which can frequentlybe substantial enough to causelayoffs of personnel. One way todiversify a companies’ risk is toconsider foreign markets as asolution for variable demand.Such markets, even outfluctuations by providing outletsfor excess production capacity.

DIVERSIFICATION• Cold weather, for instance may

depress soft drink consumption.Yet not all countries enter thewinter season at the same time,and some countries are relativelywarm year round. Bird, USA, inc.,a Nebraska manufacturer of gocarts, and mini cars, forpromotional purposes has foundthat global selling has enabledthe company to have year roundproduction. It may be winter inNebraska but its summer in thesouthern hemisphere-somewherethere is a demand and thatstabilizes the business.

Domestic Market constraints

The market for anumber of productstend to saturate ordecline in advancedcountries. In US, thestock of severalconsumer durables likecars, TV sets etcexceeds the totalnumber of households.

INFLATION AND PRICE MODERATION• The benefits of export are readily

self-evident. Imports can also behighly beneficial to a countrybecause they constitute reservecapacity for the local economy.Without imports, there is noincentive for domestic firms tomoderate their prices. The lack ofimported product alternatives forcesconsumers to pay more, resulting ininflation and excessive profits forlocal firms. This developmentusually acts as prelude to workersdemand for higher wages, furtherexacerbating the problem ofinflation.

INFLATION AND PRICE MODERATION

• Import quotas imposed onJapanese automobiles in the1980’s saved 46200 USproduction jobs but at a cost of$160,000 per job per year. Thiscost was a result of the additionof $400 to the prices of US cars,and $1000 to the prices ofJapanese imports. This windfallfor Detroit resulted in record highprofits for US automakers. Notonly do trade restrictions depressprice competition in the shortrun, but they also can adverselyaffect demand for year to come

EMPLOYMENTTrade restrictions, such as high tariffscaused by the 1930’s smoot-hawley bill,which forced the average tariff ratesacross the board to climb above 60%,contributed significantly to the greatdepression and have the potential tocause wide spread unemployment again.Unrestricted trade on the other handimproves the world’s GNP and enhancesemployment generally for all nations.Importing products and foreignownership can provide benefits to anation. According to the institute forinternational Economics-a private, non-profit research institute – the growth offoreign ownership has not resulted in aloss of jobs for Americans; and foreignfirms have paid their American workersthe same, as have domestic firms.

STANDARDS OF LIVINGTrade affords countries and their citizen’shigher standards of living than other wisepossible. Without trade, productshortages force people to pay more forless, products taken for granted, such ascoffee and bananas may becomeunavailable overnight. Life in mostcountries would be much more difficultwere it not for the many strategic metalsthat must be imported. Trade also makesit easier for industries to specialize andgain access to raw materials, while at thesame time fostering competition andefficiency. A diffusion of innovationsacross national boundaries is useful by-products of international trade. A lack ofsuch trade would inhibit the flowinnovative ideas.

Competition

Competition become adriving force behindinternationalization.The economicliberalization usheredin India since 1991,which has increasedcompetition fromforeign firms as well asfrom those within thecountry.