Lect 1

INTRODUCTION INTRODUCTION TOTO

INTERNATIONAL BUSINESS INTERNATIONAL BUSINESS &&

MANAGING INTERNATIONAL MANAGING INTERNATIONAL

BUSINESS ORGANIZATIONSBUSINESS ORGANIZATIONSMs. MAMTA D.Faculty in IB, [email protected]

JUST PONDER OVER THIS !!!JUST PONDER OVER THIS !!!

►There is a shortage of There is a shortage of radiologists in the United radiologists in the United States and demand for their States and demand for their services is growing twice as services is growing twice as fast as the rate of fast as the rate of graduation. What should be graduation. What should be done?done?

Solution to the Problem: Send images over the Internet to be interpreted by radiologists in India

► Outsourcing health care is not only limited to Outsourcing health care is not only limited to radiology; we are beginning to see patients travel radiology; we are beginning to see patients travel internationally for treatments as well as surgeryinternationally for treatments as well as surgery

► In 2004 some 170,000 foreigners visited India for In 2004 some 170,000 foreigners visited India for medical treatments; the number is expected to medical treatments; the number is expected to grow at 15% for the next several yearsgrow at 15% for the next several years

► Question: Will demand for American health Question: Will demand for American health services soon collapse as work moves offshore to services soon collapse as work moves offshore to places like India? places like India?

THE FACT OF THE MATTER IS ….

THE ANSWER IS OBVIOUSLY THE ANSWER IS OBVIOUSLY ‘NO’‘NO’ BUT IT BUT IT JUST MAKES ONE START THINKING ABOUT JUST MAKES ONE START THINKING ABOUT

THE IMPLICATIONS OF SUCH EVENTS?THE IMPLICATIONS OF SUCH EVENTS?

It only means that Economies across the world are getting more and more dependent on each

other. And this dependence is for the better for each

one will do things that they can do better.

This of course will have commercial implications and give rise to INTERNATIONAL BUSINESS in a

Globalized Market

DEFINITIONDEFINITION

►International Business International Business refers to all refers to all business transactionsbusiness transactions both both private and private and governmentalgovernmental that involve participants that involve participants from from two or more countries.two or more countries.

► What is International Business?What is International Business?

3 important terms3 important terms

► An An international business international business is any firm that is any firm that engagesengages in international trade or investment in international trade or investment

► International trade International trade occurs when a firm occurs when a firm exportsexports goods or services to consumers in goods or services to consumers in another countryanother country

► International investmentInternational investment occurs when a occurs when a firm firm investsinvests resources in business activities resources in business activities outside its home countryoutside its home country

Contd…Contd…► ‘‘Any business transaction between parties from Any business transaction between parties from

more than one country is part of international more than one country is part of international business’.business’.

► The examples of such transactions include:The examples of such transactions include:

► Buying raw materials or inputs in one country and Buying raw materials or inputs in one country and shipping them to another country for processing or shipping them to another country for processing or assemblyassembly

► Shipping finished products from one country to another Shipping finished products from one country to another for retail salefor retail sale

► Building a plant in a foreign country to capitalize on Building a plant in a foreign country to capitalize on lower labour costslower labour costs

► Borrowing money from a bank in one country to finance Borrowing money from a bank in one country to finance operations in another.operations in another.

There are several terms which are used to There are several terms which are used to describe companies which do business in more describe companies which do business in more than one country. than one country.

These are:These are:

► Multinational Company or Enterprise Multinational Company or Enterprise (MNC or MNE)(MNC or MNE) - -

Refers to large firms with extensive operations in Refers to large firms with extensive operations in many countries many countries (owns relatively autonomous subsidiaries in (owns relatively autonomous subsidiaries in various host countries).various host countries).

► Global Company Global Company (GC)(GC) – –

Describes an organisation that attempts to Describes an organisation that attempts to standardise operations world-wide in all standardise operations world-wide in all functional areas.functional areas.

► Transnational Corporation Transnational Corporation (TNC)(TNC) – –

Term used by UN and some others to connote Term used by UN and some others to connote organisations variously called multinational, organisations variously called multinational, global, or worldwide companies.global, or worldwide companies.

INTERNATIONAL BUSINESS INTERNATIONAL BUSINESS SCOPE SCOPE

► 3 decades ago very few companies 3 decades ago very few companies ventured into the international arena ventured into the international arena and most of those who did restricted and most of those who did restricted themselves to the physical movement of themselves to the physical movement of goods and services i.e., Imports and goods and services i.e., Imports and exports.exports.

► Restrictions, regulations and other Restrictions, regulations and other barriers prevented them from taking barriers prevented them from taking risks.risks.

Why should one do international business ?Why should one do international business ?

► Today, the whole world is open. Duties, Today, the whole world is open. Duties, licence, quotas and other investment licence, quotas and other investment limitations have gradually been limitations have gradually been eliminated. Anyone can do business in eliminated. Anyone can do business in any part of the world.any part of the world.

► Risk factors are properly analysed and Risk factors are properly analysed and evaluated and information about them evaluated and information about them is abundant. The aspiring international is abundant. The aspiring international businessman can go to any part of the businessman can go to any part of the world.world.

Objectives of IBObjectives of IB

► To establish trade relation among the To establish trade relation among the nations and to maintain cordial relation nations and to maintain cordial relation among nations for maintaining world peaceamong nations for maintaining world peace

► To provide better life and welfare to people To provide better life and welfare to people

► To bring country’s closer for trading purpose To bring country’s closer for trading purpose and to encourage large scale free trade and to encourage large scale free trade among the country's of the world.among the country's of the world.

Contd…Contd…

► To provide assistance to developing To provide assistance to developing countries in their economic and industrial countries in their economic and industrial growth and to remove or reduce gap growth and to remove or reduce gap between the develop & developing countries between the develop & developing countries ..

► To keep international trade free and fair to To keep international trade free and fair to all countries by avoiding trade barriers.all countries by avoiding trade barriers.

► To ensure optimum utilization of resource at To ensure optimum utilization of resource at the global level. the global level.

Call for Int. Business TradeCall for Int. Business Trade

► International interdependence of countries: International interdependence of countries: no country in the world is self sufficient.no country in the world is self sufficient.

► Absence of uniform geographic & climatic Absence of uniform geographic & climatic condition.condition.

► Availability of comparative cost advantageAvailability of comparative cost advantage► Growing needs of countriesGrowing needs of countries► To solve the problem of surplus/shortage of To solve the problem of surplus/shortage of

production in countries.production in countries.

Contd…Contd…

► Bridge the gap between developed and Bridge the gap between developed and developing nation: i.e. transfer of technical developing nation: i.e. transfer of technical know how and skills .know how and skills .

► International cooperation and world peaceInternational cooperation and world peace► Facilitates culture exchange Facilitates culture exchange ► Provides higher standard of living Provides higher standard of living ► Special benefits during emergency situations Special benefits during emergency situations ► Company exporting abroad may earn Company exporting abroad may earn

substantial profits out of its operation substantial profits out of its operation

INTERNATIONAL BUSINESSINTERNATIONAL BUSINESSREASONS TO ENTER INTERNATIONAL BUSINESSREASONS TO ENTER INTERNATIONAL BUSINESS

►FROM AN INDIVIDUAL FROM AN INDIVIDUAL COMPANY’s ANGLECOMPANY’s ANGLE

►FROM THE GOVERNMENT FROM THE GOVERNMENT ANGLEANGLE

FROM AN INDIVIDUAL COMPANY’s FROM AN INDIVIDUAL COMPANY’s ANGLEANGLE

1)1) MANAGING THE PRODUCT LIFE CYCLEMANAGING THE PRODUCT LIFE CYCLE

2)2) GEOGRAPHIC EXPANSION AS A GROWTH GEOGRAPHIC EXPANSION AS A GROWTH STRATEGYSTRATEGY

3)3) THE ADVENTUROUS SPIRIT OF THE THE ADVENTUROUS SPIRIT OF THE YOUNGER GENERATIONYOUNGER GENERATION

4)4) CORPORATE AMBITIONCORPORATE AMBITION

5)5) TECHNOLOGY ADVANTAGETECHNOLOGY ADVANTAGE

6)6) BUILDING A CORPORATE IMAGEBUILDING A CORPORATE IMAGE

7)7) LABOUR ADVANTAGELABOUR ADVANTAGE

8)8) NEW BUSINESS OPPORTUNITIESNEW BUSINESS OPPORTUNITIES

FROM A GOVERNMENT FROM A GOVERNMENT ANGLEANGLE

1)1) EARNING VALUABLE FOREIGN EXCHANGEEARNING VALUABLE FOREIGN EXCHANGE

2)2) INTERDEPENDENCY OF NATIONSINTERDEPENDENCY OF NATIONS

3)3) CORE COMPETENCY OF NATIONSCORE COMPETENCY OF NATIONS

4)4) NATIONAL IMAGENATIONAL IMAGE

5)5) WTO AND INTERNATIONAL AGENCIESWTO AND INTERNATIONAL AGENCIES

DOMESTIC BUSINESS V/s INT. BUSINESSDOMESTIC BUSINESS V/s INT. BUSINESS

DIMENSIONDIMENSION DOMESTIC BUSINESS DOMESTIC BUSINESS OPERATIONSOPERATIONS

INT. BUSINESS INT. BUSINESS OPERATIONSOPERATIONS

1. 1. ENVIRONMENTENVIRONMENT

THE ECONOMIC, THE ECONOMIC, POLITICAL, LEGAL, SOCIO-POLITICAL, LEGAL, SOCIO-CULTURAL, COMPETITIVE CULTURAL, COMPETITIVE AND TECHNOLOGY AND TECHNOLOGY ENVIRONMENTS ARE ENVIRONMENTS ARE KNOWN, HENCE, ONE CAN KNOWN, HENCE, ONE CAN TAKE THE NECESSARY TAKE THE NECESSARY PRECAUTIONS PRECAUTIONS

THE ENVIRONMENT IS THE ENVIRONMENT IS NOT FULLY KNOWN. NOT FULLY KNOWN. INNUMERABLE HIDDEN INNUMERABLE HIDDEN FACTORS WHICH MAY FACTORS WHICH MAY EMERGE AT ANY TIME EMERGE AT ANY TIME TO POSE PROBLEMSTO POSE PROBLEMS

2. PLAN & 2. PLAN & STRATEGYSTRATEGY

PLANS & STRATEGIES CAN PLANS & STRATEGIES CAN BE WORKED OUT FOR BE WORKED OUT FOR SHORT TERMS AND SHORT TERMS AND CARRIED FORWARD TO CARRIED FORWARD TO LONG TERMLONG TERM

ONLY LONG TERM ONLY LONG TERM PLANNING & PLANNING & STRATEGY WILL WORK. STRATEGY WILL WORK. STRATEGIC INPUTS STRATEGIC INPUTS ARE REQUIRED IN ARE REQUIRED IN MULTIPLESMULTIPLES



3. 3. COMPETITIONCOMPETITION

THE MAXIMUM DOMESTIC THE MAXIMUM DOMESTIC COMPETITIVE FORCES COMPETITIVE FORCES OPERATE AND ONE CAN OPERATE AND ONE CAN UNDERSTAND THEIR UNDERSTAND THEIR MOVEMENTMOVEMENT

INTERNATIONAL INTERNATIONAL COMPETITIVE FORCES COMPETITIVE FORCES PLAY A VITAL ROLE AND PLAY A VITAL ROLE AND IT IS VERY DIFFICULT TO IT IS VERY DIFFICULT TO UNDERSTAND THEIR UNDERSTAND THEIR MOTIVE AND MOVEMENTMOTIVE AND MOVEMENT

4. CURRENCY4. CURRENCY LOCAL CURRENCY IS USED LOCAL CURRENCY IS USED FOR TRANSACTIONS. FOR TRANSACTIONS. COSTING, PRICING, COSTING, PRICING, REVENUE AND MARGINS REVENUE AND MARGINS ARE COMPUTED IN A ARE COMPUTED IN A SINGLE CURRENCY. SINGLE CURRENCY. VOLATILITY MAY HAVE A VOLATILITY MAY HAVE A MINIMUM IMPACT IN MINIMUM IMPACT IN BUSINESS IN SHORT TERMBUSINESS IN SHORT TERM

TRANSACTIONS ARE TRANSACTIONS ARE CARRIED OUT IN CARRIED OUT IN VARIOUS CURRENCIES. VARIOUS CURRENCIES. FLUCTUATIONS IN FLUCTUATIONS IN CROSS CURRENCY CROSS CURRENCY MOVEMENT AND MOVEMENT AND ASSOCIATED RISKS ARE ASSOCIATED RISKS ARE COMMON. CURRENCY COMMON. CURRENCY FLUCTUATION FLUCTUATION INFLUENCES PRICING INFLUENCES PRICING AND COSTING AND AND COSTING AND INVESTMENT DECISIONSINVESTMENT DECISIONS

DIMENSIONDIMENSION DOMESTIC DOMESTIC BUSINESS BUSINESS

OPERATIONSOPERATIONS


5. BUSINESS 5. BUSINESS RISKSRISKS

COMPARATIVELY ONE COMPARATIVELY ONE CAN PREDICT FUTURE CAN PREDICT FUTURE RISKS AND SHOCKS AND RISKS AND SHOCKS AND THEY WILL NOT HAVE A THEY WILL NOT HAVE A MAJOR IMPACT ON THE MAJOR IMPACT ON THE BUSINESS HOUSESBUSINESS HOUSES

VERY DIFFICULT TO VERY DIFFICULT TO PREDICT AND RISKS PREDICT AND RISKS MAY CROP UP AT ANY MAY CROP UP AT ANY TIME, DUE TO THE TIME, DUE TO THE POLITICAL SITUATION, POLITICAL SITUATION, THE SOCIETY ITSELF THE SOCIETY ITSELF OR OTHER UNKNOWN OR OTHER UNKNOWN FACTORSFACTORS

6. RESEARCH6. RESEARCH IT IS REASONABLE AND IT IS REASONABLE AND EASY TO CONDUCT EASY TO CONDUCT BUSINESS RESEARCH., BUSINESS RESEARCH., DEMAND ANALYSIS AND DEMAND ANALYSIS AND CUSTOMER SURVEY. IT CUSTOMER SURVEY. IT IS ALSI RELIABLE FOR IS ALSI RELIABLE FOR BUSINESS VENTURESBUSINESS VENTURES

VERY EXPENSIVE AND VERY EXPENSIVE AND DIFFICULT TO DIFFICULT TO CONDUCT. RELIABILITY CONDUCT. RELIABILITY CRITERIA DEPENDS ON CRITERIA DEPENDS ON INDIVIDUAL INDIVIDUAL COUNTRIES AND THERE COUNTRIES AND THERE IS NO UNIFORMITY IN IS NO UNIFORMITY IN THE OUTPUTTHE OUTPUT




7. HUMAN 7. HUMAN RESOURCESRESOURCES

DUE TO PAST LAURELS DUE TO PAST LAURELS AND ESTABLISHED AND ESTABLISHED SYSTEMS, CORPORATES SYSTEMS, CORPORATES CAN SUCCEED EVEN IF CAN SUCCEED EVEN IF THE HUMAN RESOURCES THE HUMAN RESOURCES HAVE MINIMUM SKILLS HAVE MINIMUM SKILLS AND KNOWLEDGEAND KNOWLEDGE

MULTILINGUAL, MULTI-MULTILINGUAL, MULTI-STRATEGIC AND STRATEGIC AND MULTI-CULTURAL MULTI-CULTURAL HUMAN RESOURCE4S HUMAN RESOURCE4S ARE NECESSARY AND ARE NECESSARY AND THEY SHOULD BE ABLE THEY SHOULD BE ABLE TO WITHSTAND LARGE TO WITHSTAND LARGE RISKSRISKS

8. 8. ORGANISATIONAL ORGANISATIONAL VISION & VISION & OBJECTIVESOBJECTIVES

NARROWED DOWN TO NARROWED DOWN TO WORK IN A SINGLE WORK IN A SINGLE COUNTRY WITH A COUNTRY WITH A STEADY GROWTH STEADY GROWTH OBJECTIVE. EACH ONE OBJECTIVE. EACH ONE WILL UNDERSTAND THE WILL UNDERSTAND THE VISION AND OBJECTIVE VISION AND OBJECTIVE VERY QUICKLYVERY QUICKLY

BROADENED TO COVER BROADENED TO COVER MANY COUNTRIES AND MANY COUNTRIES AND GEOGRAPHIC AND GEOGRAPHIC AND CULTURAL DIVERSITY CULTURAL DIVERSITY MAY INFLUENCE THE MAY INFLUENCE THE VISION AND OBJECTIVEVISION AND OBJECTIVE



9. PRODUCT 9. PRODUCT DEVELOPMENTDEVELOPMENT

ADAPTED TO THE LOCAL ADAPTED TO THE LOCAL ENVIRONMENT , AS PER ENVIRONMENT , AS PER THE REQUIREMENT OF THE REQUIREMENT OF DOMESTIC CUSTOMER’s DOMESTIC CUSTOMER’s AFFORDABILITY. BELIEFS, AFFORDABILITY. BELIEFS, VALUES AND CULTURAL VALUES AND CULTURAL ELEMENTSELEMENTS

VARIES FROM VARIES FROM COUNTRY TO COUNTRY TO COUNTRY SUBJECT TO COUNTRY SUBJECT TO THE REGULATIONS OF THE REGULATIONS OF THE HOST COUNTRY. THE HOST COUNTRY. THIS IS ESPECIALLY THIS IS ESPECIALLY TRUE FOR CONSUMER TRUE FOR CONSUMER AND MEDICINAL AND MEDICINAL ITEMSITEMS

10. LEGAL 10. LEGAL ASPECTSASPECTS

ONLY LOCAL ONLY LOCAL REGULATIONS ARE FULLY REGULATIONS ARE FULLY APPLICABLE TO CONDUCT APPLICABLE TO CONDUCT BUSINESS. THERE IS BUSINESS. THERE IS MINIMUM ADHERENCE TO MINIMUM ADHERENCE TO INTERNATIONAL INTERNATIONAL REGULATIONS RELATED REGULATIONS RELATED TO IPR. TO IPR.

INTERNATIONAL INTERNATIONAL REGULATIONS AND REGULATIONS AND HOST COUNTRY HOST COUNTRY REGULATIONS ARE REGULATIONS ARE APPLICABLE. APPLICABLE. ADVANCED ADVANCED COUNTRIES IMPOSE COUNTRIES IMPOSE STRICT REGULATION STRICT REGULATION COMPARED TO LDCs.COMPARED TO LDCs.




11. INVESTMENT11. INVESTMENT DEPENDING ON THE SIZE DEPENDING ON THE SIZE OF THE BUSINESS ONE OF THE BUSINESS ONE CAN START WITH A CAN START WITH A MINIMUM INVESTMENT. MINIMUM INVESTMENT. INVOLVEMENT OF INVOLVEMENT OF REGULATORY BODIES IS REGULATORY BODIES IS MINIMAL.MINIMAL.

ALL OVERSEAS ALL OVERSEAS OPERATIONS EXCEPT OPERATIONS EXCEPT EXPORTS, CALL FOR EXPORTS, CALL FOR HUGE INVESTMENTS HUGE INVESTMENTS TO SET UP AND TO SET UP AND EXPAND THE BUSINESS EXPAND THE BUSINESS IN MANY COUNTRIES. IN MANY COUNTRIES. SPECIAL REGULATORY SPECIAL REGULATORY BODIES ARE INVOLVED BODIES ARE INVOLVED IN THE PROCESS SINCE IN THE PROCESS SINCE FOREIGN CURRENCY IS FOREIGN CURRENCY IS TRANSACTEDTRANSACTED

12. PRICING12. PRICING A MAJORITY OF A MAJORITY OF COMPANIES USE COST COMPANIES USE COST PLUS MARGIN PRICING PLUS MARGIN PRICING OR COMPETITIVE PRICINGOR COMPETITIVE PRICING

COMPANIES USE COMPANIES USE MARGINAL COST MARGINAL COST PRICING OR TRANSFER PRICING OR TRANSFER PRICING OR PRICING OR COMPETITIVE PRICING COMPETITIVE PRICING TO SUCCEED..TO SUCCEED..




13. 13. DISTRIBUTIONDISTRIBUTION

THE BUSINESS HOUSE THE BUSINESS HOUSE CAN USE ITS CAN USE ITS DISCRETION TO SELECT DISCRETION TO SELECT ANY CHANNEL TO REACH ANY CHANNEL TO REACH THE CUSTOMERTHE CUSTOMER

THE DISTRIBUTION THE DISTRIBUTION CHANNEL IS CHANNEL IS GOVERNED BY THE GOVERNED BY THE GOVERNMENT OR GOVERNMENT OR MARKET PRICE. CASH MARKET PRICE. CASH AND CARRY, SHOPPING AND CARRY, SHOPPING MALLS AND MAIL MALLS AND MAIL ORDER SERVICES ARE ORDER SERVICES ARE BECOMING POPULAR BECOMING POPULAR IN INTERNATIONAL IN INTERNATIONAL BUSINESSBUSINESS

14. LOGISTICS14. LOGISTICS DOMESTIC PLAYERS ARE DOMESTIC PLAYERS ARE INVOLVED IN ALL INVOLVED IN ALL ACTIVITIESACTIVITIES

INTERNATIONAL INTERNATIONAL PLAYERS WITH PLAYERS WITH ADVANCED ADVANCED TECHNOLOGY AND TECHNOLOGY AND SYSTEMS ARE SYSTEMS ARE INVOLVEDINVOLVED




15. PROMOTION15. PROMOTION ADVERTISING, ADVERTISING, PERSONAL SELLING PERSONAL SELLING AND OTHER AND OTHER PROMOTIONAL PROMOTIONAL METHODS ARE NOT METHODS ARE NOT RESTRICTED THROUGH RESTRICTED THROUGH STRICT LEGAL FRAME STRICT LEGAL FRAME WORKWORK

DIFFERENT COUNTRIES DIFFERENT COUNTRIES HAVE DIFFERENT HAVE DIFFERENT RESTRICTIONS. FOR RESTRICTIONS. FOR EXAMPLE, EXAMPLE, ADVERTISEMENTS FOR ADVERTISEMENTS FOR LIQUOR AND LIQUOR AND CIGARETTES ARE NOT CIGARETTES ARE NOT PERMITTED IN SOME PERMITTED IN SOME COUNTRIES AND COUNTRIES AND CAMPAIGNS USING CAMPAIGNS USING FEMALE MODELS ARE FEMALE MODELS ARE BANNED IN OTHERSBANNED IN OTHERS

Lect 1

Education

business activitiesresources

foreign country

country toshipping

country toborrowing

finance operations

worldwide companies

india forin

various host countries