MB0053

International Business Management Unit 1

Sikkim Manipal University Page No. 1

Unit 1 Introduction to International Business

Structure:

1.1 Introduction

Objectives

1.2 Introduction to International Business

Definition

Evolution

1.3 Elements of International Business

Domestic vs. international business

Advantages of international business

Drivers of international business

Entry to international business

1.4 Globalisation

International vs. global business

Benefits of globalisation

1.5 Summary

1.6 Glossary

1.7 Terminal Questions

1.8 Answers

1.9 Case-Let

1.1 Introduction

The world economy is globalising at an accelerating pace as countries

previously closed to foreign companies have opened up their markets.

Geographic distance is shrinking because of the Internet, as the ambitious

growth minded companies aim for global leadership. All of these have been

made possible because of booming international business.

International business is mainly concerned with the issues that are related to

international companies and governments cross border transactions.

International business involves multiple countries to satisfy the objectives of

every individual as well as the organisations. International business

management is a process of achieving the global objectives of a firm by

effectively managing the human, financial, intellectual and physical

resources.



In this unit, you will study about the dynamics of global business in today’s

business environment and the need for multinational companies to tap

international markets for their business. In this unit, you will also examine

the difference between international business and global business.

Objectives:

After studying this unit you should be able to:

describe the evolution of international business.

explain the concept of international business.

analyse the difference between domestic, international, and global

business.

explain the dynamics of globalisation.

1.2 Introduction to International Business

When a company exports services or goods to other countries, it is termed

as international business. Let us learn the definition and evolution of

international business in detail.

1.2.1 Definition

International business can be defined as any business that crosses the

national borders of the country for its establishment. It includes importing

and exporting; international movement of goods, services, employees,

technology, licensing, and franchising of intellectual property (trademarks,

patents, copyright and so on). International business includes the

investment in financial and immovable assets in foreign countries. Contract

manufacturing or assembly of products for local sale or for export to other

countries, establishment of foreign warehousing and distribution systems,

and import of goods from one foreign country to a second foreign country for

subsequent local sale is part of international business.

There are various factors that affect international business. These factors

include economic environment, culture, political environment, financial and

banking systems, regulatory bodies, human capital, trade policies and so

on, of the target country. Figure1.1 represents the various factors affecting

international business.



Figure 1.1 Factors Effecting International Business

International trade is growing at a rapid rate. Table 1.1, which is compiled by

World Trade Organisation, gives us an understanding on the region-wise

quantum of international trade. It illustrates the incremental value and

volume of global trade in specified countries over a period of four years.

This table gives us an insight into the dynamics and importance of




Table 1.1: World Merchandise Trade by Region and Selected Country, 2008 in

$Billions

Exports Imports

Value Annual % change Value Annual% change

2008 2000-

2008 2006 2007 2008 2008

2000-2008

2006 2007 2008

World 15775 12 16 16 15 16120 12 15 15 15

North America 2049 7 13 11 10 2909 7 11 6 7

United States 1301 7 15 12 12 2166 7 11 5 7

Canada 456 6 8 8 8 418 7 11 9 7

Mexico 292 7 17 9 7 323 7 15 10 9

South and Central America a 602 15 21 14 21 595 14 22 25 30

Brazil 198 17 16 17 23 183 15 23 32 44

Other South and Central Americaa 404 14 23 13 20 413 14 21 23 24

Europe 6456 12 13 16 12 6833 12 15 16 12

European Union (27) 5913 12 13 16 11 6268 12 14 16 12

Germany 1465 13 14 19 11 1206 12 17 16 14

France 609 8 7 11 10 708 10 7 14 14

Netherlands 634 13 14 19 15 574 13 15 18 16

Italy 540 11 12 18 10 556 11 15 14 10

United Kingdom b 458 6 16 -2 4 632 8 17 4 1

Commonwealth of

Independent States (CIS) 703 22 25 20 35 493 25 30 35 31

Russian Federation c 472 21 25 17 33 292 26 31 36 31

Africa 561 18 19 18 29 466 17 16 24 27

South Africa 81 13 13 20 16 99 16 26 12 12

Africa less South Africa 481 19 20 17 32 367 18 13 28 31

Oil exporters d 347 21 21 18 36 137 21 9 31 37

Non oil exporters 133 15 18 15 22 229 16 15 27 28



Middle East 1047 19 22 16 36 575 17 12 25 23

Asia 4355 13 17 16 15 4247 14 16 15 20

China 1428 24 27 26 17 1133 22 20 21 19

Japan 782 6 9 10 10 762 9 12 7 22

India 179 20 21 22 22 292 24 21 25 35

Newly industrialised economies (4) e 1033 10 15 11 10 1093 10 16 11 17

Memorandum items:

Developing

economies 6025 15 20 17 20 5494 15 17 18 21

MERCOSUR f 279 16 16 18 25 259 14 24 31 41

ASEAN 990 11 17 12 15 936 12 14 13 21

EU (27) extra-trade 1928 12 11 17 13 2283 12 16 16 16

Least Developed

Countries (LDCs) 176 22 25 24 36 157 17 15 24 27

a - Includes the Caribbean

b - The 2007 annual change is affected by fraudulent VAT declaration

c - Imports are valued f.o.b.

d - Algeria, Angola, Cameroon, Chad, Congo, Equatorial Guinea, Gabon,

Libya, and Nigeria

e - Hong Kong, China; Republic of Korea; Singapore and Chinese Taipei

f - Common Market of the Southern Cone: Argentina, Brazil, Paraguay, and

Uruguay

g - Association of Southeast Asian Nations: Brunei, Cambodia, Indonesia,

Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and

Vietnam

Source: WTO Secretariat

1.2.2 Evolution

Origins of international trade can be traced thousands of years back to the

Babylonians, who used to ply their wares to distant lands. Records of

organised international trade have been traced to the ancient Roman

Empire, who also introduced common coinage to encourage trade across



their vast empire. The proof of ancient trade routes is found in the regions of

Egypt, Arabia, Greece, Asia, and Mesopotamia.

The well-known Silk Road and Spice Routes were the epitome of

international business. The Silk Road was an overland trade route from the

Mediterranean Sea to China, developed during the Han Dynasty between

200 BC and 8 AD. This 6,000 km long route ran from Mediterranean Sea to

the early Chinese capital of Chang’an (refer figure 1.2). Goods like

perfumes, fine fabrics, silk, and spices were traded from various European

ports to China and other places in between.

Figure 1.2: Ancient Silk Road and Spice Route

Discovery of the America by Christopher Columbus and sea route to the

Indian coast by Vasco da Gama opened up the international markets like

never before. British East India Company, which was set up in the year

1600 AD, is credited to be the world’s first multinational company.

Industrial revolution in the eighteenth century gave way to innovation and

technology, which led to mass production facilities, and took the British

Empire to global markets. With almost unlimited supply of raw materials,

minerals, precious metals, low cost labour, and manpower supply from their

colonies, the British Empire became a world power in terms of international

trade.



Post World War I, the balance shifted to America and Europe. During this

period, the world witnessed rapid innovations in science and technology and

developments in the field of agriculture. Immediately after the World War II,

the governments of the western countries felt the need to break the trade

barriers across international borders to revive the post war economies of

their respective countries.

The United Nations Monetary and Financial Conference (Bretton Woods

conference) held in July 1944 at New Hampshire, USA, was attended by

representatives from 44 nations across the world. It laid down the framework

for international business. The outcome of the Bretton Woods conference is

stated below:

Establishment of International Monetary Fund (IMF) and International

Bank for Reconstruction and Development (IBRD).

Regulated foreign exchange market system.

Currency convertibility.

Subsequent to the Bretton Woods conference, after several rounds of

negotiations and international agreements, several trade barriers and tariffs

were reduced or removed within the guidelines of General Agreement on

Trade and Tariffs (GATT).

Creation of the WTO on 1 January, 1995, marked the biggest reform of

international trade since World War II. Under the Marrakech agreement,

WTO was formed to replace GATT. The WTO is the only international body

that deals with the rules of trade between nations. Its main objective is to

facilitate smooth international trade.

Self Assessment Questions

1. _____________ can be defined as any business that crosses the

national borders of the country of its establishment.

2. Exports and imports do not constitute international business.

(True/False)

3. ____________ is considered as the first MNC in the world.

4. Bretton Woods conference led to the formation of _____

a) World Trade Organisation

b) International monetary fund

c) United Nations Organisation

d) General Agreement on Trade and Tariffs



1.3 Elements of International Business

In the previous section, we discussed the meaning and evolution of

international business. Let us now consider the various factors that

differentiate international business from domestic business, before learning

more about international business.

1.3.1 Domestic vs. international business

The fundamental objective of any business is to generate good profits from

its operations. While this remains true in both domestic and international

business, we can observe several differences in areas like legal framework,

government regulations, financial management, accounting and taxation

systems, culture, and market forces. Some of these issues are explained

below.

Legal and regulatory framework – This framework refers to companies

having to comply with the law of the land they operate in. Companies

involved in international business may have to comply with laws of more

than one country. This certainly poses a challenge as each country has its

own set of laws. These companies have to ascertain that their scope of

business is within the regulatory framework set by the authorities of that

country.

Financial management – In a domestic scenario, all the payments of a

business involve the local currency. In an international scenario, typically, a

company may pay in Chinese Yuan for sourcing its materials from China,

pay wages in Malaysian Ringgits at its production base in Malaysia, and

receive payments in Euros from its customer in Germany. Hence, a

company has to deal with multiple currencies, exchange rate mechanisms,

hedging of currencies, banking systems, fluctuating interest rates and so on.

Trade barriers and tariffs – In a domestic scenario, a company can move

its goods and services almost freely within the country. But in international

trade, companies face issues like licensing, anti-dumping laws, quota

restrictions, and tariffs for their business operations in a foreign country or

region.

Accounting and taxation – Domestic businesses need to comply with the

accounting and taxation standards prevailing in that country. A company



with international operations has to comply with the accounting standards

and tax laws of the foreign country as well.

Culture – A business deals with a homogenous culture in its domestic

market. A company with international business has to deal with

heterogeneous cultures in multiple countries. The company’s management

has to study different cultures and get accustomed to different languages,

culture, sentiments, and traditions of the foreign country in order to conduct

business productively.

Market forces – Demographics of each country have its own perceptions

about different products and services. The local, political, economic, and

technological environments differ from country to country. While these

differences are at a macro level, at the micro level we have to consider

several other factors. They may be in terms of customer preferences,

product placement, pricing, advertising, distribution channels and so on. An

international company has to face the challenges of multiple regional

customers, each with unique requirements.

1.3.2 Advantages of international business

Let us discuss the need for companies to expand into foreign markets, and

the benefits companies get from international business. Some of the

advantages are as follows:

Low cost production – A company can take advantage of low cost

production outside its domestic operations by identifying a nation where

the labour is cost effective and in abundant supply. For example,

countries like China, Philippines, and Mexico offer such low cost

production opportunities.

Strategic resources – A company utilises many valuable resources

available in a foreign country either by importing from that country or by

setting up a subsidiary, manufacturing, or production plant in that

country. These resources can be human in nature or natural resources

like minerals. For example, India has an abundance of skilled engineers,

and many global companies take advantage of this resource by either

setting up a subsidiary in India or through their partners. Similarly,

Australia boasts of rich mineral deposits. Hence, it houses the world’s

largest mining companies there.



Large customer base – Expanding into markets of foreign countries

leads to exposure to more customers, better revenues, increased profits,

and lateral growth. This scenario is ideal when the company has already

established products in its domestic market. For example, Sweden

based IKEA is the world’s largest furniture retailer, and operates in 37

countries after a modest beginning in Sweden.

Competitive advantage – A company with unique competencies and

capabilities gain benefits in the international market. For example, Intel’s

(USA) competencies and capabilities in semiconductors and chips have

propelled it to global market leadership in microprocessors.

Diversify risk – Any company can dilute its business risk by spreading

its operations in a number of different and diverse countries rather than

depending on any one market or region. For example, during the 1997

Asian financial crisis, companies with exposure in Europe and American

countries were able to sustain far better than their counterparts in Asia.

1.3.3 Drivers of international business

The tendency of companies to move beyond national borders gained

momentum since the 1940s and was expedited with the establishment of

WTO in 1995. According to the data provided in table 1.1, international trade

is growing at a healthy rate, encouraged by several developments across

the world. In this section, let us explore some of these factors that drive


Global marketplace – International business has become easier since the

advent of internet and the emergence of e-business. A company must have

a good product, the right strategy and an appetite to take risk at the global

marketplace in order to do business internationally.

Emerging markets – Compared to developed countries, developing

countries are growing at a healthy pace, thus reducing the barriers of trade.

Emerging markets provide an unexplored marketplace with unlimited

potential and scope for business. Any company with good or innovative

products and services cannot afford to ignore the opportunities provided by

these emerging markets.

Foreign Direct Investment (FDI) policy of a nation lays down the foundation

for competitive and prosperous market conditions. Embracing globalisation



has become a vital component of development strategy for developing

countries, and is being used as an effective instrument of economic growth.

Some countries like China, India, and Philippines also provide tax holidays

to foreign companies for setting up their business (in certain sectors) in

these countries. Such incentives make these countries an attractive

destination for companies looking for low cost production.

Small domestic market – A company, which is mature in its domestic

market, is driven to sell in more than one country because the sales volume

achieved in its own domestic market is not large enough to fully capture

manufacturing economies of scale. For example, Nokia is an international

company based in Finland.

Diminishing trade and investment barriers – The lowering of barrier to

trade and investments (by most countries around the world) also provides

an opportunity to companies looking for expanding their business.

Expanding into a foreign country provides access to low wage labourers,

highly skilled work force, larger market base and so on. Companies have a

chance to setup subsidiaries in low-cost countries for manufacturing their

products. Because of the easy flow of goods and services, a company

literally designs the product in one country, manufactures the various

components in different countries, assembles the final product in a third

country and markets the product across the world.

Technological innovation – The advent of internet and e-commerce,

advancement of telecommunication, information technology, and

improvements in logistics have changed the dynamics of business

operations. The use of mobile telephony, wireless communications, and

satellite connectivity has reduced the time needed for decision making at an

international level. Constant innovation in technology has enhanced

information flow between geographically remote areas, thus bringing the

markets of different countries closer and paving the way for international

business.

Changing demographics – Most developed countries face challenges in

sourcing workforce as the average age of the population is getting older. In

the next 10 years, most of the industrialised nations will have to depend on

sourcing its workforce from countries like India, China and other countries,

where the population is young, with abundance of skilled labour. India alone



produces close to 500,000 engineers and one million english speaking

graduates and other diploma holders per year.

Figure 1.3 gives you a pictorial representation of various drivers affecting


Figure 1.3: Drivers of International Business

Trading blocs – Formation of various regional and international trading

blocs like European Union, World Trade Organisation, South Asian Free

Trade Agreement, and North American Free Trade Agreement have

resulted in increased regional cooperation. These trading blocs promote

business within their scope by facilitating free trade zones, which literally

eliminates any trade or investment barriers. Regional trading blocs also

facilitate easy movement of goods, services, and human resources within

the region, thus providing a uniform opportunity to all the countries (in the

region) for proper allocation of resources.

1.3.4 Entry to international business

For a company that wants to expand internationally, there are several

available entry options. They are listed as follows:



Export strategy.

Licensing.

Franchising.

Foreign direct investment.

Exports strategy – This method remains the most common means of entry

into international markets. Export strategy is a very attractive option that is

merely an extension of domestic operations. It also minimises the risk

component as well as the capital requirement. The host company’s

involvement in the international market is limited to identifying customers for

marketing its products.

Licensing – A domestic company can license foreign firms to use the

company’s technology or products and distribute the company’s product. By

licensing, the domestic company need not bear any costs and risks of

entering foreign markets on its own, yet it is able to generate income from

royalties. The reverse of this arrangement is the risk of providing valuable

technological knowledge to foreign companies, and thereby losing some

degree of control over its use. Monitoring licenses and safeguarding

company’s Intellectual Property Rights can prove to be challenging in an

international scenario.

Franchising – Licensing works well for manufacturing companies but

franchising is a better option for international expansion efforts of service or

retailing companies. Franchising has the same advantages as licensing.

The franchisee bears almost all the costs and risks in establishing the

foreign operations. The franchiser’s contribution is limited to providing the

concept, technology and training the franchisee in the already established

model. Maintaining quality poses the biggest challenge to the franchiser.

Foreign Direct Investment (FDI) – FDI is the investment made by a

company in a foreign country to start its operations. Various options

available for an FDI are as follows:

Whole owned subsidiary – This option is viable if a company is willing

to take all the risks of all the operations pertaining to its business in a

foreign country. A subsidiary can be formed from scratch (green field

investment) to manufacture and market its products and services in a



foreign country. A firm can also export its products or services to other

countries from its subsidiaries.

Joint Ventures (JV) - This is a very popular mode of entry into foreign

markets, as it minimises business risk and investment. It is owned by

one or more firms in proportion to their investment. If a JV is done with

an existing competitor, it could be termed as a strategic alliance.

Merger or acquisition - A company can merge into or acquire an

existing company with established operations in a foreign country. This

option is more practical than a green field investment, as it saves a lot of

time in construction, initial setup, and regulatory approvals and so on. In

the bargain, the acquiring company can use all the established brand

names, distribution networks and so on of the acquired company.

Strategic investment - Any firm can purchase a stake in a foreign

company, whereby they are entitled to a share in the profits, if any. The

shareholding can be a minority stake and may be without voting rights.

Generally, the investing company does not participate in the

management of the target company.


5. ____________ need to comply with the accounting and taxation

standards prevailing in that country.

6. ___________ is not an advantage of international business.

a) Low cost production

b) Market forces

c) Large customer base

d) Diversified risk

7. Franchising and licensing are barriers to international business.

(True/False)

8. Technological innovations and diminishing trade barriers are

_________ of international business.

Activity 1

Discuss examples of Indian companies for each entry strategy for


Hint: Refer section 1.3.4 for different entry options.



1.4 Globalisation

In the previous section, we learnt the various aspects of international

business. We will now broaden our perspective and examine globalisation.

Globalisation is a process where businesses are dealt in markets around the

world, apart from the local and national markets. According to business

terminologies, globalisation is defined as ‘the worldwide trend of businesses

expanding beyond their domestic boundaries’. It is advantageous for the

economy of countries because it promotes prosperity in the countries that

embrace globalisation. In this section, we will understand globalisation, its

benefits and challenges.

1.4.1 International vs. global business

Most of us assume that international and global business are the same and

that any company that deals with another country for its business is an

international or global company. In fact, there is a considerable difference

between the two terms.

International companies – Companies that deal with foreign companies for

their business are considered as international companies. They can be

exporters or importers who may not have any investments in any other

country, apart from their home country.

Global companies – Companies, which invest in other countries for

business and also operate from other countries, are considered as global

companies. They have multiple manufacturing plants across the globe,

catering to multiple markets.

The transformation of a company from domestic to international is by

entering just one market or a few selected foreign markets as an exporter or

importer. Competing on a truly global scale comes later, after the company

has established operations in several countries across continents and is

racing against rivals for global market leadership. Thus, there is a

meaningful distinction between a company that operates in few selected

foreign countries and a company that operates and markets its products

across several countries and continents with manufacturing capabilities in

several of these countries.



Companies can also be differentiated by the kind of competitive strategy

they adopt while dealing internationally. Multinational strategy and global

competitive strategy are the two types of competitive strategy.

Multinational strategy – Companies adopt this strategy when each

country’s market needs to be treated as self contained. It can be for the

following reasons:

Customers from different countries have different preferences and

expectations about a product or a service.

Competition in each national market is essentially independent of

competition in other national markets, and the set of competitors also

differ from country to country.

A company’s reputation, customer base, and competitive position in

one nation have little or no bearing on its ability to successfully

compete in another nation.

Some of the industry examples for multinational competition include beer,

life insurance, and food products.

Global competitive strategy – Companies adopt this strategy when

prices and competitive conditions across the different country markets

are strongly linked together and have common synergies. In a globally

competitive industry, a company’s business gets affected by the

changing environments in different countries. The same set of

competitors may compete against each other in several countries. In a

global scenario, a company’s overall competitive advantage is gauged

by the cumulative efforts of its domestic operations and the international

operations worldwide.

A good example to illustrate is Sony Ericsson, which has its headquarters in

Sweden, Research and Development setup in USA and India,

manufacturing and assembly plants in low wage countries like China, and

sales and marketing worldwide. This is made possible because of the ease

in transferring technology and expertise from country to country.

Industries that have a global competition are automobiles, consumer

electronics (like televisions, mobile phone), watches, and commercial

aircraft and so on.



Table 1.2 portrays the differences in strategies adopted by companies in

international and global operations.

Table 1.2: Differences between International and Global Strategies

Strategy International Global

Location Selected target countries and trading areas

Most global businesses operate in North America, Europe, Asia Pacific, and Latin America

Business Custom strategies to fit the circumstances of each host country situation

Same basic strategy worldwide with minor country customisation where necessary

Product-line Adopted to local culture and particular needs and expectations of local buyers

Mostly standardised products sold worldwide, moderate customisation depending on the regulatory framework

Production Plants scattered across many host countries, each producing versions suitable for the surrounding environment

Plants located on the basis of maximum competitive advantage (in low cost countries close to major markets, geographically scattered to minimise shipping costs, or use of a few world scale plants to maximise economies of scale)

Source of supply of raw materials

Suppliers in host country preferred

Attractive suppliers from across the world

Marketing and distribution

Adapted to practices and culture of each host country

Much more worldwide coordination; minor adaptation to host country situations if required

Cross country connections

Efforts made to transfer ideas, technologies, competencies and capabilities that work successfully in one country to another country whenever such a transfer appears advantageous

Efforts made to use almost the same technologies, competencies, and capabilities in all country markets (to promote use of a mostly standard strategy), new successful competitive capabilities are transferred to different country markets



Company organisation

Form subsidiary companies to handle operations in each host country; each subsidiary operates more or less autonomously to fit host country conditions

All major strategic decisions closely coordinated at global headquarters; a global organisational structure is used to unify the operations in each country

1.4.2 Benefits of globalisation

The merits and demerits of globalisation are highly debatable. While

globalisation creates employment opportunities in the host countries, it also

exploits labour at a very low cost compared to the home country. Let us

consider the benefits and ill-effects of globalisation. Some of the benefits of

globalisation are as follows:

Promotes foreign trade and liberalisation of economies.

Increases the living standards of people in several developing countries

through capital investments in developing countries by developed

countries.

Benefits customers as companies outsource to low wage countries.

Outsourcing helps the companies to be competitive by keeping the cost

low, with increased productivity.

Promotes better education and jobs.

Leads to free flow of information and wide acceptance of foreign

products, ideas, ethics, best practices, and culture.

Provides better quality of products, customer services, and standardised

delivery models across countries.

Gives better access to finance for corporate and sovereign borrowers.

Increases business travel, which in turn leads to a flourishing travel and

hospitality industry across the world.

Increases sales as the availability of cutting edge technologies and

production techniques decrease the cost of production.

Provides several platforms for international dispute resolutions in

business, which facilitates international trade.

Some of the ill-effects of globalisation are as follows:

Leads to exploitation of labour in several cases.

Causes unemployment in the developed countries due to outsourcing.

Leads to the misuse of IPR, copyrights and so on due to the easy

availability of technology, digital communication, travel and so on.



Influences political decisions in foreign countries. The MNCs

increasingly use their economical powers to influence political decisions.

Causes ecological damage as the companies set up polluting production

plants in countries with limited or no regulations on pollution.

Harms the local businesses of a country due to dumping of cheaper

foreign goods.

Leads to adverse health issues due to rapid expansion of fast food

chains and increased consumption of junk food.

Causes destruction of ethnicity and culture of several regions worldwide

in favour of more accepted western culture.

In spite of its disadvantages, globalisation has improved our lives in various

fields like communication, transportation, healthcare, and education.


9. Companies, which invest in other countries for business and also

operate from other countries, are considered as ___________.

10. International and global business are different. (True/False)

11. Globalisation improves the living standards of people in developing

countries. (True/False)

12. ____________ can be defined as ‘the worldwide trend of businesses

expanding beyond their domestic boundaries’.

Activity 2

Aditya Birla group is a global corporation. Justify this statement based on

their business strategies.

Refer this link for guidance - http:// www. adityabirla. com/media/

press_reports/20070114_dare_to_dream.htm

1.5 Summary

Now, let us summarise what we have discussed in this unit about

introduction to international business:

International business involves cross border movement of goods and

services. It includes exporting, importing, franchising and licensing.

International business dates back to the Babylonians who plied their

goods across distant lands.



International business differs from domestic business in some important

features like the financial management of the business, the legal and

regulatory framework, and the market forces that dictate the demand of

products. Some of the entry points for international business include

FDIs and exports.

Difference between international business and globalisation were

discussed.

Globalisation involves companies that invest and operate in other

countries. It promotes economic growth and prosperity in the countries

that embrace globalisation. Some of the benefits of globalisation include

liberalisation of economies and the free flow of information.

1.6 Glossary

Acquisition: The process by which a company buys most, if not all, of the

target company's controlling shareholding in order to assume control of the

target firm.

Demographics: The composition of a country’s population in terms of age,

sex, marital status, family size, education, geographic location, and

occupation.

IPR: Intellectual Property Rights are the legal rights over an intangible

asset. For example, designs, ideas, music composition and so on.

MERCOSUR: is a regional trade agreement between the sovereign

countries of Argentina, Brazil, Paraguay and Uruguay.

Merger: The process in which two companies combine to form a single

entity.

NAFTA: North American Free Trade Agreement is a free trade agreement

between Canada, Mexico, and the USA.

SAFTA: South Asian Free Trade Agreement is a regional economic

cooperation agreement between seven South Asian nations.

Subsidiary: A company whose controlling interest is held by a bigger

(parent) company.

Trading bloc: An agreement entered between some countries or regions to

promote trade and eliminate trade barriers within the member states.



1.7 Terminal Questions

1. Explain the evolution of international business.

2. State the factors distinguishing domestic trade from international trade.

3. Analyse various drivers of international business.

4. Discuss the strategies to enter international business.

5. Explain the benefits of globalisation.

1.8 Answers


1. International business

2. False

3. British East India Company

4. b) International monetary fund

5. Domestic businesses

6. b) Market forces

7. False

8. Drivers

9. Global companies

10. True

11. True

12. Globalisation

Terminal Questions

1. International business can be traced back to 200 BC. Discovery of new

sea routes in the sixteenth century propelled international business into

dimensions with the formation of multinational companies. Post World

War II, it took a new dimension and led to globalisation that has been

witnessed today. For more details, refer sub-section 1.1.1.

2. Distinguishing factors between domestic and international businesses

are legal and regulatory framework, financial systems, trade barriers

and tariffs, accounting and taxation, culture and markets. For more

details, refer sub-section 1.3.1.

3. Some of the drivers of international business are attractive emerging

markets, diminishing trade barriers, innovations in technology,

changing demographics, and encouraging trade blocs. For more

details, refer section 1.3.3.



4. Strategies for entering international business are exporting, licensing,

franchising, joint venture, wholly owned subsidiary, and strategic

investment and so on. For more details, refer section 1.3.4.

5. Outsourcing to low wage economies, increased living standards in

developing countries, competitive pricing of products and services,

easy access to finance and global educational opportunities are some

benefits of globalisation. For more details, refer section 1.4.2.

1.9 Case-Let

BATA – An International Company

Bata Shoe Company, founded in 1894 in the former Czechoslovakia

(presently headquartered in Lausanne, Switzerland), is one of the world's

leading footwear retailers and manufacturers, with operations across five

continents managed by three regional meaningful business units (MBUs).

The MBU approach provides quality resources and support in key areas

to the companies operating in similar markets such as product

development, sourcing, or marketing support. Each MBU is

entrepreneurial in nature, and can quickly adapt to changes in the market

place and seize potential growth opportunities.

Bata´s three MBUs are Bata Europe, Lausanne, Switzerland; Bata

Emerging Markets, Singapore; and Bata Branded Business, Best,

Holland.

Bata's strength lies in its worldwide presence. While local companies are

self-governing, each one benefits from its link to the international

organisation for back-office systems, product innovations, and sourcing.

Research and development – Bata operates six Shoe Innovation

Centres (SICs). Research is conducted in applying new technologies,

materials, and designs for shoe comfort features. Each SIC has a product

focus – to supply complete packages of services for the manufacturing

and marketing of innovative shoes.

Shoe making expertise – Apart from being one of the world's leading

footwear retailers, Bata is also an expert in making shoes, with over 110

years of experience in manufacturing. Currently, they operate 33

production facilities across 22 countries.



While most modern day manufacturers outsource to Asia, Bata

manufactures predominantly in their own manufacturing facilities across

the world, guaranteeing quality and expertise.

Approximately half their factory outputs are destined for sale through

Bata-owned retail stores, and the balance is manufactured to the

specifications of wholesale customers or under contract to other footwear

brands.

Bata innovations in footwear production techniques are being used by

other competitors in the industry even today.

In 2010, Bata serves 1 million customers a day; employs more than

50,000 people; operates more than 5,000 retail stores; and manages

retail presence in more than 70 countries.

Discussion Questions

1. Bata is a global company. Justify. (Hint: operates in 70 countries)

2. Identify the strategy that Bata uses for entry into new markets. (Hint:

Own showrooms)

3. What are the factors that help Bata retain its global leadership

position? (Hint: Innovation)

References

Batra, G. S. (2006). Liberalisation, Globalisation and International

Business. Deep and Deep Publications.

Bhalla, V. K. & Shiva, Ramu S. (2008). International Business –

Environment and Management. Anmol Publications.

Chauhan, P.L., Kakkad, Ratish, Patel, Rupal H. (2006). International

Business. Shanthi Prakashan.

Cherunilam, Francis (2010). International Business Environment.

Himalaya Publishing House.

K. Aswathappa (2010). International Business. Tata McGraw-Hill

Publications Co. Ltd.

McDonald, Frank and Burton, Fred (2002). International Business.

International Thomson Computer Press.



Nelson, Carl A. (1999). International Business - A Manager’s Guide to

Strategy in the Age of Globalism. PWS South Western Duxbury Cole

Onwo.

Porter, Michael (1990). The Competitive Advantage of Nations. The

Free Press.

Thomson Jr., Arthur; Strickland III, A. J.; Gamble, John E. & Jain,

Arun K. (2006). Crafting and Executing Strategy: The Quest for

Competitive Advantage. Tata McGraw Hill Publications Co. Ltd.

E-References

http://www.wto.org

– Retrieved on 17th September, 2010

http://cas.bellarmine.edu/tietjen/Ecol&Evol/connections.htm

http://www.bata.com/about-us.php

– Retrieved on 18th September, 2010

MB0053

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