INTERNATIONAL BUSINESS ENVIRONMENT

UNIT I
Introduction to International Business: - International Business An Overview Meaning &
Definition - Framework of International Business Environment Main drivers of Globalization - Importance
nature and scope of international business; modes of entry into international business -
Internationalization process and managerial implications Exporting Types Licensing Franchising -
turnkey projects WOS Joint Venture Strategic alliance Comparison of Foreign Market entry options
Special difficulties (Barriers) in International Business Benefits of International Business.

INTRODUCTION TO INTERNATIONAL BUSINESS

International Business: An Overview
It is defined as the process of extending the business activities from domestic to any foreign country
with an intention of targeting international customers; it is also defined as the conduction of business activities
by any company across the nations
It can also be defined as the expansion of business functions to various countries with an objective of
fulfilling the needs and wants of international customers

FRAMEWORK OF INTERNATIONA BUSINESS ENVIRONMENT

FOREIGN ENVIRONMENT:
The home-based or the domestic export expansion measures are necessarily related to the conditions
prevailing in possible markets. An Exporter has to overcome various constraints and adapt plans and operations
to suit foreign environmental conditions. The main elements of foreign environment affecting marketing
activities of a firm in a foreign country consist of the following.

A) POLITICAL DIMENSION:
Nations greatly differ in their political environment. Govt. policies, regulations and control mechanisms
regarding the countries, foreign trade and commercial relations with other countries or groups of countries. At
least four factors should be considered in deciding whether to do business in a particular country. They are
1. Attitudes towards International Buying:
Some nations are very receptive, indeed encouraging, to foreign firms, and some others are hostile. For
e.g.: Singapore, UAE and Mexico are attracting foreign investments by offering investment incentives, removal
of trade barriers, infrastructure services, etc.
2. Political Stability: A country's future and stability is another important issue. Government changes
hands sometimes violently. Even without a change, a region may decide to respond to popular feeling. A
foreign firm's property may be seized; or its currency holdings blocked; or import quotas or new duties
may be imposed. When political stability is high one may go for direct investments. But when instability
is high, firms may prefer to export rather than involve in direct investments. This will bring in foreign
exchange fast and currency convertibility is also rapid.
3. Monetary Regulations:
Sellers want to realise profits in a currency of value to them. In best situations, the Importer pays in the
seller's currency or in hard world currencies. In the worst case they have to take the money out of the host
country in the form of relatively unmarketable products that they can sell elsewhere only at a loss. Besides
currency restrictions, a fluctuating exchange rate also creates high risks for the exporter.
4. Government Bureaucracy:
It is the extent to which the Government in the host country runs an efficient system for assisting foreign
companies: efficient customs handling, adequate market information, etc. The problem of foreign
uncertainty is thus further complicated by a frequently imposed "alien status", this increases the
difficulty of properly assessing and forecasting the dynamic international business. The political
environment offers the best example of the alien status.
A foreign political environment can be extremely critical; shifts in Government often means sudden
changes in attitudes that can result in expropriation, expulsion, or major restrictions in operations. The fact is
that a foreign company is foreign and thus always subject to the political whim to a greater degree than a
domestic firm.
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CULTURAL ENVIRONMENT:
The manner in which people consume their priority of needs and the wants they attempt to satisfy, and
the manner in which they satisfy are functions of their culture which moulds and dictates their style of living.
This culture is the sum total of knowledge, belief, art, morals, laws, customs and other capabilities acquired by
humans as members of the society. Since culture decides the style of living, it is pertinent to study it especially
in export marketing. e.g. when a promotional message is written, symbols recognizable and meaningful to the
market (the culture) must be used. When designing a product, the style used and other related marketing
activities must be culturally acceptable.

ECONOMIC ENVIRONMENT:
In considering the international market, each Exporter must consider the importing country's economy.
Two economic characteristics reflect the country's attractiveness as an export market. They are the
country's industrial structure and the country's income distribution by employment industrialization and
socio economic justices.

LEGAL ENVIRONMENT:
The legal dimension of international Business environment includes all laws and regulations regarding
product specification and standards, packaging and labeling, copyright, trademark, patents, health and safety
regulations particularly in respect of foods and drugs. There are also controls in promotional methods, price
control, trade margin, mark-up, etc., These legal aspects of marketing abroad have several implications which
an exporting firm needs to study closely.

Regional Strategy:
In international business the regional strategy is explained as business strategy directed in doing
business for a specific country, region in international business is one nation, large scale business operators will
have to design the business strategy based on each nation and which ultimately affects the international
business. Companies can source goods, technology, information, and capital from around the world, but
business activity tends to be centered in certain cities or city regions in a few parts of the world

Global strategy
Global strategy is the ability of an organization to apply a replicable and systematic methodology to the unique
challenges that are faced by the organization. A sound global strategy addresses questions such as, how to build
necessary global presence and what should be the optimal locations for various value chain activities. Any
company which implements the global strategy will have the following aspects as its features
Product is the same in all countries.
Centralized control - little decision-making authority on the local level
Effective when differences between countries are small
Advantages: cost, coordinated activities, faster product development

IMPORTANCE OF INTERNATIONAL BUSINESS ENVIRONMENT

1. ETHNOCENTRIC ORIENTATION:
The ethnocentric orientation of a firm considers that the products, marketing strategies and techniques
applicable in the home market are equally so in the overseas market as well. In such a firm, all foreign
marketing operations are planned and carried out from home base, with little or no difference in product
formulation and specifications, pricing strategy, distribution and promotion measures between home and
overseas markets. The firm generally depends on its foreign agents and export-import merchants for its export
sales.

2. REGIOCENTRIC ORIENTATION:
In regiocentric approach, the firm accepts a regional marketing policy covering a group of countries
which have comparable market characteristics. The operational strategies are formulated on the basis of the

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entire region rather than individual countries. The production and distribution facilities are created to serve the
whole region with effective economy on operation, close control and co-ordination.

3. GEOCENTRIC ORIENTATION :
In geocentric orientation, the firms accept a worldwide approach to marketing and its operations become
global. In global enterprise, the management establishes manufacturing and processing facilities around the
world in order to serve the various regional and national markets through a complicated but well co-ordinate
system of distribution network. There are similarities between geocentric and regiocentric approaches in the
international market except that the geocentric approach calls for a much greater scale of operation.

4. POLYCENTRIC OPERATION :
When a firm adopts polycentric approach to overseas markets, it attempts to organize its international
marketing activities on a country to country basis. Each country is treated as a separate entity and individual
strategies are worked out accordingly. Local assembly or production facilities and marketing organisations are
created for serving market needs in each country. Polycentric orientation could be most suitable for firms
seriously committed to international marketing and have its resources for investing abroad for fuller and long-
term penetration into chosen markets. Polycentric approach works better among countries which have
significant economic, political and cultural differences and performance of these tasks are free from the
problems created primarily by the environmental factors.

MEANING & DEFINITION

International business includes any type of business activity that crosses national borders.
Though a number of definitions in the business literature can be found but no simple or universally
accepted definition exists for the term international business.
International business is defined as organization that buys and/or sells goods and services across two or
more national boundaries, even if management is located in a single country.
International business is equated only with those big enterprises, which have operating units outside
their own country.

Other Terms
Domestic company :Most international companies have their origin as domestic companies. The
orientation of a domestic company essentially is ethnocentric. A purely domestic company operates
domestically because it never considers the alternative of going international. A domestic company may
extend its products to foreign markets by exporting, licensing and franchising
International companies are importers and exporters, they have no investment outside of their home
country.
Multinational companies have investment in other countries, but do not have coordinated product
offerings in each country. More focused on adapting their products and service to each individual local
market.
Global companies have invested and are present in many countries. They market their products through
the use of the same coordinated image/brand in all markets. Generally one corporate office that is
responsible for global strategy. Emphasis on volume, cost management and efficiency.
Transnational companies are much more complex organizations. They have invested in foreign
operations, have a central corporate facility but give decision-making, R&D and marketing powers to
each individual foreign market.
Multinational Corporation In a report of the International Labour Organisation (ILO), it is observed that,
"the essential of the MNC lies in the fact that its managerial headquarters are located in one country (home
country), while the enterprise carries out operations in a number of the other countries (host countries)."

A "multinational corporation" is also referred to as an international, transactional or global corporation.

Actually, for an enlarging business firm, multinational is a beginning step, as it gradually becomes transnational
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and then turns into a global corporation. For, transnational corporation represents a stage where in, the
ownership and control of the concerned organization crosses the national boundaries.

Features of MNCs :

1. MNCs have managerial headquarters in home countries, while they carry out operations in a number of other
(host) countries.

2. A large part of capital assets of the parent company is owned by the citizens of the company's home country.

3. The absolute majority of the members of the Board of Directors are citizens of the home country.

4. Decisions on new investment and the local objectives are taken by the parent company.

5. MNCs are predominantly large-sized and exercise a great degree of economic dominance.

6. MNCs control production activity with large foreign direct investment in more than one developed and
developing countries.

7. MNCs are not just participants in export trade without foreign investments.

Main Drivers of Globalization [International Business]

Cost driver companies consider the various lifestyle of the country before considering the price of the
product and services to rendered
Technology driver : increasing technology system, transportation, advancing in the level of world trade
system
Government driver: reducing trade tariffs and non-trade tariffs, reducing the role of political policies
Competition driver: organization becoming a global center, shift in open market system, Privatization,
Liberalization

NATURE & SCOPE OF INTERNATIONAL BUSINESS ENVIRONMENT

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NATURE OF INTERNATIONAL BUSINESS
1. Accurate Information
2. Information not only accurate but should be timely
3. The size of the international business should be large
4. Market segmentation based on geographic segmentation
5. International markets have more potential than domestic markets

SCOPE OF INTERNATIONAL BUSINESS

As mentioned, international business is much broader than international trade. It involves not only
international trade but also, a wide variety of other ways in which the organisations operate internationally.
Major forms of business operations that comprise international business are as follows.
i. Merchandise Exports and Imports
Merchandise can be defined as goods that are tangible, i.e., those that can be seen and touched. When
viewed from this understanding, it is clear that merchandise exports means sending tangible goods abroad and
merchandise imports means bringing tangible goods belonging to a foreign country to one's own country.
Merchandise exports and imports, also known as trade in goods, comprise only tangible goods and exclude
trade in services.

ii. Service Exports and Imports:

Service exports and imports comprise trade in intangibles. It is because of its intangible feature of
services that trade in services is also called as invisible trade. A wide variety of services are as follows: tourism,
travel, boarding, lodging, recruiting, training, construction, engineering, educational and financial services etc.
Out of these, tourism and travel are considered to be the major components of world trade in services.

iii. Licensing and Franchising:

Permitting a new party in a foreign country in order to produce and sell goods under your trademarks,
patents or copyrights in lieu of some fee is another way of entering into international business. It is under the
licensing system that Pepsi and Coca Cola are produced and sold all over the world by local bottlers in foreign
countries. Franchising is similar to licensing, but it is a term used in connection with the provision of services.
McDonalds, for instance, operates fast food restaurants the world over through its franchising system.

iv. Foreign Investments:

Foreign investment is another important form of international business. Foreign investment involves
investments of funds abroad in exchange for financial return. Foreign investment can be of two types: direct
and portfolio investments. Direct investment takes place when a company directly invests in properties.

MODES OF ENTRY INTO INTERNATIONAL BUSINESS / INTERNATIONALIZATION PROCESS

A mode of entry into an international business is the channel which your organization employs to gain entry
to a new international market. This lesson considers a number of key alternatives, but recognizes that alternatives are
many and diverse. There are two major types of entry modes: equity and non-equity modes. The non-equity modes
category includes export and contractual agreements. The equity modes category includes: joint venture and wholly
owned subsidiaries.

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Exporting
Exporting is the process of selling of goods and services produced in one country to other countries. There
are two types of exporting: direct and indirect.
Direct Exports
Direct exports represent the most basic mode of exporting, capitalizing on economies of scale in production
concentrated in the home country and affording better control over distribution. Direct export works the best if the
volumes are small. Large volumes of export may trigger protectionism.
Types of Direct Exporting.
Sales representatives represent foreign suppliers/manufacturers in their local markets for an established
commission on sales. Provide support services to a manufacturer regarding local advertising, local sales
presentations, customs clearance formalities, legal requirements. Manufacturers of highly technical services or
products such as production machinery, benefit the most form sales representation.
Importing distributors purchase product in their own right and resell it in their local markets to
wholesalers, retailers, or both. Importing distributors are a good market entry strategy for products that are carried in
inventory, such as toys, appliances, prepared food.
Advantages of Direct Exporting
Control over selection of foreign markets and choice of foreign representative companies
Good information feedback from target market
Better protection of trademarks, patents, goodwill, and other intangible property
Potentially greater sales than with indirect exporting.
Disadvantages of Direct Exporting
Higher start-up costs and higher risks as opposed to indirect exporting
Greater information requirements
Longer time-to-market as opposed to indirect exporting.

Indirect exports: An indirect export is the process of exporting through domestically based export intermediaries.
The exporter has no control over its products in the foreign market.
Types of Indirect Exporting
1 Export Trading Companies (ETCs) provide support services of the entire export process for one or more
suppliers. Attractive to suppliers that are not familiar with exporting as ETCs usually perform all the
necessary work: locate overseas trading partners, present the product, quote on specific enquiries, etc.
2 Export Management Companies (EMCs) are similar to ETCs in the way that they usually export for
producers. Unlike ETCs, they rarely take on export credit risks and carry one type of product, not
representing competing ones. Usually, EMCs trade on behalf of their suppliers as their export departments.
3 Export Merchants are wholesale companies that buy unpackaged products from suppliers/manufacturers
for resale overseas under their own brand names. The advantage of export merchants is promotion. One of
the disadvantages for using export merchants result in presence of identical products under different brand
names and pricing on the market, meaning that export merchants activities may hinder manufacturers
exporting efforts.
4 Confirming Houses are intermediate sellers that work for foreign buyers. They receive the product
requirements from their clients, negotiate purchases, make delivery, and pay the suppliers/ manufacturers.
An opportunity here arises in the fact that if the client likes the product it may become a trade representative.
A potential disadvantage includes suppliers unawareness and lack of control over what a confirming house
does with their product.
Nonconforming Purchasing Agents are similar to confirming houses with the exception that they do not
pay the suppliers directly payments take place between a supplier/manufacturer and a foreign buyer.
Advantages of Indirect Exporting
1. Fast market access
2. Concentration of resources for production
3. Little or no financial commitment. The export partner usually covers most expenses associated with
international sales
4. Low risk exists for those companies who consider their domestic market to be more important and for those
companies that are still developing their R&D, marketing, and sales strategies.
5. The management team is not distracted
6. No direct handle of export processes.

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Disadvantages of Indirect Exporting
1. Higher risk than with direct exporting
2. Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting
3. Inability to learn how to operate overseas
4. Wrong choice of market and distributor may lead to inadequate market feedback affecting the international
success of the company
5. Potentially lower sales as compared to direct exporting, due to wrong choice of market and distributors by
export partners.
Those companies that seriously consider international markets as a crucial part of their success would likely
consider direct exporting as the market entry tool. Indirect exporting is preferred by companies who would want to
avoid financial risk as a threat to their other goals.
Licensing
An international licensing agreement allows foreign firms, either exclusively or non-exclusively to
manufacture a proprietors product for a fixed term in a specific market.
Summarizing, in this foreign market entry mode, a licensor in the home country makes limited rights or
resources available to the licensee in the host country. The rights or resources may include patents, trademarks,
managerial skills, technology, and others that can make it possible for the licensee to manufacture and sell in the
host country a similar product to the one the licensor has already been producing and selling in the home country
without requiring the licensor to open a new operation overseas. The licensor earnings usually take forms of one
time payments, technical fees and royalty payments usually calculated as a percentage of sales.
As in this mode of entry the transference of knowledge between the
parental company and the licensee is strongly present, the decision
of making an international license agreement depend on the respect
the host government show for intellectual property and on the
ability of the licensor to choose the right partners and avoid them to
compete in each other market. Licensing is a relatively flexible
work agreement that can be customized to fit the needs and interests
of both, licensor and licensee.
Following are the main advantages and reasons to use an
international licensing for expanding internationally:
1. Obtain extra income for technical know-how and services
2. Reach new markets not accessible by export from existing facilities
3. Quickly expand without much risk and large capital investment
4. Pave the way for future investments in the market
5. Retain established markets closed by trade restrictions
6. Political risk is minimized as the licensee is usually 100% locally owned
7. Is highly attractive for companies that are new in international business.

On the other hand, international licensing is a foreign market entry mode that presents some disadvantages and
reasons why companies should not use it as:
Lower income than in other entry modes
Loss of control of the licensee manufacture and marketing operations and practices dealing to loss of quality
Risk of having the trademark and reputation ruined by a incompetent partner
The foreign partner can also become a competitor by selling its production in places where the parental
company is already in.

Franchising

Franchising is another form of licensing. Here the organization puts together a package of the successful
ingredients that made them a success in their home market and then franchise this package to oversee investors.
The Franchise holder may help out by providing training and marketing the services or product. McDonalds is a
popular example of a Franchising option for expanding in international markets.

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 Advantages of the international franchising mode: Low
political risk , Low cost, Allows simultaneous expansion
into different regions of the world ,Well selected partners
bring financial investment as well as managerial capabilities
to the operation.
Disadvantages of the international franchising mode:
Franchisees may turn into future competitors
Demand of franchisees may be scarce when starting
to franchise a company, which can lead to making
agreements with the wrong candidates
A wrong franchisee may ruin the companys name
and reputation in the market

Turnkey Projects
A turnkey project refers to a project in which clients pay contractors to design and construct new facilities and
train personnel. A turnkey project is way for a foreign company to export its process and technology to other
countries by building a plant in that country. Industrial companies that specialize in complex production
technologies normally use turnkey projects as an entry strategy. One of the major advantages of turnkey
projects is the possibility for a company to establish a plant and earn profits in a foreign country especially in
which foreign direct investment opportunities are limited and lack of expertise in a specific area exists.

Wholly Owned Subsidiaries (WOS)

A wholly owned subsidiary includes two types of strategies: Greenfield investment and Acquisitions.
Greenfield investment and Acquisition include both advantages and disadvantages. To decide which entry modes to
use is depending on situations.14
Greenfield investment is the establishment of a new wholly owned subsidiary. It is often complex and
potentially costly, but it is able to full control to the firm and has the most potential to provide above average return.
Wholly owned subsidiaries and expatriate staff are preferred in service industries where close contact with end
customers and high levels of professional skills, specialized know how, and customizations are required. Greenfield
investment is more likely preferred where physical capital intensive plants are planned. This strategy is attractive if
there are no competitors to buy or the transfer competitive advantages that consists of embedded competencies,
skills, routines, and culture.
Greenfield investment is high risk due to the costs of establishing a new business in a new country. A firm
may need to acquire knowledge and expertise of the existing market by third parties, such consultant, competitors, or
business partners.
This entry strategy takes much time due to the need of establishing new operations, distribution networks,
and the necessity to learn and implement appropriate marketing strategies to compete with rivals in a new market.
Acquisition has become a popular mode of entering foreign markets mainly due to its quick access.
Acquisition strategy offers the fastest, and the largest, initial international expansion of any of the alternative.
Acquisition has been increasing because it is a way to achieve greater market power. The market share
usually is affected by market power. Therefore, many multinational corporations apply acquisitions to achieve their
greater market power require buying a competitor, a supplier, a distributor, or a business in highly related industry to
allow exercise of a core competency and capture competitive advantage in the market.
Acquisition is lower risk than Greenfield investment because of the outcomes of an acquisition can be
estimated more easily and accurately. In overall, acquisition is attractive if there are well established firms already in
operations or competitors want to enter the region.
On the other hand, there are many disadvantages and problems in achieving acquisition success.15
Integrating two organizations can be quite difficult due to different organization cultures, control system, and
relationships. Integration is a complex issue, but it is one of the most important things for organizations.
By applying acquisitions, some companies significantly increased their levels of debt which can have
negative effects on the firms because high debt may cause bankruptcy.
Too much diversification may cause problems. Even when a firm is not too over diversified, a high level of
diversification can have a negative effect on the firm in the long term performance due to a lack of management of
diversification.
Joint Venture
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 There are five common objectives in a
joint venture: market entry, risk/reward sharing,
technology sharing and joint product
development, and conforming to government
regulations. Other benefits include political
connections and distribution channel access that
may depend on relationships. Such alliances
often are favorable when:
The partners strategic goals
converge while their competitive
goals diverge
The partners size, market power, and resources are small compared to the Industry leaders
Partners are able to learn from one another while limiting access to their own proprietary skills
The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology
transfer, local firm capabilities and resources, and government intentions.
Potential problems include:
Conflict over asymmetric new investments
Mistrust over proprietary knowledge
Performance ambiguity - how to split the pie
Lack of parent firm support
Cultural clashes If, how, and when to terminate the relationship
Joint ventures have conflicting pressures to cooperate and compete:
1 Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also
want to maximize their own competitive position.
2 The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own
proprietary resources.
3 The joint venture is controlled through negotiations and coordination processes, while each firm would like
to have hierarchical control.

Strategic Alliance
A strategic alliance is a type of cooperative agreements between different firms, such as shared research, formal
joint ventures, or minority equity participation. The modern form of strategic alliances is becoming increasingly
popular and has three distinguishing characteristics:
Advantages
Technology exchange
Global competition
Industry convergence
Economies of scale and reduction of risk
Alliance as an alternative to merger
Global strategic planning process involves these steps
(1) Analysing external environment by means of SWOT, PESTLE analysis
(2) Analysing internal environment
(3) Defining the business and its mission statements
(4) Setting corporate objectives
(5) Quantifying goals
(6) Formulating strategies
(7) Making tactical planning
Types of Strategic Alliance
There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity strategic alliance,
and global strategic alliances.
1. Joint venture is a strategic alliance in which two or more firms create a legally independent company to
share some of their resources and capabilities to develop a competitive advantage.

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 2. Equity strategic alliance is an alliance in which two or more firms own different percentages of the
company they have formed by combining some of their resources and capabilities to create a
competitive advantage.
3. Non-equity strategic alliance is an alliance in which two or more firms develop a contractual-
relationship to share some of their unique resources and capabilities to create a competitive advantage.
4. Global Strategic Alliances working partnerships between companies (often more than two) across
national boundaries and increasingly across industries, sometimes formed between company and a
foreign government, or among companies and governments.

Comparison of Market Entry Options

The following table provides a summary of the possible modes of foreign
Comparison of Foreign Market Entry Modes
Mode Conditions Favoring this Mode Advantages Disadvantages
Exporting 1. Limited sales potential in target country; little1. Minimizes risk and 1. Trade barriers & tariffs
product adaptation required investment. add to costs.
2. Distribution channels close to plants 2. Speed of entry 2. Transport costs
3. High target country production costs 3. Maximizes scale; uses 3. Limits access to local
4. Liberal import policies existing facilities. information
5. High political risk 4. Company viewed as an
outsider

Licensing 1. Import and investment barriers 1. Minimizes risk and 1. Lack of control over
2. Legal protection possible in target investment. use of assets.
environment. 2. Speed of entry 2. Licensee may become
3. Low sales potential in target country. 3. Able to circumvent trade competitor.
4. Large cultural distance barriers 3. Knowledge spillovers
5. Licensee lacks ability to become a competitor.
4. High ROI 4. License period is
limited
Joint 1. Import barriers 1. Overcomes ownership 1. Difficult to manage
Ventures 2. Large cultural distance restrictions and cultural2. Dilution of control
3. Assets cannot be fairly priced distance 3. Greater risk than
4. High sales potential 2. Combines resources of 2 exporting a & licensing
5. Some political risk companies. 4. Knowledge spillovers
6. Government restrictions on foreign ownership3. Potential for learning 5. Partner may become a
7. Local company can provide skills, resources,4. Viewed as insider competitor.
distribution network, brand name, etc. 5. Less investment
required
Direct 1. Import barriers 1. Greater knowledge of 1. Higher risk than other
Investment2. Small cultural distance local market modes
3. Assets cannot be fairly priced 2. Can better apply 2. Requires more
4. High sales potential specialized skills resources and
5. Low political risk 3. Minimizes knowledge commitment
spillover 3. May be difficult to
4. Can be viewed as an manage the local re-
insider sources.

Special difficulties (Barriers) in International Business

What make international business strategy different from the domestic are the differences in the
marketing environment. The important special problems in international marketing are given below:
Political and Legal Differences
The political and legal environment of foreign markets is different from that of the domestic. The
complexity generally increases as the number of countries in which a company does business increases. It
should also be noted that the political and legal environment is not the same in all provinces of many home
markets. For example, the political and legal environment is not exactly the same in all the states of India.
Cultural Differences
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 The cultural differences, is one of the most difficult problems in international marketing. Many
domestic markets, however, are also not free from cultural diversity.
Economic Differences
The economic environment may vary from country to country.
Differences in the Currency Unit
The currency unit varies from nation to nation. This may sometimes cause problems of currency
convertibility, besides the problems of exchange rate fluctuations. The monetary system and regulations may
also vary.
Differences in the Language
An international marketer often encounters problems arising out of the differences in the language. Even
when the same language is used in different countries, the same words of terms may have different meanings.
The language problem, however, is not something peculiar to the international marketing. For example: the
multiplicity of languages in India.
Differences in the Marketing Infrastructure
The availability and nature of the marketing facilities available in different countries may vary widely.
For example, an advertising medium very effective in one market may not be available or may be
underdeveloped in another market.
Trade Restrictions
A trade restriction, particularly import controls, is a very important problem, which an international marketer
faces. High Costs of Distance
When the markets are far removed by distance, the transport cost becomes high and the time required
for affecting the delivery tends to become longer. Distance tends to increase certain other costs also.
Differences in Trade Practices
Trade practices and customs may differ between two countries.

Benefits of International Business

Because most of the countries are not as fortunate as the United States in terms of market size,
resources, and opportunities, they must trade with others to survive; Hong Kong, has historically underscored
this point well, for without food and water from china proper, the British colony would not have survived along.
The countries of Europe have had similar experience, since most European nations are relatively small in size.
Without foreign markets, European firms would not have sufficient economies of scale to allow them to be
competitive with US firms. Nestle mentions in one of its advertisements that its own country, Switzerland, lacks
natural resources, forcing it to depend on trade and adopt the geocentric perspective. International competition
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may not be matter of choice when survival is at stake. However, only firms with previously substantial market
share and international experience could expand successfully.

Growth of Overseas Markets

Developing countries, in spite of economic and marketing problems, are excellent markets. According to a
report prepared for the U.S. CONGRESS by the U.S. trade representative, Latin America and Asia/Pacific are
experiencing the strongest economic growth. American markets cannot ignore the vast potential of international
markets. The world is more than four times larger than the U.S. market. In the case of Amway corps., a
privately held U.S. manufacturer of cosmetics, soaps and vitamins, Japan represents a larger market than the
United States.

Sales and Profit

Foreign markets constitute a larger share of the total business of many firms that have wisely cultivated
markets aboard. Many large U.S. companies have done well because of their overseas customers. IBM and
Compaq, foe ex, sell more computers aboard than at home. According to the US dept of commerce, foreign
profits of American firms rose at a compound annual rate of 10% between 1982 and 1991, almost twice as fast
as domestic profits of the same companies.
Diversification
Demand for mast products is affected by such cyclical factors as recession and such seasonal factors as
climate. The unfortunate consequence of these variables is sales fluctuation, which can frequently be substantial
enough to cause lay offs of personnel. One way to diversify a companies risk is to consider foreign markets as
a solution for variable demand. Such markets, even out fluctuations by providing outlets for excess production
capacity. Cold weather, for instance may depress soft drink consumption. Yet not all countries enter the winter
season at the same time, and some countries are relatively warm year round. Bird, USA, inc., a Nebraska
manufacturer of go carts, and mini cars, for promotional purposes has found that global selling has enabled the
company to have year round production. It may be winter in Nebraska but its summer in the southern
hemisphere-somewhere there is a demand and that stabilizes the business.

Inflation and Price Moderation

The benefits of export are readily self-evident. Imports can also be highly beneficial to a country
because they constitute reserve capacity for the local economy. Without imports, there is no incentive for
domestic firms to moderate their prices. The lack of imported product alternatives forces consumers to pay
more, resulting in inflation and excessive profits for local firms. This development usually acts a s prelude to
workers demand for higher wages, further exacerbating the problem of inflation.
Import quotas imposed on Japanese automobiles in the 1980s saved 46200 US production jobs but at a
cost of $160,000 per job per year. This cost was a result of the addition of $400 to the prices of US cars, and
$1000 to the prices of Japanese imports. This windfall for Detroit resulted in record high profits for US
automakers. Not only do trade restrictions depress price competition in the short run, but they also can
adversely affect demand for year to come.

Employment
Trade restrictions, such as high tariffs caused by the 1930s smoot-hawley bill, which forced the average
tariff rates across the board to climb above 60%, contributed significantly to the great depression and have the
potential to cause wide spread unemployment again. Unrestricted trade on the other hand improves the worlds
GNP and enhances employment generally for all nations.
Importing products and foreign ownership can provide benefits to a nation. According to the institute for
international Economics-a private, non- profit research institute the growth of foreign ownership has not
resulted in a loss of jobs for Americans; and foreign firms have paid their American workers the same, as have
domestic firms.

Standards of Living
Trade affords countries and their citizens higher standards of living than other wise possible. Without
trade, product shortages force people to pay more for less, products taken for granted, such as coffee and
bananas may become unavailable overnight. Life in most countries would be much more difficult were it not
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for the many strategic metals that must be imported. Trade also makes it easier for industries to specialize and
gain access to raw materials, while at the same time fostering competition and efficiency. A diffusion of
innovations across national boundaries is useful by-products of international trade. A lack of such trade would
inhibit the flow innovative ideas.

References
International Business Environment: Study Material Pondicherry University, Author: Prof. S.
Srividhya, Prof. Tejender Sharma, Prof. S. Booshna,Prof. T. Sudhakar Paul

International Business Environment: Study Material Osmania University, Author: Syed Valiullah Bakhtiyari

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