BMP-MBA 504

Session 1
Introduction to International Business

Session Speaker
Jayashree K

Asst. Professor
M.S Ramaiah School of Advanced Studies - Bangalore

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Session Contents
International Business
Influence of International Business
Difference between Domestic Business and International
Business
International Business Approaches
Model of International Business

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Session Objectives
At the end of this session the delegate would have
understood..
Why International Business
Stages of Internationalization
Difference between Domestic and International
Trade

M.S Ramaiah School of Advanced Studies - Bangalore

BMP-MBA 504

GLOBALIZATION AND
INTERNATIONAL BUSINESS
The world isnt just for travelers

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International Business

International business focuses on global

resources. Opportunities to buy or sell world
wide

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DEFINITION OF INTERNATIONAL
BUSINESS

In todays technology-connected global economy, even small

businesses can compete in the
international marketplace.
According to business directory. com
Definition 1
The economic system of exchanging good and services,
conducted between individuals and businesses in multiple
countries.
Definition 2
The specific entities, such as multinational corporations
(MNCs) and international business companies (IBCs), which
engage in business between multiple countries

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DEFINITION OF INTERNATIONAL
BUSINESS
International Business is all business transactions that
involve two or more countries.

International Business comprises a large and growing

portion of the worlds total business.

International Business usually takes place within a more

diverse external environment.
International trade is a vital part of the
economy
Trade has contributed to world wide
economic growth

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Why Companies Engage in

International Business

A) To Expand Sales: companies sales are dependent on two factors:

the consumers interest in their product or services and the
consumers ability and willingness to buy them.

B) Acquire Resources: products, services, technology, and

information

C) Diversify Sources of Sales and Supplies

D) Minimize Competitive Risk: companies move internationally for

defensive reasons. Profits from one market can be used to expand
operations in other markets

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Reasons for Recent International

Business Growth

Expansion of Technology:
transportation, telecommunications;
Transportation and telecommunications costs are more conducive
for international operations.

Liberalization of Cross-Border Movements:

goods, services, labour, Capital

Development of Supporting Institutional Arrangements:

development by business and governments of institutions that enable
us to effectively apply that technology.
Increase in Global Competition:
new products become global; Globalization of production

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Need for International Business

More and more firms around the world
are going global, including:
Manufacturing firms
Service companies (i.e. banks, insurance,
consulting firms)
Art, film, and music companies

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Need for International Business

International business:
causes the flow of ideas, services, and capital
across the world
offers consumers new choices
permits the acquisition of a wider variety of
products
facilitates the mobility of labor,
capital,
and technology
provides challenging employment
opportunities
reallocates resources, makes preferential
choices, and shifts activities to a global level

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Types of International Business

Export-import trade
Foreign direct
investment

Licensing

Franchising

Management contracts
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Reasons for trade

Non availability of goods

permanent non-availability
Temporary non-availability
product differentiation
Differences in technology
Principle of absolute advantage (A. Smith)
Principle of comparative advantage (D. Ricardo)
Differences in consumer demand
Transport costs
Economies of scale in production
Government policies

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POSSIBLE INTERNATIONAL
BUSINESS ACTIVITIES

International trading (an international company can be used as

intermediary to re-invoice exports and imports)
International services companies (re-invoice services through an
international company)
International construction and / engineering companies
International transport/distribution companies
Royalty companies
Real estate companies
Shipping and ship management companies
Commission agents
E-business

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MEANING OF DOMESTIC
TRADE
Trading that is aimed at a single market, the firms
domestic trade, is referred to as domestic
trading. In domestic trading, the firm faces only
one set of competitive, economic, and market
issue and essentially must deal with only one set
of customers, although the company may have
several segments in this one market.

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REASONS FOR RECENT INTERNATIONAL BUSINESS
GROWTH
Expansion of Technology
transportation, telecommunications: Transportation and
telecommunications costs are more conducive for
international operations.
Liberalization of Cross-Border Movements: goods,
services, labor, Capital
Development of Supporting Institutional Arrangements:
development by business and governments of institutions
that enable us to effectively apply that technology.
Increase in Global Competition: new products become
global; Globalization of production

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Reasons To Enter International

Business

From an Individual Companys Angle

From the Government Angle

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From an Individual Companys Angle

Managing the product life cycle

Geographic expansion as a growth strategy
The adventurous spirit of the younger generation
Corporate ambition
Technological advantage
Building a corporate image
Incentives and business impact
Labour advantage
New business opportunities
Emergence of SEZS EOUs, AEZ

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From a Government Angle

Earning valuable foreign

Interdependency of nations
Trade theories and their impact
Diplomatic relations
Core competency of nations
Investment for infrastructure
National image
Foreign trade policy and targets
National targets
WTO and international agencies

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Domestic Business VS International Business -1

Foreign- Environment
(Uncontrollable)
Cultural
Forces

Domestic- Environment
(Uncontrollable)

Economic

Environment

Forces

Uncontrollable
Country Market A

Competitive
Forces

Controllable (s)
Political/Legal
Forces

Price

Product

Political/Legal
Forces
Promotion

Competitive
Structure

Environment
Uncontrollable
Country Market A

Environment

Place

Uncontrollable
Country Market A

Geography
and
Infrastructure

Economic
Climate

Cultural
Forces

Level of
Technology

Structure of
Distribution
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School of Advanced Studies - Bangalore

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Domestic Business VS International

Business -2
Environment
Plan and strategy
Competitive forces and their intensity
Currencies and their movements
Business risks
Research
Human resources

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Domestic Business VS International

Business -3
Organisational vision and objective
Product and usage
Legal aspects
Investment and sourcing
Pricing strategy
Distribution channels
Promotion
Logistics

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Drivers of International Business

Establishment of WTO
Regional Integration
Declining Trade Barriers
Declining Investment Barriers
Growth in Foreign Direct Investment
Strides in technology
Growth of multinational companies

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Stages of Internationalisation

STAGE-1-Domestic Company
STAGE-2-International Company
STAGE-3-Multinational Company
STAGE-4-Global Company
STAGE-5-Transnational Company

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Evolving motivations: Changing perspectives

High
Global

Transnational

International

Multinational

Global
Coordination
Integration

Low

Low
Local
Responsiveness
M.S Ramaiah School
of Advanced
Studies - Bangalore

High

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Approaches To International
Business

EPRG Approach

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Ethnocentric Polycentric
Geocentric Diagrams

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Ethnocentric Attitude

Regiocentric Attitude

Polycentric Attitude

Geocentric Attitude

HQs Orientation toward subsidiaries

(source : adapta tion libre de Heena n D.A., Perlmutter H.W., Multinational Organization
Development, Addison Wesley Publishing, 1979)

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Management philosophies
(Perlmutter):

Ethnocentrism

Domestic and International

Polycentrism
Regiocentrism
Geocentrism

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Ethnocentric-Domestic
Domestic expansion only
S
H
A
Y

I dont care Junior.

We are staying
at home.

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Ethnocentric-International
Foreign expansion viewed as an appendage to domestic
operations; same strategies are utilized in all countries.

HQ
You seeour way
works best around
the world.

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Polycentrism
Activities and functions are planned and managed, often by
local nationals, on a country-by-country basis (e.g., HRM is
decentralized by country)

HQ
Would you look
at this? The GMs
do understand the
local markets

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Regiocentrism
Operations are geared towards a particular continental region
with similar economies and cultures
Betaminor
HQ

Alphaland

Betaland

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Geocentrism
Products are functional, reliable, and standardized low-cost
products (e.g., HRM managed on a global basis)

I can see the

whole world
from here.

HQ

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SOURCES OF MANAGERS
Home-Country Nationals (or parent-) country
nationals are the citizens of the country in which the
headquarter of the multinational company is based
Host-Country Nationals Citizens of the country
that is hosting a foreign subsidiary are the hostcountry nationals.
TCN: Third-Country Nationals = a French
executive working in a German subsidiary of an
American multinational company

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Home-Country Nationals as
Managers

Historically, key positions with home-country

nationals. reasons:

unavailability of host-country nationals having the

required technical expertise or managerial talent
the desire to provide the company's more promising
managers with international experience
the need for coordination and control;
foreign image in the host country;

advantageous during the start-up phase

desire to ensure that the foreign subsidiary complies
with overall company objectives and policies

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Host-Country Nationals as
Managers

in middle- and lower-level management positions in

developing countries.
because of local law. But, scarcity of managers with
the necessary qualifications for top jobs.
For example, Brazil requires that two-thirds of the
employees in a Brazilian subsidiary be Brazilian
nationals, and there are pressures on multinationals
to staff upper management positions in Brazilian
subsidiaries with Brazilian nationals.

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Host-Country Nationals as
Managers

Assignment of domestic North American employees

on a short-term transfer or loan basis.
reasons for hiring host-country nationals :
close to the local culture and language,
lower costs as compared to HCN,
improved public relations that resulted from such a
practice.
more effective in dealing with local employees and clients,
greater continuity of management because they tend to
stay longer in their positions than managers from other
countries.

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Third-Country Nationals as
Managers

Greater technical expertise

Only from advanced countries.
A top management position at the subsidiary is usually
envisioned as the ultimate goal in her or his career
development.
Advantage: salary and benefit requirements less than those
of home-country nationals. a French citizen could adapt
fairly readily to working in the Ivory Coast.
Drawbacks: animosities of a national character between
neighboring countries-for example, India and Pakistan,
Greece and Turkey.

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Summary
International Business outweigh the
problems. Most of the countries eliminated
the barriers and paved the way for the growth
and expansion of international business

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KEY WORDS

MNCs
Absolute Advantage
EPRG
TCN
HCN
Transnational Company
Global Company

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