Introduction to

International Business
Mr. V.R. Kishore Kumar, M.A.
(QE), M.Phil.(International
Trade)

Objective of the chapter..

Understand the nature of International business
State and explain drivers of international business
Compare and a contrast domestic with
international business
Understand the reasons why should understand
International business
Understand to ripple effects of globalization
Point out the routes of internationalization
Trace the evolution of international business

Opening case discussion

Case study of Taiwan, Vietnam and
Kenya
Negative effects of globalization

Introduction
Physical marketing
Online marketing
Having various goods and services from
different parts of globe in which even
without visiting or knowing the country of
the company where they are produced.
All these activities have become a reality
due to the operations and activities of
international business

Evolution of International
Business
Post World War II condition
(national companies have turned into
international and Multinational)

1.International trade to International

Marketing
2.International

marketing

International Business

to

WHY GO INTERNATIONAL?
To achieve higher rate of profits
Expanding

the

production

capacities

beyond the domestic demand of country

Severe competition at home country
Limited home market
Political stability and political instability
Availability

of

technology

managerial competence

and

 High cost of transportation

Nearness to raw materials
Availability of quality human resource
at low cost
Liberalisation and globalisation
To avoid tariffs and quotas

 Nearly all business enterprises, large

and

small,

are

inspired

to

carry

business across the globe.

Most important trend in 20th century is
lowering barriers to trade caused easy
movement of goods and services

 It

has

influenced

not

only

the

big

corporations but the small retailers too.

Many Indian companies have subsidiaries,

and

joint-venture

nations-particularly

partners
in

in

other

developing

economies
Globalization

is

creating

rich

countries with poor people

-----Joseph Stiglitz

 The basic tasks and functions of

international business are almost the same
as domestic business, but there is greater
difficulty in performing functions effectively
and
integrating
them
to
serve
organizational objectives:
It involves crossing national boundaries,
which include:
Product presence in different markets
Production bases across the globe
Human resource to contain high diversity
Investment in international services
Transactions
involving
intellectual
properties

Assessing Corporate
Globality

 Internationalization
of
market
presence: refers to extent to which a
company targets customers in all major
markets within its industry throughout the
world
Internationalization of Supply Chain:
refers to the extent which the company is
accessing the most optimal locations for
the performance of various activities in its
supply chain
Internationalization of capital base:
refers to which the company accessing
optimal source of capital on a world wide

 Internationalization
of
Corporate
Mindset: refers to the ability of the
company to understand and integrate
diversity across the cultures, and markets.
The global company have all the
features or any one of these
Indices
to
determine
internationalization potentiality of
nations
A.T.
Kearney:
a
management
consultancy, and foreign magazine:
developed following indices
(http://www.atkearney.com)

 Political Engagement
Technological Connectivity
Personal Contact
Economic Integration

Globalisations Top 10
Nations..2006
Ranking
Country
1

Ireland

Singapore

Switzerland

Netherland

Finland

Canada

United States

Newzealand

Austria

10

Denmark

 Top 10 least Globalisation's Nations are

from Africa, East Asia, South Asia, Latin
America and Middle East. The common
feature of these nations are as follows:
These nations together account 50% of
world population
Carries lowest technological connectivity

 Characterized

by

perennial

political

unrest and corruption

Some are heavily dependent on oil
exports but plagued by erratic and
prices in international markets
Continued concerns over terrorism ,
high barriers to trade and investment
and heavy involvement by government
in the economy

Why to study??

Increasing sourcing of human resource

requirement globally
Most of the products we consume are
supplied by global businesses.
Knowledge about international business is
more needed for a manager
A lay person has negative perception
about the role of government

 International business executives play a

powerful role in determining the relative
competitiveness of various countries
More

job

opportunities

are

made

available to the youth

Professional practices of MNCs and how
not to do the business..

DRIVERS OF
INTERNATIONAL BUSINESS
Developing Markets have huge markets
Many MNCs are locating their
subsidiaries in low wage countries to
take advantage of low cost of
production
Changing demographics and Increasing
Globalization
Regional trading blocks are adding to
the pace of Globalization

 Declining trade and investment barriers and cross

boarder business
Technology Revolution
Boston Consultancy Group and five currents of
internationalization
Growth of RDEs
Continuing cost and Capital Advantage of RDEs
Developing of Talent and capabilities in RDEs
Migration of Customers to RDEs

 Emergence of RDE-based global competitors

Money

in

International

Business

and

organizations would not wish to miss

Resource seeking viz., Natural and Strategic
(Natural

Resource:

Physical,

labor

and

acquiring technology)
(Strategic

Resources:

global

portfolio

of

physical assets, and Human competences)

Internationalization triggered by international
institutions and world bodies

STAGES OF
INTERNATIONALIZATION
DOMESTIC COMPANY
INTERNATIONAL COMPANY
MULTINATIONAL COMPANY
GLOBAL COMPANY
TRANSNATIONAL COMPANY

Advantages of
Internationalization
High living standards
Increased socio economic welfare
Wider Markets
Reduced effects of business cycles
Reduced risks
Large scale economies
Potential untapped markets
Division of labor
Economic growth of the world

 Optimum and proper utilization of

world resources
Cultural transformation
Knitting the world in to a closely
interactive traditional village

Disadvantages of International
Business

Political factors
Huge foreign indebtness
Entry requirements
Tariffs, quotas and trade barriers
Bureaucratic practices of government
Technical pirating
High costs

STRATEGIES OF GOING
INTERNATIONAL
Any enterprise planning to global, needs

to be clear about the following

strategies:
Deciding Whether to Go global
Deciding which markets to enter
Deciding when to enter
Deciding how to enter

Deciding Whether to Go
global
Can the organization serve the needs
of the foreign markets?
Does

the

organization

have

the

resources, experience, and scales to

serve foreign markets
Can enterprise meet high quality
expectations of overseas markets?

Deciding which markets to

enter
Volume of foreign sales
Number of countries to enter
The type of countries to make foray
into

Deciding when to enter

First mover
Early mover
Late mover
CB Analysis: manifested in to technological,
organizational and financial resources
The host country environment
Potential competition from late movers

Deciding how to enter

Trade Related Routes
Transfer Related Routes
FDI Related Routes

Modes of Entry into Global

Business
Decision Factors:
1.Ownership Advantage
2.Location Advantage
3.Internationalization Advantage

Ownership Advantage

Location Advantage

Location : Cultural

CONCEPT, THEORIES, AND

NATURE OF FDI
In simple terms, FDI refers to the purchase
of a significant number of shares of a foreign
company in order to gain certain degree of
management control.
At the core FDI is international flow of capital
Countries will set different thresholds at
which they classify an international capital
flows of FDI

 Portfolio investment
It is an investment that does not involve
obtaining a degree of control in a foreign
company
UNs World Investment Report: according
to report FDI includes three components viz.,
equity capital, reinvested earnings, and intracompany loans
In India FDI understood to cover a few more
routes than equity routes stated above

 FDI inflow in India is said to include the

following:
RBIs automatic approval for equity holdings

up to 51%
FIBs discretionary approval route for larger

projects with equity holding greater than 51%

Acquisition of share since 1960
RBIs NRI Schemes
External commercial borrowings (ADR/GDR)

 Where do mergers and acquisitions and

green field projects appear?
Ideally, FDI flows, in the recent country
should get reflection in
a.Capital formation
b.Formation of new firms and factories
c.Increase in foreign equity holdings in the
existing firms
d.M&A of existing firms and factories

?Why FDI?
Foreign investments seen as a way of
filling

the

gap

between

available

supplies of savings and other economic

growth and development strategies
Factories set up by MNCs act as a
nuclei of growth
Can generate healthy competition in
the recipient country

 Too often locational advantages attract

FDI
FDI

often

depends

on

countrys

political attempts to reduce security

risks
It is the poor countries that deserve FDI
more than any others

Problems with FDI

It results in to
Aggrandisement of wealth even at the cost

of host country interests

Breeds bribery and corruption
interferes with politics of the host country
Small and marginal firms are made to exit
Leads to social and cultural disruption

Theories of FDI

Factors Influencing FDI

Supply factors

Demand factors

Government factors

Production costs Customer access Economic

priorities
Logistics

Follow clients

Avoidance of
trade barriers

Resource
availability

Follow rivals

Economic
development
incentives

Access to
technology

Explanation of
competitive
advantage

FDIs by INDIA

Why developed countries

looking to India for FDI

India Position in FDI in

Green Field Investments

THANK YOU