International Business Environment

Objective: The objective of this subject is to

study and learn about nature and scope and
structure of international business and understand
the influence of various environment al factors on
international business operation.
Business
Business may be understood as the organized
efforts of enterprises to supply consumers
With goods and services for a profit. Business may
be small or big but all of them aim at making profit.

Ex: 2-5 people -- At home (SSE)

10-20 people -- Store or Shop
100 People -- A factory
1 Lack people -- Multiple Organization
All of them aim to make profit.
ENVIRONMENT
Environment refers to all external forces which exists
in our surrounding.

Business Environment
Business Environment consists of all those factors
that affect or influence the business.

Factors influencing Business Decisions

Internal environment-Business Decision-External Environment

(Controllable) (Uncontrollable)
 External Environment

Micro Macro

-Investors -Economic
-Suppliers -Socio-cultural
-Competitors -Politio-Legal
-Market Intermediaries -Technological
-Public -Global
SOCIAL-CULTURAL ENVIRONMENT
Elements of Socio-Cultural Environment of Business
 Social Institutions and System
 Education and Culture
 The Social Responsibility of Govt.
 Social Cultural Variables

POLITICAL-LEGAL ENVIRONMENT OF BUSINESS

Elements of Political-Legal Environment of Business
 The form and structure of the govt.
 The strength of opposition in Legislature
 The role and responsibility of bureaucracy
 Socio-economic legislation
 The Political-Legal Institution
Technological factors

Technology is considered to be one of the most

important factors of business environment. That is
why the govt., in its industrial policy resolutions,
industrial licensing policies, MRTP,FERA regulations,
and even in liberalization policies, assigned great
importance to sophisticated technology and technology
transfer. FDI up to 100% is allowed in industries with
sophisticated technology.
 Dimensions of International Business

Globalisation in its true sense is a way of corporate life

necessitated, facilitated and nourished by the
trasnationalisation of the world economy and developed
by corporate strategies.

Globalisation encompasses the following:

 Doing and planning to expand, business globally.

 Giving up the distinction between domestic and

global market and developing a global outlook of the
business.
 Locating the production and other facilities on a
consideration of the global business dynamics,
irrespective of national considerations.

Basing product development and production planning

on the global market consideration.

 Global sourcing of factors of production, i.e., raw

materials, components, machinery / technology finance
etc. are obtained from the best resource anywhere in the
world.

 Global orientation of organisational structure and

management culture
 TYPES OF INTERNATIONAL BUSINESS

 Trading

 Manufacturing and Marketing

 Sourcing and Marketing

 Global Sourcing for Production

 Services

 Investments
ENVIRONMEN T AND INTERNATIONAL BUSINESS

A firm in International Business encounters three different

sets of external environment:

 Domestic Environment

 Foreign Environment

 Global Environment
BUSINESS
i ENVIRONMENT AND STRATEGIC
DECISIONS IN INTERNATIONAL BUSINESS

 International Business Decision

 Market Selection Decision

 Entry and Operating Decisions

 Marketing Mix Decision

 International Organisation Decision

FEATURES OF NEW PHASE OF GLOBALISATION

 New Markets

 New Actors-MNC’s, WTO

 New Rules and Norms

 New (Faster and Cheaper) Tools of Communication

ESSENTIAL CONDITIONS FOR GLOBALISATION

 Business Freedom

 Facilities

 Government Support

 Resources

 Competitiveness

 Orientation
FOREIGN MARKET ENTRY STRATEGY

 Exporting

 Licensing/Franchising

 Contract Manufacturing

 Assembly Operations

 Fully Owned Manufacturing Facilities

Joint Venturing
Mergers and Acquisitions

 Strategic Alliance

 Third Country Location

Exporting:
Exporting is the most traditional mode of entering
the foreign market, is quite a common one even now.

Conditions:
1) Cost of production in foreign market is high.
2) There are political or other risks of investment in the
foreign market.
3) Foreign investment is not favoured by the foreign
country concerned.
4) The volume of foreign business is not large enough.
5) Licensing and contract manufacturing is not a better
alternative.
Licensing/Franchising
Under international licensing, a firm in one
country(the licensor) permits a firm in another
country(the licensee to use its intellectual property (such as
patents, trade marks, copyrights, technology, marketing
skills or some other specific skills). The monetary benefit
to the licensor is the royalty or fees which licensee pays. In
many country, such fees or royalties are regulated by the
government.

Franchising is a form of licensing in which a parent

company(the franchiser) grants another independent
entity(the franchisee) the right to do business in a
prescribed manner. This right can take the form of selling
the franchisor’s products, using its name, production and
marketing techniques, or general business approach.
 Contract Manufacturing
Under contract manufacturing , a company doing international
marketing contracts with firms in foreign countries to manufacture
the product while retaining the responsibility of marketing the
product.
Advantage:

1) The company does not have to commit resource for setting up

production facilities.
2) It frees the company from the risks of investing in foreign
countries.
3) In many cases, the cost of the product obtained by contract
manufacturing is lower than if it were manufactured by the
international firm.
4) Contracting manufacturing is a less risky way to start with. If
the business does not pick up sufficiently, dropping it is easy.
Wholly Owned Manufacturing Facilities

Companies with long term and substantial interest in the

market normally establish fully owned manufacturing facilities
there.
A number of factors like trade barriers, differences in the
production and other costs, government policies etc. encourage the
establishment of production facilities in the foreign market.
Assembly Operation