BACHOLER OF BUSINESS AND ADMINISTRATION HONOURS

JANUARY 2018

BBNG3103

INTERNATIONAL BUSINESS

MATRICULATION NO : 891016145928001
IDENTITY CARD NO. : 891016-14-5928
TELEPHONE NO. : 016-333 6704
E-MAIL : losni.m@maybank.com
LEARNING CENTRE : SHAH ALAM LEARNING CENTRE
 BASIC CONCEPT OF INFORMATION TECHNOLOGY | CBCT2203

TABLE OF CONTENT

No Title Page
1. 1.0 Introduction 3~4

2.0 External factors that influence the success if International

2. 5~6
Business

3.0 India :Its economic system and success factors in

3. International Business in Malaysia 7~8

4.0 China: Its economic system and success factors in

4. International Business in Malaysia. 9 ~ 11

5. 5.0 Conclusion 12

6. 6.0 Reference 13

1. Introduction

The simplest definition for international business is ‘cross- border economic activity’. This
has existed in various forms ever since human groups began interacting with one another. When
human tribes first started trading beads or minerals like flint more than ten thousand years ago,

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they were engaging in ancient forms of international business (Watson 2005). Of course, trade has
become slightly more complicated since then. Nowadays, international business refers to the
exchange not only of physical goods but also of services, capital, technology, and human
resources.

It is important is to recognize what makes international business distinct from other areas
of study, and where it overlaps with them. Likewise, international business covers most if not all of
the same topics as international management but goes much further. The best international
business students can analyse on many different levels and tend not to recognize artificial borders
between business, economics, and politics (Whistle, 2001). Indeed, the ability and desire to
embrace diversity give this discipline its distinct philosophy and enduring attraction.

International business refers to any business activities that cross national boundaries. These
activities can be categorized into four basic types; importing and exporting, licensing, strategic
alliance and joint venture and direct investment. Companies can choose among these activities
while expanding their operations to international markets or face these activities of foreign
companies in local markets.

Importing and Exporting

Importing or exporting or both is the most vital and largest international business activity. It is the
easiest way of entering a market with a small outlay of capital. Exporting is making a product at
the company's local location and selling it in another country. Importing is bringing goods,
services and capital into the home country from abroad. For example, Malaysia automotive
companies, Volkswagen, Mazda, and Toyota export cars to all countries around the world. Food
retailers import international products and sell them in local stores.

Licensing

Licensing is an organization between companies of different countries, a company allows another

one to use its brand name, copyright, patent, technology, trademark or other assets in exchange for

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an amount based on sales. Companies may choose to manufacture or sell their products under
licensing when transportation or internal production costs are too high, government regulations
restrict business activities of foreign companies or the company wants to simply produce and sell
the same quality everywhere. For example, Starbucks all over the world sell its same-quality
beverages in the same-looking stores under licensing contracts (Daniel, 2003).

Strategic Alliance and Joint Venture

According to (Christ, 2013) a tactical association is a cooperation of two or more companies for
common gain. A special type of this is a joint venture when the partners mutually found a new
company. This cooperation allows companies to share development and production costs,
technologies and sales networks. For example, Motorola and Toshiba formed a strategic alliance to
develop manufacturing processes for microprocessors. General Mills and Nestle formed a new
company, Cereal Partners Worldwide, to produce and sell cereals.

Direct Investment

Foreign direct investment is a company's physical investment into building a plant in another
country or acquisition of a foreign firm or subsidiary. Direct investments allow companies to
access foreign markets and act as domestic businesses in that market with a full scale of activities,
from manufacturing to selling. Not only can the investing companies benefit, but also the hosting
countries through getting to know new products, services, technologies and managerial skills. For
example, Volkswagen is building a factory in Tennessee to sell cars in the U.S. market, but it also
contributes to develop new technologies at the local university (Mark, 2001).

2. External factors that influence the success if International Business

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International Businesses are affected by an external environment as much as they are

affected by the competitors (Strange 1988, Summary 1989). Global factors influencing business
are legal, political, social, technological, environment and economic. Understanding of these
factors is important while developing a business strategy.

Political factors refer to the changes in government and government policies. Political
factors greatly influence the operation of business. This has gained significant importance off late
(Hufbauer et al. 1981). For example companies operating in the Malaysia have to adopt directives
and regulations. The political arena has a huge influence upon the regulation of businesses, and the
spending power of consumers and other businesses. Business must consider the stability of the
political environment, government’s policy on the economy.

Economic factors involve changes in the global economy. A rise in living standards would
ultimately imply an increase in demand for products thereby, providing greater opportunities for
businesses to make profits (Hufbauer et al. 1981). An economy witnesses fluctuations in economic
activities. This would imply that in case of a rise in economic activity the demand of the product
will increase and hence the price will increase. In case of reduction in demand the prices will go
down. Business strategies should be developed keeping in mind these fluctuations.

Social factors are related to changes in social structures. These factors provide insights into
behaviour, tastes, and lifestyles patterns of a population. Buying patterns are greatly influenced by
the changes in the structure of the population, and in consumer lifestyles (Dent, 1999). Consumer
religion, language, lifestyle patterns are all important information for successful business
management.

Technological factors greatly influence business strategies as they provide opportunities for
businesses to adopt new innovations, and inventions. This helps the business to reduce costs and
develop new products. With the advent of modern communication technologies, technological
factors have gained great impetus in the business arena. Organisations need to consider the latest
relevant technological advancements for their business and to stay competitive (Stopford et al.
1991).

Legal factors are those factors that influence business strategies that are related to changes
in government laws and regulations. According to (Peter, 2001) a successful business operation it

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is important that the businesses consider the legal issues involved in a particular situation and
should have the capability to anticipate ways in which changes in laws will affect the way they
must behave.

Environmental factors include the weather and climate change. Changes in environment
can effect on many industries including farming, tourism and insurance. The growing desire to
protect the environment is having an impact on many industries such as the travel and
transportation industries for example, more taxes being placed on air travel and the success of
hybrid cars and the general move towards more environmentally friendly products and processes is
affecting demand patterns and creating business chances.

3. India: Its economic system and success factors in International Business in Malaysia

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India established diplomatic relations with the Federation of Malaya (predecessor state of
Malaysia) in 1957. India is represented in Malaysia through the High Commission of India based
in Kuala Lumpur. India’s economic freedom score is 54.5, making its economy the 130th freest in
the 2018 Index. Before Independence, India economy was a ‘laissez faire’ economy. But post-
independence, she adopted the mixed economy system. The economy of India is a developing
mixed economy.

Malaysia External Trade Development Corporation (MATRADE) urges Malaysian private

label manufacturers to leverage on the growth of private labels and store brands in India by
exporting to the country that has a population of 1.2 billion people, also known as the world’s
second largest population. With a growth of between 5% and 8% in the private label industry, the
demand for international private labels, especially for fast-moving consumer goods, is booming in
India, (Wikipedia).

Among the factors that contribute to the increasing demand for private labels in India
include the improved quality of private label products in the market, resulted in a more affluent
consumers in India. According to MATRADE’s market report produced by its trade office in
Chennai, India is one of the fastest growing consumer markets in the world and its retail system is
becoming ever more organised, indicating a good prospect in strengthening Malaysian
manufacturer’s footprint there.

During the period of January to July 2017, Malaysia’s total trade with India recorded a
double-digit growth of 37.1% to RM35.44 billion, compared with the same corresponding period
in 2016. Malaysia’s export to India rose by 17.4%, amounted to RM20.49 billion, mainly
consisting of electrical & electronic products, palm oil & palm-based agriculture products, crude
petroleum, manufacturers of metal and chemical & chemical products. In 2016, India was also
ranked as Malaysia’s 10th trading partner globally and 9th in Asia.

Foreign Direct Investment (FDI)

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Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a
major source of non-debt financial resource for the economic development of India. Foreign
companies invest in India to take advantage of relatively lower wages, special investment rights
such as tax exemptions. For a country where foreign investments are being made, it also means
achieving technical know-how and generating employment, (Shaun, 1999).

Various incentives and initiatives have been introduced to deregulate foreign direct investment and
to attract foreign direct investment into Malaysia, including the liberalization of foreign equity
requirements imposed on a total of 44 services subsectors to date and the development of five
economic growth corridors within Malaysia to leverage on the competitive advantage of different
states and develop high impact industry clusters in these areas.

Trade

India Company’s present involvement in Malaysia is in palm oil refining, power, railways,
information technology, and bio-technology, manufacturing industrial goods, higher education,
civil construction, and training. India and Malaysia are mutually important economic partners.
India is the largest trading partner for Malaysia in South Asia. On the import side, the basket from
Malaysia includes palm oil, petroleum, electronic goods, wood and wood products, organic
chemicals, man-made fabrics, spun yarn, non-ferrous metals and machinery.

Infrastructure

Infrastructure in India is one of the leading limitations for a growth, or growth only in the
certain areas. The infrastructure of services sector that employs higher educated people is
developed more, while the one for other sectors remains less developed.

An additional attraction is India’s strategic location. Malaysian companies find it

cost effective to not only produce in India but also export from the country. For instance, India has
emerged as an export hub for international players in the automobile sector. Companies have set
up manufacturing units, primarily in the southern region, that cater to the large domestic
automobiles market as well as their global factories.

4. China: Its economic system and success factors in International Business in Malaysia.

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The socialist market economy (SME) is the economic system and model of economic
development employed in the Republic of China. The system is based on the predominance of
public ownership and state-owned enterprises within a market economy. The term “socialist
market economy” was first used during the 14th National Congress of the Communist Party of
China in 1992 to describe the goal of China’s economic reforms.

China has been Malaysia’s biggest trading partner. MCA president Datuk Seri Liow Tiong
Lai gave his party a tall order when he announced that MCA aimed to help the country achieve the
bilateral trade target of US$160bil (RM640bil) with China by 2019. Malaysia-China trade rose to
US$120bil in 2014 from about US$100bil in 2013, although it fell to just below US$100bil in
2015 due to weak global economic slowdown, (Wikipedia).

Furthermore, the relationship between Malaysia and China isn’t merely diplomatic. Malaysia has a
strong collaboration in the China embassy here. Advantage of our country, Malaysia is a
multicultural society. We have a solid advantage in terms of languages. We are able to do business
with most in the region because we can speak English, Mandarin and others. For example for the
Forest City development by Country Garden, they have been bringing in buses and buses of people
to come in and buy their developments.

Foreign Direct Investment

China has remained a primary recipient of the world’s destination of FDI in recent years.
FDI accounts for 27% of the value added production, 4.1% of national tax revenue, and 58% of
foreign trade. Over 190 countries from around the world invest in China, which includes 450 of the
Worlds Fortune 500 companies. Regulation of foreign investment in Malaysia is done both
through legislation as well as governmental policies. Specific licenses and permits are required for
the conduct of certain strategic activities and businesses, such as manufacturing activities,
petroleum-related activities and telecommunications and equity participation requirements are
sometimes imposed by the Malaysian regulatory authorities in granting these licenses and permits,
(Malaysia FDI Forecast, 2018).

Foreign Exchange Reserve

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China’s foreign exchange reserves were minimal in 1978, but it was enough to cover
requirements with a very small import. In the 1980s, export contributed to the rise in reserves to
$17.4 billion. The surplus was eventually eroded when imports rose faster than exports. In 1993,
the trade and current accounts created a deficit, but the acceleration in inward foreign direct
investment (FDI) kept foreign exchange reserves aggregate.

Inflation Rates

Inflation rate is the general rise in prices measured against a standard level of purchasing
power. In April 2009, prices dropped 1.5% from last year, after steady falling at the beginning of
2009. Falling prices lower the costs on goods and encourage consumers to spend. This helps the
China economy recover its diminishing exports. Inflation was at 8.5% which caused the price of
pork to increase because the shortage on meat. Producer prices decreased on lower raw-material
and energy costs.

Trade

China joined the World Trade Organisation (WTO) to become competitive in the global
market. The main industrial exports for China are manufactured goods, textiles, garments, and
electronics. The leading export materials in China are tungsten, antimony, tin, magnesium,
molybdenum, mercury, manganese, barite, and salt. China is the world’s largest producer of
aluminium (China Trade, 2008).

Infrastructure

The liberal economic policies in the 1980s have strengthened China’s economy. However,
the country still suffers from inadequate transportation, communication, and energy resources.
Since the 1980s China has undertaken a major highway construction program and is working in
building a world class infrastructure. The Malaysian government is committed to maintaining a
business environment that provides companies with the prospects for growth and profits. Practical
challenges generally lie in administrative procedures which may appear to complicate the
progression of foreign direct investment in Malaysia. Regulatory authorities are generally
cooperative and offer guidance and assistance to investors who wish to conduct business in
Malaysia.

Currency & Exchange Rate

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China has been manipulating the holdings of its currency at an artificially low level. The
currency appreciated 21% against the dollar through July 2008 and then went flat as China
authorities were concerned about slipping exports. China’s continued currency manipulation is
hurting its own economy. The Obama management wants to strengthen the International Monetary
Fund to improve currency practices.

5.0 Conclusion

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As earlier noted, the progression of internationalization is a progression that is very beneficial to

the company that commences in the internationalization of itself. However, many companies never
succeed in acquiring the benefits that the progression of internationalization has to offer and more
often than not, the main delinquent concerns the fact that the company that wants to
internationalize has used the wrong strategy for internationalization. The selection of the proper
strategy for internationalization is very important to ensure that the internationalization progression
goes as smoothly as possible. It was understood here that the nature of the firm, its size and the
resources had an influence on the type of internationalization strategy that would normally be used
by the Malaysian companies. In closing, it is theorized that there are a myriad of strategies for
internationalization that can be utilized successfully for organization, large or small, for the
purposes of gaining entry into the international business arena. Utilizing the wrong strategy could
mean suffering loss while developing the correct strategy could be large amounts of success.
Hence, strategic decision makers must take all the care necessary when formulating, devising and
implementing these strategies.

(Total words: 2629)

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6.0 Reference

Sources of Website
 <www.chase.com> (corporate and institutional e-commerce services)
 https://www.thestar.com.my/business/business-news/2016/09/10/the-china-factor-in-
malaysias-growth

Sources of Books
 Annals - Economy Series, 2009, vol. 3, pages 399-410
 Dess and Beard, 1984 G.G. Dess, D.W. Beard (Dimensions of Organizational Task
Environments) - Administrative Science Quarterly, 29 (1984), pp. 52–73
 Philip Kotler/Books (2006)/Marketing Management: A South Asian Perspective
 William F. Glueck, Lawrence R. Jauch, Lawrence Jauch, Elements of Macro
Environmental; Published by  McGraw-Hill Education (ISE Editions) 01/06/1988(1988)

Sources from Online

 Maybank (2011)Maybank annual report 2010.Retrieved from http://maybank-ar-
2010.8iris.com/sites/default/files/Maybank_Annual_Report_2010.pdf Maybank (2011)
 Maybank sustainability report 2010.Retrieved
fromhttp://www.maybank.com.my/files/corporate_information/corporate
%20responsibility/Maybank_Sustainability_Report_2010.pdf
 Maybank (2009, Jan 23) Maybank Opens Third Branch in Cambodia. Retrieved from
http://www.maybank2u.com.my/mbb_info/m2u/public/personalDetail04.do?
channelId=AU02-Newsroom&cntTypeId=0&cntKey=AU09.01.23&newsCatId=/mbb/AU-
AboutUs/AU02- Newsroom/2009/01&chCatId=/mbb/Personal

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