INTERNATIONAL

BUSINESS
B.COM 3RD YEAR
 UNITS SYLLABUS
UNIT 1 Introduction to International Business: Concept, Need, and Importance of International
Business, Globalization and its importance in world economy International business vs.
domestic business, Complexities of international business. Modes of entry into
international business. International Business Environment: National and foreign
environments and their components. Economic, cultural, political and legal
environments.
UNIT 2 Theories of international trade: Absolute advantage theory, Comparative advantage
theory, Factor proportion theory and Leontief paradox, Product life cycle theory,
National competitive advantage theory. Tariff and Non-Tariff Barriers. Balance of
payment account and its components.
UNIT 3 International Financial Environment: Foreign exchange market, Spot market, spot rate
quotations, bid-ask spreads, trading in spot markets, cross exchange rates, forward
markets, forward rate, long and short forward positions, forwards premium and
discount. Arbitrage, Hedging and Speculation. Types of exchange rate systems- fixed
and floating, soft peg, crawling peg, free float, managed float. Foreign exchange risk
and exposure.
Exchange rate Determinations: Types of Exchange rates, factors affecting exchange rate
relative inflation rates, interest rates, relative interest rates, relative income levels.
Government controls and expectations
 UNITS SYLLABUS

UNIT 4 Foreign Trade promotion measures and organization in India: Special Economic Zones (SEZs) and
export oriented units (with 100% export oriented units), foreign investment- concept, type and
flow. Foreign investment in Indian perspective. Financing of foreign trade and payment terms-
sources of trade finance (Banks, factoring, forfeiting Banker's Acceptance and Corporate
Guarantee) and forms of payment (Cash in advance, Letter of Credit, Documentary Collection,
Open Account).

UNIT 5 Regional Economic Integration Forms of regional integration: Integration efforts amongst countries
in Europe, North America and Asia. EU, NAFTA, SAARC and ASEAN International Economic
Organisations: WTO, UNCTAD, World Bank and IMF
 UNIT 1
INTRODUCTION TO INTERNATIONAL BUSINESS
 MEANING OF INTERNATIONAL
BUSINESS
❖ Buying and selling of goods and services beyond the geographical limits of the
country.
❖It is also called TRADE BETWEEN TWO COUNTRIES.
❖International business works by exchanging goods and services outside borders
❖It includes not only international trade of goods and services but also foreign
investment, especially foreign direct investment.
For example, if country A imports or exports goods or services from country B, the
transactions happen outside their respective borders. The payment is made in their
respective currencies through foreign exchange.
 FEATURES
❖Involvement of two OR more countries
❖Payment in foreign currency
❖Legal procedures
❖High Risk
❖Time consuming
AN EXAMPLE OF INTERNATIONAL
BUSINESS

NESTLE MAGGIE
(Switzerland)
 SCOPE OF INTERNATIONAL BUSINESS

EXPORT INTERNATIONAL
BUSINESS BUSINESS

GLOBAL FIRM ( follows

MULTINATIONAL
strategies and policies
FIRM (autonomous
formed by parent
subsidiaries)
company)
 NEED FOR INTERNATIONAL BUSINESS
❖To earn foreign exchange and pay for imports.
❖More efficient use of domestic resources and importing other goods
❖Improving growth prospects and employment potential
PRODUCTIVITY
EXPORT LABOUR EMPLOYMENT
INREASE

❖ Increased standard of living

❖Higher profits
❖Full capacity utilization
 TYPES OF INTERNATIONAL BUSINESS

EXPORT(to other countries)

IMPORT(from other countries)

ENTREPOT (Re- Export)

IMPORTANCE OF INTERNATIONAL BUSINESS
Increased revenue and brand
awareness

Minimizing reliance on current

market

Collaborating with skilled individuals

and utilize the external resource

Get first movers advantage over

competitors.
 CONCEPT OF GLOBALIZATION

MNCS

GLOBALIZATION FOREIGN
INVESTMENT

INTEGARTION FOREIGN
OF ECONOMY TRADE
 GLOBALIZATION
Globalization of business means doing business in multiple
countries.

Globalisation means allowing interaction, integration

among the people, companies and government of different
nations by international trade and investment and aided by
information technology
 FEATURES
❖LIBERALIZATION
❖FREE TRADE
❖PRIVATIZATION
❖INCREASED COLLABORATION
 STAGES OF GLOBALIZATION
Stage 1: Domestic Stage:
Marketing and Production activities limited to Home Country.
Stage 2: International Stage:
Marketing and Production activities expand from home to another country. Export Increases
Stage 3: Multinational Stage:
Marketing and Production activities located in many countries.
Stage 4: Global Stage:

Ownership, control and top management can be dispersed to different countries Making sale
and acquiring resources in country offering best deal
 TYPES OF GLOBALIZATION
❑Political: EU, UN, WHO

❑Social: by which people's lifestyle is spread over global networks.

❑Economical: production, trade, labour, capital, direct investment, etc.

 Impact of globalization on Indian economy
•Investments +new jobs, local companies supplying raw materials, etc. to these industries
have prospered.
•Indian companies gained from successful collaborations with foreign companies. Ex. Maruti
Suzuki (India+Japan)
•Exports would potentially increase therefore making our trade more favourable.
•Consumers have an option to choose from a wide range of products- they can have cheapest,
best thing.
•Technological development+ Increase in volume of trade will increase world’s GDP.
•Extension of internet facilities will promote rural development.
•We can export what we produce in excess. So, less wastage and we can import what we
produce in deficient.
 IMPORTANCE OF GLOBALIZATION TO
WORLD ECONOMY
❑Increase in Trade (Greater Choice of Goods to Consumers)
❑Greater Competition (Lower Price)
❑Increase capital and labour mobility
❑Economic of scale (More efficient productivity)
❑Tax Avoidance
❑Removing Monopoly
DOMESTIC BUSINESS VS INTERNATIONAL BUSINESS

BASIS DOMESTI C BUSINESS INTERNATIONAL BUSINESS

Definition Domestic business involves those economic International business involves

transactions that take place within the those economic transactions that
geographical boundaries of a country. take place outside the
geographical boundaries of a
country.
Buyer and Seller Both the buyer and seller belong to the same The buyer and seller belong to
country in domestic business. different countries in international
business.
Currency Domestic businesses deal with the same International businesses deal with
currency since both the buyer and seller are different currencies since the
from the same country. buyer and seller are not from the
same country
Customers There is greater homogeneity in terms of the There is greater heterogeneity in
nature of customers of domestic businesses. terms of the nature of customers of
international businesses.

Geographical Geographical boundaries limit domestic businesses Geographical boundaries do not

Boundaries limit international businesses.

Business Research Business Research is less complex and relatively Business Research is more complex
cheaper for domestic businesses compared to and relatively expensive for
international organisations. international businesses compared
to domestic companies.

Capital Investment Capital investment is lower for companies that are Capital investment is higher for
involved in domestic business. companies that are involved in
international business.
Factors of The domestic business has The international business has
Production greater mobility of factors of lesser mobility of factors of
production compared to production compared to
international business. domestic business.

Restrictions Domestic business involves International business involves

lesser restrictions than greater restrictions than
international business. domestic business.

Quality The quality standards for The quality standards for

Standards domestic business tend to be international business tend to
relatively lower than be relatively higher than
international business. domestic business.
 COMPLEXITIES OF INTERNATIONAL BUSINESS

a. Difference in languages problem of distance: Each country has its own language in which its traders wish to
prepare their trade documents right from trade enquiry or the letter of quotation to the payment
documents. This works as a serious barrier between the traders of the different countries

b. Import-export restrictions: At times many countries put certain restrictions on their foreign trade to make
their Balance of Payment (BOP) favourable. They impose heavy tariffs or import duties, volume restrictions
on both of their imports as well as their exports. This hampers the smooth conduct of International trade.

c. Lack of proper information about the foreign market: In most of the cases new traders do not have
adequate information about foreign markets whatever information is provided by different agencies are
either inadequate or does not fulfil their requirements. Thus, they fail to have clarity about the
opportunities available to them for exports and imports
d. Heavy documentation: International Trade requires so many legal formalities and many documents, which
makes the trade procedure very cumbersome as well complex. Therefore most of the small traders trade only
through third parties rather than going directly and have to pay commission to them which reduce, their profit
margins, increase the cost of transactions.

e. Payment problems: There may arise payment problem between traders of both countries as they both want
to transact in their own currency and fluctuations in foreign exchange may also add on to the problem of
payment and due to this risk may also arise for both the traders.

f. Managing a globally distributed team: One of the more unique issues of international business management
is supporting a diverse, globally distributed team. Doing so requires navigating the complexities of various
countries' employment regulations, payroll rules, tax laws, mandated benefits, employee entitlements, and
technology. Communication, support, and interaction with your globally distributed employees are essential to
maintain a cohesive team. At the same time, legal expertise in varying regions is necessary to maintain
compliance with employment laws in each country.

g. Payroll challenges
Depending on where your employees live and work, there may be a variety of employment, tax, and payroll
laws your company needs to keep in mind while processing payroll. From tax withholding to mandated and
voluntary benefits, these differing laws can pose significant challenges to your HR team.
h. Supply chain issues
International laws and regulations specific to each country affect a variety of factors throughout the global
business, including imports and exports. Understanding these complexities and accounting for any potentially
related supply chain issues can be a major challenge. Your supply chain strategy should be tailored to your
company and the country or country with which you plan to do business. When developing your strategy, it is
important to research trade regulations, current supply chain issues, local material availability, and external
influences on the supply chain.
g. Competing in a new market
In today's competitive business market, offering a product or service that no other company provides is next to
impossible. When dealing domestically, your company likely has its share of competitors; when you expand
internationally, the number of companies competing for their share of the same market grows exponentially. From
competition grows innovation, and your company must adhere to this principle even more strongly when
expanding into the global market. Differentiate your product or service from the crowd to gain a competitive edge.
Offer unique products and services. Most importantly, build a reputation for your company by developing solid
business relationships with customers and local suppliers, vendors, manufacturers, and shipping companies.
h. Compliance with international regulations
Tax, payroll, and employment laws are essential to understand when expanding your
business internationally. Working with multiple countries means dealing with various
business regulations, commercial fees, expectations, and tax rates. If you fail to comply
with a particular country's laws, this oversight can negatively affect your business
growth and cost your company compliance fees, reputational damage, and potential
criminal charges. The importance of doing your research and completing all necessary
paperwork cannot be overstated.

I. Problem of distance: the distance between the trading countries increases the cost of
transportation of goods, making the price high and also creating a risk of fraud, etc. as
the traders may not have face to face contact between them.
 MODES OF ENTRY INTO INTERNATIONAL BUSINESS

1. Exporting and Importing

Selling goods and services to a company in a foreign country is referred to as Exporting. For instance, Samir sold sweets to
a store in Canada. Purchasing goods from a foreign company is known as Importing. For instance, the purchase of dolls
from a Chinese company by an Indian dolls dealer. Exports and imports are the typical way through which businesses
begin their activities overseas before moving on to other kinds of international trade.
Important Ways to Export and Import
i) Direct Importing/ Exporting: The company handles all of the necessary paperwork for the shipment and financing of
goods and services and deals directly with foreign suppliers or purchasers.
ii) Indirect Importing/ Exporting: The company uses a middleman to handle all the paperwork and negotiate with foreign
suppliers or customers. The firm’s involvement is limited.

2. Contract Manufacturing
According to this, every well-known company in a nation accepts responsibility for promoting the goods and services
created by a business in another nation. Here, the company is specialised in the manufacturing process but lacks
marketing skills, whereas the other company, due to its established reputation, is capable of selling those items and
services. Offering these items and services is not the primary business of these organisations, but they do it for the
benefit of their name and reputation, as well as to provide high-quality products at a low cost to their customers.
Multinational firms, like Maybelline, Loreal, Levis, and others use contract manufacturing to have their products or
component parts produced in developing nations. Contract manufacturing is also known as international outsourcing.
3. Licensing
When a corporation from one country (the Licensor) grants a license to a company from another country (the Licensee) to
use its brand, patent, trademark, technology, copyright, marketing skills; etc., to assist the other firm sell its products, this
contractual agreement is referred to as Licensing. The licensor corporation receives returns in proportion to sales.
Returns may take the form of royalties or fees. In other nations, the government determines how the returns are fixed.
This cannot exceed 5% of revenues in several developing nations.
For instance, Pepsi and Fanta are made and distributed globally by local bottlers in other nations under the licensing
system.
The company that provides such authorisation is known as the Licensor while the other company in a different country that
receives these rights is known as the Licensee. The mutual sharing of knowledge, technology, and/or patents between the
companies is called Cross-licensing.
4. Franchising
The franchise is the unique right or freedom that a producer grants to a certain person or group of people to establish the
same business at a specific location. The producers use this contemporary business model to market their products in far-
off locations. In general, producers who have a good reputation use this system. Individuals are motivated by their goodwill
and try this mode of business in order to earn profit.
The business that gives the rights (i.e., the parent company) is referred to as the Franchisor, and the business that
purchases the rights is referred to as the Franchisee.
5. Joint Ventures
A joint venture is formed when two or more businesses decide to work together for a common goal and mutual
benefit. These two commercial entities could be private, public, or foreign-owned. Joint ventures are those types of
businesses that are established in international trade where both domestic and foreign entrepreneurs are partners in
ownership and management. The trade is carried out in collaboration with the importing nation’s firm. For
instance, the Joint venture of the Indian company Maruti with the Japanese Company Suzuki.
6. Wholly Owned Subsidiary
When a foreign company establishes a business unit or acquires a full stake in any domestic company, then they are
called a Wholly-owned Subsidiary. Wholly owned subsidiaries are set by a foreign company to enjoy full control over
their overseas operations. A wholly-owned subsidiary in a foreign country may be established in two ways:
Setting up of wholly-owned new firm in the foreign land, also called Green Field Venture.
Acquiring an established firm in a foreign country and using that firm to do business in a foreign country.
 INTERNATIONAL BUSINESS ENVIRONMENT

The international business environment is a complex network of economic, political,

legal, and cultural forces that shape how organisations conduct international
business. It consists of external and internal factors that impact a company’s success
or failure in different markets.
This concept involves understanding the global forces that impact businesses of all
sizes. These elements shape how companies conduct their operations and make
decisions from macroeconomic trends to geopolitical tensions. Globalisation has
made it easier for businesses to go beyond local or regional markets, creating new
opportunities while presenting new challenges.
C
O POLITICAL ENVIRONMENT
M
P ECONOMIC ENVIRONMENT

O
TECHNOLOGICAL ENVIRONMENT
N
E
CULTURAL ENVIRONMENT
N
T COMPETITIVE ENVIRONMENT
S
 TYPES OF INTERNATIONAL BUSINESS ENVIRONMENT

Political Environment in International Business

The political environment means the political risk, the government’s relationship with a business, and the
type of government in the country. Conducting business internationally implies dealing with different
kinds of governments, levels of risk and relationships.
There are different types of political systems, such as one-party states, multi-party democracies,
dictatorships (military and non-military) and constitutional monarchies. Thus, an organisation needs to
take into account the following aspects while planning a business plan for the overseas location:
•Political system of the business
•Approach of the government towards business, i.e. facilitating or restrictive
•Incentives and facilities offered by the government
•Legal restrictions for licensing requirements and reservations to a specific sector like the private, public
or small-scale sector
•Restrictions on importing capital goods, technical know-how and raw materials
•Restrictions on exporting services and products
•Restrictions on distribution and pricing of goods
•Required procedural formalities in setting the business
Economic Environment in International Business
The economic environment refers to the factors contributing to the country’s attractiveness to foreign businesses. It can
differ from one nation to another. Better infrastructure, education, healthcare, technology, etc., are also often associated
with high levels of economic development. The levels of economic activities combined with infrastructure, education,
and the degree of government control affect the facets of doing a business.
Usually, countries are divided into three main economic categories, i.e. more industrialised or developed, less developed
or third world, and the newly emerging or industrialising economies. There are significant variations within each
economic category. Overall, the more developed countries are rich, the less developed are poor, and the newly
industrialising are those moving from poor to rich. These distinctions are made based on the Gross Domestic Product per
capita (GDP/capita)
A business needs to recognise the economic environment to operate in international markets successfully. While
analysing the economic environment, an organisation intending to work in a particular business sector should consider
the following aspects:
•Economic system to enter the business sector
•Stage and pace of economic growth
•Level of national GDP and per capita income
•Incidents of taxes, direct and indirect tax
•Available infrastructure facilities and the difficulties
•Availability of components, raw materials and their cost
•Sources of financial resources and their costs
•Availability of workforce, managerial and technical workers, their salary and wage structures
Technological Environment in International Business
The technological environment includes factors related to the machines and materials used in manufacturing
services and goods. As organisations do not have control over the external environment, their success depends on
how they will adapt to the external environment. A significant aspect of the international business environment is
the level and acceptance of technological innovation in countries.
Due to the internet, it is easier even for a small business plan to have a global presence, which grows its exposure,
market, and potential customer base. For political, economic and cultural reasons, some countries are more
accepting of technological innovations, while others are less accepting. In analysing the technological
environment, the organisations should consider the following aspects:
•Level of technological developments in the country as a whole and specific business sector
•Pace of technological changes and obsolescence
•Sources of technology
•Facilities and restrictions for technology transfer
•Time taken for the absorption of technology
The cultural environment is one of the crucial components of the international business environment. It is the
most difficult to understand as the cultural environment is unseen. It has been described as a commonly held and
shared body of general values and beliefs that determine what is right for one group.
While analysing cultural factors, the organisation should consider the following aspects:
•Approaches to society towards business in specific and general areas
•Influence of cultural, social, and religious factors on the acceptability of the product.
•Lifestyle of people and the products used by them
•Level of acceptance and resistance to change
•Demand for a specific product for a specific occasion
•Values attached to particular products, i.e. possessive or the functional value of products
•Consumption pattern of the buyers
Competitive Environment
The competitive environment differs from country to country. The political, economic, and cultural environmental
factors help determine the degree and type of competition that exists in a country. The most likely sources of
competition can be well understood for a domestic organisation, but it isn’t the case when an organisation moves
to compete in a new environment.
Competition can come from various sources, such as it can come from the private or public sector, large or small
organisations, domestic or global organisations and traditional or new competitors.
BENEFITS OF INTERNATIONAL BUSINESS ENVIRONMENT

•It unites and brings countries together, making the world a big global
village
•It increases employment opportunities as it results in the exchange
of information, ideas, capital across borders and services
•There is equal growth in wealth, availability of goods and services
and price stability
•It brings a new environment of development, alliance, affluence,
stability, modernisation, and technology across the globe