BCH-6.

1 International Business~

Unit-1 Part- (a) Introduction of International Business

International business involves trading goods and services across borders, expanding into global
markets, and managing operations internationally. It includes adapting to different cultures,
navigating international regulations, and leveraging global opportunities for growth and
innovation.

International business means companies from one country doing business activities in other
countries. A famous Indian brand example is Tata. Tata operates in many countries, making cars,
steel, and more. When Tata bought Jaguar Land Rover, they showed international business by
working in different places. This is tough because they must follow new rules, understand people’s
likes, and deal with various situations.

International Business Definition-

 International business involves transactions and exchanges of goods, services, or resources
between individuals, organizations, or governments in different countries. It encompasses
various activities, including international trade, investment, finance, marketing, and
management. Companies engage in international business to expand their customer base,
increase revenue, access new markets, acquire resources, or gain a competitive advantage.
 Various factors shape international business, including government policies, cultural
differences, economic conditions, legal systems, and technological advancements to succeed
in international business.

Importance of International Business-

International business is crucial because it helps countries access products and services they may
not produce locally, benefiting both businesses and consumers. It creates jobs, drives economic
growth, and encourages exchanging ideas and cultures across borders. By expanding into new
markets, companies can also grow and compete globally.

1. Increase Revenue and Brand Awareness- Due to its international expansion, your company
will be able to explore new markets and draw in new clients, increasing its sales and
revenue and the visibility of its brand internationally. Your business can grow sales by
entering a new market and extending the shelf life of its goods and services.
2. Collaborate with Skilled Individuals and Utilize the External Resource- Another significant
benefit of expanding your firm internationally is the ability to utilize the other country’s
resources, such as technology, skill, and understanding in a certain industry. This enables
you to employ better technologies and discover better work practices, ultimately enhancing
your company’s operations and revenue.
3. Get a First-Mover Advantage- The desire to outperform competitors is one of the main
drivers behind many businesses seeking to go global. They will benefit greatly from being
 the pioneers. Customers will be familiar with your brand before those of your competitors.
They will visit yours rather than your competitors.

Forms of International Business~

Common forms of international business include imports and exports, franchising, licensing,
foreign direct investment, and strategic partnerships like joint ventures.

 Import and Export-

Import means selling products or services from one nation to another. Export means selling
products or services made in one country to another.

 Franchise-

Franchising and licensing have a close relationship. A parent firm (the franchisor) grants
permission to other businesses (the franchisees) to do business in a predetermined manner using
the franchisor’s brand and products. Franchisees are subject to substantially tougher rules than
license holders are. Franchises are common in restaurants, hotels, and rental services, whereas
licenses are more relevant to manufacturers.

 Licensing-

Licensing is one of the simplest ways businesses distribute and sell goods globally. A business is
qualified for licensing if it standardizes its products and has complete ownership rights. Many
licenses exist, including copyright contracts, trademarks, and patents. License agreements are more
frequently required for some products and services than others.

 Foreign Direct Investment (FDI)-

Foreign direct investment is the practice of individuals or corporations making financial

investments in foreign firms. The investing corporation typically provides more than just money. It
might also want to collaborate with the company it invests in on technologies, procedures, and
management resources. Foreign investment frequently takes the shape of a merger, joint venture,
subsidiary company, or associate firm, with the investor leveraging their resources and clout to
expand and boost profitability.

 Strategic Partnerships and Joint Ventures-

Strategic alliances or partnerships are good ways for two or more businesses from different
nations to work together for mutual benefit. A joint venture is a unique type of strategic partnership
in which partners build a business producing goods and services.
 Globalization & its Importance ~
International business is also known as Globalization. International business encompasses a
myriad of crucial elements vital for global economic integration and growth. At its core, it involves
the exchange of goods, services, and capital across national borders. International business also
promotes competition in domestic markets and introduces new opportunities to foreign markets.
Global competition helps companies become more innovative and efficient in their use of
resources. For consumers, international business introduces them to a variety of goods and services
while it enhances their standard of living and increases their exposure to new ideas, devices,
products, services, and technologies. To ensure success in a foreign market, international
businesses must understand the many factors that affect the competitive environment and
effectively assess their impact. Hereby-

1. Economic Environment-
Economic environments may be vastly different from one country to the next. The economies of
various countries may range from developed and emerging, to less developed. This brings a vast
array of variations, which have a major effect on everything from education and infrastructure to
technology and healthcare.

2. Political Environment-
The political environment of international business refers to the relationship between government
and business, as well as the political risk of a nation. Therefore, companies involved in international
business must be ready to deal with different types of governments and institutions. Because
international companies rely on the goodwill of governments, international businesses must
consider the political structure of the country in which they intend to operate.

3. Competitive Environment-
The competitive environment is constantly changing based on economic, political, and cultural
contexts. Competition may come from a variety of sources, and the nature of competition may
change from place to place. The level of technological innovation is also an important aspect of the
competitive environment as firms compete for access to the newest technology.

4. Cultural Environment-
The cultural environment of a foreign nation remains a critical component of the international
business environment, yet it is one of the most difficult to understand. The cultural environment of
a foreign country is rooted in commonly shared beliefs and values, formed by elements such as
language, religion, geographic location, government, history, and education.

Impacts of Globalization in International Business-

 Increased competition: Globalization can make it more competitive for businesses.

 Access to new markets: Globalization allows businesses to sell their products and services to
new markets.
 Lower operating costs: Globalization can help businesses lower their operating costs.
 New jobs: Globalization can create new jobs as businesses and industries develop.
 Spread of knowledge and technology: Globalization allows for the spread of knowledge and
technology.
 Economic growth: Globalization can promote economic growth.
 Imbalanced trade: Globalization can lead to imbalanced trade.
 Domestic Job loss: Globalization can lead to domestic job loss.
 Exploitation of labor and resources: Globalization can lead to the exploitation of labor and
resources.

Difference between Domestic Business and International

Business~
Complexities of International Business-

1) Increased Costs-

There are increased operating expenses including the establishment of facilities abroad, the
hiring of additional staff, travelling of personnel, specialized transport networks, and
information and communication technology.

2) Foreign Regulations and Standards-

The company may need to conform to new standards. This may require changes such as in the
production process, incurring additional costs, inputs and packaging.

3) Delays in Payments-

International trade may lead to delays in payments, adversely affecting the firm’s cash flow.

4) Complex Organizational Structure-

International business usually requires changes to the firm’s operating structure. Training/re-
training of management is necessary to effectively facilitate the process of restructuring. By
investing in a well-designed organizational structure, businesses can position themselves for
success in the complex and ever-evolving world of International Trading Environment.

5) Exhaustion of Natural Resources-

This means exhausting all its natural resources in due course of time. It encourages an under-
developed country to export its all raw materials very early.

6) Cultural Differences-

The culture of both the nation and companies should have an international vision. Companies
should adopt a long-term perspective, being prepared to move wherever market opportunities
are favorable. The inward-looking culture makes companies remain local. For example, unlike
Korean companies who look for global markets Samsung, LG, and Indian company Hindustan
Motor were inward looking.

7) Market Competition in the Host Country-

If the best global companies enter the markets, the competition becomes intense and
accordingly inefficient companies have to close their shops.

8) National Controls-

The nations create barriers for outside country manufacturers by increasing trade barriers.
Trade barriers will be direct in the form of high customs duties. Indirect barriers will
include licensing procedures, quota systems, inspections, certifications, and tedious
paperwork.

9) Lack of Home Country Support-

Home country support for export investments & tax matters is essential for the success of
international business. If support is insufficient the international business proposal fails. The
government or social restrictions imposed on commerce and industry become hurdles for a
company going global.

10) Dependence-

The import of cheap quality products increases the dependence of foreign countries to the
extent that leads that country to no product that is, their production within the country stops
altogether.
11) Loss to Agricultural Countries-

In international trade, predominantly agricultural countries are losers to the maximum losses.
This is because demand for agricultural products is less elastic; there is hardly any increase in
their demand despite a fall in the price.

12) Political Instability-

Political instability is a major challenge to the smooth functioning of international trade. It

refers to uncertain political conditions in some countries which can have far-reaching
consequences on international trade. Various external factors such as changes in trade
agreements, government policies and political turmoil in the foreign market can disrupt
business operations and cause financial losses.

Modes of Entry into International Business -

1. Exporting and Importing-

Exporting and Importing is a very common mode to enter into International business. Selling
goods and services to a company in a foreign country is referred to as Exporting.
Purchasing goods from a foreign company is known as Importing.

2. Contract Manufacturing-
According to Contract Manufacturing, 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 specialized 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.

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.

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.
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.

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.