Introduction to International Business

Objective, Scope & Importance

MMS Sem III Batch 2023-25 Date: 9th Jul 2024

 What is a Business?

• It is an organization or economic system where goods

and services are exchanged for one another or for
money.
• Every business requires some form of investment and
enough customers to whom its output can be sold on a
consistent basis in order to make a profit.
• Businesses can be privately owned, not for profit or
state-owned.
What is International Business?
 What is International Business?

Manufacturing or Trade across geographical boundaries

of one’s country is known as International Business.
International Business or External Business doesn’t only
include international movement of goods and services
but also the movement of capital, personnel, technology,
and intellectual property like patents, trademarks, and
copyrights.
It isn’t limited only to the export and import of goods but
services such as international travel and tourism,
transportation, communication, banking, warehousing,
distribution, and advertising.
 What is International Business?
• International business is defined as all business activities,
including the creation and transfer of resources, goods,
services, know-how, skills, and information, which transcend
national boundaries.
• The resources may be raw materials, energy, technological
know-how and patents, capital, and organizational skills.
• Goods include manufactured parts, sub-assemblies, and
assemblies.
• Know-how may include product and process technological
innovations, copyrights, trademarks, and brands.
• Skills may include organizational and managerial skills.
• Information includes databases as well as information
networks.
1. International Companies:
• The operations of such companies lie in one single home country
as the base center
• These companies only export or import products from the home
country
• The offices, hence, only exist in the home country and there is no
foreign direct investment in other countries
• The functioning and strategies are derived mostly from the
primary market which is the domestic home country market

2. Multinational Companies:
• These companies have direct operations in more than a single
country, however, it is usually not a very large number.
• However, MNC’s have a centralized structure, with the head
office in the home country calling all the shots.
• In this case, products are decided and developed by the head
office and subsidiary offices do have options to adapt to local
markets if needed.
3. Transnational Companies:
• These companies are operating in multiple countries, having
foreign direct investment in all of them.
• Such companies follow a flexible approach, understanding and
adapting to the local culture and demand of each country.
• Hence, offices in each country work in a decentralized manner
with decision-making powers.
• In fact, subsidiary offices can launch and make products which
might not be manufactured in the original home country, if there
is a chance of demand.
4. Global Companies:
• These companies work to have a foothold in a large number of
countries, usually larger than a Multinational Corporation.
• They, however, do not follow the system of having an official
head office.
• Various subsidiaries are set but standard products are sold,
without any flexibility in terms of adapting to local consumers.
• There is no change in branding or information about a global
company, even if the country of operations changes.
Need for International Business
 The differences between Domestic business
and International business
Domestic business International business
1. One nation, same language and culture 1. Many nations, many languages & cultures.
2. One currency 2. Different currencies in different countries.
3. Political environment and factors 3. Different political environment and
are the same. Factors in different countries
are vital.
4. Market is relatively homogeneous 4. Markets are diverse and highly
heterogeneous.
5. No problem of exchange control 5. There are problems of exchange controls
& tariffs and tariffs & they act as obstacles.
6. Relative freedom from government 6. Government influences business decisions
interference.
7. Relatively stable business environment 7. Multiple environments many of which
are highly unstable.
8. Uniform financial climate 8. Variety of financial climates ranging
from over conservative to wildly inflationary.
9. Business “rules of the game” mature 9. Rules diverse, changeable and unclear.
10. The same natural resources 10. Different kinds of natural resources.
 Scope of International Business (IB)
1. Goods Exports and Imports: International Business
allows firms to export and import goods across different
countries.
2. Service Exports and Imports: With the help of
international business, firms can offer services to people
belonging to different countries.
3. Licensing and Franchising: Firms can enter into
international business using licensing and franchising.
Licensing is permitting another party of a foreign country
to produce and sell products under its trademarks,
patents, or copyright against some fee. Franchising is
similar to licensing but it terms of service.
4. Foreign Investments: A firm can enter into international
business by investing in firms located abroad in
exchange for some financial return.
 Benefits of IB to Countries

• Earning of Foreign Exchange: International Business

helps a country to collect and earn foreign currency
from the investment offered by a foreign firm in the
domestic market. Foreign currency helps in meeting
imports of any country from foreign countries.

• More Efficient Use of Resources: International business

allows firms to use the resources present in different
countries more efficiently. Firms can bring the newest
technologies from which the resources can be utilized
more efficiently.
 Benefits of IB to Countries (Cont.)

• Improving Growth Prospects and Employment Potentials:

By setting up new industries and businesses in different
countries, the international business helps in improving
the economic growth and employment potential in those
countries. Larger scale production contributes to the GDP
as well as generates employment.

• Increased Standard of Living: In the presence of an

international business, people of any country can
consume goods and services produced in some other
countries. It helps in improving the standard of living of
those people and the country in general.
 Benefits of IB to Firms
• Prospects for Higher Profits: International business
gives scope to firms a whole new market to target.
Firms can sell their products in markets where prices
are relatively high and earn more profits.
• Increased Capacity Utilization: The products produced
by a firm more than the demand in the domestic
market can be sold to a foreign market with the help
of international business. The capacity to produce
more can be utilized with an expansion in the market.
• Prospects for Growth: Firms can improve the
prospects of their growth by getting into the
international market. The demand for a certain
product in the domestic market is limited but in the
international market, firms can reach new heights.
 Benefits of IB to Firms (Cont.)

• Way Out to Intense Competition in Domestic Market:

When the competition in the domestic market
increases, firms can move out of the domestic
boundaries to find a new market. By this, they can
counter the intense competition in the domestic
market.

• Improved Business Visions: Every firm’s vision is to

grow, become more competitive, diversify and gain
strategic advantage over its competitors. The
international business allows firms to grow and build
themselves with greater prospects.
 What is Globalization?
https://www.youtube.com/watch?v=akiUeToMJxM
Advantages of Globalization
Disadvantages of Globalization
 NEWS
India Cuts Import Duty on Mobile Phone
Components from 15% to 10%
The import tariff reduction is poised to favor companies
like Apple and its original equipment manufacturing (OEM) supplier
network and Dixon Technologies, which manufactures mobiles for
Motorola, Samsung, and Xiaomi. The customs duty cuts could even
result in a 3-5 percent price reduction for entry-level products,
boosting domestic consumer demand.

Slashing the import duty on inputs for mobile component

manufacturing will incentivize global brands to set up more large
scale mobile phone assembly lines in India, further increasing
exports.
 Case Study: IKEA - Home furnishing

IKEA is named after the initials of founder Ingvar Kamprad, Elmtaryd,

the farm on which he grew up, and Agunnaryd, the nearby village. "
 IKEA: Home furnishing

IKEA is the world’s largest furniture retailer, with around

445 stores spread over 50 countries. It sells a wide range
of home furnishing products such as ready-to-assemble
furniture, kitchen appliances, and accessories, in addition
to interior design services.
The company was founded in 1943 by Ingvar Kamprad in
Sweden and currently has its headquarters in Delft,
Netherlands. With over 220,000 employees worldwide, it is
one of the largest employers in Europe. In 2022, IKEA
generated total sales revenue of 44.6 billion euros.

In 2022, IKEA sold 75% of their total sales through IKEA

stores, 22% online and 3% through Services to Customers.
 IKEA: Business Strategy
The company is guided by the vision of creating a better
everyday life for its customers through home furnishing
solutions. It follows a low-cost and obligation-free
business model, with high flexibility and low investment
cost to serve various customer needs across different
geographies. IKEA has always strived to offer every
product at the best price possible.
To maintain low prices across its huge store network,
IKEA adopts a vertically integrated supply chain model
that includes self-owned forestry operations, forestry
specialists, and direct sourcing from over 1,000 suppliers
in more than 50 countries. This has enabled the company
to adopt an asset-light business model without investing
heavily in property or inventories.
“Diversification and Globalization
are the Keys to the Future.”