Subject -International business

UNIT- I
Meaning of International Business
International business refers to commercial transactions
between two or more nations. It is also called a global
business that includes carrying economic transactions of
goods, services, knowledge, technology, capital, labour,
communication, transportation, and many more globally.
It involves cross-border transactions of goods and services
between two or more countries.
Therefore, it includes not only the international movement
of goods and services but also the capital, personnel,
technology and intellectual property such as patents,
trademarks, technical knowledge, and copyrights.
It is a business that takes place outside the border, that is,
between two countries. This includes the international
movement of goods and services, capital, personnel,
technology, and intellectual property rights such as
patents, trademarks, and know-how. It refers to the
purchase and sale of goods and services that exceed the
geographical limits of the country.
According to Asterios G kafalas, define” the term
International business denotes all international dealings of
a country that pertain to exchange of goods, service and
information for commercial purpose and money.”
According to Rugman and Hodgetts, “ International
business is the study of transactions taking place across
national borders for the purpose of satisfying the needs of
individuals and organisations. These economic
transactions consist of trade, as in the case of exporting
and importing , and Foreign direct investment, as in the
case of companies investing funds to upgrade operations
in other countries.”
It comes in three types:
Export Trade: It is the sale of goods and services to foreign
countries.
2. Import trade: Purchase goods and services from other
countries.
3. Entrepot Trade: Import of goods and services for re-
export to other countries

Charactertistics / Nature/ features of

International Business-
The nature of international business is complex and ever-
changing. Various factors influence it, including economic
conditions, political stability, cultural differences, and
technological advances. Following are the main
characteristics of International business-

 large Scale Operations.

 Huge Investment of Money.
 Stiff Competition.
 Integration of World Economies.
 Advantageous to Participating Countries.
 International Restrictions and Regulations.
 Sensitive.
 Dominated By Developed Countries.
  Market Segmentation.
 Earns Foreign Exchange.
 Large Number of Middlemen.
 High Risk.
 Multiplicity of Documents.
 Cultural Diversity and Cross-Cultural Interactions.
Now we will discuss these points in details-
large Scale Operations
In international business, all the activities are conducted
at a very large or huge scale. The production, distribution
and marketing activities are carried on at a very large
scale.
Huge Investment of Money
Since the operations of the international business are
carried on at a very large scale,
the money or investment involved is also huge or big.
Stiff Competition
Many players such as individuals and companies are
involved in international business. The competition to
survive in the market is very keen and stiff.
Integration of World Economies
International business helps in integrating the economies
of the world. This is because an international business
uses finance from one country, labour from the other and
technology from some other country.
It designs the product in one country, produces its parts in
many different countries and assembles the product in
another country. It sells the product in many countries, i.e.
in the international market. This is the advent of
globalization.
Advantageous to Participating Countries
Advantages in the form of capital formation, new
technology, employment generation, industrial
development etc are generated among the participants of
the international business.
International Restrictions and Regulations
Doing international business is not easy. There are many
inflows and outflow restrictions in this business. There are
restrictions and regulations in the form of trade
restrictions, foreign exchange regulations and tariff
barriers in international business.
Sensitive
International business is very much sensitive. Change in
economic policies, technology, political changes etc. has a
direct impact on international business. As such
international business is termed as very sensitive.
Dominated By Developed Countries
International business is dominated by developed
countries and their MNC’s. Countries like U.S.A, Europe,
and Japan all are the countries that are producing high-
quality products, they have people working for them on
high salaries. They have large financial and other
resources like the best technology and Research and
Development centres. Therefore, they produce good
quality products and services at low prices. They help
them to capture the world market.
Market Segmentation
International business is based on market segmentation
on the basis of the geographic segmentation of the
consumers. The market is divided into different groups
according to the demand of the consumers in different
countries. It produces goods according to the demand of
the consumers of the different market segmentations.
Earns Foreign Exchange
International businesses are served as an important
source for earning foreign exchange. Foreign Currencies of
different countries are involved in transactions in these
businesses. This helps in getting enough foreign exchange
reserves for the country.
Large Number Of Middlemen
International businesses are very large in size. Their scale
of operations is not limited to one country but performs in
different countries globally. There is a large number of
middlemen involved in international businesses. These all
person renders their services properly for the efficiency of
the business. Their services help the business in easy
expansion & growth.
High Risk
The degree of risk associated with international business
is very high. These businesses require a large amount of
resources both in terms of money & manpower for
carrying out its operations. These need to carry out trade
in different countries at large distances. It requires a huge
cost & time to carry these goods & services. Also,
sometimes different economies face unfavourable
conditions which affect the business conditions
Multiplicity Of Documents
International business requires large no. of documents
from importing and exporting goods among different
countries. These documents are like commercial invoice,
shipping bill, Certificate of origin, inspection and
insurance certificate, mate receipt etc. There is a series of
documentation followed right from the point when an
order for goods is received by exporter till the time when
they are finally delivered at their destination.
Cultural Diversity and Cross-Cultural Interactions -
International business necessitates engaging with diverse
cultures, languages, customs, and business practices.
Understanding and respecting cultural differences is
crucial for effective communication, negotiation, and
relationship-building in international transactions.
Objectives of international business( reasons for
business to go international)-
There are several objectives of international business,
each of which allows a company to improve its
performance. These are as follows-

 To Attract foreign demand

 For Utilizing technology
 Use of economic resources
 For optimum utilization of resources
 To spread business risks
 To Improve organisation's efficiency
 To Get benefits from Government
 To attract higher rate of profits
 To Improve organisation's efficiency
 To achieve Economies of Scale
 To reduce overdependence in one market
 Obtaining Valuable Forex

1.To Attract foreign demand:

Some companies are unable to increase their market share
due to fierce competition within the industry.
Alternatively, changing consumer tastes could reduce
demand for the company’s products. Both of these
conditions allow an entity to consider foreign markets
where potential demand may exist.
2. For Utilizing technology:
Many companies are establishing new businesses in so-
called developing countries, where the technology level is
relatively low. Other companies have established new
communication systems in developing countries.
Other companies that create power generation, highway
systems, and other forms of infrastructure do extensive
business in these countries. Motor Company and General
Motors are seeking to take advantage of the technology by
establishing factories in developing countries in Asia, Latin
America, and Eastern Europe.
3.Use of economic resources:
Labour and land costs vary widely from country to
country. Companies often try to establish production in
places where land and labor are cheap. The cost is much
higher in developed countries than in other countries.
Many companies have subsidiaries in countries with low
labor costs.
4.For optimum utilization of resources- International
business makes possible to use optimum utilisation of
resources. This is because it produces goods on a very
large scale for the international markets.
 5.To spread business risks: International business
spreads its business risk. This is because it does business
all over the world. So, a loss in one country can be
balanced by a profit in another country. The surplus goods
in one country can be exported to another country. The
surplus resources can also be transferred to other
countries. All this helps to minimise the business risk.
6.To Improve organisation's efficiency: International
business has very high organisation efficiency. This is
because without efficiency, they will not be able to face the
competition in the international market. So, they use all
the modern management techniques to improve their
efficiency. They hire the most qualified and experienced
employees and managers. These people are trained
regularly. They are highly motivated with very high
salaries and other benefits such as international transfers,
promotions, etc. All this results in high organisational
efficiency, i.e. low costs and high returns.
7.To Get benefits from Government: International
business brings a lot of foreign exchange for the country.
Therefore, it gets many benefits, facilities and concessions
from the government. It gets many financial and tax
benefits from the government.
8.To Provide Employment Opportunities: International
business employs large number of people for carrying out
its operations across the globe. They perform large scale
operations in many countries for which they require large
amount of human resource.
9.To attract profits at a higher rate - the basic objective
of the business is to achieve higher profits. when the
domestics markets do not promise a higher rate of profits,
business firm search for foreign markets that hold
promise for higher rate of profits.
10.To achieve Economies of Scale: When production is
done at a large scale, firms enjoy economies of scale. In
this way, it helps the firms to reduce the per unit cost of
the product and increase profit margin.
11.To reduce overdependence in one market-
International business allows companies to access new
markets and tap into the global population. Companies can
expand their customer base by entering new markets,
diversifying their customer base, and offering more
products and services. It allows them to reduce
overdependence in one market.
12.For Obtaining Valuable Foreign Exchange: A
country can earn valuable Foreign exchange by exporting
its goods to other countries.

Importance / Significance/ Benefits of International

Business .
International business plays a crucial role in the growth
and development of the business and the economy of a
country. International business helps in generating
employment, earning foreign currency, efficient utilization
of resources, increasing the standard of living of people,
market expansion, etc. The importance of international
business can be understood through the following points:

Every organisation coming into the arena of

internationalisation has different reasons to look for.
There are different advantages for the firm of being global:

 Higher Profits than Domestic Market

 Optimum Utilisation of Capacity
 Economies of Scale
 Escape to Stiff Domestic Competition
 Product Maturity
 Enhanced Business Growth and Perceptions
 Global Image
Higher Profits than Domestic Market: firms can earn
higher profits by selling their products in countries where
the price of the product is higher than the local/domestic
market. In this way, firms can take advantage of price
differentiations prevailing among countries.
Optimum Utilisation of Capacity: Where a firm has a
production capacity exceeding the demand prevailing in
the domestic market, it can go for the international market
and serve a huge customer base. In this way, it can utilize
its capacity efficiently.
Economies of Scale: When production is done at a large
scale, firms enjoy economies of scale. In this way, it helps
the firms to reduce the per unit cost of the product and
increase profit margin.
Escape to Stiff Domestic Competition: Going global is a
perfect escape for businesses that are facing harsh
domestic competition.
Product Maturity: when a firm’s product reaches its
maturity stage in the home market, the firm can restart the
product life cycle of that product by relaunching the
product in international markets.
Enhanced Business Growth and Perceptions: Every
business firm has an objective of long-term growth and
expansion. This objective can be achieved through
geographical diversification which means stepping into
global markets. In this way, firms can reap the benefits of
trading across borders and grow their business.
Global Image-Most businesses engage in international
trade because they want to develop a global reputation
and brand. It aids businesses in building a worldwide
brand, but it also depends on how well they have served
other countries. Examples of the global image include
Sony, Apple, Microsoft, Coca-Cola, and others.

It is not only an organisation that carries international

business and has numerous benefits but also it is
important for the nations supporting it in the following
ways:

 Earning Foreign Exchange

 Optimum Use of Nation Resources
 Creation of Employment Opportunities
 Enhanced Growth Perspectives
 Cultural Exchange
 Political Cooperation
 Improving the standard of living
Now we discuss these points in details-
Earning Foreign Exchange: When the domestic firm
exports goods abroad, it gets paid in foreign currency. This
is how the international business brings foreign currency
into the country and helps to improve foreign exchange
reserves. This reserve can be used later for importing
goods such as petroleum, technology, etc.
Optimum Use of Nation Resources: The surplus
production, after meeting the needs of the domestic
market, can be exported to the international market. So
that there is no wastage of resources.
Creation of Employment Opportunities: International
business operations involve numerous people to perform
these operations effectively and efficiently. It is obvious
that when a firm does mass production it requires plenty
of human resources to manufacturing the goods on a large
scale and for exporting the extra production outside the
country. Thus, it creates employment in production,
international marketing, sales, accounting, etc.
Enhanced Growth Perspectives: The growth of a
country is restricted if the production is done solely for
domestic consumption. If the country does business across
borders it will increase its scale of production and
consequently enhance the country’s growth perspective.
Cultural Exchange: When people involved in
International business belonging to different countries
and cultures, interact with each other to create cultural
awareness of their cultures. It helps businesses to make
products considering the cultural aspects of a particular
country.
Political Cooperation: In the present era all countries are
economically interdependent on one another. It helps in
establishing good relations among trading companies.
Improving the standard of living: Because of
international business, people are provided with a huge
variety of products including domestic as well as
international (imported) products. Ultimately it improves
the quality of life or the standard of living of people in the
country..
Disadvantages of International Business
The importance of international business can be
understood through the following points:

 Economic Dependence.

 Inhibition of Growth of Home Industries.

 Import of Harmful Goods
 Shortage of Essential Goods in Home Country.
 Misuse of Natural Resources
 Political Exploitation
 Rivalry among the Nations.
 Invasion of Culture.
 Dumping Policy
 Shortage of Goods in the Exporting Country
 Negative economic impact
 Competition between nations
 Language Issues
 Intellectual Property Theft
1. Economic Dependence
International trade is more likely to make the country too
much dependent on imports from foreign countries. The
former may not take any efforts to produce goods and
services indigenously to substitute imported goods and
thus becoming self-sufficient. As a result the importing
country may become economically slave to exporting
country and end up becoming colony of the exporting
country.
2. Inhibition of Growth of Home Industries .
International business may discourage the growth of
indigenous industry. Unrestricted imports and severe
competition from foreign companies may ruin the home
industries altogether.
3. Import of Harmful Goods.
International business may lead to import of luxurious
goods, spurious goods, dangerous goods, etc. It may harm
the well-being of people.
4. Shortage of Essential Goods in Home Country.
Moreover the export of essential commodities out of the
greed of earning more foreign exchange may result in
absolute shortage of these goods at home country and
people may have to buy these commodities at exorbitant
price in the local market.
5. Misuse of Natural Resources.
Excessive export of scarce natural resources to various
countries across the world may lead to faster depletion of
the resources in the exporting countries. This in turn may
bring about ecological disaster in the country from which
it is exported.
6. Political Exploitation.
International business may create economic dependence
among the countries which may threaten their political
independence. The MNCs may influence the policy
decision of the government to their favour. In due course
of time they may dictate terms to administrators of nation
by the sheer strength of their money power. For example
Britishers came to many countries as mere traders and
ultimately colonized those countries and ruled them for
centuries.
7. Rivalry among the Nations.
Acute competition for exports may lead to rivalry among
the nations. This may lead to conflict of interest among the
countries and end up in wars among them.
8. Invasion of Culture.
International business may result in invasion of country’s
culture. Younger generation is more likely to imitate
foreign culture and buy goods and services beyond their
means to gain acceptance in the affluent section of society.
This will ruin the conventional lifestyle of the society.
9.Dumping Policy
Dumping is a real danger. As the industrially mature
economies can produce and sell the products in cheaper
rate than the home country, the products may be dumped
in the less developed nations. This creates an unfair
competition in the local markets. People often go for the
cheaper priced items, being unaware that their own
country and the industries may get destroyed due this
type of dumping policies.
10.Shortage of Goods in the Exporting Country
As exporting brings enough profit, sometimes, traders may
prefer to sell their products in a foreign country. The
exporters may sell the good quality products in foreign
nations even when there is a demand in the local markets.
This often results in shortage of quality goods within the
home country.
11.Negative economic impact: One country affects the
economy of another through international business. In
addition, large-scale exports hinder the industrial
development of importing countries. As a result, the
economies of importing countries are suffering.
12.Competition between nations: Fierce competition
and the desire to export more products can create
competition between nations. As a result, international
peace can be hampered.
13.Language Issues: Different languages in different
countries create barriers to establishing business
relationships between different countries.
14.Intellectual Property Theft:
The wider a product is distributed, the more likely that
it may be illegally copied by a competitor. This can be in
the form of proprietary information or market branding or
by reverse engineering. Due to the different legal system
in different countries, it becomes very difficult for a
company to prosecute.

Difference Between Domestic and International

Business
Domestic business Vs International business

Basis Domestic Trade International Trade

Nationality of Under this person of Under this person from different

Buyers and one nation work in nations works in the international
Sellers their respective market.
domestic market.
Nationality of Stakeholders like Stakeholders like suppliers,
Other suppliers, producers, producers, employees,
Stakeholders employees, Middleman, etc., are of different
Middleman, etc. are nations
of the same nation.
 Mobility of Factors of Factors of production like capital
Factors of production like and labour are mobile across the
Production capital and labour different nation.
are mobile across
one nation.
Heterogeneous Usually, Customers are not homogeneous
Customers customers are in the international market due to
homogeneous in a different religion, caste,
the domestic language, etc.
market

Under this one This may be a barrier to

Risks nation is subject to international trade as different
the political risk of nations have different political
its respective nation. risks.

Policies These are subject to These are subject to different

different policies and policies and regulations, laws of
regulations, laws of a multiple nations.
single nation.

Currency Only one There is involvement of more than

currency is one currency.
involved.
Quality standards The quality standards of the quality standards of international
products and services business are very high which are set
provided by a domestic according to global standards.
business are relatively
low.

Political relations It does not promote Global political relations are enhanced
cross national through international business which
corporation and hence in turn improves cross national
does not improve global cooperation.
political relations.

Scope Domestic Business has a It has a wide scope as it is carried out

limited scope as it is beyond national boundaries .
confined with in a
country’ boarder .
Sharing of Domestic organization The latest technology prevailing world
technology only adopt the new is not only adopted but also shared by
technology and do not international organizations.
share it.

Cost advantage They derived cost Cost advantage is achieved through

advantage through new economies of scale i.e. large scale
techniques, automation production.
etc.

Modes of entry Domestic business has A wide range of modes of entry is

limited modes of entry available for a firm opting for
as compared to international business. These are
international business. licensing , franchising , contract
manufacturing, joint ventures,
acquisitions , wholly owned
subsidiaries etc.

Trade restrictions The trade restrictions Government laws, licenses, tariffs etc
faced are forest land , are the trade restrictions.
agricultural land, area
development etc.
Distance Consumes less time in Delay in payment and transactions
business operations due due to long distances.
to short distances

MODES OF ENTRY INTO INTERNATIONAL BUSINESS-

A corporation can enter into international trade in a
variety of ways listed below:
 EXPORTING and IMPORTING
 LICENSING
 FRANCHISING
 MERGER & ACQUISITION
 FDI
 JOINT VENTURE
 CONTRACT MANUFACTURING
 STRATEGIC ALLIANCE
 WHOLLY OWNED SUBSIDIARY
1. Exporting and Importing
Selling goods and services to a company in a foreign
country is referred to as Exporting. For instance,
Gulab 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
Advantages
 Easiest way to enter in to international business .It
helps in the distribution of surplus.
 It is less risky, less time consuming, less complex.
 Under direct export, the exporter has control over the
selection of market
 It helps in fast market access
Disadvantages–
 Goods physically moves from one country to another ,
so products requires additional packaging , insurance
costs, and more transportation costs.
 High start-up cost in case of direct exports.
 In Indirect export, the exporter has no control over
the distribution of products
 Exporting through export intermediaries increases
the cost of the product.
2. LICENSING
Licensing is a method in which a firm gives permission to a
person to use its legally protected product or technology
and to do business in a particular manner, for an agreed
period of time and within an agreed territory. It is a very
easy method to enter a foreign market as less control and
communication are involved.
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.

Example: Starbucks (licensor) and Nestle (licensee) for

exclusive rights to sell Starbucks’ product.
Pepsi and Fanta are made and distributed globally by local
bottlers in other nations under the licensing system

Advantages
 Less investment is involved
 Low cost of labour
Disadvantages
 This method is time-consuming
 The decline in product quality may harm the
reputation of the licensor.
3. 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.
Franchising is a contractual agreement that involves the
grant of rights by one party to another for use of technology,
trademark, and patents in return for the agreed payment
for a certain period of time.
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.
Example: Burger King, McDonald holiday INN etc.
Advantages
  It is less risky
 Advantage of expertise of franchiser
 Highly motivated employees
Disadvantages
 Difficulty in keeping trade secrets
 Franchisee may become a future competitor
 A wrong franchisee may ruin the company’s name
and goodwill.
4. MERGER & ACQUISITION
A merger is a combination of two or more district entities
into one, the desired effect being a accumulation of assets
and liabilities of distinct entities and several other benefits
such as economies of scale, tax benefits, fast growth,
synergy, diversification, etc. The merging entities cease to
be in existence and merge into a single servicing entity.
Example: Vodafone and Idea formed a new company VI.

Acquisition implies the acquisition of controlling interest

in a company by another company. It does not lead to the
dissolution of a company whose shares are acquired. It
may be a friendly or hostile acquisition or a bail-out
takeover.
Example: LIC Acquired IDBI Bank.
Advantages
 Low cost of production
 Development of medium and small scale industries
 No dilution of control
Disadvantages
 Difficulty in maintaining quality standards
 Local manufacturers in foreign markets may
lose business
5. FDI ( Foreign Direct Investment)
It is a mode of entering foreign markets through
investment. Investment may be directly or indirectly
through financial institutions. FDI influences the
investment pattern of the economy and helps to increase
overall development. The extent to which FDI is allowed in
a country is subjected to the government regulations of
that country.

Advantages
 Modifications can be made at any point in time
 It is an easy mode of entry
Disadvantages
 The government policies may not be helpful
  The return on investment may be low.
6. JOINT VENTURE
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.
Uber (a taxi company) and Volvo (a heavy vehicle co.)
Advantages
 Technological competence
 Optimum use of resources
 Partners are able to learn from each other.
 Joint product development
 It is useful to meet the shortage of financial resources,
physical or managerial resources
Disadvantages
 Conflicts over asymmetric investment
  Cultural and political stability may pose a threat to
successful operations
 Conflicts in management
7. CONTRACT MANUFACTURING
Contract manufacturing is a type of international
business, in which a firm enters into a contract with
another firm in a foreign country to manufacture
certain components or goods as per its specifications.
When a foreign firm hires a local manufacturer to produce
their product or a part of their product it is known as
contract manufacturing. This method utilizes the skills of a
local manufacturer and helps in reducing the cost of
production. The marketing and selling of the product is the
responsibility of the international firm.
Contract manufacturing is also known as international
outsourcing.
Example: Foxconn Technology (Local manufacturer)
group that supplies products to high profile companies
like Microsoft. Apple and Amazon.
Multinational firms, like Maybelline, Loreal, Levis, and
others use contract manufacturing to have their products
or component parts produced in developing nations.
Advantages
  Low cost of production
 Development of medium and small scale
industries
 No dilution of control
Disadvantages
1. Difficulty in maintaining quality standards.
2. Local manufacturers in foreign markets may lose
business.

8. STRATEGIC ALLIANCE
It is a voluntary formal agreement between two
companies to pool their resources to achieve a common
set of objectives while remaining independent entities. It
is mainly used to expand the production capacity and
increase market share for a product.

Alliances help in developing new technologies and

utilizing the brand image and market knowledge of both
companies. Example: Apple Pay and Master Card.
9. 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.

► Approaches of International Business

((EPRG Framework)
1. Ethnocentric Approach
2. Polycentric Approach
3. Regiocentric Approach
4. Geocentric Approach
5. 1. Ethnocentric Approach
This approaches to international business focus on the values, ethics, and
belief of the home country. All the strategies first formulated for the
domestic nation or domestic business focus on the international business is
secondary.

In Ethnocentric Approach, the key positions in the organization are filled

with the employees of the parent country. All the managerial decisions viz.
Mission, vision, objectives are formulated by the MNC’s at their
headquarters, and the same is to be followed by the host company.

Businesses first cater to the demand of the domestic market and trade
surplus is distributed to a foreign nation. Overseas operations are operated
from the head office of the domestic country by domestic employees.

This approach is very beneficial for small businesses during the early days of
internationalization as the investment needed in business is low.

There is no major modification in products that will export to a foreign nation

and no marketing research conducting. Businesses mainly rely on exporting
goods to foreign nations.
◉ Examples of Ethnocentric Approach – Indian clothes, dresses, food,
and beverage are exported to foreign nations where a large number of
Indian live.

2. Polycentric Approach

As per this approach, the business focuses on each host country because
they consider that each country is unique in terms of customer demand,
customer preference, and taste so if businesses want to succeed in each
country they should adapt according to the host country’s requirements.
The business opens its subsidiary in each overseas market and businesses
adopt different marketing plans and strategies as per the host country’s
needs.

The foreign subsidiary has decision-making power and their operation are
decentralized. Businesses appoint personnel the key positions from their
home country, whereas the remaining positions or vacancies are filled by the
personnel of the host country.

◉ Examples of Polycentric Approach – McDonald, Starbucks, Google

Doodle

MD

CEO
Foreign
Subsidiary

Manager Manager Manager

R&D Marketing Finance

Organisation structure of polycentric structure

3. Regiocentric Approach
Under this approach, businesses divide the whole world into different regions
based on their common regional, social & cultural environment, economic,
and political factors.

Marketing strategies and business plans are formulated in regional

headquarters for the entire group of counties or region
 Managers are hired or transferred from different countries lying within the
same region.

In it, a firm sees the different market as a region.A region is treated as a

single market, with some common marketing characteristics .( culture,
language etc )

The operational strategies are formulated on the basis of entire region rather
than individual countries.

◉ Example of Regiocentric Approach – Firms divide groups or regions on the

basis of unique similarities like SAARC countries, the Baltic region, and the
Scandinavian region.

MANAGING DIRECTOR

CEO (Foreign

Subsidiary ASIA)

Marketing Marketing Marketing

INDIA CHINA NEPAL

MANAGER MANAGER MANAGER MANAGER MANAGER

R&D FINANCE PRODUCTION MARKETING HR

4.Geocentric Approach
According to the Geocentric approach, businesses consider the whole world is
the same as one country for their business operation.

Businesses select the best talent from the entire globe and operate with their
large number of a subsidiary that is located around the globe that coordinate
with the head office.
 This approach is used by big business giants which have large-scale business
operations and a significant presence around the globe.

The business following this approach has a uniform and standardized

marketing strategy, HR practices, and product design throughout the globe.

This international business approach help in building brand image and

earning a great amount of loyalty.

◉ Examples of Geocentric Approach – Apple, Coca-cola, Dell

MANAGING DIRECTOR

HEADQUARTERS INDIA

SUBSIDIARY SUBSIDIARY SUBSIDIARY KENYA SUBSIDIARY SUBSIDIARY

INDIA CHINA JAPAN SOUTH AFRICA NEPAL

Organisation structure of GeocentricCompany

PARTICIPANTS IN INTERNATIONAL
BUSINESS
FOUR MAJOR PARTICIPANTS IN INTERNATIONAL
BUSINESS
1. Focal firm– initiator of an international business
transaction; e.g., MNEs and SMEs.
2. Distribution channel intermediary– a specialist firm
that provides distribution, logistics, and marketing services
in the international value chain
3. Facilitator – a firm that provides special expertise in
banking, the law, customs clearance, market research, or
other
4. Governments – active in international business as
suppliers, buyers, and regulators

SCOPE OF INTERNATIONAL
BUSINESS -
The scope of International Business is very wide. It is not limited
to the export and import of goods and services. Along with the
export and import of goods, international business includes a
wider range of activities. The scope of international business can
be briefly explained below-

International Trade: International Business includes

Importing and exporting goods and services among
different countries of the world. It also includes
transferring intellectual property such as copyright,
patents, trademarks, etc.
Foreign Direct Investment: Another area of International
business is establishing production centers in foreign
countries by making a direct investment, it refers to as a
foreign direct investment.
Licensing and Franchising: Licensing is an area of
International Business in which a foreign company gives a
license to a company of another country to sell its
products or use its intellectual property in exchange for a
fee (royalty). For example – Coca-Cola, Pepsi, etc. In the
case of Franchising, permission is granted by a foreign
company to sell its products under its brand name,
trademark, etc. against royalty. However, in franchising
the business model to be followed is the same as that
designed by the franchisor. Franchisors also provide
training and product assistance. For Example – KFC,
Mcdonald’s, etc.
Joint Ventures: Joint ventures are one more sphere of
international business. Sometimes companies, instead of
going directly to the foreign market, go for joint ventures
with the local companies of the foreign country. Joint
ventures also help in cases where the government of
another country doesn’t allow companies of other
countries to operate in their country without a local
partner of their country.
Contract Manufacturing and Outsourcing: In countries
where labour cost is high, companies resort to contract
manufacturing or outsourcing. They enter into
international manufacturing contract or outsourcing
contract with companies in other countries where labour
cost is low. That company will manufacture the products,
however, the product design and development will be
controlled by the foreign company and the finished
products will be labelled by the name of the foreign
company. For example – USA’s clothing industry’s
manufacturing takes place in China, Malaysia, and Mexico;
various American companies sought India for software
development.
MERGER & ACQUISITION
A merger is a combination of two or more district entities
into one, the desired effect being a accumulation of assets
and liabilities of distinct entities and several other benefits
such as economies of scale, tax benefits, fast growth,
synergy, diversification, etc. The merging entities cease to
be in existence and merge into a single servicing entity.
Example: Vodafone and Idea formed a new company VI.(
Vodafone and idea)
Acquisition implies the acquisition of controlling interest
in a company by another company. It does not lead to the
dissolution of a company whose shares are acquired. It
may be a friendly or hostile acquisition or a bail-out
takeover.
Example: LIC Acquired IDBI Bank.

Market Expansion
One of the primary scopes of international business is to
expand market reach beyond domestic boundaries.
Businesses seek growth opportunities by entering new
markets and targeting international customers. This
expansion may involve adapting products or services to
fulfill the needs and preferences of different cultures and
developing marketing strategies tailored to specific
international markets.

Global Supply Chains

International business relies on global supply chains,
where components, raw materials, and finished products
move across multiple countries. Managing and optimizing
global supply chains involve coordinating suppliers,
manufacturers, distributors, and logistics providers across
borders to ensure efficient operations and timely delivery
of goods and services.

International Financial Management

International business involves various financial aspects,
including foreign exchange management, international
payment systems, and cross-border financing. Businesses
must navigate currency exchange rate fluctuations,
manage risks associated with international transactions,
and make informed financial decisions to support their
international operations.

Legal and Regulatory Considerations

The international business operates within the legal and
regulatory frameworks of different countries. This
includes compliance with trade regulations, customs
procedures, intellectual property laws, tax regulations,
labour standards, and environmental regulations in each
market. Businesses must understand these legal
complexities to ensure compliance and mitigate risks.

Cultural and Ethical Considerations

International business requires an understanding and
appreciating of different cultures, customs, and business
practices. Cultural sensitivity and adaptability are
essential to establish successful relationships with
international partners, customers, and employees.
Businesses also face ethical considerations related to
social responsibility, sustainability, and corporate
governance in different markets.

Globalization
The medieval proverb says “A merchant has no nation” It
means that a businessman can view the entire world as one
country for the operations.
Erasing national and political boundaries for the purpose of
business may be termed as globalization. It implies
integration of economy of the country with the rest of the
world economy and opening up of the economy for FDI by
liberalizing the rules and regulations and by creating
favorable socio-economic political climate for global
business.

Charles U.L. Hill defines Globalization as

“The shift towards a more integrated and interdependent
world economy. Globalization has two main components –
the globalization of market and the globalization of
production.
Features of globalization
 Globalization involves Expansion of business operations
throughout the world.
 Erasing the diff. b/w domestic market and foreign
market.
 Buying and selling goods & services from/to any country
in the world.
 Establishing manufacturing and distribution facilities in
any part of the world.
 Product planning & development are based on market
consideration of the entire world.
 Factors of production like raw materials , labour, finance
,technology and managerial skills are sourced from the
entire globe
 It creates interdependency between nations .
 Global orientation in strategies, organizational
structure, organizational culture and managerial
expertise.
 Setting the mind and attitude to view the entire globe as
a single market.
 Globalization does not take place overnight. It proceeds
gradually through several stages of internationalization.

Essential conditions of Globalization

Business Freedom- There should not be unnecessary
restrictions which comes in the way of globalization.
Facilities- The extent to which an enterprise can
develop globally from home country base depends on
the facilities available like the infrastructure facilities
etc.
Government support-Government support
encourages globalization. It may take place in the form
of policy and procedural reforms, development of
common facilities etc.
Resources-resources includes fiancé technology, R &D
capabilities, managerial expertise, human resources
etc.
Competitiveness- The competitive advantage of the
company is very important determinant of success of
global business.
Advantages of Globalization
 Free flow of capital
 Free flow of technology
 Increase in industrialization
 Global Production
 Balanced development of world economy
 Increase in production and consumption
 Lower price with high Quality
 Cultural exchange & demand for a variety of product.
 World peace
 Promotes International Economic Cooperation
 Higher standard of leaving.
 Increase in Employment and Income.
 Increase in prosperity and welfare.
Disadvantages of Globalization
 Kills domestic business
 Exploits human Resources
 Violation of labor and environmental laws
 Difficult to controlled circulation of money
 Decline in demand for domestic product
 The big companies are the only winner.
 Widening gap b/w the rich & the poor
 Transfer of natural resources
 The mix of cultures can lead to the loss of national
identity.

Drivers of globalization
 Establishment of WTO
 Regional integration
 Declining trade barriers(tariffs )
 Declining investment barriers(fdi)
 Growth in FDI
 Strides in technology
 Microprocessors & telecommunications
 Internet
 Transportation Technology
 Growth of MNC

STAGE OF INTERNATIONLISATION
Domestic company- In this-

 Firm’s market is exclusively domestic.

 Goods and services typically tailored according
to home local environment
 Limits its business operations, vision and
mission, to national political boundaries.
 Domestic companies never think of growing
globally.
  These companies follow ethnocentric approach.
For example- PATANJALI have currently have its
major operation in INDIA only.

International companies-
o It focus on domestic practises but extended
wings to foreign countries.
o These companies extend the domestic product ,price
promotion and other business practices to the foreign
markets.
o These companies adopt ethnocentric approach
o Don’t have foreign setups.
o Don’t have FDI
o Orientation is Ethnocentric
o Mostly surplus products are exported.

Multinational companies-
 It formulated different strategies for different
markets.
 Orientation is polycentric.
 MNC formulate different strategies for different
markets.
 Stage of multinational company is also referred to as
multi domestic.
 They operate like a domestic company of the country
concerned in each of their market.
Global Companies-
In the stages of internationalization, a global company usually adopts
one of two primary strategies. It may either implement a global
marketing strategy, focusing on international markets while sourcing
from its home country or another single country, or it might concentrate
on its domestic market while sourcing globally to support its local
operations.
Nevertheless, some interpretations suggest that every aspect of a global
corporation, from product development to marketing, will follow a global
strategy.
Transnational Corporation
In the stages of internationalization, the transnational corporation
represents a highly advanced stage. This entity is not merely a company
with sales and operations spread across multiple countries. Instead, it is
an integrated global enterprise that efficiently connects worldwide
resources with international markets, thereby driving profit. This model is
becoming increasingly prevalent in various global markets and
industries.
.

Risk and challenges of I.B.

 Political Factor
 Exchange instability
 Entry requirements
 Tariffs quotas and trade barriers
(import & export quotas in order to protect domestic
business)
 Corruption
 Bureaucratic practice of government(delay in
projects)
 Technological pirating
 Quality maintenance
 Natural factor
(Environment,Weather,Water,Infrastructure etc.)
 War
 High cost
 Terrorism risk
 Strategic decisions