INTERNATIONAL BUSINESS

What is International Business

• It can be defined as the expansion of business functions
from domestic to any foreign country with an objective of
fulfilling the needs and wants of international customers
• The exchange of goods and services, resources, knowledge
and skills among individuals and business in two or more
countries.
• ‘’According to International Business Journal, International
business is a commercial enterprise that performs
economical activity beyond the bounds of its location, has
branches in two or more foreign countries and make use
of economical, cultural, political , legal and other
differences between the country.
 Factors contributing to growth of
International Business
1. Increase in and expansion of technology
2. Liberalization of cross-border trade and resource
movements
3. Development of services that support international
business
4. Growing consumer pressure
5. Increased global competition
6. Changing political situations
7. Expanded cross-national cooperation
8. stagnation
 External Trade
1. Export: It refers to selling goods or services
to foreign countries
2. Imports: It refers to buying goods or services
from foreign countries
3. Entrepot(Re-export): Import of goods not for
consumption in home country but for
exporting them to another country.
 Globalisation
• The term globalisation refers to the integration of the
nation with the world economy.
• Gloabalisation is the method of interaction and union
among people, corporations and governments universally.
• It increases the interconnectedness and interdependence
of the world's economies, cultures, and populations.
• It is driven by a number of factors, including advances in
transportation and communication, the growth of
international trade, and the movement of people, goods,
and ideas across national borders.
 Advantages of Globalisation in India

• Increase in employment
• Increase in compensation
• High standard of living
 Arguments favor on globalisation
• Greater access to global markets
• Advanced technology
• Better future prospects for large industries of
developing countries
Arguments against on globalisation
• Benefits accrue more to developed and less
to developing countries
• Compromise with welfare of people residing in
developing countries
• Create economic disparities among nation and
people
 What are economic factors
• Economic factors are the factors that affect
the economy and includes interest rates, tax
rates, law, policies , wages, inflation rate,
demand and supply, exchange rates and
governmental activities
• These factors are not in direct relation with
business but it influences the investment
value in the future.
Importance of Economic Environments
• Economic development is an improvement in
such factors:
a. Health
b. Education
c. literacy rate etc..
• Decline in poverty levels, Hunger level,
Unemployment rate etc..
 FDI Policy for Make in India
• It is a more attractive destination for foreign
investments, boosting employment and
economic growth.
Measures Impact

Single brand retail sourcing norms eased More foreign retail brands may set up
physical stores in India and establish an
online presence

100% FDI allowed in contract Electronic pharma firms are likely to set up
manufacturing manufacturing facilities in India

100% FDI in coal mining through Monopoly of Coal India likely to end. Move
automatic route will help create en efficient energy market

26% FDI limit extended to digital media This brings digital news services on a par with
print and allows them to be valued
separately
 Key Terms
• GDP: It is the total market value of all final
goods and services currently produced within
the domestic territory of a country in a year.
• GNP: It is the market value of all final goods
and services produced in a year. GNP includes
net factor income from abroad.
• Net National Product: It is the market value
of all final goods and services after providing
for depreciation.
 International Economic Analysis
• Difficulty in stipulating a definitive set of
indicators to estimate the performance and
potential of a country’s economy.
• E.g : If an two countries the national income is
increasing at same rate but in country A
population is doubled whereas population
remains the same in country B.
Biggest economies in 2022 by gross domestic product

GDP in
Rank Country Region US$
million
1 United Americas 25346805
States
2 China Asia 19911593
3 Japan Asia 4912147
4 Germany Europe 4256540
5 India Asia 3534743
6 United Europe 3376003
Kingdom
7 France Europe 2936702
8 Canada Americas 2221218
9 Italy Europe 2058330
10 Brazil Americas 1833274
11 Russia Europe 1829050
12 South Korea Asia 1804680
13 Australia Oceania 1748334
14 Iran Asia 1739012
15 Spain Europe 1435560
 Top 13 Countries with the Highest GNI per Capita in
the World (2020-21)USD

1. Bermuda (UK territory) — 116,540

2. Switzerland — 90,360
3. Norway — 84,090
4. Isle of Man (UK territory) — 83,920
5. Luxembourg — 81,110
6. Ireland — 74,520
7. United States — 70,430
8. Denmark — 68,110
9. Iceland — 64,410
10. Singapore — 64,010
11. Cayman Islands (UK territory) — 63,370
12. Sweden — 58,890
13. Qatar — 57,120
PPP by country (2023)
rate

7.00%
China
USA
8.60%
India
Japan
32.80% Germany

13.90%
 Degree of Human Development
• Measure the quality of life
• In terms of both economic and social factors
• HDI: It is an Index that is used to rank
countries based on human development
indicators.
• It includes Life expectancy, per capita income,
education.
 Top 10 Countries with the Highest Human Development
Index (HDI) - 2022

1. Switzerland — .962
2. Norway —.961
3. Iceland — .959
4. Hong Kong (China) — .952
5. Australia — .951
6. Denmark — .948
7. Sweden — .947
8. Ireland — .945
9. Germany — .942
10. Netherlands — .941
 Components of Economy
• Inflation
• Unemployment
• Debt
• Income distribution
• Poverty
• Labor costs
• Productivity of nation
• BOP
 Inflation
• Sustained rise in prices measured against a standard level of
purchasing power
• Aggregate demand grows faster than aggregate supply
• It influence on many parts of economic environment such as
a. Interest rates
b. Exchange rates
c. Cost of living
d. The stability of current political system
 Inflation Rate

Countries Rate(%)
China 1.8
Switzerland 2.8
Saudi Arabia 2.9
Japan 3.8
South Korea 5
Indonesia 5.51
India 5.72
Brazil 5.79
Spain 5.8
France 5.9
United States 6.5

Singapore 6.7
Canada 6.8
Australia 7.3
South Africa 7.4
Mexico 7.82
Germany 8.6
Euro Area 9.2
Netherlands 9.6
United Kingdom 10.7

Italy 11.6
Russia 12
Turkey 64.27
Argentina 94.8
 Unemployment
• Unemployment rate:
- Share of unemployed workers seeking employment for pay
relative to the total civilian labour force.
- ILO unemployment rates refers to any person that is not
working but it is willing and able to work, Available for work,
and actively seeking work.
- Reduces economic growth. Create social pressure and
provoke political uncertainty, and show how well a country
productively uses its human resources.
• Unemployment rate calculation:
 UR(%)= (Person unemployed/ Labour force)*100
 UR(%)= (Person unemployed/Person employed+person
unemployed)*100
 Top Ten Countries with the Highest Unemployment (World
Bank 2020 data):

1. South Africa - 29.2%

2. Kosovo (partially recognized) - 26.2%
3. Djibouti - 26.1%
4. West Bank& Gaza Strip (occupied Palestine) - 25.9%
5. Equatorial Guinea - 25.0%
6. Botswana - 24.9%
7. Grenada - 22.9%
8. Eswatini - 22.7%
9. Lesotho - 22.4%
10. Gabon - 20.4%
Top Ten Countries with the Lowest Unemployment (World Bank
2020 data):

1. El Salvador - 0.1% (tie)

2. Qatar- 0.1% (tie)
3. Myanmar - .05%
4. Solomon Islands - 0.7%
5. Chad - 1.1% (tie)
6. Thailand - 1.1% (tie)
7. Bahrain - 1.2% (tie)
8. Cambodia - 1.2% (tie)
9. Malawi - 1.3%
10. Palau - 1.4%
 Debt
• The total of a government’s financial obligations (shows
economic health)
 Internal debt
 External debt
• Most countries around the world rely on sovereign debt to
finance their government and economy.
• Growing public debt signals:
 Tax increases
 Cut public expenditure
 Reduced growth
 Rising inflation
 External Debt (TOP 10)
• United States
• United Kingdom
• France
• Germany
• Netherland
• Luxembourg
• Japan
• Australia
• Ireland
• Italy
 Income distribution
• It estimates the proportion of the population that earns
various levels of income
• Gini co-efficiant:
 Gini index or Gini ratio is a measure of statistical dispersion
intended to represent the income or wealth distribution of a
nation’s residents, and is the most commonly used
measurement of inequality.
 The Gini co-efficiant summarises the relative disribution of
wages in the population , with lower values (closer to ‘0’)
indicating lower levels of inequality and higher values (closer
to 100) indicating higher levels of wage inequality.
 Poverty
• It is condition in which a person or
community is deprived of, or lack of essential
for a minimum standard of well being and life.
Extreme poverty : less than $1.25 per day
Moderate poverty: less than $2.00 per day
Poverty and economic environment
the dimensions of poverty: people buying
power
 The dimensions of poverty

• Health : Nutrition, child mortality

• Education : years of schooling, school
attendance
• Standard of living: cooking fuel, sanitation,
drinking water, electricity, housing, assets etc.
 Labor costs
• For many goods and services, the cost of labour is a key
element of total costs.
• Companies scan the world looking for markets that offer
lower-cost labour.
• Labour costs are an important tool for understanding the
relationship between work and the economy and give an
indication of the relative cost of doing business in various
location.
• E.G: A factory worker in the USA, typically costs between $15
and $30 per hour
• factory wages in Mexico are about 11%of the U.S level.
• In china it is 3% of the U.S level.
 Productivity of nation
• Productivity measures the efficiency with
which goods and services are produced.
• In terms of labour, it is the quantity produced
per person per labour hour.
 BOP
• The Balance of Payments (BoP) is a record of all
economic transactions between a country and the
rest of the world over a specific period, typically a
year or a quarter
• A surplus in the BOP can indicate that a country is
exporting more than it's importing
 India an Emerging Market
• Consistent GDP growth
• Start-ups
• Growth in the field of Artificial Intelligence
research
• High-Tech Infrastructure
• Digitalization in India
 High-Tech Infrastructure
• All the major Indian cities have IT parks and electronic cities
• HITEC in Hyderabad
• Rajiv Gandhi Chandigarh Technology Park in Chandigarh
• Infotech Park in Mumbai, etc.
• The success of the metros is a testimony of the technological
advancement and modernization of the transport system in
India.
• Smart Cities
• The world-class airports, national highways, expressways,
flyovers and footbridges, strategically built major ports
• Setting up renewable energy projects.
 Digitalization in India
• The increased availability of smartphones and good internet connectivity, as well as

penetration, has made India home to more than 560 million internet users

• Availability of day-to-day services through mobile and online platforms or cashless

transactions

• Domestic travel has become trouble-free with apps like Redbus (for buses) and IRCTC Rail

Connect (for trains)

• payments have become cashless with apps like PayTm, PhonePay, and Razorpay, medicine

delivery/ online doctor consultation/ online booking for lab tests is a few clicks away with

apps like Practo, Apollo Pharmacy or Netmeds,

• Accommodation in a new city is enabled through apps like Oyo, Nestaway or Housing.com

and food cravings can be handled with apps like Zomato or Swiggy.
 Start-up Hub
• The increased internet penetration in every part of the country has paved the
perfect path for a number of start-ups to rise, reach out to more people, and
address unique issues with their respective products and services. The perfect
example is of Paytm, a leading financial services company that provides payment
and financial solutions. Founded by Vijay Shekhar Sharma, the start-up initiated
the digital revolution in the country and became India's leading payment app.
• Another notable example is that of OYO. An Indian start-up that has flourished
globally and has made accommodation booking very convenient. With the
constant support of the Start-up India initiative and the success of many start-ups,
• global investors continue to invest their trust in Indian companies and the
investment is growing each year. In addition to this, the Government of India has
introduced a handful of funding schemes to extend its support to the overall start-
up ecosystem. Some of the sectors performing exceptionally well in the start-up
ecosystem include fintech, EdTech, e-commerce, and online gaming.
 Foreign Trade Policy
• India’s Foreign Trade Policy(FTP) has, conventionally,
been formulated for five years at a time and reviewed
annually.
• It provides a framework of rules and procedures for
exports and imports.
• It provides a framework of incentives for promoting
exports.
• In India, Ministry of commerce and industry governs the
affairs relating to the promotion and regulation of
foreign trade
• The main legislation concerning foreign trade is the
Foreign Trade( Development and Regulation) Act, 1992.
 Powers of Government relating to Foreign
Trade as per FT(D&R)Act
• May make provisions for facilitating and
controlling foreign trade
• May prohibit, restrict and regulate exports and
imports
• Is authorised to formulate and announce an
export and import policy
• Is authorised to appoint a ‘Director General of
Foreign Trade.
 Features of FTP
• Export-Imports of goods and services is generally free
unless specifically regulated by the provisions of the
policy .
• Exports and imports goods are broadly categorized as
a) Free
b) Restricted
c) Prohibited
• Some goods are free for Imports and exports but can be
implemented/ exported only through State Trading
Enterprises.
• Goods and Services are to be exported and not Taxes.
• Capital goods can be imported at NIL duty for the
 Objectives
1. To provide a stable and sustainable policy environment for foreign trade
in merchandise and services.
2. To link rules, procedures and incentives for exports and imports with
initiative such as Make in India, Digital India and Skill India to create an
exports promotion mission for India.
3. To promote the diversification of India’s export basket by helping various
sectors of the Indian economy to gain global competitiveness with a view
to promoting exports.
4. To create an architecture for India’s global trade engagement with a
view to expanding its markets.
5. To provide a mechanism for regular appraisal in order to rationalise
imports and reduce the trade imbalance.
 Highlights of FTP
• Employment creation
• Zero defect products
• A stable agricultural trade policy
• Focus on higher value addition and technology
infusion
• Investment in agriculture overseas to produce raw
materials for the Indian Industry.
• Lower tariffs on inputs and raw materials
• Development of trade infrastructure and provision
of production and export incentives.
 Focus of Foreign Trade Policy
• The Foreign Trade Policy is primarily focused on
accelerating exports.
• Through various schemes intended to exempt and
remit indirect taxes on inputs physically
incorporated in the export product
• To provide concessional duty on Capital goods
imports
• Stimulates services exports and focus on specific
markets and products.
 Duration of FTP
• The Foreign Trade Policy , 2015-2020,
incorporating provisions relating to exports
and imports of goods and services,
• It came into force with effect from the date of
notification and shall remain in force to 31st
March, 2020,
 Amendment to Foreign Trade Policy
• Central government, in exercise of power
conferred by section 5 of FT (D&R) Act, 1992,
 INDIA’S FOREIGN TRADE
December 2022 December 2021
(USD Billion) (USD Billion)

Merchandise Exports 34.48 39.27

Imports 58.24 60.33
Services Exports 27.34 25.98
Imports 15.56 14.94
Overall Trade Exports 61.82 65.25
(Merchandise Imports 73.80 75.27
+Services)
Trade Balance -11.98 -10.02
 Political Environment
• A country’s political system provides the
context in which economic activity is carried
out.
• Managers evaluate, monitor and forecast
political environments
• A political system shows some level of stability
in social relation and it’s usually effective when
it’s supported by a legitimate consensus of
people who live under it.
Factors Related to Political Environment

• Individualism vs Collectivism
• Political beliefs/Ideology
• Trends in Political Systems
• Political risk
 Individualism
• It is a belief that everyone needs to look after
themselves and support themselves.
• Countries with the individualistic orientation
encourage business to support the good of the
community by promoting fair and just
competition.
• Follow the rue of law
 Collectivism
• It is a value or belief where you think of
society first and what societies needs.
• You make sacrifices for the benefit of society
as a whole instead of thinking only of yourself.
• Ensure that business practices benefit society
 Political Beliefs
• The system of ideas that expresses the goals,
theories or principles, and aims of a
sociopolitical program
• It ranges from communism and socialism to
capitalism
• Single, dual and multiparty system
 Democracy
• Direct Democracy : People make law /policy
themselves
• Representative Democracy: elect people to
make decisions for us.
 Elements of Democratic Political Systems

• Freedom of opinion, press, religion,

association and access to information
• Exercise of citizen power and civic
responsibility
• Citizen equality in opportunity and treatment
Free, fair and regular elections
• Majority rule coupled with protection of
individual and majority rights
• Fair and independent court system
 Freedom in the world(Index)
• It is an annual global report on ‘political rights and
civil liberties’.
• The 2019 edition covers development in 195
countries and 14 territories from 1 st January 2018 to
31st December 2018.
• It determines whether it has an overall status of free,
partly free, or Not free.
• Completely Free-86 countries and 1 territory
• Partly Free-59 countries and 5 territories
• Not Free-50 countries
 Freedom in the World 2019
SL NO Country names Score
1 SWEEDEN 100
2 FINLAND 100
3 CANADA 99
4 AUSTRALIA 98
5 DENMARK 97
6 USA 86
7 INDIA 75
8 RUSSIA 20
9 CHINA 11
10 LIBYA 09
 Totalitarianism
• Restricts decision-making to a few individuals
• A single agent- whether an individual or group
or party
• Monopolizes Political power and tries to
mobilize the population.
• A condition that forcibly mergers the interest
of individuals with those of the state
• E,g – China’s one-child policy
 Types of Totalitarianism
Authoritarianism:
• Does not tolerate deviations from the state
ideology
• Reflect and unquestioning obedience to the
state authority and resistance usually incur
severe punishment(North Korea)
Fascism: Control of people’s minds and soul as
well as their daily lives
 Secular Totalitarianism
• It grants individual freedoms only so long as
ensuring activities threaten neither social
stability nor political power
• E.g: China, Singapore etc

Theoretical Totalitarianism
• Religious leadership
• Foundation of the political institution based on
Religious Law
 Political Risk
• The risk that political decisions, events or
conditions in a country negatively affect the
profitability or sustainability of an investment.
• Political risk is the risk an investment’s returns
could suffers as a result of political changes or
instability in a counrty
• E,g: Anti-American protesters in Pakistan
burned a McDonald’s.
 International political power
• Insecurities in relations between countries create
uncertainties which affect international business.
• Countries differ in their relative power- in
economic, political and military power aspects
• Regional and cross-border conflicts give rise to
risk in many parts of the world.
• E,g: Insecure borders, military invasion, threat of
terrorism, global imbalances in international
relations, disputes with neighbouring countries ,
disputes with trading partners etc.