International Business Environment

UNIT-I: Globalization – Introduction to the field of Global Business, Significance, Nature and Scope of
Global Business, Modes of Global business – Global Business Environment- Social, Cultural, Economic,
Political and Ecological factors

International Business Environment
International Business Environment
Learning Objectives
• To understand the history and impact of international business.
• To learn the definition of international business.
• To recognize the growth of global linkages today.
• To appreciate the opportunities and challenges offered by international
business.
Need for International Business
• More and more firms around the world are going global, including:
– Manufacturing firms
– Service companies (i.e. banks, insurance, consulting firms)
– Art, film, and music companies
• International business:
– causes the flow of ideas, services, and capital across the world
– offers consumers new choices
– permits the acquisition of a wider variety of products
– facilitates the mobility of labor, capital, and technology
– provides challenging employment opportunities
– reallocates resources, makes preferential choices, and shifts
activities to a global level
What is International Business?
International business consists of transactions that are devised and carried
out across national borders to satisfy the objectives of individuals,
companies, and organizations.
International Business Questions
• How will an idea, good, or service fit into the international market?
• Should trade or investment be used to enter a foreign market?
• Should supplies be obtained domestically or abroad?
• What product adjustments are necessary to be responsive to local
conditions?
• What are the threats from global competitors, and how can these
threats be counteracted?

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Global Links Today
• International business has created a network of global links that bind
countries, institutions, and individuals with trade, financial markets,
technology, and living standards.
– For example, a reduction in coffee production in Brazil would
affect individuals and economies worldwide.
Recent Changes in International Business
• Total world trade declined dramatically after 2000, but is again on the
rise.
• The rate of globalization is accelerating.
• Regionalization is taking place, resulting in trading blocs.
• The participation of countries in world trade is shifting.
The Composition of Trade
• Between the 1960’s and the 1990’s the importance of manufactured
goods increased while the role of primary commodities (i.e. rubber or
mining) had decreased.
• More recently, there has been a shift of manufacturing to countries
with emerging economies.
• There has been an increase in the area of services trade in recent
years.

Globalization
• Because of globalization, for the first time in history, the availability
of international products and services can be accessed by individuals in
many countries, from diverse economic backgrounds.
The Globalization Debate
• Antiglobalization Protest
• Globalization, Jobs and Debate
• Globalization, Labour Policies and the Environment
• Globalization and National Sovereignty
• Globalization and the National Sovereignty


MODES OF GLOBAL BUSINESS

Learning Objectives
• To learn how firms gradually progress through an internationalization
process.
• To understand the strategic effects of internationalization.
• To study the various modes of entering international markets.
NEED
• Managerial commitment is critical because foreign market penetration
requires a vast amount of market development activity, sensitivity
toward foreign environments, research, and innovation.
The Steps to Developing International Commitment
• Become aware of international business opportunities.
• Determine the degree of the firm’s internationalization.
• Decide the timing of when to start the internationalization process and
how quickly it should progress.

Modes of International Business
• Licensing
• Franchising
• Inter firm cooperation
• Importing
• Exporting
• Foreign Direct
• Investment

Licensing
• The property licensed may include:
– Patents: A patent is a set of exclusive rights granted by a state
to an inventor or his assignee for a limited period of time in
exchange for a disclosure of an invention.
– Trademarks:
 A trademark or trade mark,[1] identified by the symbols ™ (not
yet registered) and ® (registered), is a distinctive sign or
indicator used by an individual, business organization or other
legal entity to identify that the products and/or services to
consumers with which the trademark appears originate from a


unique source of origin, and to distinguish its products or
services from those of other entities.
 A trademark is a type of intellectual property, and typically a
name, word, phrase, logo, symbol, design, image, or a
combination of these elements.[2]
– Copyrights: Copyright is a form of intellectual property which
gives the creator of an original work exclusive rights for a certain
time period in relation to that work, including its publication,
distribution and adaptation; after which time the work is said to
enter the public domain.
– Technology
– Technical know-how
– Specific business skills

Benefits and Costs of Licensing

Why go in for Licensing
• Less risk of capital and no involvement with foreign
customers
• Avoids host-country regulations
• Allows a company to test the market
• Avoids cultural problems
• Trademark licensing—permits the names or logos to be
used on products made in foreign market
• May be creating own future competitor


Franchising
•The major forms of franchising are:
– Manufacturer-retailer systems such as car dealerships,
– Manufacturer-wholesaler systems such as soft drink, companies
– Service-firm retailer systems such as fast-food outlets.
Key Reasons for Franchising
- Financial Gain
- Market Potential
- Saturated Domestic Markets
Need for Franchising
• Internationally, the firm must be able to offer unique products or
selling propositions
• Must offer a high degree of standardization, but be adaptable to local
circumstances
• Growing fast internationally, but government intervention is a major
problem
• Selection and training of franchisees is also a problem area

Inter firm Cooperation
•Reasons for inter firm cooperation include:
– Market development
– To share risk or resources
– To block and co-opt competitors
Types of Inter firm Competition

 Informal Cooperation
 It has not binding agreement. It is where one country shows concern
to other country.
 Ex.: At the times of Tsunami, countries around the globe helped
Indonesia to overcome that tragedy.
 Consortia
 It is where the firm shares its opportunities as well as its
competences along with other companies as a result of the inter firm
competition.
 There may be new equity sharing or none. There will be more than 2
partners.
 Contractual Agreements
 Strategic alliance partners may join forces for R&D, marketing,
production, licensing, cross-licensing, cross-market activities, or
outsourcing.
 Contract manufacturing allows the corporation to separate the
physical production of goods from the R&D and marketing stages.

 Management contracts involve selling one’s expertise in running a
company while avoiding the risk or benefit of ownership.
 A turnkey operation is a contractual agreement that permits a
client to acquire a complete system following its completion.
 Equity Participation
 Some companies have acquired minority ownerships in companies
that have strategic importance for them.
 Reasons for engaging in equity participation include:
- It ensures supplier ability
- It builds working relationships
- It creates market entry and support of global operations
 FDI
 It is of 2 types
- Equity participation
- Non –Equity participation (Portfolio Investment)

Global Business Environment

Culture Environment
Culture is an integrated system of learned behavior patterns that are characteristic of the
members of any given society.
Elements of Social and Culture
 Language (verbal and nonverbal)
 Religion
 Values and Attitudes
 Manners and Customs
 Material Elements
 Aesthetics
 Education
 Social Institutions

Political Environment
 The Home Country Perspective
Major areas of governmental activity that are of concern to the international business manager:
– Embargoes and Sanctions
– Export Controls
– Regulation of International
– Business Behavior


 Host Country Political and Legal Environment
Political Action and Risk
o Varies widely from country to country
o Three Types of Political Risk
o Ownership Risk
Exposes property and life
o Operating Risk
Interference with the ongoing operations of a firm
o Transfer Risk
Limitations on the outflow of funds
Political Risk May Involve
• Confiscation
– The government takeover of a firm without compensation to the owners.
• Expropriation
– A form of government takeover in which the firm’s owners are compensated.
• Domestication
– The government demands transfer of ownership and management responsibility.

Economic Risk
o Less dangerous, but more common

Economic Environment
• Economic Size
• Economic Systems
• Key Macroeconomic Indicators
• Economies in Transition


International Business Environment

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