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 EnvironmentLearning 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?

Global Links Today

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• 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 ObjectivesGet MBA study materials, articles, order business templates and stock market updates from or www.easymbaguide.com or www.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected]. Join [email protected] to get updates




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 FranchisingGet MBA study materials, articles, order business templates and stock market updates from or www.easymbaguide.com or www.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected]. Join [email protected] to get updates




- 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 abilityGet MBA study materials, articles, order business templates and stock market updates from or www.easymbaguide.com or www.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected]. Join [email protected] to get updates




- 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 EnvironmentCulture 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 EnvironmentPolitical Action and Risk

o Varies widely from country to countryo Three Types of Political Risko Ownership Risk

Exposes property and lifeo Operating Risk

Interference with the ongoing operations of a firmGet MBA study materials, articles, order business templates and stock market updates from or www.easymbaguide.com or www.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback [email protected]. Join [email protected] to get updates




o Transfer RiskLimitations 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 Risko Less dangerous, but more common

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



