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1. Course Title:
International Business
Program :MBA
Course Code: MBA3303
School of Management, BBD University

2. Syllabus
Module I : Introduction to International Business
Meaning, nature and significance of international Business, Drivers of International Business, Players in international
business, MNC benefits and problems to host country and home country, Globalization, Strategies in globalization,
Challenges of international business.
Module II International Business Theories and Trade policy
Mercantilism, Absolute Advantage Theory, Comparative Cost Theory, Hecksher-Ohlin Theory, Product Cycle Theory,
Instruments of Trade Policy: Tariffs, Subsidies, Import Quotas, Voluntary Export Restraints, Administrative Policy, Anti-
dumping Policy.
Module III : International Institutions
UNCTAD, Its Basic Principles and Major Achievements, World Bank, IMF, Role of IMF for developing countries in recent
years and origin of AIIB,NDB.ADB, IBRD, Features of IBRD.GATT, WTO, Role and Advantages of WTO with special focus on
India.
Module IV : World Market Environment and Foreign Market Entry strategies
Definition of International Marketing, International Dimensions of Marketing, Domestic v/s International Marketing,
Process of Internationalization, Benefits of International Marketing and World Market Environment. Political
Environment: Political Systems, Political Risks, Indicators of Political Risk, Analysis and Measures to minimize Political
Risk. Legal Environment: Legal Systems, Legal Form of Organization, Multiplicity of Legal Environment, Bribery, Branch
v/s Subsidiary, Counterfeiting, Gray Market. Cultural Environment: Culture and its Characteristics, Influence of Culture
on Consumption, Thinking, Communication Process and Cultural Universals.
Exporting, Licensing, Joint Ventures, Strategic Alliances, Acquisitions, Franchising, Assembly Operations, Management
Contracts, Turnkey Operations, Free Trade Zones.
Suggested Readings:
1. Raj Agarwal - International Trade (Excel, 1st Ed.)
2. C.W. Hill - International Business (TMH, 5th Ed.)

3. Module IV : World Market Environment and
Foreign Market Entry strategies
Definition of International Marketing ?
 International marketing is the application of marketing principles in more than
one country, by companies overseas or across national borders.
 International marketing is based on an extension of a company’s local
marketing strategy, with special attention paid to marketing identification,
targeting, and decisions internationally
 According to the American Marketing Association (AMA) "international
marketing is the multinational process of planning and executing the
conception, pricing, promotion and distribution of ideas, goods, and services to
create exchanges that satisfy individual and organizational objectives."

4. Who uses/employs International Marketing ?
 Who uses/employs International Marketing ?
 Rapid technological advances mean that geographical and cultural
communication barriers are disappearing, and even smaller businesses without
a physical presence in other countries can market and sell their products
internationally
 This means that almost anyone with the desire can market internationally, but
will do so with varying levels of success, depending on the thought and
research that is put into the international marketing strategy.

5. Comparison Chart
BASIS FOR COMPARISON DOMESTIC MARKETING INTERNATIONAL MARKETING
Meaning Domestic marketing refers to marketing within the
geographical boundaries of the nation.
International marketing means the activities of
production, promotion, distribution,
advertisement and selling are extend over the
geographical limits of the country.
Area served Small Large
Government interference Less Comparatively high
Business operation In a single country More than one country
Use of technology Limited Sharing and use of latest technology.
Risk factor Low Very high
Capital requirement Less Huge
Nature of customers Almost same Variation in customer tastes and preferences.
Research Required but not to a very high level. Deep research of the market is required because
of less knowledge about the foreign markets.

6. The main advantages of international
marketing
 Provides higher standard of living
 International marketing ensures high standard life style & wealth to citizens of
nations participating in international marketing. Goods that cannot be produced
in home country due to certain geographical restrictions prevailing in the
country are produced by countries which have abundance of raw material
required for the production and also have no restrictions imposed towards
production.
 Ensures rational & optimum utilization of resources
 Logical allocation of resource & ensuring their best use at the international level
is one of the major advantages of international marketing. It invites all the
nations to export whatever is available as surplus. For example, raw material,
crude oil, consumer goods & even machinery & services.

7. The main advantages of international
marketing
 Rapid industrial growth
 Demand for new goods is created through international market. This leads to
growth in industrial economy. Industrial development of a nation is guided by
international marketing. For example, new job opportunities, complete utilization
of natural resources, etc.
 Benefits of comparative cost
 International marketing ensures comparative cost benefits to all the
participating countries. These countries avail the benefits of division of labor &
specialization at the international level through international marketing.

8. The main advantages of international
marketing
 International cooperation and world peace
 Trade relations established through international marketing brings all the
nations closer to one another and gives them the chance to sort out their
differences through mutual understanding. This also encourages countries to
work collaboratively with one another. This thereby designs a cycle wherein
developed countries help developing countries in their developmental activities
and this removes economic disparities and technological gap between the
countries.
 Facilitates cultural exchange
 International marketing makes social & cultural exchange possible between
different countries of the world. Along with the goods, the current trends and
fashion followed in one nation pass to another, thereby developing cultural
relation among nations. Thus, cultural integration is achieved at global level.

9. The main advantages of international
marketing
 Better utilization of surplus production
 Goods produced in surplus in one country are shipped to other countries that
have the need for the goods in international marketing. Thus, foreign exchange
of products between exporting country & importing countries meets the needs
of each other. This is only possible if all the participating countries effectively
use surplus goods, service, raw material, etc. In short, the major advantages of
international marketing include effective utilization of surplus domestic
production, introduction of new varieties of goods, improvement in the quality of
production & promotion of mutual co-operation among countries.
 Availability of foreign exchange
 International marketing eases the availability of foreign exchange required for
importing capital goods, modern technology & many more. Essential imports of
items can be sponsored by the foreign exchange earned due to exports.

10. The main advantages of international
marketing
 Expansion of tertiary sector
 International marketing promotes exports of goods from one country to another
encouraging industrial development. Infrastructure facilities are expanded
through international marketing. It indirectly facilitates the use of transport,
banking, and insurance in a country ensuring additional benefits to the national
economy.
 Special benefits at times of emergency
 Whenever a country faces natural calamities like floods & famines, it is
supported by other countries in the international market. The international
market provides emergency supply of goods and services to meet urgent
requirements of the country facing the calamity. This distribution can only be
facilitated by a country which has surplus imports

11. World Market Environment
PESTEL ANALYSIS
 POLITICAL ENVIRONMENT
 ECONOMIC ENVIRONMENT
 SOCIAL ENVIRONMENT
 TECHNOLOGICAL ENVIRONMENT
 ENVIRONMENTAL ENVIRONMENT
 LEGAL ENVIRONMENT

12. POLITICAL
• A country’s political environment is the least predictable element in the business
world. Keep in mind that lack of political stability may hinder business
operations and can affect the appeal of a particular local market
• Governments tend to pass legislations which may impact the relationship
between the organization and its consumers and suppliers.
• The actions of the government almost always influence the economic
environment
• It is imperative to keep in mind that the government is a major consumer of
goods and services

13.  Economic
 Economic factors cannot be undermined in the world of business. Economic
factors include interest rates in a country, exchange rates, interest rates, etc.
The economic factors of any country are a prime indicator of much a company
may profit from the market. The exchange rates speak volumes about how
much an organization can benefit from operating in a foreign market.

14. • A country’s economic growth and development play an imperative role in
determining how much revenue an organization can earn there. Economic growth
commands the amount of finances that a foreign market generates at large and
development provides an indication of the volume of money being invested in the
various channels.
• Inflation is when there is an excess supply of money in the economy which is not
supported by the outputs of good and services. With the increased amount of
money, the prices of goods also increase in order to sustain the business, making it
unprofitable for an organization to do business in this market.
• The interest rates have a direct impact on the loans organizations take to sustain
and drive their growth. The higher the interest rate, the more difficult it may get for
an organization to commit to projects that require high investments.
• When buying goods from an international market, a company has to convert its
currency in order to make payments. If the currency of the buyer is strong, it is
beneficial for the business. However, lower exchange rates would mean the
company would have to shell out more money.

15. Social
 The Importance of Paying Attention to the Social Environment
 Social factors include various cultural and demographic aspects of a society.
This includes elements such as safety awareness, age distribution, population
and career attributes etc.
• If a business does not adapt to its external social environment, it will not be able
to survive
• Social preferences regarding people’s wants and needs change from time to
time, it is thus important for business to be aware of the wants and needs of
people
• Adapting to the social environment allows businesses to use marketing
campaigns and advertisements to their advantage
• A society that values higher education will provide a better workforce and will
lead to more innovation and productivity

16. Technology
• Improved technology allows organizations to produce goods for less money,
reducing production costs
• Improved technology allows businesses to expand efficiency and effectively
• Allows businesses to compete with other organizations in the marketplace
• Allows businesses to determine feasibility and profitability of the new venture

17. Methods of Entry into International
Business
 International Business Expansion: Mode # 1.
 Exporting is the process of selling of goods and services produced in one country
to other countries.
 There are two types of exporting: direct and indirect.
 Direct Exports
 Direct exports represent the most basic mode of exporting made by a (holding)
company, capitalizing on economies of scale in production concentrated in the
home country and affording better control over distribution. Direct export works the
best if the volumes are small. Large volumes of export may trigger protectionism.
The main characteristic of direct exports entry model is that there are no
intermediaries.

18. Types
Sales representatives
 Sales representatives represent foreign suppliers/manufacturers in their local
markets for an established commission on sales. Provide support services to a
manufacturer regarding local advertising, local sales presentations, customs
clearance formalities, legal requirements. Manufacturers of highly technical services
or products such as production machinery, benefit the most from sales
representation.
Importing distributors
 Importing distributors purchase product in their own right and resell it in their local
markets to wholesalers, retailers, or both. Importing distributors are a good market
entry strategy for products that are carried in inventory, such as toys, appliances,
prepared food

19. Advantages /Disadvantages
 Advantages
• Control over a selection of foreign markets and choice of foreign representative
company
• Good information feedback from target market, developing better relationships with
the buyers
• Better protection of trademarks, patents, goodwill, and other intangible property
• Potentially greater sales, and therefore greater profit, than with indirect exporting.[7]
 Disadvantages
• Higher start-up costs and higher risks as opposed to indirect exporting
• Requires higher investments of time, resources and personnel and also
organizational changes
• Greater information requirements
• Longer time-to-market as opposed to indirect exporting.[8]

20.  Indirect exports
 Indirect export is the process of exporting through domestically based export
intermediaries. The exporter has no control over its products in the foreign
market.

21. Types
Export trading companies (ETCs)
These provide support services of the entire export process for one or more suppliers.
Attractive to suppliers that are not familiar with exporting as ETCs usually perform all
the necessary work: locate overseas trading partners, present the product, quote on
specific enquiries, etc.
Export management companies (EMCs)
These are similar to ETCs in the way that they usually export for producers. Unlike
ETCs, they rarely take on export credit risks and carry one type of product, not
representing competing ones. Usually, EMCs trade on behalf of their suppliers as
their export departments
Export merchants
Export merchants are wholesale companies that buy unpackaged products from
suppliers/manufacturers for resale overseas under their own brand names. The advantage of
export merchants is promotion. One of the disadvantages for using export merchants result in
presence of identical products under different brand names and pricing on the market,
meaning that export merchant's activities may hinder manufacturer's exporting efforts.

22. Types
Confirming houses
These are intermediate sellers that work for foreign buyers. They receive the
product requirements from their clients, negotiate purchases, make delivery,
and pay the suppliers/manufacturers. An opportunity here arises in the fact
that if the client likes the product it may become a trade representative. A
potential disadvantage includes supplier's unawareness and lack of control
over what a confirming house does with their product.
Nonconforming purchasing agents
These are similar to confirming houses with the exception that they do not pay the
suppliers directly – payments take place between a supplier/manufacturer and
a foreign buyer.

23. Advantages/Disadvantages
• Advantages
• Fast market access
• Concentration of resources towards
production
• Little or no financial commitment as the
clients' exports usually covers most
expenses associated with international sales.
• Low risk exists for companies who consider
their domestic market to be more important
and for companies that are still developing
their R&D, marketing, and sales strategies.
• Export management is outsourced,
alleviating pressure from management team
• No direct handle of export processes.[11]
•Disadvantages
•Little or no control over distribution, sales, marketing,
etc. as opposed to direct exporting
•Wrong choice of distributor, and by effect, market, may
lead to inadequate market feedback affecting the
international success of the company
•Potentially lower sales as compared to direct exporting
(although low volume can be a key aspect of
successfully exporting directly). Export partners that
incorrectly select a specific distributor/market may
hinder a firm's functional ability.
Companies that seriously consider international
markets as a crucial part of their success would likely
consider direct exporting as the market entry tool.
Indirect exporting is preferred by companies who would
want to avoid financial risk as a threat to their other
goals.

24. Licensing
 An international licensing agreement allows foreign firms, either exclusively or non-
exclusively to manufacture a proprietor's product for a fixed term in a specific
market..
 In this foreign market entry mode, a “licensor” in the home country makes limited
rights or resources available to the “licensee” in the host country.
 The rights or resources may include
 patents,
 trademarks,
 managerial skills,
 technology, and others
 that can make it possible for the licensee to manufacture and sell in the host
country a similar product to the one the licensor has already been producing and
selling in the home country without requiring the licensor to open a new operation
overseas.
 The licensor earnings usually take forms of one time payments, technical fees and
royalty payments usually calculated as a percentage of sales.

25. Licensing
• ADVANTAGES
• Obtain extra income for technical know-how and services
• Reach new markets not accessible by export from existing
facilities
• Quickly expand without much risk and large capital
investment
• Pave the way for future investments in the market
• Retain established markets closed by trade restrictions
• Political risk is minimized as the licensee is usually 100%
locally owned
• Is highly attractive for companies that are new in international
business.
• DISADVANTAGES
• Lower income than in other entry modes
• Loss of control of the licensee manufacture and
marketing operations and practices leading to loss
of quality
• Risk of having the trademark and reputation ruined
by an incompetent partner
• The foreign partner can also become a competitor
by selling its production in places where the
parental company is already in.

26. Franchising
 The franchising system can be defined as: "A system in which semi-
independent business owners (franchisees) pay fees and royalties to a parent
company (franchiser) in return for the right to become identified with its
trademark, to sell its products or services, and often to use its business format
and system."

27. Franchising
 Advantages of the international franchising
mode:
• Low political risk
• Low cost
• Allows simultaneous expansion into different
regions of the world
• Well selected partners bring financial
investment as well as managerial capabilities
to the operation.
Disadvantages of franchising to the franchisor:
•Maintaining control over franchisee may be difficult
•Conflicts with franchisee are likely, including legal
disputes
•Preserving franchisor's image in the foreign market may
be challenging
•Requires monitoring and evaluating performance of
franchisees, and providing ongoing assistance
•Franchisees may take advantage of acquired knowledge
and become competitors in the future

28. Franchising
AREA FOR
COMPARISON
LICENSING FRANCHISING
Meaning Licensing is an arrangement in which
a company (licensor) sells the right
to use intellectual property or
produce a company's product to the
licensee, for royalty.
Franchising is an arrangement in which the
franchisor permits franchisee to use business
model or brand name for a fee, to conduct
business, as an independent branch of the
parent company (franchisor).
Governed by Contract Law Franchising regulations or Company Law as
the case may be.
Registration Not necessary Mandatory
Training and
support
Not provided Provided
Degree of control The licensor has control on the use
of intellectual property by the
licensee, but has no control on the
licensee's business.
Franchisor exerts considerable control over
franchisee's business and process.
Process Involves one time transfer of
property or rights.
Needs ongoing assistance of franchiser.
Fee structure Negotiable Standard

29. Joint Ventures
 A joint venture is one of the preferred modes of entry into international
business for businesses who do not mind sharing their brand, knowledge, and
expertise.
 Companies wishing to expand into overseas markets can form joint ventures
with local businesses in the overseas location, wherein both joint venture
partners share the rewards and risks associated with the business.
 Both business entities share the investment, costs, profits and losses at
the predetermined proportion.
 This mode of entry into international business is suitable in countries wherein
the governments do not allow one hundred per cent foreign ownership in
certain industries.

30. Joint Ventures
 For instance, foreign companies cannot have a 100 hundred per cent stake in
broadcast content services, print media, multi-brand retailing, insurance, power
exchange sectors and require to opt for a joint-venture route to enter the Indian
market.
 Advantages of Joint Venture
• Both partners can leverage their respective expertise to grow and expand within
a chosen market
• The political risks involved in joint-venture is lower due to the presence of the
local partner, having knowledge of the local market and its business
environment
• Enables transfer of technology, intellectual properties and assets, knowledge of
the overseas market etc. between the partnering firms

31. Joint Ventures
 Disadvantages of Joint Venture
• Joint ventures can face the possibility of cultural clashes within the organisation
due to the difference in organisation culture in both partnering firms
• In the event of a dispute, dissolution of a joint venture is subject to lengthy and
complicated legal process.

32. Strategic Acquisitions
 Strategic acquisition implies that your company acquires a controlling
interest in an existing company in the overseas market.
 This acquired company can be directly or indirectly involved in offering similar
products or services in the overseas market.
 You can retain the existing management of the newly acquired
company to benefit from their expertise, knowledge and experience while
having your team members positioned in the board of the company as well.

33. Strategic Acquisitions
 Advantages of Strategic Acquisitions
• Your business does not need to start from scratch as you can use the existing
infrastructure, manufacturing facilities, distribution channels and an existing market
share and a consumer base
• Your business can benefit from the expertise, knowledge and experience of the
existing management and key personnel by retaining them
• It is one of the fastest modes of entry into an international business on a large scale
 Disadvantages of Strategic Acquisitions
• Just like Joint Ventures, in Acquisitions as well, there is a possibility of cultural
clashes within the organisation due to the difference in organisation culture
• Apart from that there mostly are problems with seamless integration of systems and
process. Technological process differences is one of the most common issues in
strategic acquisitions.

34. Foreign Direct Investment
 Foreign Direct Investment involves a company entering an overseas market
by making a substantial investment in the country. Some of the modes of entry
into international business using the foreign direct investment strategy includes
mergers and acquisitions, joint ventures and greenfield investments.
 This strategy is viable when the demand or the size of the market, or the growth
potential of the market in the substantially large to justify the investment.
 Some of the reasons because of which companies opt for foreign direct
investment strategy as the mode of entry into international business can
include:
• Restriction or import limits on certain goods and products.
• Manufacturing locally can avoid import duties.
• Companies can take advantage of low-cost labour, cheaper material.

35. Foreign Direct Investment
 Advantages of Foreign Direct Investment
• You can retain your control over the operations and other aspects of your business
• Leverage low-cost labour, cheaper material etc. to reduce manufacturing cost
towards obtaining a competitive advantage over competitors
• Many foreign companies can avail for subsidies, tax breaks and other concessions
from the local governments for making an investment in their country
 Disadvantages of Foreign Direct Investment
• The business is exposed to high levels of political risk, especially in case the
government decides to adopt protectionist policies to protect and support local
business against foreign companies
• This strategy involves substantial investment to be made for entering an
international market

36. TURNKEY PROJECTS
 A turnkey project is amongst the types of international business where a firm
fully designs, constructs and equips a production or service facility.
 The project is handed over to the purchaser upon completion.
 The project is handed over in such a ready and up to date state that the
purchaser just has to “turn the key” to bring the facility to ignition.
 Turnkey projects are generally carried out as an agreement between one
business belonging to a developed country and the other to a developing
country.
 The former brings to the table advanced production technology, know-how,
and economies of scale.
 This enables a business in a developing country to thrive and prosper with little
assistance from the first world countries.

37. Advantage/Disadvantage
Advantages :
 A design and construct project involves multiple contractors working on a single
project. On the other hand, having a turnkey vendor on board means a single point
of contact for the plethora of sub-contracts that go into the construction of a single
contract. The purchaser is much more comfortable since he can handover the
complete execution to the vendor. Moreover, the turnkey vendors are masters in
their field. They provided the added benefit of lower costs due to economies of scale
they experience.
Disadvantages :
 The turnkey vendor has no specific interest in the project apart from its completion.
The vendor will not be present when the plant is operationalized on a day to day
basis. Because of a lack of long-term interest, the vendor may be casual during the
construction phase. This may cause him to overlook small slip-ups here and there.
Also, since the project is handled by the vendor from start to finish, the purchaser is
not made a part of the process. He will not have acquaintance with how his own
plant works once the control is handed over to him. This may lead him to face
several difficulties in the smooth running of operations post-handover.

38. 4 Major Issues that arise in Legal
Environment | International Market
1) Bribery:
 Bribery, a form of pecuniary corruption, is an act implying money or gift given
that alters the behaviour of the recipient.
 Bribery constitutes a crime and is defined by Black’s Law Dictionary as “the
offering, giving, receiving, or soliciting of any item of value to influence the
actions of an official or other person in discharge of a public or legal duty”.

39.  2) Branch Vs Subsidiary:
 When establishing a foreign operation, a company often must decide between making that operation
a branch or a subsidiary.
 i) Branch:
 A foreign branch is a foreign operation not legally separate from the parent company. Branch
operations are possible only if the parent holds 100 per cent ownership. A branch is not a legal
corporate entity separate from the foreign company. Practically speaking, a branch is merely an
extension of the parent company; it does not have its own stock or its own board of directors, and
its establishment generally involves fewer corporate formalities.
 Subsidiary
 A subsidiary is an FDI that is legally a separate company, even if the parent owns all of the voting
stock. A subsidiary is considered a separate company. However, in practice, filing a branch is a
demanding process that requires the execution of formal duties and the translation of documents,
which in some cases may represent a bigger constraint than those applicable to incorporating a
company. The subsidiary will have its own stock, articles of incorporation and bylaws. The
subsidiary must hold shareholders’ meetings and observe other corporate formalities. Usually, the
subsidiary will be owned and controlled by the parent company

40.  3) Counterfeiting:
 A counterfeit product is an imitation which infringes upon a production
monopoly held by either a state or corporation. Goods are produced with the
intent to bypass this monopoly and thus take advantage of the established
worth of the previous product.
 Counterfeiting of money is usually pursued aggressively by all governments.
The ethics of counterfeiting goods on the other hand is looked at differently in
different areas of the world.

41.  4) Gray markets are the result of arbitrage in which companies buy a product in
the market and sell it in other markets, benefiting from the prevailing price
differential. Gray market goods are genuinely branded merchandise
distinguished only by their sale through channels unauthorized by the
trademark owner. The goods appear to be and in most cases are, physically
identical in every way, including their trademarks. Therefore, price is the major
difference.
 Grey market goods typically are international products with a unique brand
name, high international price differences and low costs of arbitrage. The costs
connected with the arbitrage of goods from one country to the other are
transportation costs, tariffs, taxes and costs for modifying products, such as
changing the usage instructions for pharmaceutical products.