Definition, Features ,Significance of International Business Management, Modes Of Entry, Globalisation: Issues and Challenges

1. International Business
Management(KMB 302)
NBA CODE: C 302
Unit I : Introduction to International
Business Management

2. Course Outcomes
• C302.1: Understand the key issues and concepts of International Business.
• C302.2: Discuss the various theories of International trade and their
implications.
• C302.3: Explain the various orientations of International Marketing and
International HRM.
• C302.4: Understand the monetary framework in which international
business transactions are conducted.
• C302.5: Discuss the role of International Organizations and Regional Trade
blocks.

3. • International business refers to the trade of
goods, services, technology, capital and/or
knowledge across national borders and at
a global or transnational scale. It involves
cross-border transactions of goods and services
between two or more countries.

4. Definitions of International Business
1) IB field is concerned with the issues facing international
companies and governments in dealing with all types of cross
border transactions.
2) IB involves all business transactions that involve two or more
countries.
3) IB consists of transactions that are devised and carried out
across borders to satisfy the objectives of individuals and
organizations.
4) IB consists of those activities private and public enterprises
that involve the movement across national boundaries of goods
and services, resources, knowledge or skills

5. International business encompasses a full range of cross-border exchanges of
goods, services, or resources between two or more nations. These exchanges
can go beyond the exchange of money for physical goods to include
international transfers of other resources, such as people, intellectual property
(e.g., patents, copyrights, brand trademarks, and data), and contractual assets
or liabilities (e.g., the right to use some foreign asset, provide some future
service to foreign customers, or execute a complex financial instrument). The
entities involved in international business range from large multinational firms
with thousands of employees doing business in many countries around the
world to a small one-person company acting as an importer or exporter. This
broader definition of international business also encompasses for-profit
border-crossing transactions as well as transactions motivated by nonfinancial
gains (e.g., triple bottom line, corporate social responsibility, and political
favor) that affect a business’s future.

6. CHARACTERISTICS/FEATURES OF INTERNATIONAL
BUSINESS
• Regional Integration
• Declining Trade Barriers
• Declining Investment Barriers
• Growth in FDI
• Strides in Technology
• Growth of MNCs

7. Drivers of International Business
1. Developing markets have huge opportunities to increase their profits and sales
2. Many MNC’s are locating their subsidiaries in low wage countries to take advantage
of low cost production
3. Trading blocks seek to promote International business by removing trade and
Investment barriers
4. Changing demographics also adds to increasing globalization
5. Declining investment and trade barriers have vastly contributed to cross-border
business
6. The most powerful instrument that triggered internationalization is technology
7. Resource seeking is another motive for firms going international
8. Internationalization is triggered by world bodies and institutions e.g.. WTO World
trade organizations.

8. Internationalization of Business
There are five major reasons why a business may want to go global −
• First-mover Advantage − It refers to getting into a new market and enjoy the
advantages of being first. It is easy to quickly start doing business and get early
adopters by being first.
• Opportunity for Growth − Potential for growth is a very common reason of
internationalization. Your market may saturate in your home country and therefore
you may set out on exploring new markets.
• Small Local Markets − Start-ups in Finland and Nordics have always looked at
internationalization as a major strategy from the very beginning because their local
market is small.
• Increase of Customers − If customers are in short supply, it may hit a company’s
potential for growth. In such a case, companies may look for internationalization.
• Discourage Local Competitors − Acquiring a new market may mean discouraging
other players from getting into the same business-space as one company is in.

9. Advantages of International
Business
There are multiple advantages of going international. However, the most striking
and impactful ones are the following four.
• Product Flexibility
International businesses having products that don’t really sell well enough in their
local or regional market may find a much better customer base in international
markets. Hence, a business house having global presence need not dump the
unsold stock of products at deep discounts in the local market. It can search for
some new markets where the products sell at a higher price.
A business having international operations may also find new products to sell
internationally which they don’t offer in the local markets. International
businesses have a wider audience and thus they can sell a larger range of products
or services.

10. • Less Competition
Competition can be a local phenomenon. International markets can have less
competition where the businesses can capture a market share quickly. This factor
is particularly advantageous when high-quality and superior products are
available. Local companies may have the same quality products, but the
international businesses may have little competition in a market where an inferior
product is available.
• Protection from National Trends and Events
Marketing in several countries reduces the vulnerability to events of one country.
For example, the political, social, geographical and religious factors that negatively
affect a country may be offset by marketing the same product in a different
country.
• Learning New Methods
Doing business in more than one country offers great insights to learn new ways of
accomplishing things. This new knowledge and experience can pave ways to
success in other markets as well.

11. DOMESTIC BUSINESS VS INTERNATIONAL BUSINESS
Meaning: A business is said to be domestic, when its economic transactions are
conducted within the geographical boundaries of the country.
International business is one which is engaged in economic transaction with several
countries in the world.
Area of operation: Within the country incase of Domestic Business and Whole world in
case of IB.
Quality standards: Quite low and Very high in case of IB.
Domestic Business: Deals in Single currency and Multiple currencies in case of IB.
Capital investment Less Huge in case of IB
Restrictions Few Many in case of IB
Nature of customers: Homogeneous Heterogeneous in case of IB
Business research: It can be conducted easily. It is difficult to conduct research
Mobility of factors of production: Free Restricted in case of IB

12. Globalization
• It is the spread of products, technology, information, and jobs across
national borders and cultures. In economic terms, it describes an
interdependence of nations around the globe fostered through free trade.
• On one hand, globalization has created new jobs and economic growth
through the cross-border flow of goods, capital, and labor. On the other
hand, this growth and job creation is not distributed evenly across
industries or countries.
• Real World Examples of Globalization
• A car manufacturer based in Japan can manufacture auto parts in
several developing countries, ship the parts to another country for
assembly, then sell the finished cars to any nation.
• China and India are among the foremost examples of nations that have
benefited from globalization, but there are many smaller players and newer
entrants. Indonesia, Cambodia, and Vietnam are among fast-growing global
players in Asia.

13. • Globalization is a social, cultural, political, and legal phenomenon.
• Socially, it leads to greater interaction among various populations.
• Culturally, globalization represents the exchange of ideas, values, and
artistic expression among cultures.
• Globalization also represents a trend toward the development of single
world culture.
• Politically, globalization has shifted attention to intergovernmental
organizations like the United Nations (UN) and the World Trade
Organization (WTO).
• Legally, globalization has altered how international law is created and
enforced.

14. Types of globalization: Economic,
political, cultural
• Economic globalization. This type focuses on the unification and integration of
international financial markets, as well as multinational corporations that have a
significant influence on international markets.
• Political globalization. This type deals mainly with policies designed to facilitate
international trade and commerce. It also deals with the institutions that implement
these policies, which can include national governments as well as international
institutions, such as the International Monetary Fund and the World Trade
Organization.
• Cultural globalization. This type focuses on the social factors that cause cultures
to converge -- such as increased ease of communication and transportation, brought
about by technology.
• It's important to note that all the types influence each other. For example, economic
globalization is made possible by certain liberal trade policies that fall under the
category of political globalization. Cultural globalization is also affected by policies
passed in political globalization and is affected by economic globalization via the
imports and exposure a culture has to other cultures through trade..

15. Effects of Globalization
• The effects of each type of globalization can be felt both
locally and globally, and can be observed in interactions at
every level of society, from an individual at the micro level to
a society at the macro level.
• The individual level includes the way international influence
affects ordinary people within a nation or region
• The community level includes effects to local or regional
organizations, businesses and economies.
• The institutional level includes effects to multinational
corporations, national governments and higher education
institutions that have international students. At this level,
decisions are made that affect the lower levels.

16. Benefits of Globalization
1. Access to New Cultures
• Globalization makes it easier than ever to access foreign culture, including food, movies,
music, and art. This free flow of people, goods, art, and information is the reason you can
have Thai food delivered to your apartment as you listen to your favorite UK-based artist or
stream a Bollywood movie.
2. The Spread of Technology and Innovation
• Many countries around the world remain constantly connected, so knowledge and
technological advances travel quickly. Because knowledge also transfers so fast, this means
that scientific advances made in Asia can be at work in the United States in a matter of days.
3. Lower Costs for Products
• Globalization allows companies to find lower-cost ways to produce their products. It also
increases global competition, which drives prices down and creates a larger variety of choices
for consumers. Lowered costs help people in both developing and already-developed
countries live better on less money.

17. 4. Higher Standards of Living Across the Globe
• Developing nations experience an improved standard of living.According to the World
Bank, extreme poverty decreased by 35% since 1990. Further, the target of the first
Millennium Development Goal was to cut the 1990 poverty rate in half by 2015. This was
achieved five years ahead of schedule, in 2010. Across the globe, nearly 1.1 billion people
have moved out of extreme poverty since that time.
5. Access to New Markets
• Businesses gain a great deal from globalization, including new customers and diverse
revenue streams. Companies interested in these benefits look for flexible and innovative
ways to grow their business overseas..
6. Access to New Talent
• In addition to new markets, globalization allows companies to find new, specialized
talent that is not available in their current market. For example, globalization gives
companies the opportunity to explore tech talent in booming markets such as Berlin or
Stockholm, rather than Silicon Valley. Again, International PEO allows companies to
compliantly employ workers overseas, without having to establish a legal entity, making
global hiring easier than ever.

18. Drawbacks / Risks of Globalisation
• 1. Inequality: Globalisation has been linked to rising inequalities in income and wealth.
Evidence for this is the growing rural–urban divide in countries such as China, India
and Brazil. This leads to political and social tensions and financial instability that will
constrain growth. Many of the world’s poorest people do not have access to basic
technologies and public goods. They are excluded from the benefits.
• 2. Inflation: Strong demand for food and energy has caused a steep rise in commodity
prices. Food price inflation (known as agflation) has placed millions of the world’s
poorest people at great risk.
• 3. Vulnerability to external economic shocks – national economies are more connected
and interdependent; this increases the risk of contagion i.e. an external event somewhere
else in the world coming back to affect you has risen / making a country more vulnerable
to macro-economic problems elsewhere
• 4. Threats to the Global Commons: Irreversible damage to ecosystems, land
degradation, deforestation, loss of bio-diversity and the fears of a permanent shortage of
water afflict millions of the world’s most vulnerable
• and so on.

19. 5. Race to the bottom – nations desperate to attract inward investment may be tempted to
lower corporate taxes, allow lax health and safety laws and limit basic welfare safety nets
with damaging social consequences
6. Trade Imbalances: Global trade has grown but so too have trade imbalances. Some
countries are running big trade surpluses and these imbalances are creating tensions and
pressures to introduce protectionist policies such as new forms of import control. Many
developing countries fall victim to export dumping by producers in advanced nations
(dumping is selling excess output at a price below the unit cost of supply.)
7. Unemployment: Concern has been expressed by some that capital investment and jobs in
advanced economies will drain away to developing countries as firms switch their
production to countries with lower unit labour costs. This can lead to higher levels of
structural unemployment.
8. Standardisation: Some critics of globalisation point to a loss of economic and cultural
diversity as giant firms and global multinational brands dominate domestic markets in
many countries.
9. Dominant global brands – globalisation might stifle competition if global businesses with
dominant brands and superior technologies take charge of key markets.

20. Impact of Globalization
• Economic impact
Improvement in standard of living
Increased competition among nations
Widening income gap between the rich and poor
• Social impact
Increased awareness of foreign cultures
Loss of local culture
• Environmental impact
Environmental degradation
Environmental management

21. CHALLENGES OF GLOBALIZATION
1.SHIFTING RISK PROFILE As the market has expanded from local to
international, the risk profile has also expanded. Risk level has increased,
ranging from fluctuation in interest and exchange rates to supply chain piracy
Organizations needs to consider and accommodate global events and scenarios
while conducting risk assessments. Eg: Fake Chinese copies of Indian drugs in
Africa, effects of global terrorism and regional tensions.
2.REGULATORY OBSTACLES Regional laws and policies by national
governments will have a widespread effect Leads to uncertainty in rapid
growth markets Companies have to adopt a global platform for making
project portfolio have to gain greater visibility to overcome regional barriers
Companies should have contingency plans, specific to regions and nations Eg:
Recent proposal to ban diesel vehicles in Delhi, US move to rise visa fees.

22. 3.CULTURAL DIFFERENCES Workforces & customers will be separated by
thousands of miles, international time zones, cultural and religious differences.
The central organization must be able to refine portfolio management and
create an infrastructure that maintains the diversity of international teams
while also empowering local delivery Eg: McDonald’s avoiding beef & porl
and launching vegetarian burgers in India.
4. JOB INSECURITY & LACK OF SKILL Globalization allowed companies to
assign jobs to population away from their physical location, resulting in local
population loosing their jobs. Eg: American analysts loosing jobs to cheaper
Indian counter parts In manufacturing sector, quite opposite can happen.
Foreign companies setting up a new plant will give more opportunity to local
population. However, the quest to offer positions to local (cheaper) employees
often result in lower skilled employees
5.SHORTAGE OF RESOURCES Globalization has led to increased use of global
resources, leading to imbalances Financially and technologically backward
nations often lag behind, and are the victims of exploitations Small scale
industries are over shadowed by corporate giants Gaps in infrastructure and
technologies will have a greater effect.

23. Multinational Corporation (MNC)
• A multinational corporation (MNC) has facilities and other assets in at least
one country other than its home country. A multinational company
generally has offices and/or factories in different countries and a
centralized head office where they coordinate global management. These
companies, also known as international, stateless, or transnational corporate
organizations tend to have budgets that exceed those of many small
countries.
• Multinational corporations participate in business in two or more countries.
• MNC can have a positive economic effect on the country where the
business is taking place.
• Many believe manufacturing outside of the U.S. has a negative effect on
the economy with fewer job opportunities.
• Transnational business is considered diversifying the investment.

24. Types of Multinationals
There are four categories of multinationals that exist. They
include:
• A decentralized corporation with a strong presence in its home
country.
• A global, centralized corporation that acquires cost advantage
where cheap resources are available.
• A global company that builds on the parent
corporation’s R&D.
• A transnational enterprise that uses all three categories.

25. There are subtle differences between the different
kinds of multinational corporations. For instance, a
transnational—which is one type of multinational—
may have its home in at least two nations and spread
out its operations in many countries for a high level
of local response. Nestlé S.A. is an example of a
transnational corporation that executes business and
operational decisions in and outside of its
headquarters.

26. WHAT IS A MULTINATIONAL
CORPORATION?
According to Franklin Root (1994), an MNC is a
parent company that:
• engages in foreign production through its affiliates
located in several countries,
• exercises direct control over the policies of its
affiliates,
• implements business strategies in production,
marketing, finance and staffing that transcend
national boundaries.

27. HISTORY AND EVOLUTION OF
MNCS
These corporations originated early in the 20thcentury and expanded after
World War II.
• A multinational corporation developed new products in its native country
and manufactured them abroad.
• Almost all the earliest and largest multinational
• firms were either American, Japanese, or West European.
• During the last three decades, many smaller corporations have also become
multinational.
• Such enterprises maintain that they create employment, create wealth, and
improve technology in countries.

28. REASONS FOR THE
ESTABLISHMENT OF MNCs
• To increase market share.
• To secure cheaper premises and labour.
• Employment and Health & Safety Legislations in other countries may be
more relaxed.
• To avoid or minimise the amount of tax to be paid.
• To take advantage of government grants available.
• To save on costs of transporting goods to the market place.

29. ADVANTAGES OF MNCS TO THE HOST
COUNTRY
• Transfer of technology, capital and
entrepreneurship.
• Increase in the investment level and thus, the
income and employment in the host country.
• Greater availability of products for local
consumers.
• Increase in exports and decrease in imports.

30. ADVANTAGES OF MNCS TO THE HOME
COUNTRY
• Acquisition of raw materials from abroad.
• Technology and management expertise
acquired from competing in global markets.
• Export of components and finished goods for
assembly or distribution in foreign markets.
• Inflow of income from overseas profits,
royalties and management contracts.

31. DISADVANTAGES OF MNCS
• Trade restrictions imposed at the government-
level.
• Limited quantities (quotas) of imports.
• Effective management of a globally dispersed
organization.
• Slow down in the growth of employment in
home countries.
• ¢ Destroy competition and acquire monopoly

32. CRITICISM OF MNCs
• Creation of false needs in consumers.
• Interference and dominance in the internal affairs of sovereign nations.
• Invasive advertising and corporate lobbying.
• Creation of monopolies in the market and elimination of local
competitors.
• Depletion of resources due to their continuous use by these
corporations.
• Centralization of R&D operations in their home country.
• Low consideration for human rights and welfare.
• The problem of Dumping.

33. MARKET ENTRY STRATEGIES
There are a variety of ways in which a company can enter a foreign market. No one
market entry strategy works for all international markets. Direct exporting may be the
most appropriate strategy in one market while in another you may need to set up a joint
venture and in another you may well license your manufacturing. There will be a
number of factors that will influence your choice of strategy, including, but not limited
to, tariff rates, the degree of adaptation of your product required, marketing and
transportation costs.
The following strategies are the main entry options:
Direct Exporting
Direct exporting is selling directly into the market you have chosen using in
the first instance you own resources. Many companies, once they have
established a sales program turn to agents and/or distributors to represent
them further in that market. Agents and distributors work closely with you
in representing your interests. They become the face of your company and
thus it is important that your choice of agents and distributors is handled in
much the same way you would hire a key staff person.

34. Licensing
Licensing is a relatively sophisticated arrangement where a firm transfers
the rights to the use of a product or service to another firm. It is a
particularly useful strategy if the purchaser of the license has a relatively
large market share in the market you want to enter. Licenses can be for
marketing or production. licensing).
Franchising
• Franchising is a typical North American process for rapid market
expansion but it is gaining traction in other parts of the world. Franchising
works well for firms that have a repeatable business model (eg. food
outlets) that can be easily transferred into other markets. Two caveats are
required when considering using the franchise model. The first is that your
business model should either be very unique or have strong brand
recognition that can be utilized internationally and secondly you may be
creating your future competition in your franchisee. E.g McDonald's.
Dominos,KFC,Pizza Hut,Subway.

35. Joint Ventures
Joint ventures are a particular form of partnership that involves the creation
of a third independently managed company. It is the 1+1=3 process. Two
companies agree to work together in a particular market, either geographic
or product, and create a third company to undertake this. Risks and profits
are normally shared equally. The best example of a joint venture is
Sony/Ericsson Cell Phone.
Buying a Company
1. In some markets buying an existing local company may be the most
appropriate entry strategy. This may be because the company has
substantial market share, are a direct competitor to you or due to
government regulations this is the only option for your firm to enter the
market. It is certainly the most costly and determining the true value of a
firm in a foreign market will require substantial due diligence.

36. Turnkey Projects
Turnkey projects are particular to companies that provide services such as
environmental consulting, architecture, construction and engineering. A
turnkey project is where the facility is built from the ground up and turned
over to the client ready to go – turn the key and the plant is operational.
This is a very good way to enter foreign markets as the client is normally a
government and often the project is being financed by an international
financial agency such as the World Bank so the risk of not being paid is
eliminated.
Greenfield Investments
Greenfield investments require the greatest involvement in international
business. A greenfield investment is where you buy the land, build the
facility and operate the business on an ongoing basis in a foreign market. It
is certainly the most costly and holds the highest risk but some markets
may require you to undertake the cost and risk due to government
regulations, transportation costs, and the ability to access technology or

37. Strategic Alliance
• A strategic alliance is an arrangement between two companies to undertake
a mutually beneficial project while each retains its independence. The
agreement is less complex and less binding than a joint venture, in which
two businesses pool resources to create a separate business entity.
• A company may enter into a strategic alliance to expand into a new market,
improve its product line, or develop an edge over a competitor. The
arrangement allows two businesses to work toward a common goal that
will benefit both.
• The relationship may be short- or long-term and the agreement may be
formal or informal.

38. Exporting
• Advantages − Low investment; Less risks
• Disadvantages − Unknown market; No control over foreign market; Lack
of information about external environment
Licensing
• Advantages − Low investment of licensor; Low financial risk of licensor;
Licensor can investigate the foreign market; Licensee’s investment in R&D
is low; Licensee does not bear the risk of product failure; Any international
location can be chosen to enjoy the advantages; No obligations of
ownership, managerial decisions, investment etc.
• Disadvantages − Limited opportunities for both parties involved; Both
parties have to manage product quality and promotion; One party’s
dishonesty can affect the other; Chances of misunderstanding; Chances of
trade secrets leakage of the licensor.

39. Franchising
• Advantages − Low investment; Low risk; Franchisor understands market
culture, customs and environment of the host country; Franchisor learns
more from the experience of the franchisees; Franchisee gets the R&D and
brand name with low cost; Franchisee has no risk of product failure.
• Disadvantages − Franchising can be complicated at times; Difficult to
control; Reduced market opportunities for both franchisee and franchisor;
Responsibilities of managing product quality and product promotion for
both; Leakage of trade secrets.
Joint Ventures
• Advantages − Joint ventures provide significant funds for major projects;
Sharing of risks between or among partners; Provides skills, technology,
expertise, marketing to both parties.

40. • Disadvantages − Conflicts may develop; Delay in decision-making of one
affects the other party and it may be costly; The venture may collapse due
to the entry of competitors and the changes in the partner’s strength; Slow
decision-making due to the involvement of two or more decision-makers.
Strategic Alliances
Advantages of entering into strategic alliance include accessing new
technologies, R&D resources and IP rights, diversifying products and
services, improving material flow and product lifecycle times, making
operations more agile and reducing overhead and administrative costs.
Disadvantages of strategic alliances include: Sharing: In a strategic
alliance the partners must share resources and profits and often skills and
know-how. ... Agreements can protect these secrets but the partner might
not be willing to stick to such an agreement.

41. International Business Environment
POLITICAL ENVIRONMENT
ECONOMIC ENVIRONMENT
SOCIO-CULTURAL ENVIRONMENT
DEMOGRAPHIC ENVIRONMENT
TECHNOLOGICAL ENVIRONMENT

42. POLITICAL ENVIRONMENT
• Political Risk Risks Related to Government Trade policies:
Tariffs, exchange-rate Controls, quotas,export/import license requirements,
• Bureaucracy.
• Corruption level.
• Freedom of the press.
• Tariffs.
• Trade control.
• Education Law.
• Anti-trust law.
• Employment law

43. ECONOMIC ENVIRONMENT
Per capita income and size of population
Stages of economic development
Consumption pattern
Economic system
Product demand analysis
Competition analysis

44. SOCIO-CULTURAL ENVIRONMENT
International business means operating in a cross cultural environment.
This makes the business more complex because the business firm must
appreciate how different the foreign culture is from their own and how this
difference is to be reflected in their business strategies.
Language
Religion
Cultural Values
Cultural Norms

45. DEMOGRAPHIC ENVIRONMENT
Size, growth rate, age composition, sex composition etc. of the population
Family size
Economic stratification of population
Education level
Caste, religion etc.

46. TECHNOLOGICAL ENVIRONMENT
Threats Web/Internet
The payment mechanism is sometimes difficult
Different currencies Different method of payments (credit cards, debit cards)
Accepting credit cards from unknown buyers

47. • What reasons lie behind the comparative
success of McDonald’s franchise outlets
over the company-owned ones?

48. • In the franchise outlets, the franchisee invests more of his or her own
resources and has a more entrepreneurial approach to the business.
• Managers of the company-owned outlets, by contrast, have less sense of
ownership and a lower level of entrepreneurial drive.

49. • How has PepsiCo’s diversification strategy
proved to be advantageous in comparison to
the strategy of Coca-Cola?

50. • PepsiCo has been able to add new businesses and products by its strategy
of diversification, allowing it to respond to changing consumer needs with
a wide portfolio of products. In particular, it has added bottled water, snack
foods (through the acquisition of Frito-Lay and Quaker Oats), juices
(through the acquisition of Tropicana), and the sports drink Gatorade (as
part of the Quaker Oats portfolio).
• These products reduce its dependence on traditional carbonated drinks.
They also diversify the range of products for health-conscious consumers.
• By comparison, Coke has remained more dependent on its flagship
carbonated drink, Coke. Although it has expanded into more markets
internationally than PepsiCo, it has been slow to diversify into healthier
products.

51. • How does the development licence fit in
with McDonald’s overall revitalization
programme?

52. • They provide that the underperforming outlets should be sold to local
entrepreneurs, who would invest their own capital to a greater extent than
under McDonald’s usual arrangements.
• The new owners would be imbued with a greater entrepreneurial approach,
but would still benefit from the strong brand and supply chain
arrangements. Whether these new owners deliver improved financial
performance depends on their competitiveness in their local markets.
• McDonald’s executives are stressing the importance of the revitalization
programme to win new customers. They look to the new owners to deliver
these improvements, reflecting the success of the revitalization programme
in the US.