Introduction to International Business

International Business
International business refers to those business activities that take place beyond the
geographical limits of a country. It involves not only the international movements of goods
and services, but also of capital, personnel, technology and intellectual property like
patents, trademarks, knowhow and copyrights.
“International business refers to those business activities that take place beyond the
geographical limits of a country”

Scope of International business

Foreign Investments
Foreign investment is an important part of international business. Foreign investment
contain investments of funds from the abroad in exchange for financial return. Foreign
investment is done through investment in foreign countries through international business.
Foreign investments are two types which are direct investment and portfolio investment.

Exports And Imports Of Merchandise

Merchandise are the goods which are tangible. (those goods which can be seen and
touched.) As mentioned above merchandise export means sending the home country’s
goods to other countries which are tangible and merchandise imports means bringing
tangible goods to the home country.

Licensing And Franchising

Franchising means giving permission to the new party of the foreign country in order to
produce and sell goods under your trademarks, patents or copyrights in exchange of some
fee is also the way to enter into the international business. Licensing system refers to the
companies like Pepsi and Coca-Cola which are produced and sold by local bottlers in
foreign countries.

Service Exports And Imports

Services exports and imports consist of the intangible items which cannot be seen and
touched. The trade between the countries of the services is also known as invisible trade.
There is a variety of services like tourism, travel, boarding, lodging, constructing, training,
educational, financial services etc. Tourism and travel are major components of world
trade in services.

Growth Opportunities
There are lots of growth opportunities for both of the countries, developing and under-
developing countries by trading with each other at a global level. The imports and exports
of the countries grow their profits and help them to grow at a global level.

Benefiting From Currency Exchange

International business also plays an important role while the currency exchange rate as
one can take advantage of the currency fluctuations. For example, when the U.S. dollar is
down, you might be able to export more as foreign customers benefit from the favourable
currency exchange rate.

Limitations Of The Domestic Market

If the domestic market of a country is small then the international business is a good option
for the growth of the business in the host country. Depression of domestic market firms
will force to explore foreign markets.

Importance of International business

Market Expansion
International businesses are opened to perform business in different countries across the
globe. These business keeps on expanding its activities and explore new markets for selling
more and more products. The international business earns high amount of profits which
helps them in expanding their market share.

Brings Foreign Exchange

The international business earns large amount of foreign exchange by selling its products
among different countries. All payments are received in terms of foreign currency which
are used by its home country for payment of imports. The foreign exchange earned by
these businesses helps in the overall economic development of the country.

Spreading Of Business Risks

Presence of international businesses around the globe helps in spreading its risk. In case, if
there is a loss incurred by this business in any one of the countries then that can be easily
adjusted with the profit earned in other countries. International business transferred their
surplus goods or resources in one country to another country which helps them in
reducing their risk.

Economies Of Scale

These business are able to enjoy economies of scale due to their large scale production.
International businesses produce large amount of goods for selling in different countries.
With the increase in amount of production, per unit cost of producing goods goes down
which helps them in earning large profits.
Cost Advantage

International business takes cost advantage over its competitors by producing goods in one
country and exporting them in another country. They carry on their production in a
country where factors of production are easily and cheaply available. This helps in
minimizing the cost of product and earn huge profits by selling them at better prices in
other countries. 

Improves International Relations

International business helps in strengthening the economic relations among nations. These
business helps other nations by exporting them goods of their requirements. It helps in
developing better mutual understanding among countries due to which they are ready to
support each other in time of needs.

Provide Employment Opportunities

International business employs large number of people for carrying out its operations
across the globe. They perform large scale operations in many countries for which they
require large amount of human resource. 

Government Support

These businesses also enjoy government support for carrying out their operations and
expanding their size. The government provides tax and financial benefits to these
businesses as they earn a large amount of foreign reserves for the country.

Nature of International business

International Restrictions
In international business, there is a fear of the restrictions which are imposed by the
government of the different countries. Many country’s governments don’t allow
international businesses in their country. They have trade blocks, tariff barriers, foreign
exchange restrictions, etc. These things are harmful to international business.

Benefits To Participating Countries

It gives benefits to the countries which are participating in the international business. The
richer or developed countries grow their business to the global level and they get
maximum benefits. The developing countries get the latest technology, foreign capital,
employment opportunities, rapid industrial development, etc. This helps developing
countries in developing their economy. Therefore, developing countries open up their
economy for foreign investments. 

Large Scale Operations

International business contains a large number of operations at a time because it is
conducted on a large scale globally. Production of the goods at a large scale, they have to
fulfill the demand at a global level. Marketing of the product is also conducted at a large
scale to make them aware of the product. First, they fulfill the domestic demand and then
they export the surplus in the foreign markets. 

Integration Of Economies

International Business combines the economies of many countries. The companies use the
finance, labor, resources, and infrastructure of the other countries in which they are
working. They produce the parts in different countries, assembles the product in other
countries and sell their product in other countries.

Dominated By Developed Countries

International business is dominated by developed countries and their MNC’s. Countries like
U.S.A, Europe, and Japan all are the countries that are producing high-quality products, they
have people working for them on high salaries. They have large financial and other
resources like the best technology and Research and Development centers. Therefore, they
produce good quality products and services at low prices. They help them to capture the
world market.

Market Segmentation

International business is based on market segmentation on the basis of the geographic

segmentation of the consumers. The market is divided into different groups according to
the demand of the consumers in different countries. It produces goods according to the
demand of the consumers of the different market segmentations.

Sensitive Nature

International Business is highly affected by economic policies, political environment,

technology, etc. It can play a positive role to improve the business and can also be negative
for the business. It totally depends on the policies made by the government, it can help in
expanding the business and maximizing the profits and vice-versa.

Advantages of International Business

Increased Revenues
The revenues of the companies which are trading internationally are much more than the
companies which are trading in the domestic country. The customers of the MNC’s are
more because they have customers all over the world and their reach to customers is
higher than the domestic companies. This leads to higher selling of goods in the global
market and it leads to increased revenues of the company.

Reaching New Customers

International business is all about reaching new customers in the market of different
countries. The domestic companies are restricted to their home customers and MNC’s are
having a large customer base all over the world. MNC’s reach customers at a global level
because they expand their business in different countries. Products of MNC’s are reached to
the customers globally.

Accessing New Talent

The success of a company depends on the employees and management who are working
with the company. This plays an important role in decision making and actions of the
company. Expanding to the international level could give you access to talented, valuable
employees and business partners who helps you in taking the enterprise to new heights.

Optimum Utilization Of Available Resources

International business reduces the wastage of resources as it works in the different

countries and uses the resources of all the countries, they are working in. This leads to the
optimum utilization of resources. Every country which is producing the goods are
producing it at maximum advantage.

Benefits To Consumers

In the international market, consumers can choose between domestic goods and
international goods. Consumers can have a good quality of products at a low price
compared to that of the quality and price of domestic products. Consumers have a large
variety of goods to choose from according to their taste and preference. 

Product Flexibility

If there is a product whose demand is less in the domestic market then it can be sold in the
international market if there is demand for it in the foreign markets. The companies have
to find countries in which the demand for their product is higher and they can also sell it on
the higher prices if there is high demand. It can also offer a wide range of products in the
global market.

Brand Image

If the company deals in the international market and target the customers of the different
countries globally then the brand name is popularized among the country and it enhances
your brand image in the foreign market. Image of the brand is enhanced by international
growth and the rapid market boost leads to brand image development. It can also lead to
expansion of property, copyrights, trademarks to new countries. 

Disadvantages of International Business

Language Barriers
Language barriers are one of the major disadvantages of international business. Different
countries have their distinct local languages and culture, which makes it quite difficult to
communicate efficiently with peoples. These differences create barriers in developing
better trade relations among nations.

Economic Dependence

International business leads to more dependence of under-developed countries on

developed countries. They import large amounts of goods for their development from these
developing nations. Too much reliance on other nations led to exploitation of the economy
and industrial development of importing countries.

Mis-Utilization Of Natural Resources

Another major disadvantage of international business is that it may exhaust the natural
resources of nations due to the excessive exports. Several nations make over-utilization of
their resources for the sake of earning more profits which will have adverse effects on their
economy in the long run.

Exploitation Of Home Industry

International business leads to exploitation of home industries of an importing country.

Developed nations even adopt dumping policy and sell their products at prices below the
cost of production. This excessive foreign competition and unrestricted imports create a
threat for the survival of domestic industries.

Servicing Customers

International business finds it difficult in providing after-sale services to its customers.

Differences in cultures and languages create main problems in communicating to people
for solving their issues. Companies are required to communicate as per different time
zones, distinct languages, and should set up 24×7 customer service centers.

Rivalry Among Nations

International business may also lead to tension among nations due to intense competition
of exporting more and more products. This can hamper international peace and can often
lead to war among nations.

Modes of entry into International Business

1. EXPORTING
It is the process of selling goods and services produced in one country to other
countries. Exporting may be direct or indirect.
Direct export – A company capitalizing on economies of scale in production
concentrated in the home country, establishes a proper system for organizing export
functions and procuring foreign sales.
Indirect export- involves exporting through domestically based export intermediaries.
The exporter has no control over his product in the foreign market.
Advantages 
It helps in the distribution of surplus.
It is less risky.
Under direct export, the exporter has control over the selection of market
It helps in fast market access

Disadvantages –
High start-up cost in case of direct exports
In Indirect export, the exporter has no control over the distribution of products
Exporting through export intermediaries increase the cost of the product

2. LICENSING

Licensing is a method in which a firm gives permission to a person to use its legally
protected product or technology and to do business in a particular manner, for an
agreed period of time and within an agreed territory. It is a very easy method to enter
foreign market as less control and communication is involved.
Example: Starbucks (licensor) and Nestle (licensee) for exclusive rights to sell
Starbuck’s product

Advantages
Less investment is involved
Low cost of labor
Disadvantages
This method is time-consuming
Decline in product quality may harm the reputation of licensor

3. FRANCHISING

It is a system in which semi-independent business owners (franchisees) pay fees and

royalty to a parent company (franchiser) in return for the right to be identified by its
trademark, to sell its product or services, and often to use its business format or
system. Example: Burger king, McDonald etc.

Advantages 
It is less risky
Advantage of expertise of franchiser
Highly motivated employees

Disadvantages
Difficulty in keeping trade secrets
Franchisee may become a future competitor
A wrong franchisee may ruin company’s name and goodwill

4. MERGER & ACQUISITION

A merger is a combination of two or more district entities into one, the desired effect
being accumulation of assets and liabilities of distinct entities and several other
benefits such as economies of scale, tax benefits, fast growth, synergy, and
diversification, etc. The merging entities cease to be in existence and merge into a
single servicing entity.
Example: Vodafone and Idea formed a new company VI.

Acquisition implies the acquisition of controlling interest in a company by another

company. It does not lead to dissolution of company whose shares are acquired. It may
be a friendly or hostile acquisition or a bail-out takeover.
Example: LIC Acquire IDBI Bank.

Advantages
Low cost of production
Development of medium and small scale industries
No dilution of control
Disadvantages 
– Difficulty in maintaining quality standards
– Local manufacturers in foreign market may lose business

5. FDI

It is a mode of entering foreign market through investment. Investment may be direct

or indirectly through financial institutions. FDI influences the investment pattern of
the economy and helps to increase overall development. The extent to which FDI is
allowed in a country is subjected to the government regulations of that country.

Advantages 
Modifications can be made at any point of time
It is an easy mode of entry
Disadvantages
The government policies may not be helpful
The return on investment may be low

6. JOINT VENTURE

It is a strategy used by companies to enter a foreign market by joining hands and

sharing ownership and management with another company. It is used when two or
more companies want to achieve some common objectives and expand international
operations.
Example: Uber (a taxi company) and Volvo (heavy vehicle co.)
The common objectives are –
Foreign market entry
Risk/reward sharing
Technology sharing
Joint product development
It is useful to meet shortage of financial resources, physical or managerial resources

Advantages
Technological competence
Optimum use of resources
Partners are able to learn from each other

Disadvantages
Conflicts over asymmetric investment
Cultural and political stability may pose a threat to successful operations
Conflicts in management

7. CONTRACT MANUFACTURING

When a foreign firm hires a local manufacturer to produce their product or a part of
their product it is known as contract manufacturing. This method utilizes the skills of a
local manufacturer and helps in reducing cost of production. The marketing and selling
of the product is the responsibility of the international firm. Example: Foxconn
Technology (Local manufacturer) group that supplies product to high profile
companies like Microsoft. Apple and Amazon

Advantages  
1. Low cost of production
2. Development of medium and small scale industries
3. No dilution of control

Disadvantages
1. Difficulty in maintaining quality standards
2. Local manufacturers in foreign market may lose business

8. STRATEGIC ALLIANCE

It is a voluntary formal agreement between two companies to pool their resources to

achieve a common set of objectives while remaining independent entities. It is mainly
used to expand the production capacity and increase market share for a product.
Alliances help in developing new technologies and utilizing brand image and market
knowledge of both the companies.
Example: Apple Pay and Master Card
Globalisation:-
Globalization 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 the upside, it can raise the standard of living in poor and less developed countries by
providing job opportunity, modernization, and improved access to goods and services. On
the downside, it can destroy job opportunities in more developed and high-wage countries
as the production of goods moves across borders.

Globalization motives are idealistic, as well as opportunistic, but the development of a

global free market has benefited large corporations based in the Western world. Its impact
remains mixed for workers, cultures, and small businesses around the globe, in both
developed and emerging nations.
Globalization or globalisation is the process of interaction and integration among people,
companies, and governments worldwide. As a complex and multifaceted phenomenon,
globalization is considered by some as a form of capitalist expansion which entails the
integration of local and national economies into a global, unregulated market
economy. Globalization has grown due to advances
in transportation and communication technology. With the increased global interactions
comes the growth of international trade, ideas, and culture. Globalization is primarily an
economic process of interaction and integration that's associated with social and cultural
aspects. However, conflicts and diplomacy are also large parts of the history of
globalization, and modern globalization.

Advantages of Globalization

1. Wider Markets
Globalization offers much larger markets to home producers. Domestic businesses can
export their surplus outcome. They can understand the nature of foreign marketplaces
through direct and indirect marketing programs. Domestic businesses can realize higher
prices from foreign markets. Global functions help to improve public image which is
effective in appealing to better skill.

2. Quick Industrialization

Globalization helps in the free movement of capital and technology between countries.
Global companies can acquire financing at less expensive of capital. Free moves of capital
and technology from advanced countries help the growing countries to boost up their
industrialization. Industrialization of expanding countries brings about balanced
development of all countries.

3. Greater Specialization

Globalization allows the domestic firms to focus on areas where they enjoy competitive or
comparative edge. By concentrating on the functions or products of their core competence
local firms can be competitive effectively in the international marketplaces. Specialization
also really helps to save resources and promote exports of the united states.

4. Competitive Gains

Globalization increase competition for local businesses through imports and multinational
organizations. Domestic firms learn about services, new technology and new management
systems. They are really under pressure to increase efficiency, add innovations and reduce
costs. The domestic business people who fail to learn from their foreign competitors suffer
in the long run.

5. Higher Production

Globalization leads to pass on up o making facilities in various countries. Companies with

worldwide contacts can outsource cash, technology, syndication and other functions from
all over the world. They can discuss subcontracting to stay focused on regions of their key
competence. International outsourcing and subcontracting assist in improving operational
efficiency and reduce costs.

6. Price Stabilization

Globalization can reduce price dissimilarities between countries. Free trade and
international competition help to equalize prices in international market segments.
Countries with a higher amount of globalization can draw in greater foreign investment
which supplements domestic funds, brings in foreign and boosts balance of payments.

7. Upsurge in Work and Income

Globalization creates job opportunities in expanding countries and the incomes of people
increases anticipated to increased industrialization.

8. Higher Standards of Living

Lower prices, better quality and higher incomes help enhance utilization and living
standards of people specifically in expanding countries. Furthermore, increased monetary
development enables the governments of these countries to provide better welfare
facilities like education, health, sanitation, etc. You can find all round increase in welfare
and prosperity of general public.

9. International Economic Cooperation

Globalization improves economical cooperation between countries in the form of trade

agreements, international treaties, standardization of commercial strategies, avoidance of
dual taxation, intellectual property protection etc. International co-operation also helps
countries to harmonize their macroeconomic insurance policies for their mutual benefit.

10. World Peace

Globalization promotes cultural exchange and mutual understanding among different

countries. International co-operation and brotherhood contribute to peace and prosperity
on the planet.

Disadvantages of Globalization

1. Interdependence

Globalization raises interdependence between countries of the world. Because of this,

monetary sovereignty and control over the local current economic climate are reduced.
There is a danger of overseas economic dominance within the growing economies.

2. Threat to Home Industry

Globalization brings about the establishment of creation and marketing facilities by

multinationals n developing countries. The local firms in these countries neglect to face the
onslaught of multinationals. Because of this they sell out to foreign businesses. Cheap
imports from china and other countries also destroy domestic business especially in the
small sector. Availability of high quality foreign products reduces the demand for home
products and home creation is eroded.

3. Unemployment

Globalization leads to restructuring of industry. Technology upgradation and give attention

to regions of comparative advantages create unemployment and underemployment among
low skilled personnel. Because of this income inequality, poverty and communal unrest
may increase.

4. Drain of Basic Resources

Globalization ends in exploitation of natural resources and basic raw materials in growing
countries. These countries are often the vendors of agricultural and other inputs and
clients of done products. Talented recruiting are also transferred to developed nations
which offer better remuneration and job prospects. Financial underdevelopment of poor
countries is the consequence of exploitative figure of international trade.

5. Technological Dependence

Globalization offers readymade foreign technology which scuttles domestic research and
development. Foreign technologies can be found at a higher cost and frequently are not
flexible to local conditions. Growing countries become technologically dependent on
developed countries.

6. Alien Culture

Globalization promotes use patterns and lifestyles that happen to be inconsistent with the
local culture and values. It could lead to change in the industrialization structure contrary
to the nationwide priorities.

Now after looking at Globalization from both supportive and contradicting point of view;
we can now take a stand on whether the cases against globalization are sustainable or not.

Based on the aforementioned factors, we can strongly say that globalization is not in charge
completely for the global financial situations alone. It might have played a component in
the problems, but it did not start the open fire.

The one reason which is often held accountable for the mishap is the repeal of Cup -
Steagall Function. The promises that globalization is at fault are true but and then little
magnitude. The sub - primary mortgage crisis multiply around the globe because of
globalization and for that reason, led to a razor-sharp surge in the inflation rates.

Features of Globalisation:

1. Liberalisation:
It stands for the freedom of the entrepreneurs to establish any industry or trade or
business venture, within their own countries or abroad.

2. Free trade:
It stands for free flow of trade relations among all the nations. It stands for keeping
business and trade away from excessive and rigid regulatory and protective rules and
regulations.

3. Globalisation of Economic Activity:

Economic activities are be governed both by the domestic markets and also the world
market. It stands for the process of integrating the domestic economies with the world
economy.

4. Liberalisation of Import-Export System:

It stands for liberalization of the import-export activity involving a free flow of goods and
services across borders.

5. Privatisation:
Globalisation stands for keeping the state away from ownership of means of production
and distribution and letting the free flow of industrial, trade and economic activity among
the people and their corporations.

6. Increased Collaborations:
Encouraging the process of collaborations among the entrepreneurs with a view to secure
rapid modernisation, development and technological advancement, is a feature of
Globalisation.

7. Economic Reforms:
Encouraging fiscal and financial reforms with a view to give strength to free trade, free
enterprise and market forces of the world. Globalisation stands for integration and
democratisation of the world’s culture, economy and infrastructure through global
investments.

8. Improved Technology:
9. Rise Competition:

# Essential Conditions for Globalisation: -

Essential Conditions for Globalisation 

1. Business Freedom:-
There should not be unnecessary government restrictions which come in the way
globalization like import restriction, restrictions on sourcing finance or other factors
from abroad, foreign investments etc.
 
2.  Facilities 
The extent to which an enterprise can develop globally from home country base
depends on the facilities available like the infrastructural facilities. 
3.  Government Support 
Unnecessary government interference is a hindrance to globalization, government
support can encourage globalization. 
4.  Resources 
Resources is one of the important factors which often decide, the ability of a firm to
globalize. Resourceful companies may find it easier to thrust ahead in the global
market. 
5.  Competitiveness 
The competitive advantage of the company is a very important determinant of success
in global business. A firm may derive competitive advantage from any one or more of
the factors such as low costs and price, product quality, product differentiation,
technological superiority, after-sales services, marketing strength etc.
6.  Orientation
 A global orientation on the part of the business firms and suitable globalization
strategies are essential for globalization. 

 
Stages of Globalisation:-
 Stages in Globalization

1. Domestic Company

Market potential is limited to the home country. Production and marketing facilities are
located at home only. Surplus may or may not be exported. There are no overt efforts to
develop foreign markets. It may add new product lines, serve new local markets but whole
planning is limited to national markets only.

Features:

1. Their focus remains with domestic market.

2. Their productions facilities remain based in home country.Their analysis is focused on the
national market.
3. They do not think globally and avoid taking risk in going global.
4. Their top management may have traditional kind of business management competency and
less global expertise.
5. They perceive that there is risk in expanding into global market and thus they try to play
safe and satisfied with whatever gains they are getting in domestic market.

2. International Company

Some ambitious efficient domestic companies after going beyond their domestic marketing
capacities start thinking of expanding their operations in International Markets.The main
strategies for entering international market is:
 a) Off-shoring/global outsourcing (seeking cheaper source of raw material or labour)

b) Exporting

c) Licensing

d) Franchising

e) Joint Ventures/Acquisitions

f) Direct Investments

Even though they think of international markets, still they are of ethnocentric or domestic
oriented. These companies adopt the strategy of locating the branches of their companies
in other countries and practice the same domestic operations in foreign markets,including
the same promotion, price, product etc. policies.

Features:

1. Focus on going beyond,domestic

2. Their management remains ethnocentric with a vision to expand internationally.They
extend their domestic products,domestic prices and other business practices to foreign
countries.
3. They keep their marketing mix constant and extend their operations to new countries.
4. Their management style remains centralized for their home nation and extended top down
to the overseas market country.

3. Multinational Company

After sometime, international companies realize that the domestic model and practices
adopted through extension policies do not serve the purpose. The foreign customers may
not prefer the products that are sold in domestic market. Hence, these companies respond
to the needs of different customers in different countries and produce such goods and
services  that will satisfy them.

Features:

1. Companies when they spread their wings to more nations become multinational
companies.
2. Sooner or later they realize that they have to change their marketing mix according to the
foreign market.
3. This can also be termed as multi domestic,in which different strategies are adopted for
different market.
4. The management of such companies remains decentralized and even production may be in
the host country.
5. Performance evaluation is done at different host countries.

4. Global

The global company adopts global strategy for marketing its products.It may produce
either in the home country or in any other single country and market its products
throughout the world.It may also produce the products globally and market them
domestically.

Features:

1. Such companies have a global marketing strategy.

2. They either produce in home country or in a single country and focus marketing globally.
3. They adapt to the market conditions according to the foreign market.
4. Their performance evaluation is done worldwide.

5. Transnational Company

Transnational Company operates at the global level by way of utilizing global resources to
serve the global markets. It has geocentric orientation and has integrated network.Its key
assets are dispersed and every sub-unit of the company contributes towards achievement
of the company objectives. It produces best quality raw materials from the cheapest source
in the world,process them in the country wherever it is economical and sells the finished
products in those markets where prices are favourable.

Feature:

1. Transnational companies have a geocentric approach,which means they think globally and
act locally.
2. Transnational companies collect information worldwide and scan it for use beyond
geographical boundaries.
3. The vision of such to grow more in a global way.
4. The R&D,management,product development are shared worldwide.
5. Their human resources procurement and development remains globally.

The importances of globalization are as follows:-

(a) Proper use of Resources: Globalization leads to expansion of markets and this enable
organization to make proper use of available resources.

(b) Multiple choices: No country is self sufficient and every country depends upon other
country. Globalization has solved this problem and people can have better choice to satisfy
their need.

(c) Foreign Exchange: Globalization encourage exports and discourage imports. This help
to earn foreign exchange.

(d) Creates Employment: Globalization helps to provide employment to a large number of

people. Multinational companies such as Business Process Outsource popularly known as
Call centre employs and appoint a large number of personnel with high pay scale and other
benefits.

(e) Government incentives: Government also provides various incentives in taxes,

custom duties, pre-shipment finance, post shipment finance and many more. This is done to
encourage globalization.

(f) Technology: Technology is the latest and fruitful outcome of globalization. It is the best
even gift. Technologies not only increase efficiently but the organization and everyone
having a little knowledge can update one and can stand by world. Globalization not only
enables competition but also very much helpful for profit of maximization.

(g)Spreading of Risk of Loss: Business thy name is risk. There may be different types of
losses in every business. Various losses which may be in domestic market can be easily
compensated from international market.

(h) Benefit to the consumers: Globalization encourages free and fair competition at world
level. Due to this, organizations try to supply quality goods and that also at a reduced price.
This benefits consumers.
Boost Industrilisation
Adoption of foreign test & trends
Challenges of Globalism for Business
Along with arguments supporting the benefits of a more globally connected economy,
critics question the ethics and long-term feasibility of profits captured through global
expansion. Some argue that the expansion of global trade creates unfair exchanges between
larger and smaller economies. They argue that MNCs and industrialized economies capture
significantly more value because they have more financial leverage and can dictate
advantageous terms of exchange, which end up victimizing developing nations. Critics also
raise concerns about damage to the environment, decreased food safety, unethical labor
practices in sweatshops, increased consumerism, and the weakening of traditional cultural
values.

As MNCs do business in new global markets, they may encounter several

significant challenges:
 Ethical Business Practices: Arguably the most substantial of the challenges faced by
MNCs, ethical business practices in areas such as labor, product safety, environmental
stewardship, corruption, and regulatory compliance have historically played a
dramatic role in the success or failure of global players. For example, Nike’s brand
image was hugely damaged by reports that it utilized sweatshops and low-wage
workers in developing countries. In some nations, particularly those without a strong
rule of law, bribing public officials (e.g., paying them off with gifts or money) is
relatively common by those seeking favorable business terms. Although national and
international laws exist to crack down on bribery and corruption, some
businesspeople and organizations are pressured to go along with locally accepted
practices. Maintaining the highest ethical standards while operating in any nation is
an important consideration for all MNCs.
 Organizational Structure: Another significant hurdle is the ability to efficiently and
effectively incorporate new regions within the value chain and corporate structure.
International expansion requires enormous capital investments in many cases, along
with the development of a specific strategic business unit (SBU) in order to manage
these accounts and operations. Finding a way to capture value despite this fixed
organizational investment is an important initiative for global corporations.
 Public Relations: Public image and branding are critical components of most
businesses. Building this public relations potential in a new geographic region is an
enormous challenge, both in effectively localizing the message and in the capital
expenditures necessary to create momentum.
 Leadership: It can be difficult for businesses to find effective organizational
leadership with the appropriate knowledge and skills to approach a given geographic
market successfully. For every geography worldwide, unique sets of strategies and
approaches apply to language, culture, business networks, management style, and so
forth. Attracting talented managers with high intercultural competence is a critical
step in developing an effective global strategy.
 Legal and Regulatory Structure: Every nation has unique laws and regulations
governing business. MNCs need access to legal expertise to help them understand in-
country laws and comply with applicable regulations. It is important for businesses
to understand the legal and regulatory climate for their industry and type of
 organization before entering a new market, so that this information can be factored
into the business case and strategic decisions about where and how to expand
globally, as well as strategic and operational planning to ensure profitability.

For organizations operating in developing and less-developed countries, additional

challenges can arise, particularly in the following areas:

 Infrastructure: Infrastructure includes the basic physical and organizational

structures needed for a society to operate and for an economy to function. It can be
generally defined as the set of interconnected structural elements that provide a
framework supporting an entire structure of development, such as roads, bridges,
water supply, sewers, electrical grids, telecommunications, and so forth. It also
includes organizational structures such as a stable government, property rights,
judicial system, banking and financial systems, and basic social services such as
schools and hospitals. A country’s infrastructure will help determine the ease of
doing business within that nation. For example, a country with poor road conditions
and intense traffic may not be the best place to conduct business that requires goods
to be transported from city to city by land. Poor infrastructure makes it difficult for
businesses to operate effectively because they have to shoulder additional cost and
risk to make up for what the country’s society does not provide.
 Technology: The level of technological development of a nation affects the
attractiveness of doing business there, as well as the type of operations that are
possible. Companies may encounter a variety of technological challenges doing
business in foreign countries, such as training workers on unfamiliar equipment;
poor transportation systems that increase production and distribution costs; poor
communication facilities and infrastructure; challenges with technology literacy; lack
of reliable access to broad-band Internet and related technologies that
facilitate business planning, implementation, and control.

Multinational Corporations (MNCs):-

Definition: A multinational company is a business that operates in many different
countries at the same time. In other words, it’s a company that has business activities in
more than one country.
Today’s international markets are almost unavoidable even for smaller companies. The
influx of Chinese manufacturing and less expensive Asian labor has pushed large and small
companies to invest in operations and expansions overseas.
A multinational corporation is a company that operates in its home country, as well as in
other countries around the world. It maintains a central office located in one country,
which coordinates the management of all other offices such as administrative branches or
factories.
Features of Multinational Corporations (MNCs):
Following are the salient features of MNCs:
(i) Huge Assets and Turnover:
Because of operations on a global basis, MNCs have huge physical and financial assets. This
also results in huge turnover (sales) of MNCs. In fact, in terms of assets and turnover, many
MNCs are bigger than national economies of several countries.

(ii) International Operations Through a Network of Branches:

MNCs have production and marketing operations in several countries; operating through a
network of branches, subsidiaries and affiliates in host countries.

(iii) Unity of Control:

MNCs are characterized by unity of control. MNCs control business activities of their
branches in foreign countries through head office located in the home country.
Managements of branches operate within the policy framework of the parent corporation.

(iv) Mighty Economic Power:

MNCs are powerful economic entities. They keep on adding to their economic power
through constant mergers and acquisitions of companies, in host countries.

(v) Advanced and Sophisticated Technology:

Generally, a MNC has at its command advanced and sophisticated technology. It employs
capital intensive technology in manufacturing and marketing.

(vi) Professional Management:

A MNC employs professionally trained managers to handle huge funds, advanced

technology and international business operations.

(vii)Aggressive Advertising and Marketing:

MNCs spend huge sums of money on advertising and marketing to secure international
business. This is, perhaps, the biggest strategy of success of MNCs. Because of this strategy,
they are able to sell whatever products/services, they produce/generate.
(viii) Better Quality of Products:

A MNC has to compete on the world level. It, therefore, has to pay special attention to the
quality of its products.

Advantages of MNCs from the Viewpoint of Host Country:

(i) Employment Generation:

MNCs create large scale employment opportunities in host countries. This is a big
advantage of MNCs for countries; where there is a lot of unemployment.

(ii) Automatic Inflow of Foreign Capital:

MNCs bring in much needed capital for the rapid development of developing countries. In
fact, with the entry of MNCs, inflow of foreign capital is automatic. As a result of the entry of
MNCs, India e.g. has attracted foreign investment with several million dollars.

(iii) Proper Use of Idle Resources:

Because of their advanced technical knowledge, MNCs are in a position to properly utilise
idle physical and human resources of the host country. This results in an increase in the
National Income of the host country.

(iv) Improvement in Balance of Payment Position:

MNCs help the host countries to increase their exports. As such, they help the host country
to improve upon its Balance of Payment position.

(vi) Technical Development:
MNCs carry the advantages of technical development 10 host countries. In fact, MNCs are a
vehicle for transference of technical development from one country to another. Because of
MNCs poor host countries also begin to develop technically.

(vii) Managerial Development:
MNCs employ latest management techniques. People employed by MNCs do a lot of
research in management. In a way, they help to professionalize management along latest
lines of management theory and practice. This leads to managerial development in host
countries.
(viii) End of Local Monopolies:
The entry of MNCs leads to competition in the host countries. Local monopolies of host
countries either start improving their products or reduce their prices. Thus MNCs put an
end to exploitative practices of local monopolists. As a matter of fact, MNCs compel
domestic companies to improve their efficiency and quality.

In India, many Indian companies acquired ISO-9000 quality certificates, due to fear of
competition posed by MNCs.
(ix) Improvement in Standard of Living:
By providing super quality products and services, MNCs help to improve the standard of
living of people of host countries.

(x) Promotion of international brotherhood and culture:

MNCs integrate economies of various nations with the world economy. Through their
international dealings, MNCs promote international brotherhood and culture; and pave
way for world peace and prosperity.

Limitations of MNCs from the Viewpoint of Host Country:

(i) Danger for Domestic Industries:

MNCs, because of their vast economic power, pose a danger to domestic industries; which
are still in the process of development. Domestic industries cannot face challenges posed
by MNCs. Many domestic industries have to wind up, as a result of threat from MNCs. Thus
MNCs give a setback to the economic growth of host countries.

(ii) Repatriation of Profits:
(Repatriation of profits means sending profits to their country).

MNCs earn huge profits. Repatriation of profits by MNCs adversely affects the foreign
exchange reserves of the host country; which means that a large amount of foreign
exchange goes out of the host country.

(iii) No Benefit to Poor People:

MNCs produce only those things, which are used by the rich. Therefore, poor people of host
countries do not get, generally, any benefit, out of MNCs.

(iv) Danger to Independence:
Initially MNCs help the Government of the host country, in a number of ways; and then
gradually start interfering in the political affairs of the host country. There is, then, an
implicit danger to the independence of the host country, in the long-run.

(v) Disregard of the National Interests of the Host Country:

MNCs invest in most profitable sectors; and disregard the national goals and priorities of
the host country. They do not care for the development of backward regions; and never
care to solve chronic problems of the host country like unemployment and poverty.

(vi) Misuse of Mighty Status:

MNCs are powerful economic entities. They can afford to bear losses for a long while, in the
hope of earning huge profits-once they have ended local competition and achieved
monopoly. This may be the dirties strategy of MNCs to wipe off local competitors from the
host country.

(vii) Careless Exploitation of Natural Resources:

MNCs tend to use the natural resources of the host country carelessly. They cause rapid
depletion of some of the non-renewable natural resources of the host country. In this way,
MNCs cause a permanent damage to the economic development of the host country.

(viii) Selfish Promotion of Alien Culture:

MNCs tend to promote alien culture in host country to sell their products. They make
people forget about their own cultural heritage. In India, e.g. MNCs have created a taste for
synthetic food, soft drinks etc. This promotion of foreign culture by MNCs is injurious to the
health of people also.

(ix) Exploitation of People, in a Systematic Manner:

MNCs join hands with big business houses of host country and emerge as powerful
monopolies. This leads to concentration of economic power only in a few hands. Gradually
these monopolies make it their birth right to exploit poor people and enrich themselves at
the cost of the poor working class.

Advantages from the Viewpoint of the Home Country:

Some of the advantages of the MNCs from the viewpoint of the home country are:
(i) MNCs usually get raw-materials and labour supplies from host countries at lower prices;
specially when host countries are backward or developing economies.

(ii) MNCs can widen their market for goods by selling in host countries; and increase their
profits. They usually have good earnings by way of dividends earned from operations in
host countries.

(iii) Through operating in many countries and providing quality services, MNCs add to their
international goodwill on which they can capitalize, in the long-run.

Limitations from the Viewpoint of the Home Country:

Some of the limitations of MNCs from the viewpoint of home country may be:
(i) There may be loss of employment in the home country, due to spreading manufacturing
and marketing operations in other countries.

(ii) MNCs face severe problems of managing cultural diversity. This might distract
managements’ attention from main business issues, causing loss to the home country.
(iii) MNCs may face severe competition from bigger MNCs in international markets. Their
attention and finances might be more devoted to wasteful counter and competitive
advertising; resulting in higher marketing costs and lesser profits for the home country.

Multinational Corporations in India:

MNCs have been operating in India even prior to Independence, like Singer, Parry, Philips,
Unit- Lever, Proctor and Gamble. They either operated in the form of subsidiaries or
entered into collaboration with Indian companies involving sale of technology as well as
use of foreign brand names for the final products. The entry of MNCs in India was
controlled by existing industrial policy statements, MRTP Act, and FERA. In the pre-reform
period the operations of MNCs in India were restricted.

New Industrial Policy 1991 and Multinational Corporations:

The New Industrial Policy 1991, removed the restrictions of entry to MNCs through various
concessions. The amendment of FERA in 1993 provided further concession to MNCs in
India.

At present MNCs in India can—

(i) Increase foreign equity up to 51 percent by remittances in foreign exchange in specified
high priority areas. Subsequently MNCs are free to own a majority share in equity in most
products.

(ii) Borrow money or accept deposit without the permission of Reserve Bank of India.

(iii) Transfer shares from one non-resident to another non-resident.

(iv) Disinvest equity at market rates on stock exchanges.

(v) Go for 100 percent foreign equity through the automatic route in Specified sectors.

(vi) Deal in immovable properties in India.

(vii) Carry on in India any activity of trading, commercial or industrial except a very small
negative list.

Thus, MNCs have been placed at par with Indian Companies and would not be subjected to
any special restrictions under FERA.

Reasons for the Growth of MNCs:

(a) Availability of Raw Materials:
If good quantity of materials are available in a country for a particular product, it may
import the required plant and machinery including technical know-how if required and
export the finished product to other countries instead of importing raw material and
export the finished product after manufacturing for non-availability of materials by
avoiding two-way shipping traffic.

Similarly, for the same reason, many industrial firms, particularly the mining companies,
e.g., copper, gold, iron-ore etc. have little choice and they are localised at the sites of their
raw materials.

(b) Non-Transferable Knowledge:

It is quite possible for firms to sell their technical knowledge as patent rights and to issue
the licence to a foreign producer at the cost which is known as royalty. Naturally it relieves
the firm from making direct investment.

At the same time, a firm can make a larger amount of profit from foreign production itself
who has a production process or product patent since there are some knowledge which can
neither be sold nor be transferred to others and which is the result of past experience for a
long period.

(c) Protecting Secrecy:

If secrecy is the criterion direct investment may be preferred to issue a licence for a foreign
company to produce a product This has been pointed out by Erich Spitaler.

(d) The Product Life Cycle Hypothesis:

In order to increase profit, a corporation must venture abroad particularly where markets
are not developed and where there is less competition if it is found that opportunities for
further gains at home eventually dry up This induces to make direct investment in the
natural consequence of being in business for a long time and quite successful at home.

There is an inevitability in this view that has concerned those who believe that American
firms are further along in their life cycle development than the firms of other nations and
are, therefore, dominant in foreign expansion .

(e) Availability of Capital and Organisational Factors:

Access to capital markets tends to a firms to move abroad Because it is known to us that the
smaller one-country does not possess the equal access to cheaper funds like larger firms
and thus larger firms can move towards foreign markets with a lower discount rate as far
as practicable.

(f) Avoiding Regulation:

In order to avoid various regulation direct investment are made by banks It may also be
treated as a motivation for foreign investment by manufacturing firms For example, in
U.S.A. some firms have moved to escape standards fixed by the U.S. Environmental
Protection Agency, and other agencies.

(g) Production Flexibility:

A time comes when cost of production in one country may be low due to a real depreciation
of its currency. To take that advantage, various multinational firms may relocate
production to exploit the opportunities what real depreciations offer.

It, no doubt, requires that necessary technology and improved methods can be transferred
easily between the countries and the Government and Trade Unions must not make the
shifting of production very complicated.

(h) Avoiding Tariffs and Quotas:

Another reason for producing abroad instead of producing at home and shipping the
product concerns the import tariffs that might have to be paid’. In other words, if there is
import duty, a firm will produce its article inside the foreign market in order to avoid
import duty.

It is known to us that tariffs protect the firms engaged in production in the foreign market,
irrespective of the fact that the firm is a foreign one or indigenous one.

Thus, the movement of firms is the result of direct investment because tariffs cannot
express why a foreign firms tends to go abroad The same thing is happened is case of tax
concessions, subsidy or free land offerings, etc. i.e., they cannot explain the reason for
direct investment as we know, usually, foreign firms are not helped more than the domestic
firms.

In other words, there are other reasons for direct investment as well. Although we know
that threat of tariffs or quantitative restrictions on imports in the form of quotas have
leaded direct investment abroad.

Major Challenges: -
Competition: - Indigenous business – a threat, MNC’s - Already rooted
Restricted foreign investments: -
Technologically behind;  Unfriendly to resources and the environment;  Engaged in the
exploitation of minerals that are specifically protected by the State; or  Classified as
industries that the government is opening up in stages
Increased surveillance and Criticisms: Indian MNCs face surveillance abroad, the
territorial governments keep watchdogs to assess the overall activity of the corporation.
Steps to face criticisms:  (1) Reducing cost and risk;  (2) Strengthening legitimacy and
reputation;  (3) Building competitive advantage; and  (4) Creating win–win situations
through synergistic value creation.
Cross cultural issues and values affecting Organizational culture: Motivational
approaches • Eg. Asian Paints manager
Ethical issues: Manipulation of stock markets • Lobbying • Fudging of accounts and
balance sheet: • Product Piracy • Surrogate and deceptive advertising • Discrimination in
selection, compensation and promotion
CSR is becoming compulsion: (1) Clear in terms of objectives and aspirations, (2)
Transparent from both sides and (3) Committed with a better prospect through continuous
feedback.
Corruption: Of India • Of the other nation
Subversion: Riots, political emergency situations, terrorism and government regulations
to protect domestic business
Norms, Policies and Political challenges: a. Unfair legal proceedings b. Government
regulations c. Reserved workers d. Taxation

BREXIT:-
Brexit is an abbreviation for "British exit," referring to the U.K.'s decision in a June 23, 2016
referendum to leave the European Union (EU). The vote's result defied expectations and
roiled global markets, causing the British pound to fall to its lowest level against the dollar
in 30 years. Former Prime Minister David Cameron, who called the referendum and
campaigned for the U.K. to remain in the EU, announced his resignation the following day.
Theresa May, who replaced Cameron as leader of the Conservative Party and prime
minister, stepped down as party leader voluntarily on June 7, 2019 after facing severe
pressure to resign and failing three times to get the deal she negotiated with the EU
approved by the House of Commons. The following month, Boris Johnson, a former Mayor
of London, foreign minister, and editor of The Spectator newspaper, was elected prime
minister.

Johnson, a hardline Brexit supporter, campaigned on a platform to leave the EU by the

October deadline "do or die" and said he was prepared to leave the EU without a deal. U.K.
and EU negotiators agreed on a new divorce deal on Oct. 17. The main difference from
May's deal is that the Irish backstop clause has been replaced with a new arrangement. The
revised protocol on Ireland and Northern Ireland is available to read here.

The U.K. was expected to leave the EU by Oct. 31, 2019, but the U.K. Parliament voted to
force the government to seek an extension to the deadline and also delayed a vote on the
new deal. Boris Johnson then called for a general election. In the December 12 election, the
third general election in less than five years, Johnson's Conservative Party won a huge
majority of 364 seats in the House of Commons out of the 650 seats. It managed this
despite receiving only 42% of the vote, due to their opponents being fractured between
multiple parties.

BREXIT means India:-

1) First- In UK pound cost reducem Indian start travel & study improved in UK
2) Second- Forex trade agreement between India & UK
3) Third- For EU Indian market is more attractive for investment
4) Fourth- UK Allowed immigration of high skill employee from India
5) Fifth- US change strategy , FDI, foreign investment instated with higher rate
of interest
Impact of BREXIT on India:-
A) Positive Impact- Free Trade Agreement, Easy Market Access.
B) Negative Impact- Currency Volatility, Spike in the price of import, Overhead cost
increase, short term EU market for Indian firms
Global impact of BREXIT:-
1) Increase competition between countries
2) Affect global Growth
3) Countries moving towards global trade agreement
4) India more affected as EU is a major market
5) Financial Crisis
6) 25% of reduction in Import of Britain
7) Brexit demand for Scotland to exist from U.K