IBM 224

BUSINESS IN INTERNATIONAL CONTEXT

Topic 1 17th July 2023

 Unit Learning Outcomes

Students will be able to;

1. Explain the evolution of International Business,

2. Discuss the characteristic features of International Business,
3. Discuss what are the influencing International Business,
4. Explain the change scenario of International Business,
5. Analyse the advantages and disadvantages of International Business.
 VIDEOS
Students will watch two videos titled;

1. “Globalization”
https://www.youtube.com/watch?v=JJ0nFD
19eT8

2. “Why International Business?”

https://www.youtube.com/watch?v=lMdhfBQUhtI\
Introduction
 Introduction
Most of you have the experience of browsing internet
and visiting different web sites, knowing the products
and services offered by various companies across the
globe. Some of you might have the experience of even
ordering and buying the products through internet.
This process gives you the opportunity of transacting
in the international business arena without visiting or
knowing the various countries and companies across
the globe.
 Introduction

You get all these different products Thus, international business is the process of
even without visiting or knowing the focusing on the resources of the globe and
country of the company where they objectives of the organizations on global
are produced. All these activities have business opportunities and threats, in order
become a reality due to the operations to produce, buy, sell or exchange of
and activities of international goods/services world-wide.
business.
 Evolution of International Business
❖ The international business-a broader economies and societies, dates back to the 19th century.
❖ Globalization (1870) – ended with WW I and beginning of Industrial Revolution in UK, Germany & USA.
❖ The import of raw materials (gold, copper, silver) was the main reason for the sharp increase in the trade
during this phase.
❖ The global trade caused a need for international cooperation in global trade and balance of payments affairs.
❖ These efforts resulted in the establishment of International Monetary Fund (IMF) and World Bank).
❖ After the WWII, nations collaborated and made negotiations to revive the economies by establishing
International Trade Organization. (Tariffs were reduced, which resulted in forming WTO).
❖ The efforts of IMF, World Bank and WTO along with the efforts of individual countries due to economic
limitations of the closed economies led to the globalization of business. Globalization gave fillip to
international business particularly during 1990s.
 Evolution of International Business

International Trade to International Marketing:

International trade refers to

exchanging goods and services across
national borders, while international
marketing refers to promoting and
selling products or services in different
countries.
 Evolution of International Business
International Marketing to International Business:

The multinational companies which

were producing the products in their
home countries and marketing them in
various foreign countries before 1980s,
started locating their plants and other
manufacturing facilities in foreign/host
countries. Later, they started producing
in one foreign country and marketing in
other foreign countries.
 INTERNATIONAL
BUSINESS MODEL

Every company in the

International Business will
pass through the 5 different
stages of Internationalization
Characteristic Features of International Business
For example,
Conducting and managing
international business Most of the African consumers prefer less costly products due to their
operations is an important poor economic conditions, whereas, the German consumers prefer
venture due to differences in high quality and high priced products due to their higher ability to
political, social, cultural and buy.
economic factors, from one
country to another country. Therefore, the international businessman should produce and export
less costly products to most of the African countries and vice versa to
most of the European and North American countries.

High priced and high quality Palmolive soaps are marketed in European countries and the cheap
priced Palmolive soaps are exported and marketed in developing countries like India, Cambodia, PNG,
Kenya, etc.
 Characteristic features of international
business include:
1. Large Scale Operations: In International business, all the operations are conducted on a very huge scale. It first sell
its goods in the local market and then the surplus goods are exported.
2. Integration of Economy: International Business integrates (combines) the economies of many countries. This is
because it uses finance from one country, labour from other country and infrastructure from another country. It designs
the product in one country, produces its parts in many different countries and assembles in another country and sells in
many countries.
3. Dominated by developed countries and MNC’s: International Business is dominated by developed countries and
their multinational companies. Europe and Japan dominate the foreign trade, this is because they have high financial
and other resources.
4. Benefits to Participating countries: International Business has to face competition in the world market. The
competition is between unequal partners. In this situation, the developed countries are in favourable position as they
produce the superior quality goods and services, but developing countries find difficulty to face competition.
 Characteristic features of international
business include:
6. Special role of science and technology: International Business gives a lot of importance to science and
technology. Science and Technology helps the business to have a large scale production. Developed countries
use high technology. International business helps them to transfer top-end technology to the developing
countries.
7. International Restrictions: International Business faces many restrictions on the inflow and outflow of
capital, technology and goods. Many government do not allow international business to enter their countries.
They have many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is harmful to
international business.
8. Sensitive Nature: The International Business is very sensitive in nature. Any changes in the economic
policies, technology, political environment has a huge impact. Therefore it must conduct marketing research to
find out and study these changes. They must adjust their business activities and adopt accordingly to survive
changes.
9. International Business need accurate information to make appropriate decision.
10. International Business house need not only accurate but also timely information.
Factors Influencing International Business

GROUP ACTIVITY

1. Cultural Environment
2. Social Environment
1. Students will go into five different groups and
3. Technological Environment explain how each factors influence the
4. Economic Environment international business?
5. Political Environment 2. One member of the group will be selected to
present to the whole class.
 Changing Scenario of International Business

SCENARIO 1: DOMESTIC COMPANY

• Domestic company limits its operations, mission and vision to the

national political boundaries.
• This company focuses its view on the domestic market opportunities,
domestic suppliers, domestic financial companies, domestic customers
etc.
• The domestic company never thinks of growing globally. The domestic
company does not select the strategy of expansion/penetrating into the
international markets.
 Changing Scenario of International Business

SCENARIO 2: INTERNATIONAL COMPANY

• Some of the domestic companies, which grow beyond their production

and/or domestic marketing capacities, think of internationalizing their
operations.
• The focus of these companies is domestic but extends the wings to the
foreign countries.
• These companies extend the domestic product, domestic price,
promotion and other business practices to the foreign markets.
 Changing Scenario of International Business
They were over priced,
underpowered and built like tanks.

SCENARIO 2: MULTINATIONAL COMPANY

• The international companies turn into multinational companies

when they start responding to the specific needs of the different
country markets regarding product, price and promotion.
 Changing Scenario of International Business

SCENARIO 2: GLOBAL COMPANY

• A global company is the one, which has either global marketing

strategy or a global strategy.
• Global company either produces in home country or in a single
country and focuses on marketing these products globally, or
produces the products globally and focuses on marketing these
products domestically.
 Changing Scenario of International Business

SCENARIO 2: TRANSNATIONAL COMPANY

• Transnational company produces, markets, invests and

operates across the world. It is an integrated global enterprise
that links global resources with global markets at profit.
• There is no pure transnational corporation. However, most of
the transnational companies satisfy many of the characteristics
of a global corporation.
Advantages of International Business

1. High Living Standard:

2. Increased Socio-Economic Welfare:
3. Wider Market
4. Economic Growth of the World
5. Potential Untapped Markets
6. Provides the Opportunity for and Challenge to Domestic Business,
7. Economic Growth of the World,
8. Optimum and Proper Utilisation of World Resources
Disadvantages of International Business

1. Political Factors: Political instability is the major factor that discourages the spread of
international business. (Iraq-Kuwait war, Civil War in Fiji, Taliban in Afghanistan, etc.

2. Huge Foreign Indebtedness: The developing countries with less purchasing power are lured into
a debt
3. Exchange Instability.
4. Entry Requirement
5. Tariffs, Quotas and Trade Barriers
6. Corruption
7. High Cost
 Conclusion

• However, the benefits of international business outweigh the problems.

• Added to this, globalisation is the order of the day.
• Most of the countries eliminated the barriers and paved the way for the growth and
expansion of international business.
• In fact, international business, during the third millennium (2001 and beyond) is just an
extension to inter-regional business within a country.
 Points to Remember
❑ International business is evolved from international trade and international marketing.
❑ International business is a crucial venture due to the influence of varied social cultural, political, economic, natural factors,
and government policies and laws.
❑ Business firms go globally to maximise benefits and minimise risks.
❑ The five stages of internationalisation are domestic company, international company, multinational company, global
company and transnational company.
❑ International business approaches include ethnocentric approach, polycentric approach, regiocentric approach and
geocentric approach.
❑ The advantages of international business include: wider markets, high living standards, optimum utilisation of resources etc.
❑ Disadvantages of international business include: political factors, foreign exchange, tariffs, cost etc.
❑ The firms get the competitive advantages like economies of scale, latest technology, expert human resources, etc., by going
global.
 Students Activities
1. Define the meaning of International Business Environment.
2. What are the four approaches to International business. List and explain each.
3. List 5 advantages and 5 disadvantages of Domestic and International Business.
4. What is Competitive Advantages in global setting?
5. Explain in what ways do the following disadvantages affects International Business: Explain each.
a. Exchange Instability,
b. Entry Requirement,
c. Tariffs,
d. Quotas and Trade Barriers,
e. Corruption, &
f. High Cost
 References

Rao., P., S. (2008). International Business Environment. Himalaya Publishing House., Australia and
India.