Overview of International Business

International Business Prof. Samir V. Charania 1.
Overview
CHAPTER 1. OVERVIEW OF INTERNATIONAL BUSINESS

INTRODUCTION:
Change is occurring at an accelerating rate. Today is not like yesterday, and tomorrow will
be different from today. Continuing today’s strategy is risky, so is turning to a new strategy.
Business activities beyond the political boundaries of the country are termed as
international Business. Global trade, inter-regional trade, world trade, & export marketing
are some terms which are to some extent identical with the term international Business.
DEFINITION:
1. International Business is the multinational process of planning & executing the
conception, pricing, promotion & distribution of ideas, goods & services to create exchanges
between nations to satisfy individual & organizational objectives.
2. Business activities beyond the political boundaries of the country is termed as

international marketing.
DIFFERENCE BETWEEN INTERNATIONAL BUSINESS & DOMESTIC BUSINESS:

International Business Domestic Business
1. Meaning It refers to planning It refers to planning,
organizing, directing and organizing directing and
controlling activities relating controlling activities relating
to export business. to domestic marketing
2. Exchange of Goods Exchange of goods is allowed Free exchange of goods is

subject to certain restrictions allowed within the country.
3. Languages/Culture Since it involves many It involves only one nation

nations, there are diverse and mostly one language
languages and cultures. and one culture.
4. Currencies It involves multiple There is a-use of single

currencies. currency.
5. Seale of Operation It’s scale of operations are It’s scale of operations are
diversified throughout the confined to a limited area
globe
6. Government Influence To a great extent, export There is less government
business is affected by interference.
government decisions
7. Risks There are high risks and Domestic marketing is
uncertainties, both political subject to minimum risks
and commercial and uncertainties.
8. Mobility of Factors of There is lower mobility of Normally, there is free

Production factors of production. mobility of factors of
production.
9. Monetary System It is subject to different There is one monetary and
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International Business Prof. Samir V. Charania 1.Overview
monetary and economic economic system.

systems.
10. Procedures It involves complicated It involves simple procedures
procedures and a lot of less documents.
documentation work.
11. Taxes and Levies It is subject to tariff and non- It is subject to simple taxes
tariff barriers.
INTERNATIONAL BUSINESS APPROACHES: (EPRG FRAMEWORK):

International business approaches are similar to the stages of internationalization or
globalization. Douglas Wind and Pelmutter advocated four approaches of international
business. They are:
1. Ethnocentric Approach
2. Polycentric Approach
3. Regiocentric Approach
4. Geocentric Approach.
1. Ethnocentric Approach:
The domestic companies normally formulate their strategies, their product design and their
operations towards the national markets, customers and competitors. But, the excessive
production more than the demand for the product, either due to competition or due to
changes in customer preferences push the company to export the excessive production to
foreign countries. The domestic company continues the exports to the foreign countries and
views the foreign markets as an extension to the domestic markets just like a new region.
The executives at the head office of the company make the decisions relating to exports
and, the marketing personnel of the domestic company monitor the export operations with
the help of an export department.
The company exports the same product designed for domestic markets to foreign countries
under this approach. Thus, maintenance of domestic approach towards international
business is called ethnocentric approach.
This approach is suitable to the companies during the early days of internationalization and
also to the smaller companies.
2. Polycentric Approach
The domestic companies which are exporting to foreign countries using the ethnocentric
approach find at the later stage that the foreign markets need an altogether different
approach.
Then, the company establishes a foreign subsidiary company and decentralizes all the
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operations and delegates decision-making and policy making authority to its executives. In
fact, the company appoints executives and personnel including a chief executive who
reports directly to the Managing Director of the company. Company appoints the key
personnel from the home country and all other vacancies are filled by the people of the host
country. The executives of the subsidiary formulate the policies and strategies, design the
product based on the host country's environment (culture, customs, laws, government
policies etc.) and the preferences of the local customers. Thus, the polycentric approach
mostly focuses on the conditions of the host country in policy formulation, strategy
implementation and operations.
3. Regiocentric Approach
The company after operating successfully in a foreign country thinks of exporting to the
neighboring countries of the host country. At this stage, the foreign subsidiary considers the
regional environment (for example, Asian environment like laws, culture, policies etc.) for
formulating policies and strategies. However, it markets more or less the same product
designed under polycentric approach in other countries of the region, but with different
market strategies
4. Geocentric Approach
Under this approach, the entire world is just like a single country for the company. They
select the employees from the entire globe and operate with a number of subsidiaries. The
headquarters coordinate the activities of the subsidiaries. Each subsidiary functions like an
independent and autonomous company in formulating policies, strategies, product design,
human resource policies, operations etc.
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EXTERNAL FACTORS OF INTERNATIONAL BUSINESS ENVIRONMENT:

Everyday our market is changing the way it is. Many new things are developed and in a
matter of about some seconds, the whole scenario stands different in front of us. Among
them, there are many things that we can control and then there are other things that fall
beyond our control and those are called systematic factors. Systematic things happen in the
environment we live in, the environment that surrounds us and many times they greatly
influence us.
Businesses are also influenced by the environment that they’re in and all the situational
factors that determine circumstances from day to day. It is because of this, that businesses
need to keep a check and constantly analyze the environment within which they run their
trade and within which the market lays.
External Factors affecting International Business Environment are as follows:
1. Political Environment:
The political environment can be one of the less predictable elements in a business. Any
business needs to monitor the changing political environment because political change can
profoundly affect an organization. Any political environment of a country can be either
blessing for some business or curse for other business. In other sense, it provides
opportunity to some business and threats to others. A businessman has to adjust his
business to the prevailing political environment as he is left with no choice.
Political factors take into account the political situation of a country and the world in
relation to the country. For example, what sort of government leadership is affecting what
decisions of a country? All the policies, all the taxes laws and every tariff that a government
levies over a trade falls under this category of factors
2. The Economic & Commercial Environment:

The economic environment refers to all those economic factors, which have bearing on the
functioning of a business unit. Business depends on the economic environment to buy its
input as well as to sell it.
Important economic & commercial factors are as follows:
1. Gross National Product
2. Per Capita Income
3. Balance of trade position
4. Industry life cycle and current phase through which industry is passing. (Boom, Recession
and depression)
5. The inflation rate
6. Rate of Interest charged by commercial banks.
7. The monetary or fiscal policies
8. The foreign exchange rates that affect imports and exports
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All these determine the direction in which an economy might move, therefore businesses
analyze this factor based on their environment so as to build strategies that fall in line with
all the changes that are about to occur
3. The Social and Cultural Environment:

Culture represents religion, language, upbringing and education of any human being. Social
Class comprises of Income, Occupation, location of residence etc.
In such an environment, it is crucial for businesses to fully understand the cultural values of
a society, especially where an organization is seeking to do business in a country where
social and cultural values keep changing in all areas and they are given top priorities Every
country is different and every country has a unique mindset. These mindsets cast an impact
on the businesses and the sales of their products and services. The cultural implications, the
gender and connected demographics, the social lifestyles, the domestic structures; all of
these are studied by companies to understand the market and the consumer better.
4. Technological Environment:
The pace of technological change is becoming increasingly rapid and businessman need to
understand how technological developments will affect their businesses. Technology
changes every minute and therefore companies need to stay connected along the way and
integrate as and when needed. Also, these factors are analyzed to understand how the
consumers react to technological trends and how they utilize them for their benefit.
5. Demographic Environment:
Demography is the study of populations in terms of age and gender composition. Among the
topics of interest to demographers are the age structures of a country, the geographic
distribution of its population, the balance between male and females, and the likely future
size of the population and its characteristics. Changes in the size and age structure of the
population are critical to many organizations. For any business in any country, it is very
important to understand the demographic environment.
6. Legal Environment:
Legal Environment is the result of government intervention in the economic and business
spheres. A business has to operate within the framework of regulations and legal provisions
created by legal environment. Legislative changes occur from time to time and many of
them affect the business environment. For example, if a regulatory body would set up a
regulation for the industries, then that law would impact all the industries and business that
strife in that economy, therefore businesses also analyze the legal developments happening
in their environment.
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International Business Prof. Samir V. Charania 1.

CHAPTER 1. OVERVIEW OF INTERNATIONAL BUSINESS

2. Business activities beyond the political boundaries of the country is termed as

DIFFERENCE BETWEEN INTERNATIONAL BUSINESS & DOMESTIC BUSINESS:

2. Exchange of Goods Exchange of goods is allowed Free exchange of goods is

3. Languages/Culture Since it involves many It involves only one nation

4. Currencies It involves multiple There is a-use of single

8. Mobility of Factors of There is lower mobility of Normally, there is free

monetary and economic economic system.

INTERNATIONAL BUSINESS APPROACHES: (EPRG FRAMEWORK):

EXTERNAL FACTORS OF INTERNATIONAL BUSINESS ENVIRONMENT:

2. The Economic & Commercial Environment:

3. The Social and Cultural Environment:

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