Dr. S.

Venkata Siva Kumar International Business

INTERNATIONAL BUSINESS
UNIT – I: INTRODUCTION TO INTERNATIONAL BUSINESS
INTRODUCTION TO INTERNATIONAL BUSINESS: Need for International Business,
Drivers of Globalization, Distinction between Domestic and International Business,
International Business Approaches, Modes of International Business, Impediments in
International Business, Opportunities and Challenges of International Business, Ease of
Doing Business (World Bank), Multi National Corporation (MNCs), International
Business Environment: Cultural, Political, Social and Technological Environment.

Introduction
The International business means the buying & selling of the goods & services across the
border. These business activities may be government or private enterprises. Here national
border is crossed by the enterprises to expand their own business activities such as the
manufacturing, mining, construction, agriculture, banking, insurance, health, education,
transportation, communication & so on. The business enterprise that goes for the international
business has to take a very wide & long view before making any decision; it has to refer to the
social, political, historical, cultural, geographical, physical, ecological & economic aspects of
another country where it had to business.

Definitions of IB
One of the results of the increasing success of international business ventures is globalization.
The International business is defined as the global trade of goods/services or investment.
International business is an exchange of goods and services that conducts its operations across
national borders, between two or more countries.

According to International Business Journal, “International business is a commercial enterprise

that performs economic activity beyond the boundaries of its location, has branches in two or
more foreign countries and makes use of economic, cultural, political, legal and other
differences between countries.”

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,

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Dr. S. Venkata Siva Kumar International Business

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.

Need and Importance of International Business

The scope and Importance of International business are crucial for the growth of the
economy in generating employment, earning foreign currency and many more ways.
The importance of international business can be understood through the following points:

 Economic growth - By promoting more trade, investment and entrepreneurial activity

among the countries plays an important role in the growth of the economy.
Through international business job opportunities are generated which increases the
income of the individuals.
 More innovation and technology - Another importance of international business is
that in today's globalisation era, everything is conducted through technological support
which is also required for companies to improve and speed up their activity.
 Political cooperation - Economic interdependence between two countries leads a better
negotiation, communication or resolving disputes between two countries which leads to
cooperation in various policies like trade policy, environmental policies etc.
 Cultural exchange - International business between two different countries promotes
the exchange and also understanding of people with different cultures who interact, learn
from one another and respect each other's culture.
 Employment opportunity - More employment opportunities are created
through international business which helps in improving the standard of living of people
of one country along with the other countries involved.
 Proper utilisation of resources - Resources are properly used when the rest of the extra
goods are exported to the other country while already meeting the needs of the consumers
as per their needs.

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Drivers of International Business

Drivers of international business are factors that prompt companies or businesses to engage in
international business. Such factors include the following:

Higher Rate of Profits:

The basic objective of the business is to achieve profits. When the domestic markets don’t
promise a higher rate of profits, business firms search for foreign markets where there is a
scope for a higher rate of the profits. Therefore, the objective of profit affects & motivates the
business to expand operations to the foreign countries. For example, Hewlett Packard in the
USA earns more than half of its profits from the foreign markets as compared to that of
domestic markets.

Expanding the Production Capacities beyond the Demand of Domestic Country:

Some of the domestic companies expand their production capacities more than the demand for
the product in the domestic countries. In such cases, these companies are forced to sell their
extra production in foreign developed countries. Toyota of Japan is an example.

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Limited Home Market:

When a size of the home market is limited either due to the smaller size of the population or
due to the lower purchasing power of all people or both, the companies internationalize their
operations. For example, most of the Japanese automobiles & electronics firms entered the
USA, Europe & even African markets due to the smaller size of the home market. ITC entered
the European market due to the lower purchasing power of the Indians with regard to high-
quality cigarettes.

Political Stability vs. Political Instability:

The Political stability doesn’t simply mean that the continuation of the same party in power,
but it means that continuation of the same policies of the Government for a quite long period.
Business firms prefer to enter the politically stable countries & are restrained from locating
their own business operations in politically unstable countries. In fact, business firms shift their
operations from politically unstable countries to politically stable countries.

Availability of Technology & Competent Human Resources:

Technology is one of the major drivers of international business. Availability of advanced
modern technology facilitates international business. The Availability of advanced technology
& competent human resources in some countries act like pulling factors for business firms from
other countries. For example, American & European companies, in recent years, have been
depended on Indian companies for the software products & the services through their business
process outsourcing (BPO). This is due to the cost of human resources in India is
almost/approximately 10 to 15 times less compared to the US & European labour markets.

High Cost of Transportation:

Initially the companies enter foreign countries for their marketing operations. But the home
companies in any country enjoy their higher profit margins as compared to the foreign firms
on account of the cost of transportation of the products. Under such conditions, the foreign
companies are inclined to increase their profit margin by locating their manufacturing facilities
in foreign countries through Foreign Direct Investment (FDI) route to satisfy the demand of
either one of the countries or the group of neighbouring countries.

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Availability of Raw Materials:

The availability of raw material is a major driver of international business. Domestic countries
are highly attracted to foreign countries endowed with such materials. The source of highly
qualitative raw materials & bulk raw materials is a major factor in attracting companies from
various foreign countries. For example, Vedanta Resources is a London Stock Exchange (LSE)
listed UK based company operating principally in India due to the availability of raw materials
such as iron ore, copper, zinc & lead.

Liberalization & Globalization:

Most of the countries around the globe liberalized their economies &opened their countries to
the rest of the globe. These change in the policies attracted multinational companies to the
extent their operations to these countries.

Growth in Market Share:

Some of the large-scale business firms would like to enhance their market share in the global
market by expanding & intensifying their operations in various foreign countries. The Smaller
companies expand internationally for survival while the larger companies expand to increase
their market share. For example, Ball Corporation, the 3rd largest beverage can manufacturer
in the USA, bought the European packaging operations of Continental Can Company.

Limited domestic market:

A market is described as limited when its population size is small or the consumers’ purchasing
power (real income) is low or the company is matured in its domestic market or a combination
of two or more. The occurrence of any of the above implies the revenue generated is inadequate
to attract full manufacturing economies of scale. This drives companies to internationalise their
operations.

Higher profit margins:

The cardinal objective of a profit-oriented company is to obtain higher profit margins. If the
home market is not profit promising enough, companies will be forced to either quit their home
markets or reduce their home operations and enter foreign markets where the promise is higher.
Increased market share:

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Increase or growth in market share is one of the drivers of international business. Firms would
like to increase their customer base, hence market share, by expanding and intensifying their
operations in foreign markets.

Communication:
Domestic companies can easily contact foreign markets through the application of advanced
information technology such as the internet. Consumers too can reach businesses in foreign
countries through www (world wide web). International businesses are now conducted through
e-commerce or merely over phones. Today, one can get involved in international business
without stepping their feet out of their country.

Formation of trading blocs:

Formation of trading blocs, regional or international, has enhanced high degree of cooperation.
The objective of the formation of trading blocs is to promote businesses within the framework
of their powers by allowing the creation of free trade zones in which trade or investment
barriers are removed.
Examples of trading blocs include, World Trade Organization (WTO), European Union (EU),
North American Free Trade Agreement (NAFTA) and South Asian Free Trade Agreement
(SAFTA). The removal of trade barriers drives international business.

Disparities in tax system:

Companies are normally forced out of countries where high level of taxes are levied to
countries where taxes imposed are nominal. Some countries adjust their tax systems in the bid
to attract foreign direct investment.

Emerging markets:
Emerging markets are untapped or unexplored markets with high potential and scope for
business operationalisation. Companies that want to expand internationally would seek to
operate in such markets.

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Benefits of International Business

High Living Standards: Comparative cost theory indicates that the countries which have the
advantages of raw materials, human resources, natural resources & climatic conditions in
producing particular goods can produce the products at low-cost & also of high quality.
Customers in various countries can buy more products with the same amount of money. In
turn, it can also enhance the living standards of the people through enhanced purchasing power
& by consuming high-quality products.

Increased Socio-Economic Welfare: International business enhances consumption level, the

economic welfare of the people of the trading countries. For example, the people of China are
now enjoying a variety of products from various countries like Coca-Cola, McDonald’s range
of products, electronic products of Japan & coffee from Brazil. Thus the Chinese consumption
levels & socio-economic welfare has enhanced.

Wider Market: International business widens the market &increases the market size.
Therefore, the companies need not depend on the demand for the product in a single country
or customer’s tastes & the preferences of a single country. Due to the enhanced market Air
France now mostly depends on the demand for air travel of the customers from the countries
other than France. This is factual in case of most of the MNCs like Toyota, Honda, Xerox &
Coca-Cola.

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Reduced Effects of Business Cycles: The stages of the business cycles vary from country to
country. Therefore, MNCs shift from the country experiencing a recession to the country
experiencing ‘boom’ conditions. This enables international firms to escape recessionary
conditions.

Reduced Risks: Both commercial & political risks are reduced for the companies engaged in
the international business due to spread in the different countries. Multinationals which were
operating in erstwhile USSR were affected only partly due to their safer operations in other
countries. But the domestic companies of the then USSR collapsed entirely.

Large economies of Scale: Multinational companies due to wider &larger markets produce
larger quantities, which provide the benefits of large-scale economies like reduced cost of
production, availability of expertise, quality etc.

Potential Untapped Markets: International business provides the chance of exploring &
exploiting the potential markets which are untapped so far. These markets provide an
opportunity for selling the product at a higher price than in the domestic markets. For example,
Bata sells shoes in the UK at £ 100 (approx. Rs. 8000) whose price is around Rs. 1200 in India.

Provides the Opportunity to Domestic Business: International Business firms provide

opportunities for domestic companies. These opportunities comprise technology, management
expertise, market intelligence, product developments, etc. For example, Japanese firms like
Honda, Yamaha, and Suzuki & Kawasaki have a combined to form Joint Ventures with Indian
companies to form a Hero Honda, Birla Yamaha, Maruti Suzuki & Kawasaki Bajaj to share
the technology & the product development expertise.

Division of Labour & Specialization: International business leads to division of labor

&specialization. For example, Brazil specializes in coffee, Kenya in tea, Japan in automobiles
& electronics, India in textile garments etc.

Economic Growth of the World at large: Specialization, a division of labor, enhancement of

productivity, posing challenges, development to meet them, innovations & creations to meet
the competition leads to the overall economic growth of the world nations. The International

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business particularly helped the Asian countries like Japan, Taiwan, Korea, Philippines,
Singapore, Malaysia & the United Arab Emirates.

Optimum & Proper Utilization of World Resources: the international business provides for
the flow of the raw materials, natural resources & human resources from the countries where
they are in excess supply to those countries where they are in short supply or need most. For
example, the flow of human resources from India, consumer goods from the UK, France, Italy
& Germany to developing countries. This, in turn, helps in the optimum & proper utilization
of world resources.

Cultural Transformation: International business benefits are not purely economic or

commercial; they are even social &cultural. These days, we observe that the West is slowly
tending towards the East & vice versa. It does mean that the good cultural factors & values of
the East are acquired by the West & vice versa. Therefore, there is a close cultural
transformation & integration.

Increased Government Revenue: Government realises revenue from international business

by imposing duties on both imports and exports. Government obtains foreign exchange from
export of goods and services.

Increased Specialisation: International business brings about specialisation in the production

of particular goods usually of high quality for both domestic and international consumption.
Specialisation increases as firms’ engagement in international business increases.

Employment Opportunities: International business creates job opportunities for individuals

in both importing and exporting countries.

Consumer Benefits: International business benefits consumers by providing them with greater
product choice (i.e. a variety of products). Consumers, therefore, have access to different types
of imported goods at affordable prices. They can choose whatever goods they desire.

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Drivers of Globalization:
Globalization, the process of increased interconnectedness and interdependence among
countries, is fundamentally reshaping the economic, social, political, and cultural landscape of
the world. At its core, globalization refers to the integration of markets, economies, and
societies through cross-border flows of goods, services, capital, information, and people. It is
driven by a complex interplay of factors, often referred to as "drivers," which propel the
expansion and deepening of global linkages.

These drivers encompass a wide range of forces and phenomena that contribute to the
intensification of global interactions and the breaking down of traditional barriers between
nations. From technological advancements and trade liberalization to the rise of multinational
corporations and cultural exchange, the drivers of globalization are multifaceted and
interconnected. Understanding the drivers of globalization is essential for comprehending the
dynamics and implications of this transformative process. By analyzing the various factors
driving globalization, we can gain insights into the forces shaping the global economy, society,
and culture, as well as the opportunities and challenges they present for individuals, businesses,
and governments around the world.
1. Advancements in technology: Perhaps one of the most significant drivers, technological
innovations in transportation, communication, and information technology have greatly
facilitated globalization. The internet, digital communication tools, and efficient
transportation systems have made it easier and cheaper to conduct business, share
information, and connect with people around the world.
2. Trade liberalization: Reductions in trade barriers such as tariffs, quotas, and trade
restrictions have encouraged international trade and investment. Trade agreements like
NAFTA (North American Free Trade Agreement), the European Union, and the World
Trade Organization (WTO) have opened up markets and facilitated the flow of goods,
services, and capital across borders.
3. Capital mobility: Financial liberalization and the ease of capital movement have enabled
investment flows across borders. Financial markets have become increasingly
interconnected, allowing investors to diversify their portfolios internationally and
companies to access capital from global sources.
4. Market liberalization and deregulation: Many countries have embraced market-oriented
economic policies, deregulated industries, and privatized state-owned enterprises. This has

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created opportunities for businesses to enter new markets, compete more freely, and
expand their operations globally.
5. Labour mobility: Migration and the movement of labour across borders have increased,
driven by factors such as economic disparities, labour market demand, and skill shortages.
Labour mobility has fuelled globalization by facilitating the movement of workers to areas
where they are in demand and contributing to the transfer of knowledge and skills.
6. Global supply chains: The fragmentation of production processes across countries has
led to the emergence of global supply chains. Companies source components, assemble
products, and distribute goods across borders to take advantage of cost efficiencies, access
to specialized inputs, and market opportunities.
7. Multinational corporations (MNCs): The expansion of multinational corporations
seeking new markets, resources, and opportunities for growth has been a major driver of
globalization. MNCs operate across borders, invest in foreign markets, and engage in
global production networks, shaping the global economy and trade patterns.
8. Cultural exchange and media globalization: The spread of information, ideas, and
cultural products through media, entertainment, and digital platforms has contributed to
cultural globalization. People around the world are increasingly exposed to diverse
cultures, values, and lifestyles, leading to greater cultural exchange and integration.
9. Political factors: Political developments such as the end of the Cold War, the fall of
barriers to entry in formerly closed economies, and geopolitical shifts have facilitated
globalization by fostering cooperation, stability, and integration among countries.
10. Environmental factors: Global environmental challenges such as climate change,
resource depletion, and pollution transcend national boundaries and require international
cooperation and coordination. This has led to the emergence of global environmental
agreements and initiatives to address shared environmental concerns.

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Distinction between Domestic and International Business

Domestic Business International Business

Definition
Domestic business involves those economic International business involves those economic
transactions that take place within the transactions that take place outside the
geographical boundaries of a country. geographical boundaries of a country.
Buyer and Seller
Both the buyer and seller belong to the same The buyer and seller belong to different
country in domestic business. countries in international business.
Currency
Domestic businesses deal with the same International businesses deal with different
currency since both the buyer and seller are currencies since the buyer and seller are not
from the same country. from the same country.
Customers
There is greater homogeneity in terms of the There is greater heterogeneity in terms of the
nature of customers of domestic businesses. nature of customers of international businesses.
Geographical Boundaries
Geographical boundaries limit domestic Geographical boundaries do not limit
businesses. international businesses.
Business Research
Business Research is less complex and Business Research is more complex and
relatively cheaper for domestic businesses relatively expensive for international businesses
compared to international organisations. compared to domestic companies.
Capital Investment
Capital investment is lower for companies Capital investment is higher for companies that
that are involved in domestic business. are involved in international business.
Factors of Production
The domestic business has greater mobility The international business has lesser mobility of
of factors of production compared to factors of production compared to domestic
international business. business.
Restrictions
Domestic business involves lesser International business involves greater
restrictions than international business. restrictions than domestic business.
Quality Standards
The quality standards for domestic business The quality standards for international business
tend to be relatively lower than international tend to be relatively higher than domestic
business. business.

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International Business Approaches:

1. Ethnocentric Approach
This approach to international business is based on the values, ethics, and beliefs of the home
country. All plans are initially developed for the native nation or domestic business; the focus
on foreign business is secondary. Businesses initially respond to home market demand, and
any trade surplus is given to a foreign nation. Domestic personnel administer overseas activities
from the domestic country's headquarters. This method is especially useful for small enterprises
in the early stages of internationalisation because the expenditure required is low. There is no
considerable adjustment to the items that will be exported to a foreign country, and no
marketing research is being conducted. Businesses mostly rely on exporting commodities to
other countries.
Examples of Ethnocentric Approach – Indian clothes, dresses, food, and beverage are
exported to foreign nations where a large number of Indians live.

2. Polycentric Approach
According to this approach, the firm focuses on each host nation because they believe that each
country is unique in terms of consumer demand, preference, and taste, and that if enterprises
want to flourish in each country, they must adapt to the host country's needs. The company
establishes a subsidiary in each overseas market, and distinct marketing plans and techniques
are implemented based on the demands of the host nation. The overseas subsidiary has
decision-making authority, and its operations are decentralised. Businesses nominate workers
to critical roles in their home country, while the other posts or gaps are filled by personnel from
the host nation.
Examples of Polycentric Approach – McDonald, Starbucks, Google Doodle
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3. Regiocentric Approach
Businesses use this approach to split the world into various areas based on shared geographical,
social, and cultural environments, as well as economic and political variables. Regional
headquarters develop marketing strategy and business plans for a whole county or area.
Managers are hired or moved from many nations in the same region.

Example of Regiocentric Approach – Firms divide groups or regions on the basis of unique
similarities like SAARC countries, the Baltic region, and the Scandinavian region.

4. Geocentric Approach
According to the Geocentric approach, businesses operate as if the entire world were a single
country. Businesses hire the finest personnel from all over the world and operate via a huge
number of subsidiaries situated throughout the world that work in tandem with the
headquarters. This method is utilised by major corporations with large-scale operations and a
global presence. This technique ensures that a company's marketing strategy, HR policies, and
product design are consistent over the world. This worldwide commercial method aids in the
development of brand image and the acquisition of significant loyalty.
Examples of Geocentric Approach – Apple, Coca-Cola, Dell

Modes of International Business:

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Types of Entry Modes in International Business

Below are the different modes of international business -
1. Exporting
The traditional mode of entering into international business is Exporting. Exporting is the
simplest way to get started in foreign business. As a result, most businesses begin their global
expansion in this manner. The act of selling goods and services produced domestically in other
countries is known as exporting. Exports are classified into two types:
Direct exports are transactions in which a company sells its products directly to a buyer in
another country. At this company, you will gain first-hand market knowledge.
Indirect exports include hiring a third party's skills to facilitate the transaction. The fee is the
amount charged by the intermediary for its services.

2. Licensing
In this mode of entry, a manufacturer from the home country rents the right to their intellectual
properties, such as technology, copyrights, brand names, and so on, to a manufacturer from a
foreign country. To obtain the license, you must pay a set fee. Lessees are manufacturers who
lease, and licensees are manufacturers from the country that receives the license. Essentially,
the licensee is purchasing another company's assets (know-how or R&D). The licensor may
grant these rights non-exclusively to a single licensee or exclusively to one or more licensees.

3. Franchising
A separate company known as the franchisee operates under the brand of a different
organisation known as the franchisor in this model. Because of franchising, a franchisee can
use a name, procedure, method, or trademark. Furthermore, the franchisor company provides
raw materials, assists the franchisee with business operations, or does both.

4. Management Contracts
A company essentially rents out its knowledge or know-how to a government or business in
the form of individuals who enter the foreign setting and manage the business under
management contracts and do contract manufacturing. This strategy of entering international
markets is frequently used with a new facility after a company has been seized by the national
government or when a business is experiencing difficulties.

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5. Foreign Direct Investment

A corporation can enter a foreign market through foreign direct investment by investing
significantly there. Foreign direct investment can be used to enter the global market through
mergers and acquisitions, joint ventures, and greenfield investments. This strategy is
appropriate when there is sufficient demand, market size, or market growth potential to justify
the investment.

6. Joint Endeavors
A joint venture is one of the preferred ways to enter the global market for companies that don't
mind sharing their brand, knowledge, and expertise. Companies that want to expand into
international markets can form joint ventures with local companies in those markets, in which
both joint venture partners share the benefits and risks of the business. The investment, costs,
profits, and losses are allocated to the two corporate units in accordance with a predetermined
ratio. This method of entering the global market is suitable for countries where the government
prohibits 100 percent foreign ownership in certain industries.

Case Study - Different Modes of Entering International Business

In 1994, the corporation began offering free coffee to visitors in several Beijing hotels to
promote the Starbucks brand. This campaign demonstrated that their goods had a sizable
market in China, particularly among foreigners. People in the area who attempted to emulate
Western culture expressed a desire to drink coffee. Western brands and goods enticed the
younger generation as well. These factors prompted Starbucks executives to investigate and
comprehend the Asian country's economic environment.

Even though Starbucks encountered numerous challenges when attempting to enter the Chinese
market, by 2012, they had successfully expanded their business into over 20 large or medium-
sized Chinese cities, with over 560 stores opened. The incredible achievement is due to
meticulous marketing analysis and various marketing methods used at various times. These
strategies typically refer to joint ventures and license agreements as two distinct methods of
entering international markets.

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The above are the methods of entry into foreign markets. Before entering the global market,
the company must make a critical decision regarding its operational business plan. The best
international business model should be selected based on the company's expansion and
diversification requirements. The company's ability and willingness to devote resources, the
desired level of control, the level of risk the company is willing to accept, the level of
competition, the calibre of the infrastructure, and other factors must all be considered.

Impediments in International Business:

Navigating the complicated landscape of international commerce requires overcoming several
hurdles and impediments. From cultural subtleties to regulatory frameworks, firms confront a
slew of challenges that might impede their smooth operation and growth in the global
marketplace. These barriers take different forms, each posing distinct challenges that need
careful analysis and strategic preparation. International business faces various impediments
that can hinder its smooth operation and growth. Some common impediments include:
1. Cultural Differences: Cultural diversity across countries can lead to misunderstandings,
misinterpretations, and communication barriers. These differences can affect negotiation
styles, business etiquette, and consumer behavior.
2. Legal and Regulatory Barriers: Each country has its own set of laws, regulations, and
trade policies governing international business activities. Navigating these legal
frameworks can be complex and costly for businesses, especially when dealing with issues
such as tariffs, quotas, intellectual property rights, and labour laws.
3. Political Instability: Political instability, conflicts, and changes in government policies
can significantly impact international business operations. Unpredictable political
environments can lead to disruptions in supply chains, changes in trade policies, and the
imposition of sanctions or embargoes.
4. Economic Factors: Economic fluctuations, currency exchange rate volatility, inflation,
and economic downturns can affect the profitability and viability of international business
ventures. Economic instability in one country can have ripple effects on businesses
operating globally.
5. Trade Barriers: Trade barriers such as tariffs, quotas, import/export restrictions, and non-
tariff barriers (e.g., product standards, licensing requirements) can hinder market access
and increase the cost of doing business internationally.

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6. Language Barriers: Language differences can create communication challenges and

hinder effective collaboration between business partners, employees, and customers from
different linguistic backgrounds.
7. Infrastructure and Logistics: Inadequate infrastructure, transportation networks, and
logistical challenges in certain regions can increase the cost and complexity of
international trade and supply chain management.
8. Ethical and Social Responsibility Concerns: Differences in ethical standards and social
norms across countries can pose challenges for businesses in terms of corporate social
responsibility, environmental sustainability, labour practices, and ethical sourcing.
9. Risk Management: Operating in multiple countries exposes businesses to various risks,
including geopolitical risks, legal risks, financial risks, and operational risks. Managing
these risks effectively is essential for the success and resilience of international business
operations.
10. Market Entry Barriers: Entering new markets can be challenging due to factors such as
competition, market saturation, regulatory requirements, and cultural barriers. Businesses
need to conduct thorough market research and develop appropriate market entry strategies
to overcome these barriers.

Opportunities of International Business:

1. Access to new markets: International business allows companies to enter new markets
and tap into new customer bases. This can lead to increased sales and revenue growth.
2. Diversification: Operating in multiple countries can help companies diversify their
revenue streams and reduce their dependence on any one market.
3. Economies of scale: By operating in multiple markets, companies can achieve economies
of scale, which can lower costs and increase efficiency.
4. Talent acquisition: International business provides access to a wider pool of talent,
enabling companies to recruit the best employees from around the world.
5. Innovation: International business can lead to new ideas and innovations as companies
are exposed to different cultures and ways of doing things.
6. Strategic partnerships: International business can help companies establish strategic
partnerships with other businesses in different countries, leading to new opportunities for
growth and expansion.

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7. Brand recognition: International business can help companies increase their brand
recognition and reputation, which can lead to increased customer loyalty and trust.

Challenges of International Business:

Language obstacles – One of the most common problems of international business relations
is the potential language barrier. Not only can this pose issues in international business dealings
between companies, but it can also cause significant communication issues within your
company if management and team members speak a different language. It is also essential to
ensure your company's marketing materials, product packaging, and customer support align
with the language your target customers speak
Recruiting and onboarding international talent – When expanding internationally,
acquiring and hiring skilled talent with the necessary knowledge and experience in the specific
country can be one of the most important things your company does. Another of the most
common global business issues is creating an HR infrastructure to support recruiting, hiring,
onboarding, training, and supporting employees from around the world.
Managing a globally distributed team – One of the more unique issues of international
business management is supporting a diverse, globally distributed team. Doing so requires
navigating the complexities of various countries' employment regulations, payroll rules, tax
laws, mandated benefits, employee entitlements, and technology. Communication, support,
and interaction with your globally distributed employees are essential to maintain a cohesive
team. At the same time, legal expertise in varying regions is necessary to maintain compliance
with employment laws in each country.
Currency exchange and inflation rates – Few countries trade in the same currency. Your
company will likely receive payments from several countries in different currencies. Each
currency fluctuates daily. It is a top priority to stay abreast of currency exchange and inflation
rates.
Payroll challenges – Depending on where your employees live and work, there may be a
variety of employment, tax, and payroll laws your company needs to keep in mind while
processing payroll. From tax withholding to mandated and voluntary benefits, these differing
laws can pose significant challenges to your HR team.
Culture differences – Culture, including workplace culture and expectations, can differ
depending on the country in which you choose to work. It's essential to be mindful and

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respectful of each other's differences and to make an effort to understand the various cultures
of your employees, colleagues, and customers to improve your relationships and reduce the
chance of offending someone.
Foreign policy, geopolitical, and cross-border relations – Politics and foreign relations can
significantly impact the international business market. Expanding into the global market
requires your company to know the trade policies, tax laws, and financial systems of the
country you're working with This knowledge can help you avoid reputational, financial, or
even criminal penalties for failing to heed specific rules and laws.
Supply chain issues – Understanding these complexities and accounting for any potentially
related supply chain issues can be a major challenge. Your supply chain strategy should be
tailored to your company and the country or country with which you plan to do business. When
developing your strategy, it is important to research trade regulations, current supply chain
issues, local material availability, and external influences on the supply chain.
Compliance with international regulations – Tax, payroll, and employment laws are
essential to understand when expanding your business internationally. Working with multiple
countries means dealing with various business regulations, commercial fees, expectations, and
tax rates.
Competing in a new market – In today's competitive business market, offering a product or
service that no other company provides is next to impossible. When dealing domestically, your
company likely has its share of competitors; when you expand internationally, the number of
companies competing for their share of the same market grows exponentially. From
competition grows innovation, and your company must adhere to this principle even more
strongly when expanding into the global market. Differentiate your product or service from the
crowd to gain a competitive edge. Offer unique products and services. Most importantly, build
a reputation for your company by developing solid business relationships with customers and
local suppliers, vendors, manufacturers, and shipping companies.
Environmental concerns and sustainability – Climate change affects all of us daily. With
global warming and other environmental issues at the forefront of everyone's minds, it is
essential that every company, including international businesses, put maximum effort into
ongoing sustainability.
Brand consistency – As an international brand, you must set your company apart from the
competition by way of an easily recognizable brand. This includes your company's logo, work
culture, advertising style, language, work culture, product or service offerings, and many other

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details. Brand consistency is key to obtaining and maintaining customer loyalty, especially in
the highly competitive global market.

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Ease of Doing Business (World Bank):

• Ease of doing business means a measure of how ease or difficult it is to start or operate a
business in a country and this measure can be in the form of an index measured and or
provided by organisations such as World Bank.
• The EoDBR (Ease of Doing Business Report) is published by the World Bank. The key
highlights of the report are given below:
• The World Bank used to publish this report annually. The index had been created to evaluate
the impact of the economic policies/reforms implemented by the government in the
respective countries to promote and make it easier to do business.
• This report is published after evaluating the performance of countries under the following
11 parameters (for 2020 ranking, the labour market parameter was not considered, hence
2020 ranking was based on ten parameters).
• Empirical research from government officials, lawyers, business consultants, accountants,
other professionals is done in order to collect the data for the performance of these countries.
• The parameters that are taken into consideration to rank countries as per their ease of doing
business are given in the table below:
S. No. Parameters Description

The ease of the procedures to start a new venture along with the time,
1 Starting a business
cost and minimum capital required are also considered

Dealing with
2 How easy is it to get permission to build a warehouse
construction permits
The ease of obtaining a permanent connection for electricity in a
3 Getting electricity
newly constructed warehouse.
How easy and uncomplicated is the process of registering
4 Registering property
commercial real estate
The depth of credit information index, as well as strength of legal
5 Getting credit
rights index, is studied
Various indices on the extent of disclosure and ease of shareholder
6 Protecting investors
suits are taken into consideration
Studies the number of taxes paid, hours per annum spent on filing tax
7 Paying taxes
returns and the total tax payable as a share of gross profit
Trading across Includes the process of export and import of products are in the
8
borders country.

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It involves studying the time, cost and effort required to enforce a

9 Enforcing contracts
debt contract
Checks the time, cost and percentage recovery rate under a
10 Resolving insolvency
bankruptcy proceeding
**Higher the score achieved by a country better will be its ranking

Benefits of Ease of Doing Business Rank

• The rank a country secures under EoDBR by World Bank brings a lot of benefits along.
These benefits are given in the points below:
• The image of the country in the global market improves. GoI has implemented as many as
37 reforms in the reference period and wants to evaluate the effectiveness of these reforms.
• The government is taking steps to liberalize the business and these reforms are working.
• It changes the image of the country in the eyes of the global market into a favourable
country to conduct business in.
• The rankings are expected to act as a guide to investors to take/make decisions. Hence
better the ranking in the report more the favorability.
• The performance of GoI in terms of implementation of GST and will provide an answer
with the question of how business-friendly this reform is (GST was not considered for last
year’s ranking and this year’s ranking too could not fully account for GST as the deadline
for tax-related reforms was 31st December and it had been just six months into the
implementation of GST).
• The growth in industries has been averaging around 7% in the 90s and increased to 7.4%
in the last decade. At the end of it the manufacturing, export sectors came under pressure
because of the global financial crisis. The government through better regulatory
environment aims to attract domestic and foreign investments into the manufacturing
sector.

India & Ease of Doing Business

• India has been performing well considering the leaps it is taking with respect to her ease
of doing a business performance. The significant points are given below:
• India as per the latest report i.e. EoDB Report 2020, has jumped 14 places to be ranked at
63rd position (last year it was ranked at 77th position), with a score of 71.00 (last year it
was 67.23).
• India continued to be at the first position among South Asian countries.
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• The good run for India continued in the rankings as it has jumped from being ranked at
130th in EoDB 2015 to 63rd in EoDB 2020 (out of 190 countries).
• India has performed exquisitely under parameters such as – securing construction permits,
trading across borders; and has had smaller improvements in starting a business and getting
credit.
• India made starting a business easier by fully integrating multiple application forms into a
general incorporation form.
• With a single electronic platform- improved electronic submission method for documents
and upgrades to port infrastructure, import and export process became easier.
• Recovery rate under resolving insolvency has improved significantly from 26.5% to
71.6%. Also, the time taken for resolving insolvency has also come down significantly
from 4.3 years to 1.6 years.
• The World Bank will now include Kolkata and Bengaluru, besides Delhi and Mumbai, for
preparing ease of doing business report, in order to provide a holistic picture of the business
environment of the country.

Multi-National Corporations:
A Multinational Corporation (MNC) is defined as a firm operating in two or more countries.
The country where the multinational company headquarters are located is called the home
country. Countries that allow a multinational company to set up its operations are called host
countries.
Example Companies: Amazon, Toyota, Google, Apple, Zara, Starbucks, McDonald’s, etc. are
examples of the world's most well-known multinational corporations.

Types of Multi-National Corporations:

Decentralised Multi-National Corporations
Decentralised multinational corporations have a strong presence in their home country. The
term 'decentralisation' means there is no centralised office. Each office can operate separately
from the headquarter. Decentralised multinational corporations allow for rapid expansion, as
new entities can be set up quickly throughout the nation.
Example: McDonald’s is a decentralised multinational corporation. Although the fast-food
king has a presence in over 100 countries, it has the largest operations in its home country, the
United States, with around 18,322 stores (2021).

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International companies
International companies utilize the resources of the parent company to develop new products
or features that will help them gain a competitive edge in local markets.
Example: Each Coca-Cola branch can develop its own product design and marketing
campaigns to attract local customers.

Transnational enterprises
Transnational enterprises have a decentralized organizational structure with branches in several
countries. The parent company has little control over the foreign branches.
Example: Nestle is an example of a transnational enterprise with a decentralized organizational
structure.

Features of multinational companies

Large volume of sales: with customers around the world, MNCs generate a large sum
of revenue each year. For example, Amazon's international sales reached $127.79 billion in
2021. Coca Cola’s net operating revenues amounted to $33.01 billion in 2020.4 McDonald’s
global revenue was $23.2 billion in 2021.

Unity of control: multinational companies often have their headquarters in the home country
to manage overall business activities across the globe. Each international branch, while
operating separately, must follow the general framework of the parent company.

Economic power: Multinational companies have significant economic power due to their
enormous size and turnover. They grow their power by setting up subsidiaries or acquiring
businesses in foreign countries.

Aggressive marketing: Multinational companies spend a lot of money on advertising in both

the home and foreign markets. This allows them access to a large variety of products and
services while raising global awareness.

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High-quality product: Multinational companies enjoy a worldwide reputation. To keep the

reputation intact, MNCs need to maintain a superior quality of their products and services.

International Business Environment

Cultural Environment in International Business
• The cultural environment is one of the crucial components of the international business
environment. It is the most difficult to understand as the cultural environment is unseen. It
has been described as a commonly held and shared body of general values and beliefs that
determine what is right for one group,
• National culture is defined as the body of general values and beliefs shared by a nation.
Beliefs and values are usually formed by factors such as language, history, geographic
location, religion, education and government. Thus, organisations begin a cultural analysis
by understanding these factors. The well-known model is the one developed by Hofstede in
1980.
• The model by Hofstede proposes four dimensions of cultural values, which are as follows:
• Individualism – It is the degree to which a nation encourages and values individual decision
making and action
• Uncertainty avoidance – It is the degree to which a nation is willing to deal with and accept
uncertainty
• Power distance – It is the degree to which a nation sanctions and accepts differences in
power
• Masculinity – It is the degree of the gender gap in a society

Political Environment in International Business

• The political environment means the political risk, the government’s relationship with a
business, and the type of government in the country. Conducting business internationally
implies dealing with different kinds of governments, levels of risk and relationships.
• There are different types of political systems, such as one-party states, multi-party
democracies, dictatorships (military and non-military) and constitutional monarchies. Thus,
an organisation needs to take into account the following aspects while planning a business
plan for the overseas location:
• Political system of the business

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• Approach of the government towards business, i.e. facilitating or restrictive

• Incentives and facilities offered by the government
• Legal restrictions for licensing requirements and reservations to a specific sector like the
private, public or small-scale sector
• Restrictions on importing capital goods, technical know-how and raw materials
• Restrictions on exporting services and products
• Restrictions on distribution and pricing of goods
• Required procedural formalities in setting the business

Social Environment in International Business

• The social environment and the cultural environment in which a firm operates can be a
major factor in the success or failure of the firm. The social environment comprises of
many dynamic factors such as social traditions, cultural influences, values and beliefs
prevailing in the society, social stratification, etc.
• Companies, especially international companies always study the cultural and social
environment of a country before entering the market. It is important that your goods
and services are in tandem with the social environment of the country. Otherwise, the
company could face a backlash and run into losses.
• Some important factors that affect the cultural and social environment in a country are
as follows,
• Social concerns that plague society, such as pollution levels, corruption amongst
government officials, excessive consumerism, ill effects of mass media consumption,
etc.
• The social values and social attitudes of the businesses and the citizens. This includes
the rituals and practices of the people and can also include religious beliefs. Changing
lifestyle patterns also effects the expectations consumers have for the businesses.
• Family values, family structure and the role that family occupies in society has a great
impact on the social environment
• The position and state of women and children in society. Even the role that women play
in society will be a factor.
• Education and literacy levels of the population are another factor. This also includes
consumer awareness and consumer protection.

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Technological Environment in International Business

• The technological environment includes factors related to the machines and materials used
in manufacturing services and goods. As organisations do not have control over the external
environment, their success depends on how they will adapt to the external environment. A
significant aspect of the international business environment is the level and acceptance of
technological innovation in countries.
• The last decade of the twentieth century saw significant advances in technology, and it is
also continuing in the twenty-first century. Technology often gives organisations a
competitive advantage. Hence, organisations compete to access the latest technology, and
international organisations transfer technology to be globally competitive.
• Due to the internet, it is easier even for a small business plan to have a global presence,
which grows its exposure, market, and potential customer base. For political, economic and
cultural reasons, some countries are more accepting of technological innovations, while
others are less accepting. In analyzing the technological environment, the organisations
should consider the following aspects:
• Level of technological developments in the country as a whole and specific business sector
• Pace of technological changes and obsolescence
• Sources of technology
• Facilities and restrictions for technology transfer
• Time taken for the absorption of technology

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