INTERNATIONAL BUSINESS

International Business: It is defined as the process of extending the business activities from
domestic to any foreign country with an intention of targeting international customers; it is also
defined as the conduction of business activities by any company across the nations

It can also be defined as the expansion of business functions to various countries with an
objective of fulfilling the needs and wants of international customers.

According to the American Marketing Association, “International Marketing is the multi-national

process of planning and executing the conception, prices, promotion and distribution of ideal
goods and services to create exchanges that satisfy the individual and organizational objectives.”

 Large scale operations: In international business, all the operations are conducted on a
very huge scale. Production and marketing activities are conducted on a large scale. It first
sells its goods in the local market. Then the surplus goods are exported.
 Integration of economies : International business integrates (combines) the economies of
many countries. This is because it uses finance from one country, labour from another
country, and infrastructure from another country. It designs the product in one country,
produces its parts in many different countries and assembles the product in another country.
It sells the product in many countries, i.e. in the international market.
 Dominated by developed countries and MNCs : International business is dominated by
developed countries and their multinational corporations (MNCs). They also have the best
technology and research and development (R & D). They have highly skilled employees and
managers because they give very high salaries and other benefits. Therefore, they produce
good quality goods and services at low prices. This helps them to capture and dominate the
world market.
 Benefits to participating countries: International business gives benefits to all
participating countries. However, the developed countries get the maximum benefits. The
developing countries also get benefits. They get foreign capital and technology. They get
rapid industrial development. They get more employment opportunities. Everything results
in economic development of the developing countries. Therefore, developing countries open
up their economies through liberal economic policies.
 Keen competition: International business has to face keen competition in the world
market. The competition is between unequal partners i.e. developed and developing
countries. In this keen competition, developed countries and their MNCs are in a favourable
position because they produce superior quality goods and services at very low prices.
Developed countries also have many connects in the world market. So, developing countries
find it very difficult to face competition from developed countries.
 Special role of science and technology: International business gives a lot of importance
to science and technology. Science and Technology (S & T) help the business to have large-
scale production. Developed countries use high technologies. Therefore, they dominate
global business. International business helps them to transfer such top high-end technologies
to the developing countries.
 International restrictions: International business faces many restrictions on the inflow
and outflow of capital, technology and goods. Many governments do not allow international
businesses to enter their countries. They have many trade blocks, tariff barriers, foreign
exchange restrictions, etc. All this is harmful to international business.
 Sensitive nature: The international business is very sensitive in nature. Any changes in
the economic policies, technology, political environment, etc. have a huge impact on it.
Therefore, international business must conduct marketing research to find out and study
these changes. They must adjust their business activities and adapt accordingly to survive
changes.

Importance of International Business

 Earn foreign exchange: International business exports its goods and services all over
the world. This helps to earn valuable foreign exchange. This foreign exchange is used
to pay for imports. Foreign exchange helps to make the business more profitable and to
strengthen the economy of its country.
 Optimum utilisation of resources: International business makes optimum utilisation of
resources. This is because it produces goods on a very large scale for the international
market. International business utilises resources from all over the world. It uses the
finance and technology of rich countries and the raw materials and labour of the poor
countries.
 Achieve its objectives: International business achieves its objectives easily and quickly.
The main objective of an international business is to earn high profits. This objective is
achieved easily. This it because it uses the best technology. It has the best employees
and managers. It produces high-quality goods. It sells these goods all over the world. All
this results in high profits for the international business.
 To spread business risks: International business spreads its business risk. This is
because it does business all over the world. So, a loss in one country can be balanced by
a profit in another country. The surplus goods in one country can be exported to another
country. The surplus resources can also be transferred to other countries. All this helps to
minimise the business risks.
 Improve organisation's efficiency: International business has very high organisation
efficiency. This is because without efficiency, they will not be able to face the
competition in the international market. So, they use all the modern management
techniques to improve their efficiency. They hire the most qualified and experienced
employees and managers. These people are trained regularly. They are highly motivated
 with very high salaries and other benefits such as international transfers, promotions, etc.
All this results in high organisational efficiency, i.e. low costs and high returns.
 Get benefits from Government: International business brings a lot of foreign exchange
for the country. Therefore, it gets many benefits, facilities and concessions from the
government. It gets many financial and tax benefits from the government.
 Expand and diversify: International business can expand and diversify its activities.
This is because it earns very high profits. It also gets financial help from the government
 Increase competitive capacity: International business produces high quality goods at
low cost. It spends a lot of money on advertising all over the world. It uses superior
technology, management techniques, marketing techniques, etc. All this makes it more
competitive. So, it can fight competition from foreign companies.
 Economies of Scale: These businesses 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 earns huge profits by selling
them at better prices in other countries.
 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.

Process of Internationalization

 Domestic company : Most international companies have their origin as domestic

companies. The orientation of a domestic company essentially is ethnocentric. A purely
domestic company operates domestically because it never considers the alternative of going
international. A domestic company may extend its products to foreign markets by exporting,
licensing and franchising
 International companies are importers and exporters, they have no investment outside of
their home country. For examples Indian firms export nuts spices textiles, Jute and Rice all around
the world. Domestic firms being ethnocentric start its internationalization by initially involving in
just exporting goods to the foreign countries which has high demand.
 Multinational companies have investment in other countries, but do not have coordinated
product offerings in each country. More focused on adapting their products and service to
each individual local market. An International firm demands a greater degree of decentralization
in decision making though important decision in this system is always taken at corporate head
quarter. These firms operate worldwide and the orientation of the firm shifts form ethnocentric to
polycentric. A multinational firm decides to respond to market differences vis a vis social, cultural
and legal requirements and evolve as a stage three MNC which pursuits a multi domestic strategy. In
MNCs each foreign subsidiary is managed as an independent entity. The subsidiaries are a part of
regional structure in which every country has its own organization and reports to world head
quarters.

In a report of the International Labour Organisation (ILO), it is observed that, "the essential
of the MNC lies in the fact that its managerial headquarters are located in one country
(home country), while the enterprise carries out operations in a number of the other
countries (host countries)."
  Global companies have invested and are present in many countries. They market their
products through the use of the same coordinated image/brand in all markets. Generally one
corporate office that is responsible for global strategy. Emphasis on volume, cost
management and efficiency.
 Transnational companies are much more complex organizations. They have invested
in foreign operations, have a central corporate facility but give decision-making, R&D
and marketing powers to each individual foreign market. Firms which achieve global
efficiency and local responsiveness are called as transnational firms. These firms are highly
decentralized in terms of decision making. Every transnational business unit has freedom to take
its decision with very minimal control from corporate headquarters. However, there is no pure
transnational firm and these firms satisfy the characteristics of the global corporation.
transnational companies like Coca-Cola, Apple, McDonald's, and Nike.

Approaches in International Business

1. ETHNOCENTRIC ORIENTATION:

The ethnocentric orientation of a firm considers that the products, marketing strategies and
techniques applicable in the home market are equally so in the overseas market as well. In such a
firm, all foreign marketing operations are planned and carried out from home base, with little or no
difference in product formulation and specifications, pricing strategy, distribution and promotion
measures between home and overseas markets. The firm generally depends on its foreign agents
and export-import merchants for its export sales.Example: The example of such change is NISSAN
which in the first years of its existence on international arena was following ethnocentric approach
by selling its cars abroad exactly as they were sold in their domestic market in Japan.
2. REGIOCENTRIC ORIENTATION :

In regiocentric approach, the firm accepts a regional marketing policy covering a group of countries
which have comparable market characteristics. The operational strategies are formulated on the basis of the
entire region rather than individual countries. The production and distribution facilities are created to serve
the whole region with effective economy on operation, close control and co-ordination. companies that
have adopted a regiocentric approach include Honda Motor Company and BMW. These companies have
established a strong presence in the North American market, with manufacturing plants in the United States
and Mexico, as well as sales and service centers in the United States, Canada, and Mexico.

3. GEOCENTRIC ORIENTATION :

In geocentric orientation, the firms accept a world wide approach to marketing and its operations become
global. In global enterprise, the management establishes manufacturing and processing facilities around the
world in order to serve the various regional and national markets through a complicated but well co-
ordinate system of distribution network. There are similarities between geocentric and regiocentric
approaches in the international market except that the geocentric approach calls for a much greater scale of
operation.Example: Apple takes on a geocentric approach or 'world oriented', where they act completely
independent of geography and do not regard nationality but rather adopts a global perspective.
4. POLYCENTRIC OPERATION :

When a firm adopts polycentric approach to overseas markets, it attempts to organize its international
marketing activities on a country to country basis. Each country is treated as a separate entity and
individual strategies are worked out accordingly. Local assembly or production facilities and marketing
organisations are created for serving market needs in each country. Polycentric orientation could be most
suitable for firms seriously committed to international marketing and have its resources for investing
abroad for fuller and long-term penetration into chosen markets. Polycentric approach works better among
countries which have significant economic, political and cultural differences and performances of these
tasks are free from the problems created primarily by the environmental factors. Ford Motors, Suzuki,
Toyota, General Motors, Nissan, etc. – all these companies adapt their brands to specific needs of each
country’s consumer.
 Types or Forms of International business

Direct export.

The organization produces their product in their home market and then sells them to customers
overseas

Advantages
  Control over selection of foreign markets and choice of foreign representative companies
 Good information feedback from target market
 Better protection of trademarks, patents, goodwill, and other intangible property
 Potentially greater sales than with indirect exporting.

Disadvantages

 Higher start-up costs and higher risks as opposed to indirect exporting

 Greater information requirements
 Longer time-to-market as opposed to indirect exporting.

Indirect export

The organizations sells their product to a third party who then sells it on within the foreign market.

Advantages

 Fast market access

 Concentration of resources for production
 Little or no financial commitment. The export partner usually covers most expenses
associated with international sales
 The management team is not distracted
 No direct handle of export processes.

Disadvantages

 Higher risk than with direct exporting

 Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting
 Inability to learn how to operate overseas

Licensing

Another less risky market entry method is licensing. Here the Licensor will grant an organization in
the foreign market a license to produce the product, use the brand name etc in return that they will
receive a royalty payment.

Advantages and reasons to use an international licensing

 Obtain extra income for technical know-how and services

 Reach new markets not accessible by export from existing facilities
 Quickly expand without much risk and large capital investment
 Pave the way for future investments in the market

Franchising

Franchising is another form of licensing. Here the organization puts together a package of the
successful‘ ingredients that made them a success in their home market and then franchise this
package to oversee investors. The Franchise holder may help out by providing training and
marketing the services or product. McDonalds is a popular example of a Franchising option for
expanding in international markets.

Advantages of the international franchising mode: Low political risk , Low cost, Allows
simultaneous expansion into different regions of the world ,Well selected partners bring financial
investment as well as managerial capabilities to the operation.

Disadvantages of the international franchising mode:

 Franchisees may turn into future competitors

 Demand of franchisees may be scarce when starting to franchise a company, which can lead
to making agreements with the wrong candidates
 A wrong franchisee may ruin the company‘s name and reputation in the market

Turnkey projects

A turnkey project refers to a project in which clients pay contractors to design and construct new
facilities and train personnel. A turnkey project is way for a foreign company to export its process
and technology to other countries by building a plant in that country. Industrial companies that
specialize in complex production technologies normally use turnkey projects as an entry strategy.
One of the major advantages of turnkey projects is the possibility for a company to establish a plant
and earn profits in a foreign country especially in which foreign direct investment opportunities are
limited and lack of expertise in a specific area exists.
Strategic alliance

A strategic alliance is a type of cooperative agreements between different firms, such as shared
research, formal joint ventures, or minority equity participation. The modern form of strategic
alliances is becoming increasingly popular and has three distinguishing characteristics:
Advantages
 Technology exchange
 Global competition
 Industry convergence
 Economies of scale and reduction of risk
 Alliance as an alternative to merger

Global strategic planning process involves these steps

(1) Analyzing external environment by means of SWOT, PESTLE analysis
(2) Analyzing internal environment
(3) Defining the business and its mission statements
(4) Setting corporate objectives
(5) Quantifying goals
(6) Formulating strategies
(7) Making tactical planning
Types of Strategic Alliance

There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity
strategic alliance, and global strategic alliances.

1. Joint venture is a strategic alliance in which two or more firms create a legally
independent company to share some of their resources and capabilities to develop a
competitive advantage. Example: Ford and Toyota began working together in 2011 to
develop hybrid trucks. Toyota brings the hybrid technology knowledge, while Ford brings
its leadership in the American truck market – the perfect example of a joint venture created
for access to expertise and intellectual property.
Example 2: Tata SIA Airlines, a joint venture between Tata Sons and Singapore Airlines, operates under the flagship
brand name Vistara, an Indian domestic full service airline.
2. Equity strategic alliance is an alliance in which two or more firms own different
percentages of the company they have formed by combining some of their resources
and capabilities to create a competitive advantage. Example: One example of an equity
strategic alliance is Panasonic and Tesla. It began when Panasonic invested $30 million
to accelerate battery technology for electric vehicles. This partnership eventually grew
to include building a lithium-ion battery plant in the state of Nevada.

3. Non-equity strategic alliance is an alliance in which two or more firms develop a

contractual-relationship to share some of their unique resources and capabilities to create
a competitive advantage.Example: The technology innovations and respective Microsoft
partnerships are just two of three strategic aspects that bind Starbucks and Kroger when it
comes to intelligence retail.
 4. Global Strategic Alliances working partnerships between companies (often more than
two) across national boundaries and increasingly across industries, sometimes formed
between company and a foreign government, or among companies and governments.

Example: The Maruti (Government of India) and Suzuki Motor Company or the Kwality (Delhi based ice-
cream company) and Walls (Hindustan Unilever) tie-ups are some of them. In most cases; where the
business objectives are clear and coherent; such alliances witnessed a success. The development of BrahMos
Missile system, one among the best in the world, is a result of pooling of technical expertise, capabilities
and financial resources of India and Russia. The export order for sale of BrahMos Missile to Philippines
valuing around 374 Million USD in 2021, is one among the largest export order for any defence sector
company in India. The missile also offers a strategic deterrence to India for its own defence. Indian
government has been vying to supply it to other countries in Indo-Pacific region to achieve both strategic
and business gains from this collaboration of India and Russia (Shad Morris, Oldroyd & Ram Singh, 2021).

Management Contracts
A firm in one country agrees to operate facilities or provide other management services to a firm in another country for
an agreed-upon fee.
Example: the partnership between Sheraton Hotels and Resorts and Starwood Hotels and Resorts. Sheraton hired
Starwood to manage its hotel operations, leading to an increase in revenue and a stronger global presence for Sheraton.
Contract manufacturing :It is also called outsourcing. Contract manufacturing is when a firm
enters into a contract with local manufacturers in foreign countries to get goods produced as per its
specifications. It can be classified into three major forms-
 Production of certain components like automobile components to be used for producing
cars.
 Assembling components into final products such as modem chips into computers.
 Complete manufacture of the products for, e.g. garments.
Advantages of Contract Manufacturing
Contract manufacturing offers several advantages to both the international company and local
producers in foreign countries. Some of them are discussed below-
 Contract manufacturing permits international firms to get the goods produced on a large
scale without requiring investment in setting up production facilities. These firms make use
of the production facilities already existing in foreign countries. The company does not
have to arrange for sources for the process of production.
 Firms can get products manufactured at lower cost by approaching countries which have
lower material and labour costs.
 The company gets rid of the risk of investment in a foreign country
 If the business does not prove to be successful, it can be easily closed.
 Local manufacturers also get the opportunity to participate in international business and
take advantage of incentives.
Disadvantages of Contract Manufacturing
The disadvantages of contract manufacturing are discussed below-
 Lack of control over the production activity.
 The risk from prospective competitors.
 Local firms that produce under contract manufacturing are not free to sell the produce at
their own discretion. They have to follow the prices predetermined by international firms.
Direct foreign investment:
Direct foreign investment is another important form of international business.
Companies may manufacture locally
• to capitalize on low-cost labor,
• to avoid high import taxes,
• to reduce the high cost of transportation to market,
• to gain access to raw materials, or
• to gain market entry.

INTERNATIONAL MARKETING DECISIONS

1) Deciding on entering International markets –

Major factors that drive organisations to go international are –
Market – First reason in because of no growth opportunities in the domestic market. To sustain its
growth, an organisation moves to lure customers in more attractive markets. Since the organisation
has a vast experience in marketing in domestic market, they rely heavily on the experience and
brand value to enter new markets.
Competition – It is because of entry of competitors that can be domestic as well as international
that an organisation sees no new customer base in the domestic market. The organisation tries to
invest in international market to maintain its profitability and counter competition. Sometimes the
organisations enter into the competitor country. This helps reduce the organisations dependence on
one market.

Environment (technology, Government policies) – The world is constantly shrinking into a global
village with the advent of technology in past few decades. The organisations today have ample of
opportunities in different countries to market their products. To improve standard of living and
invite investments in their country, governments have also relaxed their laws which paved the way
for international trading and foreign investments.
Cost – Some of the foreign markets are more profitable than domestic markets. Exporting is most
of the times favourable than domestic operations. To achieve economies of scale an organisation
needs high sales. This can be achieved by gaining more customers in new markets.
2) Analyse Macro and Task environment –
An organisation operates in the Macro and Micro environment.
Macro Environment in International markets exists in the form of cultural forces, political forces,
economic forces, competitive environment, and Geography of the region.

Culture is passed on from generation to generation. It affects the regions social structure, habits,
life-style, customs, traditions, etc. These vary from country to country. Adjusting to the nation’s
culture is the biggest challenge that marketers face. In one country the customer may be
independent in making a purchase, while in other country the elders in the family have a final say
due to great respect for elders in that country. In such cases the promotion campaigns will have to
be designed accordingly.
Political forces have a major influence on price, effect on the host nations organisations, legal
processing, employment generation advantages, etc. For example, in some Muslim countries, a
salesman cannot see the women of the house.
Economic condition is the attractiveness basis the income level of the majority of the population,
their savings habits, exchange rates, GDP, etc. For example, in some markets, the majority of the
population likes to spend the earnings, while in others, people like to invest more in savings.
Competitive environment in the target nation will have a huge impact on the marketing plans and
program. For example, Imagine Apple trying to enter an Asian market where Samsung is the
market leader. The Marketing program will be different from that implemented in Canada or UK.
Geography of the country will impact the distribution, communication as well as product
specifications. Climate, topography, natural resources, etc. affect the marketing functions. There
will be changes to support services like guarantees, services, delivery timelines, etc. These have to
be analysed for each country of operation to make correct marketing decisions.

Micro environment is further divided into two parts, the Task Environment and the Internal
Environment.
The Task environment is made up of suppliers, Intermediaries, customers and competitors. The
task environment has factors external to the organisations but are partially controllable by the
organisation. Analysis of the infrastructure, roads, transportation and communication facilities
affect the distribution and promotion activities in foreign land. For example, Apple attributed less
sales of its iPhone’s in India because of no LTE network launch in 2015 and 2016. LTE network
was available to customers in late 2016. This was made available by only few mobile carriers.
Internal Environmentincludes factors that are internal to the organisation and are partially
controllable by the organisation. The Internal environment refers to the Company itself which is
also partially controllable and sometimes referred to as 7M’s of an organization – Members, Make-
up, Management, Money, Machinery, Materials and Markets.

3) Selecting the markets –

The decision to enter the markets is based on the opportunities in international markets and also
meeting challenges that the organisation has never faced in the domestic markets (Threats). The
process starts with analysis of the international market. It mostly depends on the attractiveness, low
market risk, low competition, and organisations capabilities (strengths). Most of the organisations
first try to enter the neighbouring nations. For example. Canada is the largest US market, Mexico is
the second largest market for US. Similarly, a small nation besides political and economic stability
with high income class may not be attractive because of small population (Singapore).
The organisation should first align the company and country needs. If found attractive, the
Marketing mix analysis is done for adapting to the new market. Analysis is done on the costs
involved, projected sales, risks involved and profit predictions. Basis these factors the organisations
takes a decision to enter or not to enter the international markets individually.
4) Select entry strategies –
The organisation has broadly these options for entry – Exporting, licencing, joint venture or direct
investing.
i) Exporting can be indirect as well as direct. In Indirect exporting, the organisation gets into
contract of another domestic organisation which takes responsibility for moving products overseas.
The different kinds of such firms are –
Commission agents locate the buyer firms in foreign countries. They negotiate the price and get
commission from the foreign clients.

Export management companies (EMC) carry out business transactions in the name of the
manufacturer. They receive a commission, salary, etc. for their service.

Export trading companies (ETCs) purchase products for resale in international markets.

Export Merchants purchase products from manufacturers, and package and market the products
basis their own requirements to their clients. The business is done in their own name, and they are
themselves responsible for the risks involved.

Export Agents on the other hand represent the manufacturer. They don’t carry the risks associated
with the business.

Country-Controlled Buying Agents are governmental agencies in the foreign country that locate
and purchase goods basis the requirements.
In Direct Exporting, the organisation has no independent intermediaries involved. It sells its own
products in the international market or markets. This is achieved by any of the following options-
Foreign Sales Representatives or Agents are sales representatives working on a commission basis.
They travel to foreign countries to get business. They do not take responsibility of the risks
involved and work on a contract basis. They may have the exclusive rights with the sellers.
Foreign Distributor sells the products at a profit and takes the title to the products bought.
Foreign Retailers sell the products in foreign country. They are contacted by organisations sales
representatives, etc.
Overseas sales branch or subsidiary handles sales and distribution of the products in a foreign
country. The functions may even include promotion and warehousing.

ii) Licensing – The organisation licences a foreign organisation to use a manufacturing process,
trademark, patent, trade secrets, etc. at a fee or royalty. This provides for low cost and easy entry
into the international market. Both the organisations are benefitted by licensing. The licensor
doesn’t needs to handle all the processes except sharing knowledge, and the licensee gets the
expertise, brand name and established business processes.
iii) Joint venture takes place when a foreign investor joins hands with a domestic investor to form
a new company. This is done for many reasons like government policy, expertise of one
organisation benefitting the other like financial investment, managerial resources, etc.
iv) Direct investing involves ownership of the manufacturing facility in a foreign country. This
involves greater risks as well as high returns if successful. The organisation enjoys patent and
trademark protection, sops or tax incentives from the government for creating jobs in the country,
free hand in controlling marketing and production functions.
5) Designing the Marketing Program –
The marketers need to decide at this stage the extent to which changes should be made to the
existing 4P’s – Product, Price, Promotion, and Place (distribution) to adapt to the market in the new
country. The organisation can implement the same strategy as part of Global Marketing, but there
should be some adaptation done to suit he local needs and make profits.
Product decision –
There are 3 options for product decisions in international markets. First, Product extension, in
which the same existing product is introduced in the international market. For example, Coca-Cola
drink, electronic items like laptops, etc. This strategy not always successful for all products because
of lifestyle, religious and cultural differences in different countries. In India, cow is revered by
Hindus so beef products are rarely sold by international food chains. Product extension requires
less R&D, investment in newly designed equipment, staff training, etc. The transfer of knowledge
to the staff is also easy. Second, Product adaptation is making changes to the product to suit the
needs of the new market. Needs, preferences, culture, habits, and attitudes vary from country to
country. In Japan people use small refrigerators and microwaves because of space constraints as
compared to US. Similarly, metric system also requires product redesign. Thirdly, Product
Invention is introducing a new product for the market in the new country of operation. McDonald’s
introduced Veg-burgers in Indian markets as majority of the population is vegetarian. Similarly,
packaging of the product is changed suiting the country’s beliefs, culture, climate, etc.
Pricing decision –
The conditions in foreign markets is mostly different from domestic markets. The cost structure,
demand, competition, tax structure, and economy of the foreign market have direct effect on
pricing of the products in the foreign market. Pricing is mostly affected by costs related to taxes,
transportation, promotion, product innovation, tariffs and profit margins for intermediaries, etc. The
Organisations set the price basis the cost, market, environment, or a uniform price in all
international markets.Study of Environment takes into consideration inflation, monetary exchange
rate fluctuations, pricing policies of the government, etc. The last option of setting a uniform price
is risky as the product will be considered very expensive in a developing country or low priced in a
rich country where people may consider it of low quality. An organisation has to analyse all the
factors and arrive at pricing of the product to meet its set objectives.
Promotion decisions –
The organisation has the option of using the same promotion message or adapting it to the new
international market. Similarly there are factors like availability of media which affect the
promotion strategy. The barriers to using the same communication are usually related to language,
government policies, culture, media availability, and agency availability. In Arabic countries
women cannot work in ads, in some countries children cannot promote products. Advertisements
on cigarettes and alcohol are banned in India.
Language will be a barrier in country where majority of people are not literate. Similarly, where
people feel pride in using their local language, organisations have to crate message campaigns in
the local language. Translating the same message in the local language can have many problems.
For example, KFC in late 1980’s translated its slogan “Finger-licking good” as “Eat your fingers
off”. HSBC’s “Assume Nothing” campaign was scrapped when it was brought overseas and was
translated in many countries as “Do Nothing”.

GROWING ECONOMIC POWERS OF DEVELOPING ECONOMIES

The different phases of economic cycles toss economies around the world. However, it’s
interesting to see that these top economies don't budge easily from the positions they hold. When
compared to the top 20 economies of 1980, 17 are still present on the list, which means only three
new entrants.

In addition to the key players remaining almost the same, this analysis reveals these economies are
the engine of growth, commanding a majority of the global wealth. The nominal GDP of the top 10
economies adds up to about 66% of the world's economy, while the top 20 economies contribute
almost 79%.The remaining 173 countries together constitute less than one-fourth to the world's
economy.

This list is based on the IMF's World Economic Outlook Database, October 2019.

 Nominal GDP = Gross domestic product, current prices, U.S. dollars

 GDP based on PPP = Gross domestic product, current prices, purchasing power parity,
international dollars
 Gross domestic product per capita, current prices, U.S. dollars
 Gross domestic product based on purchasing-power-parity (PPP) share of world total,
percent

Brazil
Brazil Nominal GDP: $2.331 trillion (Brazil GDP (PPP): $4.273 trillion
During 2006–2010, the nation grew at an average 4.5%, moderating to around 2.8% in 2011–2013.
By 2014, it was barely growing at 0.1%. In 2016, Brazil contracted by 3.5% before rebounding by
1% in 2017. IMF projects the economic growth to revive to 2.5% by 2019. Brazil is part of the
BRICS, along with Russia, India, China, and South Africa.

Brazil is the largest and most populous nation in Latin America. The Brazilian economy is the
second largest in the Americas. It is an upper-middle income developing mixed economy. In 2024,
according to International Monetary Fund (IMF), Brazil has the 8th largest gross domestic product
(GDP) in the world and has the 8th largest purchasing power parity in the world. In 2024,
according to Forbes, Brazil was the 7th largest country in the world by number of billionaires.
According to International Monetary Fund (IMF), Brazilian nominal GDP was US$2.331 trillion;
the country has a long history of being among the largest economies in the world. The nation that
had been riding on the commodity wave suffered multiple setbacks with the end of the commodity
super cycle, in addition to internal problems of corruption and political uncertainty, which
dampened the investment and business environment.

Russia
Russia Nominal GDP: $2.0 trillion Russia GDP (PPP): $5.2 trillion
Russia, the largest country on Earth in terms of landmass, is the 11th-largest economy in the world,
with a nominal GDP of $2.0 trillion. Russia moves up the ladder to the sixth spot for rankings, with
a $5.2 trillion GDP based on PPP.

The 1990s were a rough period for its economy, since it inherited a devastated industrial and
agricultural sector along with the fundamentals of a centrally planned economy. During the next
decade, Russia witnessed growth at a healthy pace of 7%. However, this growth was led by the
commodity boom.

The dependence of the Russian economy on oil was exposed during the 2008–2009 global financial
crisis and eventually again in 2014. The situation worsened with the imposition of sanctions by the
West. The economy contracted by 0.2% in 2016, however, it rebounded with a 1.5% growth in
2017. IMF projects a growth of 1.7% and 1.5% during 2018 and 2019, respectively.

India
India Nominal GDP: $3.937 trillion India GDP (PPP): $14.594trillion
India is the fastest-growing trillion-dollar economy in the world and the fifth-largest overall, with a
nominal GDP of $3.937 trillion. India has become the fifth-largest economy in 2019, overtaking
the United Kingdom and France. The country ranks third when GDP is compared in terms of
purchasing power parity at $14.594 trillion. When it comes to calculating GDP per capita, The
Indian economy was just $189.438 billion in 1980, ranking 13th on the list globally. India's growth
rate is expected to rise from 7.3% in 2018 to 7.5% in 2019 as drags from the currency exchange
initiative and the introduction of the goods and services tax fade, according to the IMF.

India’s post-independence journey began as an agrarian nation; however, over the years the
manufacturing and services sector has emerged strongly. Today, its service sector is the fastest-
growing sector in the world, contributing to more than 60% to its economy and accounting for 28%
of employment. Manufacturing remains as one of its crucial sectors and is being given due push via
the governments' initiatives, such as "Make in India." Although the contribution of its agricultural
sector has declined to around 17%, it still is way higher in comparison to the western nations. The
economy's strength lies in a limited dependence on exports, high saving rates, favourable
demographics, and a rising middle class.

China
China Nominal GDP: $18.560 trillion China GDP (PPP): $35.032trillion
China has experienced exponential growth over the past few decades, breaking the barriers of a
centrally-planned closed economy to evolve into a manufacturing and exporting hub of the world.
China is often referred to as the "world's factory," given its huge manufacturing and export base.
However, over the years, the role of services has gradually increased and that of manufacturing as a
contributor to GDP has declined relatively. Back in 1980, China was the seventh-largest economy,
with a GDP of $305.35 billion, while the size of the U.S. then was $2.86 trillion. Since it initiated
market reforms in 1978, the Asian giant has seen an economic growth averaging 10% annually. In
recent years, the pace of growth has slowed, although it remains high in comparison to its peer
nations.

Over the years, the difference in the size of the Chinese and the U.S. economy has been shrinking
rapidly. In 2018, the Chinese GDP in nominal terms stood at $13.37 trillion, lower than the U.S. by
$7.21 trillion. In 2020, the gap is expected to reduce to $7.05 trillion, and by 2023, the difference
would be $5.47 trillion. In terms of GDP in PPP, China is the largest economy, with a GDP (PPP)
of $25.27 trillion. By 2023, China's GDP (PPP) would be $36.99 trillion. China's huge population
brings down its GDP per capita to $10,100 (seventieth position).

South Africa

South Africa Nominal GDP: $401.47 billion South Africa GDP(PPP):$1.039 trillion
South Africa is ranked with 36th (nominal, 2023) 33rd (PPP, 2022).In 2019, GDP per
capita based on PPP for South Africa was 13,754 international dollars. GDP per capita
based on PPP of South Africa increased from 7,731 international dollars in 2000 to 13,754
international dollars in 2019 growing at an average annual rate of 3.11%.

Major Trends in International Business

Developing countries will see the highest economic growth as they come closer to the standards of
living of the developed world. If you want your business to grow rapidly, consider selling into one
of these emerging markets. Language, financial stability, economic system and local cultural
factors can influence which markets should favour.

Population and Demographic Shifts

The population of the industrialized world is aging while many developing countries still have very
youthful populations. Businesses catering to well-off pensioners can profit from a focus on
developed countries, while those targeting young families, mothers and children can look in Latin
America, Africa and the Far East for growth.

Speed of Innovation

The pace of innovation is increasing as many new companies develop new products and improved
versions of traditional items. Western companies no longer can expect to be automatically at the
forefront of technical development, and this trend will intensify as more businesses in developing
countries acquire the expertise to innovate successfully.

More Informed Buyers

More intense and more rapid communications allow customers everywhere to purchase products
made anywhere around the globe and to access information about what to buy. As pricing and
quality information become available across all markets, businesses will lose pricing power,
especially the power to set different prices in different markets.

Increased Business Competition

As more businesses enter international markets, Western companies will see increased competition.
Because companies based in developing markets often have lower labor costs, the challenge for
Western firms is to keep ahead with faster and more effective innovation as well as a high degree
of automation.

Slower Economic Growth

The motor of rapid growth has been the Western economies and the largest of the emerging
markets, such as China and Brazil. Western economies are stagnating, and emerging market growth
has slowed, so economic growth over the next several years will be slower. International businesses
must plan for profitability in the face of more slowly growing demand.

Emergence of Clean Technology

Environmental factors are already a major influence in the West and will become more so
worldwide. Businesses must take into account the environmental impact of their normal operations.
They can try to market environmentally friendly technologies internationally. The advantage of this
market is that it is expected to grow more rapidly than the overall economy.

International Business helping the economic growth of the country

International business is a powerful enabler of economic development. Increased participation in
international business can spur economic growth, which itself is a necessary condition for broader
development outcomes to be realized. By connecting global markets to developing country
producers and consumers, trade both exports and imports-provide a critical channel for the flow of
finance, technology and services needed to further improve productive capacity in agriculture,
industry and services. These are needed in turn for structural transformation of economies.
Poverty Reduction: Economic growth is a necessary condition for poverty reduction, particularly
in low income countries. When a country’s Gross Domestic product per capita is sufficiently large,
poverty reduction may be largely a question of redistribution of income. In developing countries
with low income levels, redistributive transfers alone are not sufficient for or may even become
adversial to, poverty reduction. Poverty reduction in such cases require economic growth in terms
of enlarging the shares of gains received by each member of the population i.e in terms of a higher
output per worker, which is usually approximated by GDP per capita.
Development Outcomes: The impact of trade on national income called the “Income channel”.
International business can raise the economy’s income generating opportunities via inter alia, a
“vent for surplus”.
Make use of abundant raw materials
Some countries are naturally abundant in raw materials – oil (Qatar), metals, fish (Iceland),
Congo (diamonds) Butter (New Zealand). Without trade in international business, these
countries would not benefit from the natural endowments of raw materials.Countries will
specialise in producing and exports goods which use abundant local factor endowments.
Countries will import those goods, where resources are scarce.

Greater choice for consumers

A driving factor behind the international business is giving consumers greater choice of
differentiated products. India import BMW cars from Germany, not because they are the cheapest
but because of the quality and brand image. Regarding music and film, trade enables the widest
choice of music and film to appeal to different tastes. When the Beatles went on tour to the US in
the 1960s, it was exporting British music – relative labour costs were unimportant.

Perhaps the best example is with goods like clothing. Some clothing (e.g. value clothes from
Primark – price is very important and they are likely to be imported from low-labour cost countries
like Bangladesh. However, we also import fashion labels Gucci (Italy) Chanel (France). Here
consumers are benefitting from choice, rather than the lowest price. Economists argue that
international trade often fits the model of monopolistic competition. In this model, the important
aspect is brand differentiation. For many goods, we want to buy goods with strong brands and
reputations. e.g. popularity of Coca-Cola, Nike, Addidas, McDonalds e.t.c.

Specialisation and economies of scale – greater efficiency

Sometimes, countries may specialise in particular industries for no over-riding reason – it may just
be a historical accident. But, that specialisation enables improved efficiency. For high value-added
products, multinationals often split the production process into a global production system. For
example, Apple designs their computers in the US but contract the production to Asian factories.
Trade enables a product to have multiple country sources. With car production, the productive
process is often even more global with engines, tyres, design and marketing all potentially coming
from different countries.
Service sector trade
International business tends to conjure images of physical goods import bananas, export cars. But,
increasingly the service sector economy means more trade is of invisibles – services, such as
insurance, IT services and banking. Even in making this website, I sometimes outsource IT services
to developers in other countries. It may be for jobs as small as $50. Furthermore, I may export a
revision guide for £7.49 to countries all around the world. A global economy with modern
communications enables many micro trades, which wouldn’t have been as possible in a pre-internet
age.

Global growth and economic development

International business has been an important factor in promoting economic growth. This growth
has led to a reduction in absolute poverty levels – especially in south east Asia which has seen high
rates of growth since the 1980s.

Advantages of international business:

1. Earning valuable foreign currency: A country is able to earn valuable foreign currency
by exporting its goods to other countries.
2. Division of labor: International business leads to specialization in the production of goods.
Thus, quality goods for which it has maximum advantage.
3. Optimum utilization of available resources: International business reduces waste of
national resources. It helps each country to make optimum use of its natural resources.
Every country produces those goods for which it has maximum advantage.
4. Increase in the standard of living of people: Sale of surplus production of one country to
another country leads to increase in the incomes and savings of the people of the former
country. This raises the standard of living of the people of the exporting country.
5. Benefits to consumers: Consumers are also benefited from international business. A
variety of goods of better quality is available to them at reasonable prices. Hence,
consumers of importing countries are benefited as they have a good scope of choice of
products.
6. Encouragement to industrialization: Exchange of technological know-how enables
underdeveloped and developing countries to establish new industries with the assistance of
foreign aid. Thus, international business helps in the development of the industry.
7. International peace and harmony: International business removes rivalry between
different countries and promotes international peace and harmony. It creates dependence on
each other, improves mutual confidence and good faith.
8. Cultural development: International business fosters exchange of culture and ideas
between countries having greater diversities. A better way of life, dress, food, etc. can be
adopted from other countries.
9. Economies of large-scale production: International business leads to production on a large
scale because of extensive demand. All the countries of the world can obtain the advantages
of large-scale production.
10. Stability in prices of products: International business irons out wide fluctuations in the
prices of products. It leads to stabilization of prices of products throughout the world.
11. Widening the market for products: International business widens the market for products
all over the world. With the increase in the scale of operation, the profit of the business
increases.
12. Advantageous in emergencies: International business enables us to face emergencies. In
the case of natural calamity, goods can be imported to meet necessaries.
13. Creating employment opportunities: International business boosts employment
opportunities in an export-oriented market. It raises the standard of living of the countries
dealing international business.
 14. Increase in Government revenue: The Government imposes import and export duties for
this trade. Thus, Government is able to earn a great deal of revenue from international
business.

COMPETITIVE ADVANTAGE IN A GLOBAL SETTING

1. Large scale economies like low cost of production, effective utilisation of resources,
appointment of specialists and experts, etc.
2. Ability to expand and diversify its activities.
3. Ability to bear political and commercial risks.
4. Paying lower rate of interest to its creditors and underwriters.
5. Ability to bargain with the suppliers of inputs and achieve the agreement at favourable
terms for the company.
6. Providing customer services efficiently and economically.
7. Paying less taxes to government by shifting the funds from one business to another.
8. Use portfolio planning to have synergise advantage by allocating more resources to those
portfolios/ products which have a high market demand and by reducing the resources to
those products/ portfolios with low market demand.
9. Economies of scale: Companies achieve the economies of scale through division of labour,
specialisation, automation, rationalisation, computerisation, forward integration and
backward integration.
10. Latest Technology: Companies can adopt latest technology either on their own and/or
through joint ventures.
11. Human Resources:Highly committed,skilled and innovative human resources,employees
with positive attitude and high emotional quotient would also enhance the competitive
advantage to the company.
12. Continuous upgradation of employees through learning and training.
13. Computer aided design, production process,e-commerce,business process reengineering and
enterprise resource planning would also be sources for competitive advantage.
14. Employees with diversified culture and cultural collaboration.
15. Acquiring market power to understand, monitor and control suppliers of inputs, customers,
dealers or market intermediaries and competitors.
16. Acquiring market power to understand, monitor and control suppliers of inputs, customers,
dealers or market intermediaries and competitors.
17. Cheap sources of raw materials, finance,etc in various foreign countries.
18. Changing and varying tasks and preferences of customers at varying degrees across the
globe.
19. Different levels of economic development, social and cultural development, technological
development of world countries.
20. Mobility of labour force across the globe.

Problems of International Business

“Life is not bed of roses”.The important problems include:

1. Political Factors: Political Instability is the major factor thatdiscourages the spread of
international business.For Example:In the Iran-Iraq war,Iraq-Kuwait War,frequent changes
of political parties in power and thereby changes in government policies in
India,etc.,created political risk for growth of international business.
2. Huge Foreign Indebtedness: The developing countries with less purchasing power are lured
into a debt trap due to the operations of MNCs in these countries.
 3. Exchange Instability: Currencies of countries are depreciated due to imbalances in the
balance of payments, poltical instability anf foreign indebtedness,This, in turn, leads to
instability in the exchange rates of domestic currencies in terms of foreign currencies.
4. Entry Requirements: Domestic governments impose entry requirements to
multinationals.For example, an MNC can enter Eritrea only through a joint venture with a
domestic company.
5. Tariffs,Quotas and Trade Barriers: Governments of various countries impose tariffs, import
and export quotas and trade barriers in order to protect domestic business.Further, these
barriers are imposed based on political and diplomatic relations between or among
governments.
6. Corruption: Corruption has become an international phenomenon.The higher rate bribes
discourage the foreign investors to expand their operations.
7. Bureaucratic Practices and Government: It delay sanctions, granting permissions and
licenses to foreign compsnies.
8. Technological Pirating: Copying the original technology, producing imitative products,
imitating other areas of business operations were common in Japan during 1950s and
1960s.This practice invariably alarms the foreigncompanies against expansion.
9. Quality Maintenance: International business firms have to meticulously maintain quality of
product based on quality norms of each country.The firms have to face severe
consequences,if they fail to conform to the country standards.
10. High Cost: Internationalising the domestic business involves market survey, product
improvement,quality upgradation, managerial efficiency and the like.These activities need
larger investments and involve higher cost and risk.

CHANGING TRENDS IN INTERNATIONAL TRADE

Intense competition among countries, industries, and firms on a global level is a recent
development owed to the confluence of several major trends. Among these trends are:

1) Forced Dynamism:

International trade is forced to succumb to trends that shape the global political, cultural, and
economic environment. International trade is a complex topic, because the environment it operates
in is constantly changing. First, businesses are constantly pushing the frontiers of economic growth,
technology, culture, and politics which also change the surrounding global society and global
economic context. Secondly, factors external to international trade (e.g., developments in science
and information technology) are constantly forcing international trade to change how they operate.

2) Cooperation among Countries:

Countries cooperate with each other in thousands of ways through international organisations,
treaties, and consultations. Such cooperation generally encourages the globalization of business by
eliminating restrictions on it and by outlining frameworks that reduce uncertainties about what
companies will and will not be allowed to do. Countries cooperate:

i) To gain reciprocal advantages,

ii) To attack problems they cannot solve alone, and

iii) To deal with concerns that lie outside anyone’s territory.

Agreements on a variety of commercially related activities, such as transportation and trade, allow
nations to gain reciprocal advantages. For example, groups of countries have agreed to allow
foreign airlines to land in and fly over their territories, such as Canada’s and Russia’s agreements
commencing in 2001 to allow polar over flights that will save five hours between New York and
Hong Kong.

Groups of countries have also agreed to protect the property of foreign-owned companies and to
permit foreign-made goods and services to enter their territories with fewer restrictions. In addition,
countries cooperate on problems they cannot solve alone, such as by coordinating national eco-
nomic programs (including interest rates) so that global economic conditions are minimally
disrupted, and by restricting imports of certain products to protect endangered species.

Finally, countries set agreements on how to commercially exploit areas outside any of their
territories. These include outer space (such as on the transmission of television programs), non-
coastal areas of oceans and seas (such as on exploitation of minerals), and Antarctica (for example,
limits on fishing within its coastal waters).

3) Liberalization of Cross-border Movements:

Every country restricts the movement across its borders of goods and services as well as of the
resources, such as workers and capital, to produce them. Such restrictions make international trade
cumbersome; further, because the restrictions may change at any time, the ability to sustain
international trade is always uncertain. However, governments today impose fewer restrictions on
cross-border movements than they did a decade or two ago, allowing companies to better take
advantage of international opportunities. Governments have decreased restrictions because they
believe that:

i) So-called open economies (having very few international restrictions) will give consumers better
access to a greater variety of goods and services at lower prices,

ii) Producers will become more efficient by competing against foreign companies, and

iii) If they reduce their own restrictions, other countries will do the same.

4) Transfer of Technology:

Technology transfer is the process by which commercial technology is disseminated. This will take
the form of a technology transfer transaction, which may or may not be a legally binding contract,
but which will involve the communication, by the transferor, of the relevant knowledge to the
recipient. It also includes non-commercial technology transfers, such as those found in international
cooperation agreements between developed and developing states. Such agreements may relate to
infrastructure or agricultural development, or to international; cooperation in the fields of research,
education, employment or transport.

5) Growth in Emerging Markets:

The growth of emerging markets (e.g., India, China, Brazil, and other parts of Asia and South
America especially) has impacted international trade in every way. The emerging markets have
simultaneously increased the potential size and worth of current major international trade while
also facilitating the emergence of a whole new generation of innovative companies. According to
“A special report on innovation in emerging markets” by The Economist magazine, “The emerging
world, long a source of cheap la, now rivals the rich countries for business innovation”.

GLOBAL SOURCING AND PRODUCTION SHARING

The trend of global sourcing and production sharing has been growing. Encouraged by the success
of the Japanese industry, out-sourcing became so prominent in the United States that an increasing
dependence on outside suppliers during the decade of 1980s helped reverse a trend toward
increased vertical integration that had been occurring for almost a century. In other words, the
1980s witnessed a trend toward de-integration or the emergence of hollow manufacturing
companies.

Spreading Web of Global Production Network:

The compositional shifts in trade have created a new pattern in the international exchange of goods,
services and ideas. Trade in components is one part of that new pattern. Sourcing such
components from abroad is an increasingly common practice, and use of the internet is sure to
expand the process, encouraging entry by new products throughout the developing world while
precise numbers are difficult to come by, in the early 1990’s one third of all manufacturers
trade involved parts and components. This type of trade has generated an ever spreading web of
global production networks that connect subsidiaries within transitional firms to unrelated
designers, producers, and distributors of components. These networks offer their constituent firms
access to new markets and commercial relationships and facilitate technology transfer. Advances in
information technology help firms from developing countries into global production networks.
General Electric, for instance, posts information on its component requirements on the internet, and
firms from all over the world bid to supply them.

Out sourcing has been much more conspicuous with the Japanese industries than others. For
instance, typically figures of about 60 to 70% out-sourcing for Toyota versus 30 to 40% for
General Motors were reported. The successful use of higher percentage of subcontracting by
Toyota, Nissan and other Japanese automotive companies has cited increasingly in recent years as a
model for US manager who have increased their own out-sourcing. As a result of the massive out
souring program GMs share of parts and components produced in-house was predicted to drop
from 60% to 45% by the end of the 1980s.

Much of the increased sourcing over the past decade or so has been global in nature. Many
companies have adopted global sourcing as major competitive strategy.

Some of the offshore sourcing was in fact accompanied by plant or product line closings in the
United States as US manufacturers sought the advantage of cheaper labor abroad, either in their
own plants or from others.

According to the Purchasing survey, the reasons for offshore purchases are the following, listed in
the order of importance:

1. Lower price

2. Better quality

3. Only source available

4. More advanced technology

5. More consistent attitude

6. More co-operative delivery

7. Counter trade requirements.

It may be noted that, besides the above, outsourcing has certain other advantages. It reduces the
capital and manpower requirements. It may also impart more flexibility to adjust to certain
conditions like a recession.

International sourcing accounts for an estimated one-third of the world trade. Many developing
countries have taken lot of the advantage of this trend. India, however, has not benefited to any
significant extent. However, with the changes in the business environment there are positive signs
of change. The Indian auto components industry has become, for instance, suppliers to foreign
heavy weights like General Motors, Renault, Fiat etc. The export performance of the Indian auto
components is expected to improve very significantly with the further improvement in quality and
productivity which the industry is now striving to achieve.

Production sharing is a natural corollary of the growing international sourcing. Production sharing,
a term introduced by Drucker, refers to the practice of carrying out different stages of
manufacturing of a product in several countries.

Such production sharing has become quite common in many industries including high technology
and sophisticated products. The technical development and designing may be done in one country,
the various components may be manufactured in different countries, the assembling may be done in
some other country/countries and the product may be marketed globally.

PRODUCTION SHARING BENEFITS

• Complement each other’s’ strengths in order to create greater value;

• Gain access to unique technology, raw materials, and specialized intermediate inputs;

• Reduce overall costs;

• Provide an important market for a company's component exports;

• Retain higher wage jobs, product development and design, capital-intensive manufacturing,
and marketing-related activities in the United States; and sometimes

• Provide the only means to keep companies in business.

EVOLUTION OF INTERNATIONAL BUSINESS

The Business across the border of the countries had been carried out since a number of decades.
The origin of international business goes back to human civilisation. Every country is abundant in
different type of natural resources and is specialised in making goods which are based on those
resources available at a cheaper price. Example, Brazil is specialised in production of coffee. India
is specialised in producing Jute products, cotton textile, etc.

Every country is not self-sufficient. It needs trade with other country for getting raw materials or
market for their finished goods. The main reason of Britishers coming to India was not ruling over
us. It was international trade. India was rich in natural resources. So, Britishers set up their colonies
in India to get raw material from India and a market for their finished goods. Traders used to
transport Silk and spice through the sea route in 14 th and 15th century.In 1700’s, fast sailing ships
called clippers with special crew used to transport tea from China and spices from Dutch East
Indies to different European countries. But, the business at that time was restricted to international
trade which included export and import of goods and services between countries. The post-world
war-II era gave birth to the concept of multinational companies, wherein apart from export and
import many other activities are carried out between nations like strategic alliances, commodity
trading, currency trading, international financial market,etc.The post 1990’s has given greaer flip to
international business.

It implies businesses conducted among or between different nations. Here, two or more countries
do business with each other. It mainly consists of imports and exports. For example, crude oil-rich
Gulf countries export their raw oil and in return import the scare food items.

International business is not a phenomenon of modern times. It has its origin in the ancient times. It
began when merchants from different kingdoms started exploring remote parts of the old world in
search of wealth and opportunities. For examples, European traders came to the south-Asia via a
new sea-route in search of cheaper spices, which were in huge demand in Europe.

In Nut shell, the origin of International Business goes back to human civilization. Sindh civilization
had many traces of having a trade relationship with the Eastern civilization. Later the concept of
International Business – a broader concept of integration of economies goes back to 19th century.
The first phase was taken with the end of First World War in 1919. The import of raw materials by
colonial countries emperor from colonies and exporting them finished goods again to the colonies.
There is an increase in the level of international business. But after Second World War in 1945, the
most of the colonial governments refused to export the raw materials and import finished goods for
the purpose of protecting the domestic companies. There is a decrease in international business.
The consequences of World War II had made the world countries to feel the need of international
co-operation of global trade which led to the formation of various organizations like International
Monetary Fund (IMF) and International Bank for Reconstruction and Development (IBRD), now
called AS World Bank

DIFFERENCES BETWEEN DOMESTIC BUSINESS & INTERNATIONAL BUSINESS

Issues Domestic Business International Business

Geography It is carried out within the It is carried out across borders

national or geographical and national territories of a
borders of a country. country. It can happen in more
than one country.
Business Environment The companies face variables International business
of domestic environment environmental factors affect
the business

Culture There is less difference in the The culture widely varies in

culture of local areas and different countries and regions.
regions within the domestic
country. The culture is
relatively uniform.

Quality of products/ services Standards may be lower. Very high standards are
expected and enforced. Global
standards are set.

Currency Domestic business deals with It depends on foreign

single currency. It mostly currencies for transactions.
depends on local currency for Companies deal with multiple
transactions. currencies.

Research It is easy to conduct research Research processes for the

for the business as the business is very expensive and
companies are dealing with hard to conduct as the
local variables. companies are dealing with
multiple variables.

Investment The capital investment is not Capital investment is extremely

high and manageable high and requires special skills
to manage.

Production factors Factors of production are free Factors of production are not
and easily available. freely and easily available.

Human Resource The local companies may In international business,

succeed with low skills and manpower is very important. It
knowledge. must be having high IQ, EQ
and must be multilingual and
multicultural as well.

Promotion Strategies Domestic marketing and Marketing and advertising

advertising strategies are strategies vary from country to
successful. country due to cultural
differences, mainly language
differences.

Rules and Regulations Only home country rules and International and host country
regulations are applicable rules and regulations are
applicable

Risk Factors Risk factor is less Risk factor is very high.

Cost Advantage Companies may not enjoy cost Companies may enjoy cost
advantage advantage due to achieving
economies of scale