Introduction

International business and trade

 What is international/global business
Global business is a term used to describe both international trade
and the act of a company doing business in more than one area
(i.e. country) of the world. Some examples of well-known global
businesses include Google, Apple, and eBay. All of these
companies were founded in America, but have since expanded to
other area of the world.
In academics, global business encompasses the study of
international business. Students learn how to think about business
in a global context, meaning that they learn about everything from
different cultures to the management of multinational businesses
and expansion into international territory.
 Why Is Global Business Important?

• Gone are the days when businesses would confine their

operations to local or regional markets. With technology
advancing so fast and international trade expanding,
businesses are incentivized to sell products and services in
foreign markets. As such, operating a business on a global
level helps enterprises expand their market share, reduce
costs and become more competitive.
 Need for International Business:
•
1. To achieve higher rate of profits
2. Expanding the production capacity beyond the demand of the domestic
country
3. Severe competition in the home country
4. Limited home market
5. Political conditions
6. Availability of technology and managerial competence
7. Cost of manpower, transportation
8. Nearness to raw material
9. Liberalization, Privatization and Globalization (LPG)
10. To increase market share
11. Increase in cross border business is due to falling trade barriers (WTO),
decreasing costs in telecommunications and transportation; and freer
capital markets
Importance Of International Business:
 Continu…
• 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 minimize the business risks.
• Improve organization’s efficiency: International business has very high
organization 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 organizational
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.
 Continu….
• 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.
 Process of internationalization
• The process where business gets more involved in the international
market is called internationalization.
• The stages of Internationalization
• Stage 1:
• Domestic Operations The firm’s market is exclusively domestic.
• Stage 2:
• Export Operations The firm expands its market to include other
countries, but retains
• production facilities within domestic borders.
• Stage 3:
• Subsidiaries or Joint Ventures The firm physically moves
some of its operations out of the home country.
 Continu…
• Stage 4. Global Company-
• A global company is the one, which has either global marketing
strategy or a global strategy. Global company either produces in
home country and focuses on marketing these products globally, or
produces the products globally and focuses on marketing these
products domestically.
• Stage 5. Transnational Company-
• Transnational company products, markets, invests and operates
across the world. It is an integrated global enterprise that links
global markets at profit. There is no pure transnational corporation.
However, most of the transnational companies satisfy many of the
characteristics of a global corporation. For example, Coca-Cola,
Pepsi-Cola, etc.
 Modes of entry into international
business
• Exporting
• Joint venture
• Outsourcing
• Franchising
• Turn key projects
• Foreign direct investment
• Mergers and acquistion
• Licensing
• Contract manufacturing
• Strategic alliance
 Exporting

• It is the process of selling goods and services produced

in one country. Exporting may be direct or indirect.

• Under direct expot, a company captitalizing on

economics of scale in production concentration in the
home country, establishes a proper system for
organizing export function and procuring foreign scale.

• Indirect export involves exporting through domestically

based export intermediaries. The exporter has no
control over this product in the foreign market
 Joint venture
• It is a strategy used by companies to enter a foreign market by
joining hands and sharing ownership and management with
another company. It is used when two or more companies
want to achieve some common objectives and expand
international operations.

• It is used to meet shortage of financial resources, physical or

managerial resources.
 outsourcing
• It is a cost effective strategy used by comanies to
reduced costs by transferring portions of work to
outside suppliers rather than completing it internally.
It include both domestic and foreign contracting and
also off shoring ( relocating a business function to
another company.)
 franchising
• It is a system in which semi-independent business owners
(franchisees) pay fees and royalty to a parent company
(franchiser) in return for the right to be identified by its
trademark, to sell its product or services, and often to use its
business format or system.
 Turn key projects
• It involve the delivery of operating industrial plant to the
client without any active participation. A company pays a
contractor to design and contract new facilities and train
personnel to export its process and technology to another
country

• Turn key projects may be of various types:

1 BOD: Build. Owned, and Develop
2 BOLT: Built, Owned, Leased and Transferred
3 BOOT: Built., Owned, Operate and Transfer
 Foreign direct investment
• It is a mode of entering foreign market through investment.
Investment may be direct or indirect through financial
institutions. FDI influence the investment pattern of economy
and helps to increase overall development.

• The extent to which FDI is allowed in a country which is

subjected to govt regulations of the country. It can be alone
by purchasing shares of a company, property and assets
 Mergers and Acquisitions
• A merger is a combination of two or more distinct entities into
one, the desired effect being accumulation of assets and
liabilities of distinct entities and several other benefits such
as, economics of scale, tax benefits, fast growth and
diversification etc.

• Acquisition implies acquisition of controlling interest in a

company by another company. It does not lead to dissolution
of company whose shares are acquired. It may be a friendly
or hostile acquisition or a bail out takeover
 Licensing
• Licensing is a method in which a firm gives permission to be a
person to use its legally protected product or technology
(trademark and copyright) and to do business in a particular
manner, for an agreed territory.
• It is a very easy method to enter foreign markets as control
and communicate is involved, the financial risk is transferred
to the licensee and there is better utilization of resources.
 Contract Manufacturing
• When a foreign firm hires a local manufacturer to
produce their product or apart of their product it is
known contract manufacturing.
• This method utilizes the skills of a local manufacturer
and help in reducing cost of production. The
marketing and selling of the product is the
responsibility of the international firm.
 Strategic Alliance
• It is voluntary formal agreement between two
companies to pool their resources to achieve a
commn set of objectives while remaining
independent entities. It is mainly used to
expand the production capacity and increase
market share for a product.
• Alliances help in developing new technologies
and utilizing brand image and market
knowledge of both the companies.