Course Title:

International Business Management

Lecture No. 1
On Introduction to International Business

Dr. Manisha Goswami

Assistant Professor,
Institute Business Management
GLA University, Mathura.

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 Learning Objectives

LO1: Illustrate the evolution of International Business.

LO2: Identify the nature of International Business.
LO3: Infer the reasons to study International Business.
LO4: Relate to the divers of International Business.

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 Meaning of International Business

• International Business means carrying on business activities beyond

boundaries.

• The business activities include transaction of economic resources such as

goods, capital, services and international production.

• In addition to trade in goods and services, foreign investment particularly

foreign direct investment is included in the purview of international business

• Thus, we can say that any firm engages in international trade or investment is
said to be international business (Charles. W.L. Hill)

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Let us look at some examples

• “Suiting and Shirting” that you wear; where it is

produced?

• “Tea”, that you drink; where it is produced?

• “Shoes” that you are wear, where it is produced?

• “Air line services” that you are using, from where it is

coming from?
Thus, we can say that International Business has become indispensable in the present scenario.

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You will shocked to know that:

Today, no country- developed or developing –produces all

commodities to meet its requirements.

It import some commodities to meet its requirements.

For example, India meets its oil requirements by import from

OPEC countries.

At the same time, country exports all items that are produced
over and above its requirements. A country has to expand its
export to earn foreign exchange to pay for its import bills.
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• In developing countries there is always a shortage of capital for
investment.

• Foreign Direct Investment bridges the resources gap.

• FDI brings in capital and supplements domestic capital and fosters the
pace of economic development.

• FDI use available raw material and help in improving the technology.

• FDI helps either import substitution or export promotion and thereby

helps improve the balance of payment of a country.

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How Important IB is for the Nations Economy

• It helps to explore the potential market, thereby limiting overdependence on

single market.

• Developing countries are benefited by the transfer of

• Technology
• Management Expertise
• Market Intelligence
• Product Development

• At the micro economic level, the firms export their products to foreign markets
and expand their market size in order to maximize profits.

• Further, when demand for products starts increasing in foreign countries, the
firms can start production in those countries to avoid transportation cost and
tariffs.

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Evolution of International
Business
• International business development evolves through the
normal processes of trade, foreign direct investment, capital
flows, migration, and the advancement of technology in
undeveloped nations.

• This includes understanding the economy, history, culture, laws,

business practices and trade patterns of the target country.

• However, the integration and Growth of economies and

Societies was the main reason for the first phase of
International Business and Globalization. 1990 – 2000: The
Term International Business (IB) has emerged from the term
International Marketing.

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 Three Phases of Globalization
• “First globalization" is a phrase used by economists
to describe the world's first major period of
globalization of trade and finance, which took place
between 1870 till 1914.

• The "second globalization" began in 1945 and

ended in 1971.

• This led to the third era of globalization, which

began in 1989 and continues today
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 Major Incidences happened during Evolution

• 19th Century: The broader concept of the integration of

economies and societies evolved
• 1870: Began first phase of Globalization
• 1913: the ratio of trade to GDP was as high as 22.1
• After 1913: Increased Trade Barriers to Protect Domestic Production

• 1914: World War I:

• End of the first phase of Globalization, driven by the Industrial Revolution in
the UK, Germany and the USA

• 1930’s: because of increased trade barriers to protect the

domestic production leads to the decline in the ratio
of Trade to GDP to 9.1 during 1930s.
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Trade between two World War
(1914-1944)
• The international trade between the two world wars has
been described as “a vast game of a beggar-my-neighbor”

• Beggar-my-neighbor refers to economic and trade policies that a

country enacts that end up adversely affecting its neighbors and/or
trading partners.

• Protectionist barriers such as tariffs, quotas, and sanctions are all

examples of policies that can hurt the economies of other countries.

• Often, beggar-my-neighbor policies are not intended to negatively

affect other countries; rather, it is a side effect of policies meant to
bolster the country's domestic economy and competitiveness.

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Further
• After the war World Nations felt the need for International Co-operation in
in 1944: global trade and balance of payments affairs

• Establishment of IMF and IBRD (World Bank)

• 1947: 23 countries conducted negotiations in order to prevent the protectionist

policies and to revive the economies from recession aiming at the
establishment of some Trade regulating body.

• 1947: Establishment of GATT (General Agreement on Trade and Tariffs)

• 1980s: Efforts to convert GATT into WTO

• 1995: GATT was replaced by WTO (World Trade Organization) on Jan 1, 1995 Trade
Liberalization

• 1990 – 2000: The Term International Business (IB) has emerged from the term
International Marketing.

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 Two Phases
Evolution of International Business

• International Trade to International Marketing

• International Marketing to International Business

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FOUR DIMENSIONAL CONSTRUCT OF
INTERNATIONAL BUSINESS

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The first dimension- Globalization of market presence- refers to the extent to which a company targets
customers in all major markets within its industry throughout the world. On this count the presence of the
companies vary from low to high. As per the data presented by Forbes 2021

Rank Company Country/Territory Sector ($ Bil.)

1 Apple U.S. Technology 2,406

2 Microsoft U.S. Technology 2,140
3 Saudi Aramco Saudi Arabia Energy 1,865
4 Alphabet U.S. Technology 1,806
5 Amazon U.S. Technology 1,680
6 Facebook U.S. Consumer Services 992

7 Tesla U.S. Automotive 703

8 Bekshire Hathaway U.S. Financial 636

9 Taiwan Semiconductor Taiwan Semiconductors 606

10 Tencent China Technology 592

*As of August 3, 2021.

Source : World’s Largest Companies 2021 | Global Finance Magazine (gfmag.com)

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International Supply Chain (second dimension) refers to the extent to which the company is accessing the
most optimal locations for the performance of various activities in its supply chain. It may be possible for a
firm to have a fairly regional market presence and yet a highly globalized supply chain or vice versa.

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Third dimension-internationalization of capital base-refers to the extent to which the
company is accessing optimal sources of capital on a worldwide basis.

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Last but the most important dimension of the Internalization of Corporate Mindset.
This dimension refers to the ability of the company to understand and integrate diversity
across culture and markets.

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Why to study International Business

• Where you can obtain the best inputs at

the best possible price for your
production.

• Where you can sell the product or service

you have put together from those inputs.

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Further
• Understanding the environment/operations
relationship
• Making Nonbusiness Decisions
• Global Job Opportunities

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 Drivers of International Business

• Developing markets have huge markets

• Emerging countries offer low cost locational advantage

• Demographics are changing

• Regional trading blocks boost world business

• Trade and investment barriers have crumbled

• Advancements in technology

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 Topic Review
• Meaning, Nature, Scope and Importance of IB
• Evolution of IB
• Four dimensional Construct of IB
• Reason of studying IB
• Drivers of IB

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References:

• Aswathappa, K. (2016), International Business, Sixth

Edition, Mc Graw Hill Education(India) Private Limited.

• Rao, P.S.(2018), International Business, Fourth Revised

Edition, Himalaya Publishing House Pvt. Ltd.

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