Ref: International Business- P Subba Rao

Introduction to International Business PEST factors & Impact on IB Investment Management in IB Multinational Corporations Globalization International Organisations and their role in IB Regional Trade agreements & Free Trade Agreements Trade Theories and relevance in IB International Logistics & Supply Chain International HR Strategies

International business comprises of all commercial transactions (private & Govt., sales, investments, logistics and transportation) that take place between two or more regions, countries and nations beyond their political boundries

International Business is the process of focussing on the resources of the globe and objectives of organisations on the global business opportunities and threats, in order to produce, buy, sell or exchange goods/services worldwide

Generating Revenue Corporate image and Brand building Customer satisfaction and building loyalty Generation of employment opportunities Corporate governance Adhering local rules and regulations

Approach: Ethnocentric Vs Polycentric/ Regiocentric/ Geocentric

Geographic Scope Operating Style Environment: known Vs Unknown Effect of Govt. imposed Quotas & Tariffs Effect of currency fluctuations Effect of change in culture Import- Export procedures Human Resources Markets & Customers

Managing Product Life cycle Wider market Economics of scale Corporate ambition Technology advantage Building a corporate image The spirit of younger generations in the organisation Utilization of Incentives Labour advantage New business opportunities

Earning for foreign exchange Better socio-economic welfare of citizens Interlinking Trade & Diplomacy Interdependency for various products Knowledge transfer Infrastructure investment & hence betterment Utilization of core competency Optimum utilization of natural resources Country’s brand image Foreign trade policy Global standing among organizations like the WTO

To achieve higher profits Expanding Production capacities beyond domestic demand Severe competition in Home country Limited Home market Political stability Availability of Technology & HR High cost of Transportation Nearness to raw material Liberalisation & globalisation To increase market Share Tariffs & Import Quota

High living standards Increased Socio-economic welfare Wider market Reduced effects of business cycle Reduced risk Larger economies of scale Potential untapped market Knowledge transfer leading to growth of domestic players Division of labour & specialisation Optimum utilization of the world resources Cultural transformation

For multinational companies, political risk refers to the risk that a host country will make political decisions that will prove to have adverse effects on the multinational's profits and/or goals.

Type of political system: Democratic (Two party, multi-party, single-party, one-party dominated) & Totalitarian

Political risks:◦ Confiscation◦ Expropriation◦ Nationalisation◦ Domestication◦ General Instability (corruption, social unrest, attitudes, Govt. change)◦ Operation risk

How to minimize political risks: Do not enter without thorough research and have regular risk

audits Stimulation of local economy Employment of Nationals Sharing ownerships Being Civic minded Political neutrality Behind the scenes lobbying Buy insurance Keep exit strategies ready

Economic system is an organization of institutions established to satisfy human needs/wants

World Bank classifications of economies on per capita income Low Income countries: USD 755 or less (Also called third

world or pre-industrial countries) Lower middle Income countries: USD 756 to USD 2,995 (less

developed countries) Upper middle Income countries: USD 2,996 to USD 9,265

(industrialising countries) Higher Income countries: USD 9,266 or more (first world

countries or post-industrial countries or advanced countries)

Macro Issues affecting Business decisions Economic growth Inflation Balance of Payments Economic transition

Culture is the combination of many elements that might Collaborate together to create a unique society

Communication differences Communication through languages◦ Over punctuate◦ Make one point at a time◦ Confirm discussion in writing◦ Research and adjust language to level of your counterpart◦ Use visual aids whenever possible◦ Avoid jargons

Basically “speak as if you are answering a slightly deaf, very sick old aunt, who just asked you how much to leave for you in her will”

Non-verbal communication Time & culture Space & culture Agreement & Culture Friendship first or business first? Negotiation & culture Superstition & culture Gifts & culture Behavioral factors: motivation, power distance, individualism

vs. collectivism, risk-taking Behavior

Social factors:

RELIGION Family System

How to deal with these risks? Thorough research on the culture & religion before entering

the market Start with small focus group & then expand after learning

from experiences Audit regularly and make adjustments whenever required Be cautious while communicating: spoken & written

language, translating & silent language Attention to basics:◦ Respect human values & human rights◦ Respect local tradition◦ Consider situation factors while deciding what is ethical and what is not

Tendency to invest in technology Lower technology knowledge can keep the country poor Inventions & global competitiveness are two determinants of

a nation’s wealth (USA, Japan, Germany) International business spreads technology from advanced

countries to developing countries by:◦ Establishing subsidiaries◦ Establishing JV◦ Acquiring or merging with host country’s firms◦ Forming technological transfer

Advantages of technology Reducing the size of the inventories Reducing delivery time Reducing unproductive waiting time Reducing the incidents of stock-outs and stock sales Responding to market changes at a faster rate Reducing rush orders Cutting down overproduction Reducing unnecessary forwarding and back tracking Reducing paperwork and wasteful process Planning production levels accurately Reducing/ avoiding physical movement of stakeholders

Steps for technology transfer Note Technology level of the industry in home country Note Technology level of the industry in proposed country Compatibility between the two technologies Compatibility with the host country’s culture and customers If incompatible, select appropriate median Study knowledge transfer rules and regulations of host Govt. Finalise technology transfer mechanism Study technology transfer effects on environment including

home countries regulations

1. Cadbury “worms” fiasco2. Cola “pesticide” fiasco3. Daiichi’s Ranbaxy acquisition fiasco4. Tata Corus “Union” trouble5. Nestle’s “two minutes” million dollar controversy6. KFC/ McDonalds “Beef” controversy

Why do companies and the countries enter into International Business when the opportunities exist in domestic business (10 marks) – Nov 2008

What do you mean by risk analysis and to what extent companies use this tool for framing policies in International Business both at the time of entry and operations (10 marks)- Nov 2009

International business is more complex than Domestic business. Define IB; state its objectives and give an overview of IB comparing with domestic biz. (10 marks)-Nov 2010

Country risk and political risk studies are important before one enters IB. Explain in detail the process of Country Risk and Political Risk analysis (10 marks)-Nov 2010

Describe the political, social, economic and other factors in IB environment. How do these affect the country selection for new companies to enter international markets (10 marks)-Nov 2012

Explain some non-Tariff barriers in International Trade with examples (10 marks)- Nov 2013

IB is more complex than Domestic Business. Discuss with suitable examples (10 marks) – Nov 2014

Explain EPRG [ Ethnocentric, Polycentric, Regiocentric & Geocentric] orientation of management models with suitable examples of MNCs operating in India (10 marks)- Nov 2014

Besides Economic factors, which other factors have a bearing on International business? Substantiate your answer with suitable examples. (10 marks)- Nov 2014