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An overview of the InternationalBusiness Process

Prof. C.K.Sreedharan

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International Business Business can be defined as the activities related to the

following:

- Production- Buying

- Selling

The above activities are applicable to both goods and

services.

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In other words business can be defined an any activityinvolving any or combination of the following:

- Marketing- Production

- Sourcing / buying

- Logistics and supply chain management

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When these activities are carried out within thepolitical boundaries of a country it is called asdomestic business.

When these activities are carried out across thepolitical boundaries of a country it is termed asInternational Business.

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Meaning of IB IB is all those business transactions that involve the

crossing of national boundaries, that include:

Product presence in different markets of the world(Marketing)

Production bases across the globe

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Human resource having global diversity

Investment in international services like banking,advertising, tourism, retailing , construction andturnkey projects

Transactions involving intellectual properties suchas copyrights, patents, trade marks and processtechnology

Supply chain and logistics management.

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Evaluation of International

Business Trade is so old that one cant really say when it began.

World trade existed in Babylon, Mesopotamia,

Euphrates and Tigris in 3000 BCE, thousands of yearsbefore Christ.

World trade also existed in Egypt, Indus River Valleyand in China.

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Global trade played a vital role in the formation anddecline of the Roman Empire.

The Romans ensured that merchants were able to

travel safely, protected by troops. Common coinage was used to enable smooth

transaction across its empire.

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International business flourished within Romanempire and soon outside nations that were not part

of the empire decided to join as allies. These nations agreed to pay taxes to the Roman

empire to do business with the Romans.

The immense growth of the empire occurred

mainly through the linkages of business.

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International trade was also very much prevalent inancient India.

Trade across the seas was popular by the time of theBuddha.

By the time of Buddha sailors had navigated thesubcontinent, and made contacts with Burma, Malaya

(present Malaysia) and Indonesia.

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Spain and Portugal discovered sea routes to Asiancountries in 14 and 15 centuries.

Vasco da Gama reached India by sea in 1498. Soon England, France and Portugal monopolized the

sea routes and many countries became the politicalcolonies of the above countries.

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By the middle of 18 th century, Briton became theundisputed world economic power due toIndustrial Revolution.

This is due to the discovery of steam engine,technical progress in textiles, iron and steel.

Industrial base and the wealth plundered from the

colonies made Briton the worlds first industrialcountry.

By mid 19 th century, England accounted for about40% of the world trade.

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The earliest Multi National Enterprises were mainlyEuropean firms ( England, France, Portugal andSpain), setting up manufacturing facilities in thecolonies to extract primary resources for conversion tofinished goods back home.

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The Dutch and British East India Companies-perhapsamong the earliest Multi National Enterprises in theworld.

They were also closely connected with theglobalization of South Asia.

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By the beginning of 20 th century United States ofAmerica, became the worlds greatest economic powerdue to its market oriented policies

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Globalization Globalization is the process by which an activity of a

firm becomes worldwide in scope.

The term also refers to the integration of worldeconomies through the reduction of barriers to trade,capital, technology and people.

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What essentially happens in globalization is the

economic integration among countries across theglobe.

The term Global village is often used to describeglobalization.

Global village does not mean that there is completefusion among all countries.

It only means that there is economicintegrationbut not political amalgamation.

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Drivers of globalization Growth of developing economies:As explained earlier developing countries like

China, India, Brazil, Argentina, Mexico etc are

likely to come close to developed countries in termsof economic growth.

This growth will mean huge market - substantialconsumption of consumer and industrial goods.

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Capital and cost advantage of emerging economies:

Emerging Economy Countries ( EEC) offer

immense opportunities to reduce operating costsand capital investments.

Major savings come from low wages for example afactory worker in the US or Europe costs $15 to $30

per hour, where as Chinese factory worker costsapproximately $1 per hour- offering a costadvantage of more than fifteen times.

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Capital investment is reduced in EECs since labourcost is less compared to developed economies,more labour can be used in place of costlytechnology.

Hence companies that globalize can realize asavings to the tune of 20 to 30%.

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Availability, talent and capabilities: Developed countries face a shortage of working age

people where as EECs have plenty of working agepopulation.

In case of China, governments strict policy of onechild norm is going to affect the availability ofworking age population in future.

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India has not only the number but also the quality ofworkforce.

India produces about over 5 lakhs of engineers, 9 lakhsof graduates and over 1 lakh of diploma holders everyyear.

This large pool will limit the increase in wage rates for

the next 20 years.

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The Boston Consulting Group (India), estimates thatby 2020 , India would have one of the largestworkforce of around 47 million, while countries such

as the USA, China and Japan would face a labour poolshortage of 17 million, 10 million and 9 millionrespectively.

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Declining trade and investment barriers:

The early period of 20 th. Century witnessed highlevels of barriers on trade and investment.

The aim of such restrictions were to protect domesticindustries from foreign competition- the infantindustry argument.

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Soon EECs realized the importance of free trade,which resulted in the liberalization of trade.

Also international institutions like World TradeOrganization (WTO), International Monitory Fund(IMF) etc. advocated and promoted free world tradewithout any barriers.

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Technology:

Revolution is the best word which can best describethe pace at which technology has changed in therecent years and is continuing to change.

Significant developments are being witnessed in

communication, transportation and informationprocessing, including the emergence of theInternet and the World Wide Web.

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For example the cost of a three minute telephone

call from New York to Mumbai has dropped fromabout $ 50 to a few cents today.

Due to these developments in technology firms areable to locate production facilities anywhere in the

world to take advantage of low cost production.

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Trend in global economy The rapid growth in emerging markets is increasing

their importance in the global economy.

They account for nearly two-thirds of the totalgrowth in global output in the past two years,

compared with one-third in the 1960s. Their contribution to foreign trade is also large and

increasing.

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The overall economic conditions in emerging

economies are quite favorable: Relatively small fiscal deficits,

Manageable public debt,

Stable banking systems,

Low cyclical unemployment, and

Strong growth momentum

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In contrast, many advanced economies are facingserious challenges that stem from :

Big government deficits,

Large public debt,

Problems in their banking systems,

High unemployment rates, and

Weak growth

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Figures for 2011 are projections

Source: WTO Secretariat.

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Source: WTO Secretariat

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Currently about 25% of world production is sold

outside the country of origin, as opposed to about7% in 1950.

Nearly all business enterprises, large and small areinspired to carry on business across the globe.

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Features of a Global Company

A true global company has the following features:

1. Globalization of market presence:

- This refers to the extent to which a company targetscustomers in all major markets within its industrythroughout the world.

- Examples- Sony, IBM, Cannon etc.

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2. Globalization of supply chain:

- This refers to the extent to which a company isaccessing the most optimal locations for theperformance of various activities in its supply chain-like sourcing of raw materials, manufacturing,warehousing, transportation etc.

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Example: supply chain of Toyota.

Toyota produces in Japan as well as in its affiliatecompanies spread over 25 countries in America,Europe and Asia.

Toyota is also engaged in intra-firm f lows amongthe affiliates.

It exports diesel engines from Thailand, Steeringgears from Malaysia and engines from Indonesia.

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3. Globalization of capital base:

- This refers to the extent a company is accessingoptimal sources of capital on worldwide basis.

- Example: Many Indian Companies (Reliance, Essar,Aditya Birla Group) have accessed global capitalthrough ADR and GDR.

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4. Globalization of corporate mindset:

-This dimension refers to the ability of the company tounderstand and integrate diversity across cultures andmarkets.

- The human capital is globalized and leadership isdiverse.

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A true global company is one which scores high on allfour dimensions.

A global firm can be high on one dimension and lowon others.

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Why study IB? Today global events and competition affect all most all

companies- large or small- because most of them selltheir outputs to and source supplies from foreign

countries. Many companies also compete with products and

services that come from abroad.

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Most managers, regardless of industry or company

size, need to approach their operating strategiesfrom an international perceptive.

A manager in any industry needs to consider whereto obtain the inputs (global sourcing), desired

quality and at what best possible price and where tosell the products more profitably.

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In this present globalization era, a manager needs toknow about:

Best management practices across the globe.

Best human resource practices

Best supply chain, logistic management, inventorymanagement practices.