GLOBAL BUSINESS MANAGEMENT

UNIT - I

INTRODCTION TO GLOBAL BUSINESS:

Meaning of Global Business:

 Global business refers to those business activities that take place beyond the
geographical boundaries of a country. It involves not only the international movements
of goods and services but also capital, technology, intellectual property rights like
patents, trademarks, copyright, etc.
 Global Business refers to the exchange of goods and services between two parties of
different countries. Global Business may be understood as those business transactions
involve crossing of national boundaries
 Global business refers to commercial activities that go beyond the geographical limits
of a country.
 Global Business is the process of focusing on the resources of the globe and objectives
of the organization on the global business opportunities and threats in order to
produce/buy/sell or exchange of goods and services worldwide.
 For example, India selling agricultural products to foreign countries is an international
business. Advancements in technology and better communication facilities have
increased international business with great success in various countries. International
business provides a wide market range to organizations and gives them an opportunity
to satisfy the needs of customers all over the world.

Definition of Global Business:

 Global business is defined as the process of extending the business activities from
domestic to any foreign country with an intention of targeting international customers.
 Global business is defined as organization that buys and/or sells goods and services
across two or more national boundaries, even if management is located in a single
country.
 Global business defines as the conduction of business activities by any company across
the nations
 Global business defined as the expansion of business functions to various countries
with an objective of fulfilling the needs and wants of international customers.
Reason for Global Business:
 Uneven Distribution of Natural Resources: Due to unequal distribution of natural
resources, all countries cannot produce goods at a low cost. As a consequence, it has an
impact on their productivity levels. Therefore, the countries with less quantity of a natural
resource either purchase the resource or the actual product itself from the countries with
an abundance of these. For example, crude oil is exported from the USA as it is found
in abundance there.
 Availability of Productivity Factors: The numerous production variables, like labor,
capital, and raw materials, that are required to produce and distribute diverse commodities
and services are found in different quantities in different countries. It gives rise to buying
and selling of productivity factors among the countries. For example, due to
unemployment in India, foreign countries can employ labor at chap rates from India.
 Specialization: Some countries specialize in producing goods and services for which
they have advantages such as education, favorable climatic circumstances, and so on. It
results in the business between different countries for the purchase and sale of specialized
products. For example, the Indian market specializes in handcraft products which
increases its exports to other countries.
 Cost Advantages: Production costs vary according to geographical, political, and
socioeconomic situations in different countries. Some countries are in a better position to
manufacture certain commodities at a lower cost than others. Firms participate in
international trade to purchase products that are cheaper in other countries and to sell
things that they can supply at a lower cost. For example, China sells various goods at a
low price to different countries all over the world because of the cost advantage.

Benefits of Global Business

I. Benefits to countries
 Foreign Exchange: It assists a country in earning foreign exchange, which may then be
utilized to buy capital goods, technology, and other products from foreign countries.
 More Efficient Resource Utilization: It is based on the comparative cost advantage
theory. It entails producing what your country can produce more efficiently and trading
the surplus production with other countries to purchase what they can produce more
efficiently. In this way, countries can make better use of their resources.
 Growth Possibilities and Job Opportunities: Countries can enhance their
manufacturing capacity to supply commodities to other countries through external trade.
If external trade holds, the production will rise, increasing the GDP level of the country,
resulting in economic growth. With more production, the demand for more labor also
rises. Therefore, the international business also creates job opportunities.
 Improved Standard of Living: International business allows individuals to consume
goods and services from other countries. Consumption of a variety of goods and services
improves the standard of living of the people.
II. Benefits to firms
 Profit Opportunities: When compared to local business, international business is more
profitable. When domestic prices are lower, businesses can make more money by selling
their products in other countries.
 Increased Resource Utilization: Many enterprises anticipate international growth and
get orders from foreign clients to set up production capabilities for their products that are
more in demand in the local market. It enables them to better utilize their resources.
 Growth Prospects: When demand falls or the domestic market reaches saturation point,
business enterprises become irritated. By expanding internationally, such businesses can
increase their growth potential significantly.
 Decrease Competition: When domestic competition is fierce, internationalization
appears to be the only option to achieve success and required growth. Many businesses
are motivated to expand into overseas markets because of the fierce competition in the
domestic markets.
 Improved Business Vision: Many firms’ existence and goodwill depend on their ability
to expand their worldwide business. The desire to expand and diversify, as well as to take
advantage of the strategic advantages of internationalization, is expressed in the desire to
become more international.
 Difference between Domestic Business and International Business
Basis Domestic Business International Business
Meaning The business where economic transactions The business where economic transactions
are conducted within the geographical are conducted across borders with several
boundaries of one country countries in the world.
Mobility of Degree of mobility of factors of Degree of mobility of factors of production
Factors of production (land, labour, etc.) is more as (land, labour, etc.) is less as compared to
Production compared to international business. domestic business.
Customers are not homogeneous due to
Customers are homogeneous in their
Nature of different socio-cultural backgrounds,
tastes, preferences, consumption patterns,
Customers tastes, fashions, languages, beliefs,
and buying behaviour.
customs, etc.
Business systems and practices are less
Business
Business systems and practices are homogeneous as there is difference in
Systems and
homogeneous within a country. development level, infrastructure, market
Practices
facilities, etc.
Domestic business firms are familiar with
International business faces difficulties in
the political system of their country. As a
Political System understanding and coping with the
result, they are in a better position to
and Risks different political systems of every
understand and predict its impact on
country.
business.
Business Rules, laws, or taxation policies of various
Rules, laws, or taxation policies of a single
Regulations and countries prevail in the case of
country prevail in domestic business.
Policies international business.
Currency used Currency of the domestic country is used. Currency of more than one country is used.
It involves comparatively less degree of
Risk It involves a high degree of risk.
risk.
Order There is a less time gap between order and There is a wide time gap between order and
Processing Time supply of goods. supply of goods.
Effect on It has no effect on the foreign reserves of a It has a direct impact on the foreign
Foreign Reserve country. reserves of a country.
NATURE OF GLOBAL BUSINESS

1. It includes two countries: Global business is only possible when there are transactions in
different countries.

2. Large Scale Operations: In Global business, all the operations are conducted on a very
huge scale. Production and marketing activities are conducted on a very large scale. It first sell
its goods in the local market and then the surplus goods are exported.

3. Integration of Economies: Global Business integrates (combines) the economies of many

countries. This is because it uses finance from one country, labour from other country and
infrastructure from another country. It designs the product in one country, produces its parts in
many different countries and assembles in another country and sells in many countries.

4. Use of currencies: Each country has its own different currency. This causes currency
exchange problems as foreign currencies are used to carry out transactions.

5. Keen Competition: Global Business has to face competition in the world market. The
competition is between unequal partners. In this situation, the developed countries are in
favorable position as they produce the superior quality goods and services, but developing
countries find difficulty to face competition.

6. Legal obligations: Each country has its own laws regarding foreign trade, which must be
complied with. Moreover, in the case of international transactions, there is more government
intervention.

7. High risk: Global companies face great risks due to long distances, the risk of fluctuations
between the two currencies, and the risk of obsolescence.

SCOPE OF GLOBAL BUSINESS

 Imports and Exports of Merchandise: Merchandise refers to physical products, such
as those that can be seen and felt. Therefore, imports and exports of merchandise mean
the transfer or exchange of tangible goods from and to different countries of the world. It
is also called trade in goods as it excludes buying and selling of services.

 Imports and Exports of Services: Imports and exports of services involve intangible
goods that cannot be seen, felt, or touched. It is also known as invisible trade. Services
such as tourism and travel, transportation, communication, etc. are imported and
exported.
 Licensing and Franchising: Licensing is a contractual agreement between two firms,
where the licensor (one firm) grants the licensee (another firm), access to trademarks,
copyrights, patents, etc. in a foreign country in exchange for a fee. The fee charged by
the licensor is known as royalty. For example, Microsoft grants a license to different
companies in exchange for royalty. Franchising is also similar to licensing. However, it
provides services rather than access to patents, etc. Subway has various franchises all
over the world where it provides the same services to the customers.

 Foreign Investment: It means investing money into a foreign country in exchange for a
profit. Foreign investment can be of two types Direct and Portfolio Investment.
Direct investment occurs when a firm invests directly in the machinery and plant in
another country to produce and market goods and services in that country.
A portfolio investment is a foreign investment where a company buys shares of another
company in a different country or lends money to another company. The return on
portfolio investment is received in the form of dividends or interest respectively.

GLOBALIZATION OF WORLD ECONOMY

What is Globalization?
Globalization refers to the increasing integration of economies around the world,
particularly through the movement of goods, services, and capital across borders. The term
sometimes also refers to the movement of people (labor) and knowledge (technology) across
international borders. There are also broader cultural, political, and environmental dimensions
of globalization.
The term "globalization" began to be used more commonly in the 1980s, reflecting
technological advances that made it easier and quicker to complete international
transactions—both trade and financial flows. It refers to an extension beyond national borders
of the same market forces that have operated for centuries at all levels of human economic
activity—village markets, urban industries, or financial centers.
Several key factors have contributed to the globalization of the world economy:

 Trade Liberalization: The reduction of trade barriers, such as tariffs and quotas,
through international agreements and organizations like the World Trade Organization
(WTO), has facilitated the flow of goods and services between countries.

 Advancements in Technology: Innovations in transportation and communication

technologies have made it easier and cheaper to move goods, services, and information
 across borders. This has led to the rise of global supply chains and the expansion of
multinational corporations.

 Investment and Capital Flows: The ease of capital movement and the growth of
foreign direct investment (FDI) have allowed businesses to access resources and
markets globally, encouraging cross-border investments and collaborations.

 Global Financial Markets: The integration of financial markets has enabled capital
to flow freely across borders, leading to increased investment opportunities and access
to funding for businesses and governments worldwide.

 Cultural Exchange: Globalization has facilitated the exchange of cultural ideas,

products, and practices, leading to cultural integration and diversity.
GLOBAL ECONOMY AT A GLANCE
The global economy refers to the interconnected worldwide economic activities that
take place between multiple countries. These economic activities can have either a positive or
negative impact on the countries involved.
The global economy comprises several characteristics, such as:

 Globalisation: Globalisation describes a process by which national and regional

economies, societies, and cultures have become integrated through the global network
of trade, communication, immigration, and transportation. These developments led to
the advent of the global economy.

 International trade: International trade is considered to be an impact of globalisation.

It refers to the exchange of goods and services between different countries, and it has
also helped countries to specialise in products which they have a comparative
advantage in. This is an economic theory that refers to an economy's ability to produce
goods and services at a lower opportunity cost than its trade partners.

 International finance: Money can be transferred at a faster rate between countries

compared to goods, services, and people; making international finance one of the
primary features of a global economy. International finance consists of topics like
currency exchange rates and monetary policy.

 Global investment: This refers to an investment strategy that is not constrained by

geographical boundaries. Global investment mainly takes place via foreign direct
investment (FDI).
Factors affecting global economy:
According to the latest economic news, here are some of the key factors that influence
and affect how well the global economy works:
 Natural resources;
 Infrastructure;
 Population;
 Labour;
 Human capital;
 Technology;
 Law.

DEVELOPED, DEVELOPING & ECONOMIES IN TRANSITION

When engaging in global business, companies must consider the specific characteristics
of economies they operate in. Let's explore how global businesses interact with developed,
developing, and economies in transition:

I. Developed Economies: Global businesses operating in developed economies benefit from

mature markets, sophisticated infrastructure, and high consumer purchasing power. These
economies generally have stable political and legal systems, well-established financial
institutions, and advanced technology. Companies may find strong competition and stringent
regulations in these markets, but they also have access to skilled labor, modern distribution
networks, and a well-developed business ecosystem. Developed economies are attractive for
expanding businesses that seek to tap into affluent consumer markets and invest in research
and development.

II. Developing Economies: Global businesses operating in developing economies have unique
opportunities and challenges. These economies offer untapped markets with significant growth
potential, especially in industries catering to the rising middle-class population. Companies can
often find a more cost-effective workforce and fewer regulatory restrictions. However,
operating in developing economies may come with infrastructural limitations, political
instability, and unpredictable regulatory environments. Global businesses need to adapt their
products and services to suit the local preferences and address the specific challenges of these
markets.
III. Economies in Transition: Economies in transition present a mix of opportunities and risks
for global businesses. These markets are undergoing significant transformations from planned
to market-oriented economies, which can create both uncertainties and potential rewards.
Companies entering economies in transition may encounter changing regulations, evolving
business practices, and varying degrees of market openness. They need to be adaptable and
responsive to shifting political and economic conditions. However, such markets may offer
access to abundant resources, a growing middle class, and lower costs of production, making
them appealing investment destinations.

Global businesses must conduct thorough market research and carefully assess the
business environment in each target economy. This includes understanding the legal and
regulatory frameworks, cultural nuances, economic stability, infrastructure, and potential risks.
Additionally, businesses should consider employing local talent and forming strategic
partnerships to navigate the complexities of foreign markets successfully.

It's crucial for global businesses to adopt a flexible approach that accommodates the
unique characteristics of each economy they operate in. Engaging in global business requires
a well-informed, adaptable strategy that considers the diverse economic landscapes of
developed, developing, and economies in transition.

FACTORS CAUSING GLOBALIZATION OF BUSINESS:

1. Sales Expansion: The first and foremost reason is that globalisation of business would like
to expand their sales and acquire newer markets so that they can record impressive growth
rates. Considering the fact that the developing countries are peopled with consumers who have
aspirations to western lifestyles, it is, but natural that the western companies would like to
target this need and hence, expand into these markets.

2. Resources Acquisition: This is one of the most important reasons for companies to expand
internationally. Because the developing and emerging countries have large deposits of
minerals, metals and land for agricultural production, the western multinationals eye these
markets in order to get access to the resources. This is the reason why many international
businesses operate in Africa and South Asia where the humungous deposits of minerals and
metals are attractive for the profits that these multinationals can make.

Many emerging markets and developing countries do not have the expertise or the resources
needed to tap their reserves of these minerals and metals. Hence, they welcome the
multinationals with open arms as it gives them royalties and other payments to grow their
economies. As can be seen from the expansion of Vedanta and the South Korean steel company
(POSCO) into India, the eagerness to tap the resources is one of the most important reasons for
expansion.

3. Risk Reduction: Often, businesses expand internationally to offset the risk of stagnating
growth in their home country as well as in other countries where they are operating. For
instance, Since firms exist to make profits and grow their bottom lines, it is but natural for them
to expand internationally into countries that have better growth rates than their home country.
Further, by operating in a basket of countries as opposed to a few, they are able to manage
political, economic, and societal risks better.

GLOBAL BUSINESS ENVIRONMENT:

Global Business environmental factors are broadly divided into two types.,
 Internal environmental factors
 External environmental factors.

I. INTERNAL ENVIRONMENTAL FACTORS:

 The internal factors are generally regarded as controllable factors because the company
has control over these factors. It can alter or modify such factors as its personnel,
physical facilities, organisation and functional means, such as marketing mix, to suit
the environment.

 These are the forces of the international business environment that affect the
functioning of the firm directly.
II. EXTERNAL ENVIRONMENTAL FACTORS:
The external factors, as on the other hand beyond the control of a company therefore generally
regarded as uncontrollable factors. External environmental factors are further divided into

 Micro environmental factors - Micro environmental factors include competitors,

customers, market intermediaries, suppliers of raw materials, bankers and other suppliers
of finance, shareholders and other stakeholders of the business firm.

 Macro environmental factors - External macro environmental factors include social and
cultural factors, technological factors, economic factors, political and governmental
factors, international factors and natural factors
A. Cultural Environment:
Culture is, “ the thought and behaviour patterns that member of a society learns through
language and other forms of symbolic interaction – their customs, habits, beliefs and values,
the common view points which bind them together as a social entity…. Cultural change
gradually picking up new ideas and dropping old ones, but many of the cultures of the past
have been so persistent and self contained that the impact of such sudden change has torn them
apart, uprooting their people psychologically.”
Impact of cultural environment on international business:

 Cultural attitude and International Business: Dressing habits, living styles, eating
habits and other consumption patterns, priority of needs are influenced by culture. The
eating habits vary widely. Similarly, dressing habits also vary from country and county
based on their culture.

 Cultural Universal: Irrespective of the religion, race, region, caste, etc, all of us have
more or less the same needs. These common needs are referred as “Cultural Universal”.

 Time and Culture: Time has different meaning in different cultures. Asian di not need
appointment to meet someone and vice-versa. But Americans, Europeans and Africans
need prior appointment to meet someone and vice-versa. In Asian Countries,
particularly in India, auspicious time is most important for the business, admission in
a college, travel, etc.

 Space and Culture: Space between one person to another person plays a significant
role in communication. But, culture determines the pace/distance between one person
and another person.


B. Political Environment:
The influence of political environment on business is enormous. Political system
prevailing in a country promotes, decides, encourages, directs and control the business
activities of that country. PE includes factors such as characteristics and policies of political
parties, the nature of constitution and Government system and the Government environment
influencing the economic and business policies and regulation.

Impact of political environment on international business:

 Attitudes towards International Buying: Some nations are very receptive, indeed
encouraging, to foreign firms, and some others are hostile. For e.g.: Singapore, UAE
and Mexico are attracting foreign investments by offering investment incentives,
removal of trade barriers, infrastructure services, etc.

 Political Stability: A country's future and stability is another important issue.

Government changes hands sometimes violently. Even without a change, a region may
decide to respond to popular feeling. A foreign firm's property may be seized; or its
currency holdings blocked; or import quotas or new duties may be imposed. When
political stability is high one may go for direct investments. But when instability is
high, firms may prefer to export rather than involve in direct investments. This will
bring in foreign exchange fast and currency convertibility is also rapid.

 Government Bureaucracy: It is the extent to which the Government in the host

country runs an efficient system for assisting foreign companies: efficient customs
handling, adequate market information, etc. The problem of foreign uncertainty is thus
further complicated by a frequently imposed "alien status", this increases the difficulty
of properly assessing and forecasting the dynamic international business. The political
environment offers the best example of the alien status.
C. Legal Environment:
The legal dimension of international Business environment includes all laws and
regulations regarding product specification and standards, packaging and labeling, copyright,
trademark, patents, health and safety regulations particularly in respect of foods and drugs.
There are also controls in promotional methods, price control, trade margin, mark-up, etc.,
These legal aspects of marketing abroad have several implications which an exporting firm
needs to study closely.
D. Economic Environment:
Economic environment refers to all those economic factors which have a bearing on
functioning of a business unit. Economic environment of various countries directly influences
the international business. In fact, international economic environment and global business
interact with each other.
The major changes include:

 Capital flow rather than trade or product flow across the globe.

 Establishment of production facilities in various countries.

 Technological revolution link the relations between the size of the production and level
of employment.

 The macro economic factors of individual nations independently do not significantly

control the global economies
Economic system:
Economic system is one of the important factor of economic development that
influences the international business to the greater extent. Economic system is an organization
of institutions established to satisfy human needs or wants.
There are three types of economic system viz.,

 Capitalistic Economic System: This system provides for economic democracy and
customer choice for product or service. This system emphasizes on the philosophy of
individualism, believing in private ownership of production and distribution facilities
Ex: USA, Japan, UK.

 Communistic Economic System: Under this system private properties and property
rights to income are abolished. The State owns all the factors of production and
distribution but the major limitation of this system is to reduced the individual freedom
of choice ;and failed to achieve significant economic growth.

 Mixed Economic System: Under this system, major factors of production and
distribution owned, managed and controlled by the State. The purpose is to provide
benefits to public more or less on equality basis. This system, does not distribute the
existing wealth equally among people, but believes in full employment and suitable
rewards for the workers efforts. Ex: India, UK, France, Holand etc.
Impact of economic environment on international business:
1. Economic growth: Business helps for the identification of peoples’ needs, wants,
production of goods and services and supply to the people. Thus it creates for the conversion
of inputs into the outputs and enables for consumption. It leads to economic development. The
high economic growth rate of the countries providing an opportunity of expanding market
shares to international business firms, managers of the MNCs are interested in knowing the
future economic growth rate of various countries in order to select the market either to enter
or concentrate more resources to the market.
2. Inflation: It is the another important factor that affects the market share of the international
business firm. It affects the interest rate as the demand for money is high due to the higher
prices and it also affects the exchange rate of the domestic currency in terms of various foreign
currencies.
3. Balance of payments: Balance of Payments position of a country is an outcome of
international business and also affects the future of the international business. Export and
import trade in goods and services affects the current accounts position and flow of capital
affects capital accounts position. The managers of MNCs should monitor the balance of
payment position of the countries.
4. Economic Transition: The process of liberalization provided a significant opportunities to
MNCs to enter most of the countries of the world either by locating their manufacturing
facilities or expanding or both. Thus MNCs are immediate and greatest beneficiaries of L, P
and G of world economies.

TARIFF BARRIERS:

 Tariff barriers have been one of the classical methods of regulating international trade.
Tariffs may be referred to as taxes on the imports. It aims at restricting the inward flow
of goods from other countries to protect the country's own industries by making the
goods costlier in that country.

 Sometimes the duty on a product becomes so steep that it is not worthwhile importing
it. In addition, the duty so imposed also provides a substantial source of revenue to the
importing country.

 In India, Customs duty forms a significant part of the total revenue, and therefore, is
an important element in the budget. Some countries use this method of imposing tariffs
and Customs duties to balance its balance of trade.
NON TARIFF BARRIERS:
To protect the domestic industries against unfair competition and to give them a fair
chance of survival various countries are adopting non-tariff measures. It includes:

 Quantity Controls: Under quantity restriction, the maximum quantity of different

commodities which would be allowed to be imported over a period of time from
various countries is fixed in advance. The quota fixed normally depends on the
relations of the two countries and the needs of the importing country. Here, the Govt.
is in a position to restrict the imports to a desired level. Quotas are very often combined
with licensing system to regulate the flow of imports over the quota period as also to
allocate them between various importers and supplying countries.

ECONOMIC RATIONALE OF TRADE PROTECTION

Trade protection, within the context of international business, involves the
implementation of policies and measures by governments to restrict or control the flow of
goods and services across international borders. These measures are aimed at providing
domestic industries with a competitive advantage and protecting them from foreign
competition. The economic rationale behind trade protection in international business is based
on several arguments, although it's important to note that this rationale is a subject of debate
among economists and policymakers.
Here is a detailed exploration of the economic rationale of trade protection in international
business:

 Infant Industry Argument: One of the primary economic justifications for trade
protection is the infant industry argument. This argument suggests that emerging
domestic industries might need temporary protection from foreign competition in their
initial stages of development. By shielding these industries from established global
competitors, governments aim to give them time to build capacity, acquire technology,
achieve economies of scale, and become internationally competitive. Once they attain
a certain level of maturity, the protectionist measures can be gradually phased out.
Example: A developing country may impose tariffs on imported electronics to nurture
its domestic electronics industry, allowing it to grow and innovate.

 Protecting Domestic Employment: Trade protection can also be justified on the

grounds of safeguarding domestic jobs. The fear of job losses due to cheap foreign
 labor or unfair competition can lead to political pressure for protectionist policies.
These measures aim to shield domestic industries, thereby maintaining or increasing
employment levels within the country. Example: The steel industry in a country might
face competition from subsidized steel imports, leading to potential job losses. Trade
protection in the form of tariffs can be employed to protect domestic steelworkers.

 Anti-Dumping Measures: Dumping occurs when foreign producers sell goods in

another country at prices lower than their production costs. This can harm domestic
industries and potentially lead to their collapse. Trade protection, such as imposing
anti-dumping duties, can prevent the damage caused by unfair competition. Example:
If a foreign company is found to be dumping steel products in a domestic market, the
host country may impose tariffs to counteract the negative impact on its own steel
industry.

 Revenue Generation: Governments can generate revenue by imposing tariffs on

imported goods. This revenue can be used to fund public services, infrastructure
projects, and other government programs. This economic rationale focuses on the
financial benefits that trade protection can bring to the government's budget. Example:
A country might impose tariffs on luxury goods to generate revenue for public health
programs.

 Balancing Trade Deficits: Trade protection can be used as a tool to address persistent
trade deficits. By restricting certain imports, a country can reduce the volume of goods
it imports and potentially improve its trade balance. Example: A country with a large
trade deficit in electronics may impose quotas on electronics imports to reduce the
deficit.
While these economic justifications for trade protection exist, it's important to
consider the potential drawbacks and unintended consequences of such policies. These
include resource misallocation, reduced consumer choice, higher prices for consumers,
retaliation from trading partners, and a potential decrease in global economic growth due
to reduced trade and specialization. The decision to implement trade protection measures
should be made after a careful assessment of both the short-term benefits and long-term
costs for the economy as a whole.
LIBERALIZATION OF GLOBAL BUSINESS ENVIRONMENT:

 Most of the countries in the globe liberalized their economies and opened their
countries to the rest of the globe. These changed policies attracted the multinational
companies to extend their operations to these countries.

 Liberalization is the removal or reduction of restrictions or barriers on the free

exchange of goods between nations. These barriers include tariffs, such as duties and
surcharges, and nontariff barriers, such as licensing rules and quotas.

 Economists often view the easing or eradication of these restrictions as steps to

promote free trade.

FOREIGN DIRECT INVESTMENT:

FDI – Meaning:
 Foreign Direct Investment (FDI) is the investment of funds by an organisation from one
country into another, with the intent of establishing ’lasting interest’.
 Any investment from an individual or firm that is located in a foreign country into a
country is called Foreign Direct Investment.
 Foreign direct investment (FDI) is an investment from a party in one country into a
business or corporation in another country with the intention of establishing a lasting
interest.
 ‘FDI’ or ‘Foreign Direct Investment’ means investment through capital instruments by
a person resident outside India

Benefits of Foreign Direct Investment:

 Economic growth: The creation of jobs is the most obvious advantage of FDI, one of the
most important reasons why a nation (especially a developing one) will look to attract
foreign direct investment. FDI boosts the manufacturing and services sector which results
in the creation of jobs and helps to reduce unemployment rates in the country. Increased
employment translates to higher incomes and equips the population with more buying
powers, boosting the overall economy of a country.
 Human capital development: Human capital involved the knowledge and competence of
a workforce. Skills that employees gain through training and experience can boost the
education and human capital of a specific country. Through a ripple effect, it can train
human resources in other sectors and companies.
 Technology: Targeted countries and businesses receive access to the latest financing tools,
technologies, and operational practices from all across the world. The introduction of
newer and enhanced technologies results in company’s distribution into the local economy,
resulting in enhanced efficiency and effectiveness of the industry.
 Increase in exports: Many goods produced by FDI have global markets, not solely
domestic consumption. The creation of 100% export oriented units help to assist FDI
investors in boosting exports from other countries.
 Exchange rate stability: The flow of FDI into a country translates into a continuous flow
of foreign exchange, helping a country’s Central Bank maintain a prosperous reserve of
foreign exchange which results in stable exchange rates.
 Improved Capital Flow: Inflow of capital is particularly beneficial for countries with
limited domestic resources, as well as for nations with restricted opportunities to raise
funds in global capital markets.
 Creation of a Competitive Market: By facilitating the entry of foreign organizations into
the domestic marketplace, FDI helps create a competitive environment, as well as break
domestic monopolies. A healthy competitive environment pushes firms to continuously
enhance their processes and product offerings, thereby fostering innovation. Consumers
also gain access to a wider range of competitively priced products
 Climate: The United Nations has also promoted the use of FDI around the globe to help
combat climate change

Disadvantages of foreign direct investment:

 Hindrance of domestic investment: Sometimes FDI can hinder domestic investment.
Because of FDI, countries’ local companies start losing interest to invest in their domestic
products.
 The risk from political changes: Other countries’ political movements can be changed
constantly which could hamper the investors.
 Negative exchange rates: Foreign direct investments can sometimes affect exchange rates
to the advantage of one country and the detriment of another.
 Higher costs: When investors invest in foreign counties, they might notice that it is more
expensive than when goods are exported. Often times, more money is invested into
machinery and intellectual property than in wages for local employees.
 Economic non-viability: Considering that foreign direct investments may be capital-
intensive from the point of view of the investor, it can sometimes be very risky or
economically non-viable.
 Expropriation: Constant political changes can lead to expropriation. In this case, those
countries’ governments will have control over investors’ property and assets.
 Modern-day economic colonialism: Many third-world countries, or at least those with
history of colonialism, worry that foreign direct investment would result in some kind of
modern-day economic colonialism, which exposes host countries and leave them
vulnerable to foreign companies’ exploitation.
 Poor performance: Multinationals have been criticized for poor working conditions in
foreign factories.

Home Country Host Country

Home Country refers to the country where Host Country refers to the foreign countries
the headquarters is located. where the company invests

Benefits of FDI to Host Country:

 FDI can create jobs and drive economic growth through the capital invested, jobs
generated and technology transferred. However, foreign firms can crowd out small local
businesses and create dependence on foreign technology.
 FDI contributes to infrastructure development through investments in transport, electricity,
telecommunications etc. However, some projects may cause environmental issues.
 FDI gives access to international markets and supply chains which helps local firms but
exposes them to global competition.
 Host countries lose some policy autonomy and control as they have to conform to demands
of foreign investors. However, FDI can introduce best practices in corporate governance
and management.
 FDI brings new capital that can be invested in productive assets and infrastructure. This
expands the productive capacity of the economy and supports growth.
 Foreign companies bring advanced technologies, managerial skills and business practices
that improve the productivity and competitiveness of local firms through spillover effects.
 FDI creates more jobs directly through the operations of foreign affiliates and indirectly
through higher demand for goods and services from local suppliers. This reduces
unemployment.
 FDI gives access to foreign markets for local companies that become part of global supply
chains. This helps expand their customer base and sales.
 Technology transfer requirements and performance benchmarks can be imposed on
foreign investors to maximize technology spillovers and beneficial impacts.

Disadvantages of FDI to Host Country.

 Lead to unfair competition for small local firms that cannot compete with large foreign
multinationals.
 Increase income inequality if foreign firms mainly employ skilled labor.
 Cause environmental degradation if regulations are lax.
 Expose the economy to external shocks and volatility due to global business cycles.
 Limit policy autonomy since governments cater to demands of foreign investors.

Benefits of FDI to Home Country

 FDI provides access to cheaper resources, lower cost production locations and new
markets for growth. But it also exposes firms to risks in foreign markets.
 FDI enables international expansion and upgrading of skills/technology. However, it can
also result in job losses at home in labor intensive sectors.
 There is a risk of strategic technology and intellectual property outflows to host countries
through FDI.
 Multinational companies gain higher profits from utilizing advantages like intellectual
property and brand recognition in foreign markets.
 FDI allows firms to expand production and sales to a larger global customer base,
achieving economies of scale.
 Access to natural resources and lower cost locations enhance competitiveness of home
country companies.
 FDI forces domestic firms to improve efficiency through competitive pressure.

Disadvantages of FDI to Home Country

 Lead to job losses at home in labor intensive industries that shift production abroad.
 Result in technology and intellectual property outflows that benefit competitors in host
countries.
 Expose firms to political and operational risks in foreign markets.
 Reduce tax revenues for home country governments if profits are not repatriated.
 Cause exchange rate appreciation that hurts export competitiveness.
 GLOBAL BUSINESS MANAGEMENT
UNIT - II

PROMOTION OF GLOBAL BUSINESS:

This comprehensive overview delves into the key aspects and strategies involved in
promoting global business, highlighting the transformative impact it has on organizations and
economies worldwide.

 Market Expansion and Access: Promotion of global business is intrinsically linked to

expanding market horizons. Enterprises seek to tap into new markets and consumer bases
in different countries. This necessitates understanding local market dynamics, cultural
nuances, and regulatory frameworks. Through strategic market research and analysis,
businesses can tailor their offerings to meet the diverse needs and preferences of
international consumers.
 Trade Liberalization and Agreements: International trade agreements play a pivotal role
in promoting global business. Bilateral and multilateral trade pacts reduce barriers such as
tariffs and quotas, facilitating smoother cross-border transactions. Prominent agreements
like the World Trade Organization (WTO) agreements and regional trade blocs like the
European Union (EU) encourage open trade environments, fostering the movement of
goods and services.
 Technological Advancements: In the digital era, technology is a driving force behind
global business promotion. The advent of e-commerce, digital marketing, and online
platforms has enabled businesses to reach international audiences with unprecedented
ease. Advanced logistics and supply chain management systems further streamline global
operations, ensuring efficient delivery and distribution across borders.
 Foreign Direct Investment (FDI): Foreign direct investment is a cornerstone of global
business expansion. Companies establish subsidiaries, joint ventures, or wholly-owned
entities in foreign countries to establish a local presence. This not only facilitates market
access but also leads to knowledge transfer, job creation, and economic development in
host countries.
 Global Strategic Alliances: Collaborative partnerships between organizations from
different countries can yield synergistic advantages. Global strategic alliances enable
shared resources, technology, and expertise, fostering innovation and competitive
 advantage. These partnerships can span research and development, manufacturing,
marketing, and distribution.
 Cultural Adaptation and Localization: Successful global business promotion demands
cultural sensitivity. Adapting products, services, and marketing strategies to suit local
preferences is crucial for resonating with international customers. Cultural understanding
enhances brand perception and builds trust among diverse consumer bases.
 Risk Management and Compliance: Entering global markets involves navigating a range
of risks, from political instability to currency fluctuations. Robust risk management
strategies, including thorough due diligence, hedging mechanisms, and contingency
planning, are essential to ensure business continuity across borders.
 Corporate Social Responsibility (CSR): Promoting global business goes beyond profit-
seeking; it entails ethical and social responsibilities. Organizations are expected to adhere
to sustainable practices, respect human rights, and contribute positively to local
communities. Demonstrating CSR enhances reputation and fosters goodwill on a global
scale.

The promotion of global business is a multifaceted endeavor that demands a deep

understanding of international markets, cross-cultural dynamics, and evolving trade
regulations. Embracing globalization offers immense opportunities for growth, innovation,
and economic development. However, success hinges on strategic planning, adaptability, and
a commitment to responsible business practices that align with the diverse needs and values
of a globalized world.

ROLE OF GATT & WTO:

I. GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)

The General Agreement on Tariffs and Trade (GATT) was created after World War II
to aid global economic recovery through reconstructing and liberalizing global trade. GATT's
main objective was to reduce barriers to international trade through the reduction of tariffs,
quotas and subsidies. It has since been superseded by the creation of the World Trade
Organization (WTO).

The General Agreement on Tariffs and Trade (GATT) was formed in 1947 with a treaty
signed by 23 countries, and signed into international law on January 1, 1948. GATT remained
one of the focal features of international trade agreements until it was replaced by the creation
of the World Trade Organization on January 1, 1995. By this time, 125 nations were
signatories to its agreements, which covered about 90% of global trade.

The aim behind GATT was to form rules to end or restrict the most costly and
undesirable features of the prewar protectionist period, namely quantitative trade barriers such
as trade controls and quotas. The agreement also provided a system to arbitrate commercial
disputes between nations, and the framework enabled a number of multilateral negotiations
for the reduction of tariff barriers. GATT was regarded as a significant success in the post-war
years.

Objectives:
The General Agreement on Tariff and Trade was a multilateral treaty that laid down
rules for conducting international trade. The preamble to the GATT can be linked to its
objectives.
 To raise the standard of living of the people,
 To ensure full employment and a large and steadily growing volume of real income
and effective demand.
 To tap the use of the resources of the world fully.
 To expand overall production capacity and international trade.

GATT ‘Rounds’ of Global Trade Negotiations:

The GATT has been a permanent international organisation having a permanent

Council of Representative with headquarters at Geneva. 25 governments have signed it. Its
function is to call International conferences to decide on trade liberalizations on a multilateral
basis. The brief particulars of the various GATT ‘Rounds’ (conferences) for global trade
negotiations are discussed below:

1. First Round:- The earlier rounds of GATT have achieved a limited measure of success. In
the first round of talks held in Havana in 1947, 23 countries, which had formed GATT,
exchanged tariff concessions on 45,000 products worth 10 billion US dollars of trade per
annum.

2. Second Round:- Ten more countries had joined GATT when its second round was held in
Annecy (France) in 1949. In this round, customs and tariffs on 5000 additional items of
international trade were reduced.
3. Third Round:- The Third round was organized in Torquay (England) in 1950-51. 38
member countries of GATT participated in it and they adopted tariff reduction on 8700 items.

4. Fourth Round:- The fourth round of world trade negotiations were held in Geneva in 1955-
56. In this round countries decided to further cut duties on goods entering international trade.
The value of merchandise trade subjected to tariff cut was estimated at $ 2.5b.

5. Fifth Round:- The fifth round took place during 1960-62 at Geneva. In this round the
negotiations covered the approval of common external tariff (CET) of the European countries
and cut in custom duties amounting to US $ 5 billion on 4400 items. Twenty-six countries
participated in this round.

6. Sixth Round or the Kennedy Round:- With the formation EEC, the US had been put at a
disadvantage. As a reaction to this, the US Congress passed the Trade Expansion Act in
October 1962 which authorised the Kennedy administration to make 50 per cent tariff reduction
in all commodities. This paved the way for the opening of the Kennedy round of trade
negotiations at Geneva in May 1964, which were to be completed by 30 June 1967. This round
had the participation of 62 countries and negotiated tariff reductions of approximately $ 40
billion, covering about four-fifths of the world trade.

7. Seventh Round or Tokyo Round:- The Seventh Round of Multilateral Trade Negotiations
(MTN) was launched in September 1973 under the auspices of GATT. Its objectives were laid
down in the Tokyo Declaration. The Declaration set out a far-reaching programme for the
negotiations in six areas. These are
(i) tariff reduction;
(ii) reduction of elimination of non-tariff barriers;
(iii) coordinated reduction of all trade barriers in selected sectors;
(iv) discussion on the multilateral safeguard system;
(v) trade liberalization in the agricultural sector taking into account the special
characteristics and
(vi) special treatment of tropical products. It also emphasized that MTN must take into
account the special, interests and problems of developing countries.

8. Eight Round or the Uruguay Round:- The Eighth Round of GATT negotiations which
began at Punta Del Esta in Uruguay in September 1986 ought to have been concluded by the
end of 1990. But at the ministerial meeting in Brussels in December 1990, an impasse was
reached over the area of agriculture and the talks broke down.

The Uruguay Round of trade negotiations undertaken by the GATT since its
establishment in 1947 had a wide agenda. The GATT originally covered international
trade rules in the goods sector only. Domestic policies were outside the GATT purview
and it operated only at international border. In the Uruguay Round, the GATT extended
to three new areas, viz. Intellectual property rights services and investment. It also
covered agriculture and textiles, which were outside the GATT jurisdiction.

The Uruguay Round was concerned with two aspects of trade in goods and services.
The first related to increasing market access by reducing or eliminating trade barriers.
Reductions in tariffs, reductions in non-tariff support in agriculture, the elimination of
bilateral quantitative restrictions, and reductions in barriers to trade in services met this.
The second related to increasing the legal security of the new levels of market access
by strengthening and expanding rules and procedures and institutions.

II. WORLD TRADE ORGANIZATION (WTO) :

The WTO was established on January 1, 1995. It is the embodiment of the Uruguay
Round results and the successor to GATT. 76 Governments became members of WTO on its
first day. It has now 146 members, India being one of the founder members. It has a legal status
and enjoys privileges and immunities on the same footing as the IMF and the World Bank.

WTO is an organization comprising of developed, developing and least developed

countries, under the UN Umbrella, headquartered in Geneva. Its aim is to promote trade
amongst member nations, especially after globalization of trade, arrange aid technically and in
other forms for growth of trade amongst member countries, creating all possible facilitation
measures. Main Functions of WTO To facilitate the implementation, administration and further
operations of the agreement establishing the WTO.
Objectives of World Trade Organisation (WTO):
 Creating and Enforcing International Trade Regulations: The General
Agreement on Trade in Services, the Trade-Related Aspects of Intellectual Property
Rights Agreement, and the Agreement on International Trade in Goods, all serve as
the foundation for the World Trade Organization (WTO).
The WTO uses a multilateral dispute settlement system to enforce its rules when one
of its member countries violates a trade agreement. The methods and decisions must
be respected and adhered to by the members through signed agreements. Creating and
Enforcing International Trade Regulations
 Making the Decision Making Process More Transparent: The WTO has made an
effort to promote transparency in decision-making by encouraging participation and,
in particular, the use of the consensus rule. Such measures work together to increase
institutional transparency.
 Collaboration between International Economic Institutions: The onset of
globalization has made strong collaboration amongst multilateral institutions
necessary. The World Trade Organization, the International Monetary Fund, the
United Nations Conference on Trade and Development, and the World Bank are some
international economic institutions These institutions help develop and carry out a
framework for international economic policy. Policy making may be disturbed in the
absence of regular cooperation and mutual participation.
 Serving as the World’s Leading Forum: The WTO is the international platform for
regulating and negotiating additional trade liberalization. The foundation of WTO
liberalization initiatives is based on members’ benefits to make the best use of their
comparative advantages as a result of a free and fair trade system.
 Settlements of Trade Disputes: Before the WTO, trade disputes usually arise from
the breach of agreements between the member nations. Such trade disputes are settled
through a multilateral system with predetermined rules and regulations.
 Others: Some of the other objectives of the World Trade Organisation are as follows:
 To ensure optimum utilization of world resources.
 To protect the environment.
 To ensure full employment and a significant rise in effective demand.
 To raise the level of standard of living for citizens of member nations.
 To embrace the idea of sustainable development.
Functions of World Trade Organisation (WTO):
 Implementation of Trade Policy Review Rules: The member nations of the world
organizations have come to an overall consensus due to the stability and assurance of
trade agreements. The rules are examined to make sure that the multilateral trading
system continues even in the face of continuously changing trade conditions.
Additionally, it helps in creating a reliable and transparent foundation for conducting
business.
 Discussion of Plans of Member Nations: Trade negotiations within the global
trading system are made possible through WTO. Without trade negotiations, the
economy may stagnate, and issues related to dumping and tariffs might go unsolved.
Consistent trade discussions are also a requirement for further trade liberalization.
 Administrating and Carrying out Bilateral and Multilateral Trade
Agreements: The parliaments of different member nations must ratify any bilateral
and multilateral trade agreements. The non-discriminatory trading system can not be
implemented until such ratification occurs. Every member will be ensured to be
treated fairly in the marketplace of other countries due to the signed contracts.
 Settlement of Trade Disputes: Trade disputes are addressed by the WTO’s dispute
settlement process. Independent tribunal specialists interpret the agreements and issue
judgments mentioning the essential obligations of the involved member nations. It is
advised to consult with other members to resolve disagreements.
 Best Possible Use of the World’s Resources: By utilizing the trade capabilities of
developing countries, resources all around the world can be used to their maximum
potential. For least-developed economies, a special provision in the WTO agreement
is necessary. Such initiatives include more significant trading opportunities, a longer
duration to implement commitments, and to provide assistance to build infrastructure.

WTO Organizational structure:

 It is composed of the Ministerial Conference and the General Council. The Ministerial
Conference (MC) is the highest body. It is composed of the representatives of all the Members.
The Ministerial Conference is the executive of the WTO and responsible for carrying out the
functions of the WTO. The MC meets at least once every two years.

The General Council (GC) is an executive forum composed of representatives of all the
Members. The GC discharges the functions of MC during the intervals between meetings of
MC.

Director-General heads the secretariat of WTO. He is responsible for preparing budgets

and financial statements of the WTO. WTO has now become the third pillar of United Nations
Organization (UNO) after World Bank and International Monetary Fund.

The GC has three functional councils working under its guidance and supervision
namely:

a) Council for Trade in Goods.

b) Council for Trade in Services.

c) Council for Trade Related Aspects of Intellectual Property Rights (TRIPs).

WTO Agreements:

 Council for Trade in Goods : There are 11 committees under the jurisdiction of the
Goods Council each with a specific task. All members of the WTO participate in the
committees. The Textiles Monitoring Body is separate from the other committees but
still under the jurisdiction of Goods Council. The body has its own chairman and only
10 members. The body also has several groups relating to textiles.
 Council for Trade in Services: The Council for Trade in Services operates under the
guidance of the General Council and is responsible for overseeing the functioning of
the General Agreement on Trade in Services (GATS). This Agreement covers all
internationally traded services. Foreign services and service suppliers would be treated
on equal footings with domestic and service suppliers. However, governments may
indicate Most Favoured Nation (MFN) exemptions, which will be reviewed after 5
years, with a normal limit of 10 years.
 Council for Trade-Related Aspects of Intellectual Property Rights: The Trade
Related Intellectual Property Rights (TRIPs) Agreement covers the following seven
 categories of intellectual property are Copyright and Related Rights, Trademarks,
Geographical Indications, Industrial Designs, Patents, Integrated Circuits and Trade
Secrets.
 Trade Negotiations Committee: The Trade Negotiations Committee (TNC) is the
committee that deals with the current trade talks round. The chair is WTO's director-
general. As of June 2012 the committee was tasked with the Doha Development Round

WTO Implications for India:

After the Uruguay Round, India was one of the first 76 Governments that became
member of the WTO on its first day. Different views have been expressed in support and
against our country becoming a member of the WTO.

Favourable Factors

 Benefits from reduction of tariffs on exports.

 Improved prospects for agricultural exports because the prices of agricultural products in
the world market will increase due to reduction in domestic subsidies and barriers to trade.
 Likely increase in the exports of textiles and clothing due to the phasing out of MFA by
2005.
 Advantages from greater security and predictability of the international trading system.
 Compulsions imposed on India to be competitive in the world market.

Unfavourable Factors

 Tariff reductions on goods of export interest to India are very small.

 Less prospects of increase in agricultural exports due to the limited extent of agricultural
liberalization
 There will be hardly any liberalization of our textile exports during the next 10 years.
 India will be under pressure to liberalize the services industries.
 There will be only marginal liberalization to the movement of labour services in which it
is competitive.
 Increased outflows of foreign exchange due to commitments undertaken in the fields of
TRIPS, TRIMS and services.
 Technological dependence on foreign firms will increase as the R & D required to take
advantages of Uruguay Round agreement may not be undertaken on adequate scale due to
paucity of funds.
 Only a few large firms or transnational corporations may benefit and smaller firms may
disappear.
 Increasing intrusion in our domestic space in TRIPs, TRIMs and services and agriculture.
 The Uruguay Round has paved way for similar other institutions in future through linkage
between trade, environment, labour standard and treatment of foreign capital.
 Trend towards neo-protectionism in developed countries against our exports.

Trade Dispute Settlement

The WTO's Understanding on Dispute Settlement provides WTO members with a legal
framework for resolving trade disputes that arise between them in implementing WTO
agreements.
Ideally disputes are resolved through negotiations. If this is not possible, WTO
Members can request the establishment of a panel to settle the dispute. The panel will issue a
report, which can subsequently be appealed before the WTO's Appellate Body on questions of
law.
The Appellate Body is a standing body of seven persons that hears appeals from reports
issued by panels in disputes brought by WTO members. The Appellate Body can uphold,
modify or reverse the legal findings and conclusions of a panel
If a WTO member does not comply with recommendations from dispute settlement,
than trade compensation or sanctions, for example in the form of increases in customs duties,
may follow.
Many WTO members, including the EU, make active use of this system so that
violations of trade rules are corrected. However, the EU only initiates a dispute settlement case
where other ways of finding a solution have not been productive.

CHALLENGES OF GLOBAL BUSINESS

1. Managing globally distributed teams

Developing and successfully managing teams at the international level is a tough job.
The complexities of international businesses like varying labor laws, payroll laws, compliance,
tax laws, employee rights, and varying technology access increase global team management
challenges.
To maintain a strong work association with your team spread across the globe, you must
ensure regular check-ins, preferably through a video conferencing platform that enables real-
time interactions. Many researchers have shown that employees who regularly interact with
their managers are three times more likely to be engaged in their work than employees who do
not interact.
2. Language obstacles
In international business, it’s prevalent to meet people speaking different languages.
The language barrier is one of the most significant international business challenges. Therefore,
most multinational companies hire employees fluent in at least one foreign language. It’s
noteworthy that organizations often face difficulty explaining their goals to the customers due
to the information lost in translation. It’s also vital to consider the languages your team
members speak, and the customer support executives should be in line with your target
customers. Significant investment in interpreters and maintaining a pool of employees
comfortable in major global languages ensures that your business operates smoothly.
3. Currency exchange and inflation rate issues
An international business receives payments from multiple nations. The value of a
dollar for your native country will not always be equal to the same amount in other currencies.
Therefore, it’s one of the major problems of international business as the currency’s value
consistently fluctuates for the same amount of goods & services. The inflation rates influence
the price of commodities and labor costs, which eventually steers the final product pricing.
Monitoring these two rates provides essential insights into the market value of your product &
services in different locations over time.
4. Cultural variations
The different counties worldwide, sometimes other regions within these countries, have
a unique cultures. Understanding the different cultures your employees and clients follow
enhances the management and increases cross-cultural business relationships. Eventually, this
reduces the complexities of international business and makes your processes highly effective.
5. Nuances of foreign policies, geopolitics, and cross-country relations
The international business environment is greatly affected by political scenarios and the
foreign relations between the countries. When you expand your business in the international
market, it’s essential to know the financial systems, trade policies, and country-specific tax
regulations. The political decisions taken by the leaders influence the taxes, labor wages,
commodity prices, transportation & infrastructure costs, etc. Therefore, you should update
yourself with the strategic decisions, and the workplace policy should comply with all the
regulations.
6. Supply chain risks
Managing the supply chain that encompasses national borders lies among the
significant problems of international business. The particulars of imports, exports, offshore
shipping, and related logistics are steered by international laws and other foreign legislations.
If your business sources products & services overseas, managing the supply chains can pose a
significant threat to international business.
7. Talent acquisition and onboarding
Hiring and retaining talented employees is an essential aspect of international
expansion. Talented and motivated staff with the required knowledge base and industry
experience of the specific region are assets to the organization. If your business lacks
experienced employees who can act as an anchor for that location, your international expansion
can face challenges. This challenge is amplified in the case of venture mergers or acquisitions.
For an international business, hiring employees across the globe involves multiple challenges
like an onboarding plan unique to remote work, increased overhead expenses, extensive HR
support, etc. When you hire employees from overseas, access to these employees is not the
same for all as in offline work, making it challenging to make the right decision.
8. Compliance issues
Tax compliance issues are one of the challenges of expanding globally. All international
businesses have to deal with multiple countries having different business regulations, tax rates,
and other commercial fees; these are hindrances that must be complied with to operate globally.
If the business fails to comply with regulations, it can hinder business expansion and pay hefty
compliance charges. This means that employers must do thorough research and legitimate
paperwork to comply with the dynamic international regulations.
9. New market competition
When multiple companies offer similar products and services, their business models
create aggressive competition. If you wish to explore a new market, you need to do a market
search regarding the companies already providing the products and services in that segment.
The challenges of expanding globally also call for differentiating factors in your products and
services so that they gain a competitive edge in the market.
10. Brand consistency
International businesses solve different problems for different customers worldwide;
it’s challenging to create brand consistency and leverage it in the global market. Brand
consistency refers to the functional language, logo, work culture, and many factors affecting
your brand’s growth. Evolving a global corporate strategy is imperative to brand consistency.
11. Environmental issues on a global level
The environmental risks and effects of global warming and climate change are evident daily.
Therefore, sustainability is high on the priority list of the foremost multinational corporations.
The UN’s Sustainable Development Goals have elevated environmental issues as the
challenges of expanding globally. Businesses should develop and implement more
environmentally sustainable business processes. It’s essential to be aware of the country-
specific environmental regulations to expand your business overseas and avoid legal issues in
global business. This highlights the importance of sustainable production methods and non-
conventional energy resources for your production process.
12. Payrolling challenges
The global expansion comes at a cost; the payroll challenges can accumulate if not
appropriately managed. It’s noteworthy that each global payroll challenge gets multiplied by
the number of nations your company serves. Since every country has laws and regulations
related to taxes, retirement benefits, and healthcare requirements, managing all these factors
poses a significant challenge when you venture into a new country.

REGIONAL TRADING AGREEMENTS:

 A regional trade agreement is an agreement between several countries in a specified

geographical area.
 The agreement usually focuses on removing trade barriers between the two countries.
 These agreements can take many different forms, ranging from the most basic, such as
a free trade zone, to the most complicated, such as an economic union or a monetary
union.
 Internal rules that solely apply to member countries are frequently included in the
agreements.
 They may use uniform rules when dealing with non-member countries. Or, like in free
trade agreements, members may have different trade practices with non-member
countries. It depends on when they achieve a consensus.
 The North American Free Trade Agreement (NAFTA), the Central American-
Dominican Republic Free Trade Agreement (CAFTA-DR), the European Union (EU),
and the Asia-Pacific Economic Cooperation (APEC) are examples of regional trade
agreements.
Types of Regional Trading Agreements

Regional trading agreements vary depending on the level of commitment and the
arrangement among the member countries.

1. Preferential Trade Areas: The preferential trading agreement requires the lowest level of
commitment to reducing trade barriers, though member countries do not eliminate the barriers
among themselves. Also, preferential trade areas do not share common external trade barriers.
Trade barriers are not removed by member states. Instead, they just decrease tariffs and
give selected products priority access

2. Free Trade Area: In a free trade agreement, all trade barriers among members are
eliminated, which means that they can freely move goods and services among themselves.
When it comes to dealing with non-members, the trade policies of each member still take effect.
 A free trade agreement is an agreement between two or more countries in which the
partner country receives advantageous trade terms, tariff concessions, and other
benefits.
 India has signed free trade agreements with a number of nations, including Sri Lanka,
as well as various economic blocs, such as ASEAN.

3. Customs Union: Member countries of a customs union remove trade barriers among
themselves and adopt common external trade barriers.
 A customs union is an agreement between two or more countries to cut or eliminate
tariffs and trade obstacles.
 Imports from non-member nations are usually subject to a common external tariff by
members of a customs union.
 A customs union is exemplified by the European Union (EU).

4. Common Market: A common market is a type of trading agreement wherein members

remove internal trade barriers, adopt common policies when it comes to dealing with non-
members, and allow members to move resources among themselves freely.
 A common market is an extension of a customs union concept with the added feature
of allowing free movement of labour and capital among members.
 An example is the Benelux common market, which existed until 1959 when it was
changed into an economic union.
5. Economic Union: An economic union is a trading agreement wherein members eliminate
trade barriers among themselves, adopt common external barriers, allow free import and export
of resources, adopt a set of economic policies, and use one currency.
 An economic union is a sort of trade bloc that combines a single market with a single
customs union.
 The participating nations share product regulation, freedom of movement of
products, services, and production elements (capital and labour), as well as an
external trade policy.

6. Full Integration: The full integration of member countries is the final level of trading
agreements.

Benefits of Regional Trading Agreements

Regional trading agreements offer the following benefits:

1. Boosts Economic Growth: Member countries benefit from trade agreements, particularly
in the form of generation of more job opportunities, lower unemployment rates, and market
expansions. Also, since trade agreements usually come with investment guarantees, investors
who want to invest in developing countries are protected against political risk.

2. Facilitating Access to New Markets: RTAs can assist member nations in gaining access to
new markets and broadening their sphere of influence internationally. Small and medium-sized
businesses (SMEs), which may find it difficult to negotiate the complicated international trade
norms and procedures, may benefit the most from this

3. Quality and Variety of Goods: Trade agreements open a lot of doors for businesses. As
they gain access to new markets, the competition becomes more intense. The increased
competition compels businesses to produce higher-quality products. It also leads to more
variety for consumers. When there is a wide variety of high-quality products, businesses can
improve customer satisfaction.

4. Fostering Regional Integration: RTAs push member nations to collaborate on a range of

issues, including investment policy, regulatory harmonization, and infrastructure development.
Greater regional integration, collaboration, and stability may result from this.
5. Attracting Foreign Investment: RTAs can aid in attracting foreign investment to member
countries by fostering a more stable and predictable business climate. In turn, this might
encourage employment development, technology transfer, and economic expansion.

6. Encouraging Specialization and Innovation: By removing trade restrictions, RTAs can

encourage the effective distribution of resources and let member nations to focus on producing
the goods and services in which they have a competitive advantage. Increased productivity,
innovation, and economic expansion may result from this.