International business includes any type of business activity that crosses national borders.

What is Business???
Business may be understood as the organized efforts of enterprises to supply consumers with goods and services for a profit

Contemporary Business goals

Profit (Bottom-line) Growth Market Leadership Customer satisfaction Employee satisfaction Quality Products & Services Service to Society

What do you Environment???

mean

by

Business

The environment of any organization is the aggregate of all conditions, events and influences that surround and affect it. Characteristics of Business Environment: Complex Dynamic Multi-faceted Far- reaching impact

Why Study Business Environment

Development of broad strategies to ensure

sustainability

To foresee the impact of socio-economic

changes at the national and international levels on firms ability

Analysis of competitors strategies and

formulation of effective counter measures

To keep oneself dynamic

Types of Environment
Internal Environment External Environment
Micro environment Macro environment
Economic Non

Economic

Internal Environment
Refers

to

all

the

factors

that

are

within

an

organization which impart strengths or cause weaknesses of strategic nature.

Controllable factors. These include:
Value system Mission and Objectives Management Structure and Nature

Components of Internal Environment

Human Resources Company Image and Brand Equity Other Factors
Physical Assets and Facilities R & D and Technological Capabilities Marketing Resources Financial Resources

External Environment
Includes all factors outside the organization

which provide opportunities or pose threats to the organization

Uncontrollable factors Consists

of environment

Micro

and

Macro

Micro Environment
It consists of the factors in the

companys immediate environment that affect the performance of the company.

Micro Environment Factors

Suppliers Customers Marketing Intermediaries Competitors Publics Financial Community

Macro Environment
It comprises general trends and forces that may not immediately affect the organization but sooner or later will alter the way organization operates. Macro Environment : Economic Non Economic

Economic Environment
Economic stages that exists at a given time in a

country Economic system that is adopted by a country for example. Capitalistic, Socialistic or Mixed Economy Economic planning, such as five year plans, budgets, etc. Economic policies for example, monetary, industrial and fiscal policies Economic Indices such as National Income, Per Capital Income, Disposable Income, Rate of growth of GNP, Distribution of Income, Rate of savings, Balance of Payments etc. Economic Problems Functioning of economy

Non Economic Environment

Regulatory Environment Socio- Cultural Environment Demographic Environment Technological Environment Political Environment

Non- Economic Environment

Cultural Environment
Social Customs & Rituals and practices Lifestyle patterns Family structure Role & position of men, women, children and

aged in family & society

Non- Economic Environment

Demographic Environment
Growth of population Age Composition Life Expectancy Sex Ratio Fertility and Mortality rates Inter-state migration

Macro Environment
Technological Environment
Sources of technology Technological development Impact of technology

Political Environment
Political parties in power Political Philosophy

Macro Environment
Regulatory Environment
Constitutional framework Policies

relating investment

to

pricing

and

foreign

Policies

related to the public sector, SSIs, development of backward areas and control of environmental pollution

International Environment
Important factors that operate at global level which have an impact on organization are:
Growth of world economy Distribution of world GDP International institutions IMF,WTO ILO Economic relations between nations Global human resource-nature and quality of skills, mobility

of labor

Global technology and quality standards Global demographic patterns

 More and more firms around the world are going global,

Need for International Business

including:
construction, retailing, wholesaling, and mass communication ). Art, film, and music companies Investments

Manufacturing and marketing firms Service companies ( transportation, tourism, advertising,

Parties may include Private individuals Individual companies Groups of companies Governmental agencies

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Need for International Business

International business:
causes the flow of ideas, services,

and capital across the world offers consumers new choices permits the acquisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities reallocates resources, makes preferential choices, and shifts activities to a global level

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What is International Business?

International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.

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International business deals with business

activities (both production and services) that crosses the national boundaries. This activity includes movement of goods, services capital or personnel, transfer of technology, etc. Functionally, by business we mean those human activities, which involve production or purchase of goods and services with the object of selling them at a profit. Todays world is an era of Global Village or specialization. A particular country is not self-dependent for producing goods and services. One country depends on another for goods and services as well as one area of a particular country depends on another area for meeting demand. This interdependence creates

International business in India

India being a diverse cultural setup, it is not

advisable to formulate a uniform business strategy in India. Different parts of the country are well-known for its different traits. The eastern part of India is known as the 'Land of the intellectuals', whereas the southern part is known for its 'technology acumen'. On the other hand, the western part is known as the 'commercial-capital of the country', with the northern part being the hub of political power'. With such diversities in all the four segments of the country, international business opportunity in India is surely huge.

The growth in the international business sector in India is more than 7% annually.

Titan Industries
One of Indias first companies to market a consumer brand overseas. Now present in 26 countries outside India Among the top 3 brands in some Asian countries Total export sales of over Rs 130 crores in 2008-09

Indian companies Fortune 500

8 Indian companies have made it to Fortune 500

list in 2010. These are:

Indian

Oil Corporation Reliance Industries Tata Steel Tata Motors Bharat Petroleum Hindustan Petroleum State Bank of India ONGC

Top Five Global Companies in India July 25, 2011

Country Rank 1 2 3 4 5 Company Indian Oil Global 500 rank 98 City New Delhi Mumbai Mumbai Mumbai Mumbai Revenues ($millions) 68,837 58,900 34,102 32,450 28,593

Reliance Industries 134 Bharat Petroleum 272 State Bank of India 292 Hindustan Petroleum 336

Global Competiveness Index

The World Economic Forum has ranked

139 economies in its 2010-2011 Global Competitiveness Report. In overall competitiveness India scores a passable 51st place. It ranks notably ahead of Latin Americas powerhouse Brazil (58) and way ahead of its neighbors Pakistan (123), Sri Lanka (62) and Bangladesh (107), but behind China (27). Switzerland tops the chart and USA is on 4 th position due to economic instability from 2007-10

Export-import trade Foreign direct investment

Licensing

Franchising Management contracts

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ng i s i h c n a r F & e d a r t r e t n u o C
Countertrade international transactions that

do not involve currency payments but use bartering.

Franchising a contractual agreement where a

local entity gains rights to sell the franchisors product in the foreign market. produce or sell its product

A foreign licensing agreement allows a firm to Subcontracting involves hiring local firms to

distribute, produce or sell goods and services.

t c e r i D & g Offshorin Investment

The relocation of business processes to a lower-

cost overseas location is offshoring

Not initiating business but gaining cost savings Extremely controversial

The ultimate level of global involvement is direct

investment
Directly operating production and marketing in foreign

country. Acquisition Joint Ventures Overseas Division

Licensing
A contractual agreement whereby one

company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation
Patent Trade secret Brand name Product formulations

Advantages to Licensing
Provides additional profitability with little

initial investment Provides method of circumventing tariffs, quotas, and other export barriers Attractive ROI Low costs to implement

Disadvantages to Licensing
Limited participation Returns may be lost Lack of control Licensee may become competitor Licensee may exploit company resources

Special Licensing Arrangements

Contract manufacturing
Company provides technical specifications to a

subcontractor or local manufacturer Allows company to specialize in product design while contractors accept responsibility for manufacturing facilities

Franchising
Contract between a parent company-franchisor and a

franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies

Franchising Questions
Will local consumers buy your product? How tough is the local competition? Does the government respect trademark

and franchiser rights? Can your profits be easily repatriated? Can you buy all the supplies you need locally? Is commercial space available and are rents affordable? Are your local partners financially sound and do they understand the basics of franchising?

Investment
Partial or full ownership of operations outside

of home country

Foreign Direct Investment Forms

Joint ventures Minority or majority equity stakes Outright acquisition

Joint Ventures
Entry strategy for a single target country in

which the partners share ownership of a newly-created business entity

Joint Ventures
Advantages
Allows for sharing of risk

Disadvantages
Requires more

(both financial and political) Provides opportunity to learn new environment Provides opportunity to achieve synergy by combining strengths of partners May be the only way to enter market given barriers to entry

investment than a licensing agreement Must share rewards as well as risks Requires strong coordination Potential for conflict among partners Partner may become a competitor

Investment via Ownership or Equity Stake

Start-up of new operations Greenfield operations or Greenfield investment Merger with an existing enterprise Acquisition of an existing enterprise

International Business Activities

Exporting and Importing International Investments Licensing, Franchising, and Management Contracts

Exporting and Importing

Exporting: selling of products made in ones

own country for use or resale in other countries

Importing: buying of products made in other

countries for use or resale in ones own country

53% of

Boeings aircraft sales are to foreign airlines

International Investments
Capital supplied by residents of one country

to residents of another 2 categories:

Foreign direct investments Portfolio investments

Other Forms of International Business Activity

Licensing: firm in one country licenses the use

of its intellectual property to a firm in a second country in return for a royalty payment Franchising: firm in one country authorizes a firm in another country to utilize its operating system and intellectual property

Management Contracts
A firm in one country agrees to operate

facilities or provide other management services to a firm in another country for an agreed-upon fee Common in upper-end international hotel industry

This Beijing restaurant is one of 430 that McDonalds has built in China

United States: A Global Leader

The United States has developed a

world leadership position due to:

the Western world a broad flow of ideas, goods, and services across national borders an encouragement of international communication and transportation

its use of market-based transactions in

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The the 1930s, the U.S. passed the

The Smoot-Hawley Act

Smoot-Hawley Act, which raised import duties to reduce the volume of goods coming into the U.S.
The act was passed in the hope that it

would restore domestic employment.

The result was a worldwide depression

and the collapse of the world financial system.

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In the past 30 years, the volume of

Expansion of International Trade

international trade has expanded from $200 billion to over $7.5 trillion.

The sales of foreign affiliates of

multinational corporations are now twice as high as global exports.

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International business has created a

Global Links Today

network of global links that bind countries, institutions, and individuals with trade, financial markets, technology, and living standards.
For example, a reduction in coffee

production in Brazil would affect individuals and economies worldwide.

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e d a r T s n o i t a N y h W
Boosts economic growth Expands markets More efficient production

systems
Less reliance on economies of
Exports: Domestically produced goods and services sold in markets in other countries.

home nations

Imports: Foreign-made products and services purchased by domestic consumers.

f o s e c r u o S l a n o i t a n r e t In n o i t c u d o r P f o Factors
Decisions to operate abroad depend upon availability, price, and quality of: Labor Natural resources Capital Entrepreneurship Companies can spread risk throughout nations

l a n o i t a n r e t n I e h t f o e z i S e c a l p t e k r a M
As developing nations expand into the

global marketplace, opportunities grow

Many developing countries have posted

high growth rates of annual GDP

United States 4.4% China 11.1% India 9.4%

e d a r T g n i r u s Mea s n o i t a N n e Betwe
Balance of trade: Difference between a nations imports and exports. Balance of payments: Overall flow of money into or out of a country.

Balance of payments surplus = more money into country than out Balance of payments deficit = more money out of country than in