International Business lecture notes in detail for mcom1.pptx

International Business lecture notes in detail

1. International business

2. Contents Definations,nature Approaches Problems of IB International trade policies & relations Tariffs Subsidies Import quota Voluntary export restraints

3. Trade Trade is one of the most economic activity. It refers to buying & selling of goods & services.

4. Classification of trade Internal trade International trade Import trade Export trade

5. Defination According to V.K.Bhalla”Any type of business activity that cross national boundary” According to Charies W.L.Hill”International business is competing in the global market place”

6. Advantages/Role/Importance of IB High living standard Increased socio-economic welfare Wider market Reduced risk Large scale economies Potential untapped market Economic growth Optimum & proper utilisation of world resources. Utilisation of surplus produce. More employment Forex earning Dynamic entrepreneurship Greater variety of goods available for consumption Knitting the world into global village Availability of technology

7. Problems/Disadvantages Political factors Huge foreign indebtness Entry requirements Tariffs,quotas Bureaucratic practices of government Technology pirating Rapid depletion of exhaustible natural resources One country gains at the expense of other May lead to war Language diversity

8. Difference between domestic trade & international trade Approach Geographic scope Operating style[ production,marketing,investment,R&D etc] Environment Quotas Tariffs Foreign exchanges rate Culture Export import procedure Market & customers Benefits Political relations Sharing of technology

9. Distance Modes of entrys Insurance synonmys

10. International business model

11. International business approaches Douglas ,Wind & Pelmutter advocated 4 approaches: Ethnocentric approach Polycentric approach Regiocentric approach Geocentric approach

12. Ethnocentric approach The domestic companies normally formulate their stratergies,their product design & their operations towards the national markets,customers & competitors. But the excessive production more than the demand for the product either due to competition or due to changes in customer preferences push the company to export the excessive production to foreign countries. The domestic company continues to export the foreign countries & views the foreign market as an extension to the domestic markets just like a new region.

13. The executives at the head office of the company make the decisions relating to exports & the marketing personnel of the domestic company monitor the export operations with the help of export department. The company exports the same product designed for domestic market to foreign countries under this approach. Thus,maintainance of domestic approach towards international business is called ethnocentric approach.

14. Polycentric approach The domestic companies which are exporting to foreign countries using the ethnocentric approach find at the later stage that the foreign markets need an altogether different approach. Then the company establishes a foreign subsidiary company & decentralises all the operations & delegates decision making & policy making authority to its executives.

15. The company appoints executives & personnel including a chief executive who reports directly to the managing director of the company. Company appoints the key personnel from the home country & all other vacancies are filled by people of host country. The executives of the subsidiary formulate the policies & stratergies,design the product based on host country’s environment[ culture,customs,laws,government policies etc] & the preference of the local customers. Thus polycentric approach mostly focuses on the conditions of the host country in policy formulation,stratergy implementation & operations.

16. Regiocentric approach The company after operating successfully in a foreign country thinks of exporting to the neighbouring countries of the host countries. At this stage the foreign subsidiary considers the regional environment For eg : Asian environment like laws,culture,policies etc] for formulating policies & stratergies . However it markets more or less the same product designed under polycentric approach in other countries of the region,but with different market stratergies .

17. Geocentric aproach Under this approach the entire world is just like a single country for the company. They select the employees from the entire globe & operate with number of subsidiaries. The headquarters co-ordinate the activities of subsidiaries. Each subsidiary functions like independent & autonomous company in formulating policies,stratergies,product design,human resource policies,operations etc.

18. Stages of international business Domestic company International company Multinational company Global company Transnational company

19. Domestic company Domestic company limits its operations,mission & vision to the national political boundary. The company focuses its view on the domestic market opportunities,domestic suppliers,domestic financial companies,domestic customers. These companies analyse the national environment of the country,formulate the stratergies to exploit the opportunities offered by the environment.

20. Domestic companies unstated motto that “If it is not happening in the home country it is not happening” The domestic company never thinks of growing globally. If it grows beyond its present capacity,the company selects diversification stratergy of entering into new domestic market,new product ,technology etc. The domestic company does not select the stratergy of expansion or penetration into international market.

21. International company Some of the domestic companies which grow beyond their production or domestic marketing capacities,think of internationalising their operations. Those companies who decide to exploit the opportunities outside the domestic country are the stage two companies. These companies remain ethnocentric oe domestic country oriented.

22. These companies believe that the practices adopted in domestic business,the people & products of domestic business are superior to that of other countries. The focus of these companies is domestic but extends the wings to foreign countries. These companies select the stratergy of locating a branch in the foreign markets & extends the same domestic operations into foreign markets.

23. The international company holds the marketing mix constantly & extends the operations to new countries. Thus international company extends the domestic country marketing mix business model & practices to foreign countries.

24. Multinational company Sooner or later the international companies learn that the extension stratergy [that is extending the domestic product,price & promotion to foreign markets] will not work. The best example is the Toyota exported toyopet cars produced for Japan in Japan to USA in 1957. Toyopet was not successful in USA. Toyota could not sell these cars in USA as they were overpriced,underpowered & built like tanks. Thus these cars were not suitable for the US markets. The unsold cars were shipped back to Japan.

25. Toyota took this failure as a rich learning experience & as a source of invaluable intelligence but not as failure. Toyota based on this experience designed new models of cars suitable for the US market. The international companies turn into multinational companies when they start responding to the specific needs of different country markets regarding product,price & promotion. This stage of multinational company is also reffered to as multi domestic. Multidomestic company formulates different stratergies for different market. Thus orientation shifts from ethnocentric to polycentric.

26. Under polycentric orientation the offices,branches subsidiaries of multinational company work like domestic company in each country where they operate with distinct policies & stratergies suitable to the concerned country. Thus they operate like a domestic company of the country concerned in each of their markets.

27. Global company A global company is the one which has either global marketing stratergy or a global stratergy . Global company either produces in home country or in single country & focuses on marketing these products domestically. Eg : Harley designs & produces super heavy weight motorcycles in the USA & markets in global market. Dr.Reddy Lab designs & produces drugs in India & markets globally.

28. Transnational company A transnational corporation is a huge company that does business in several countries. A transnational corporation is any company that operates in more than one country at a time. Transnational company produces,markets,invest & operates across the world. It is an integrated global enterprise that links global resources with global market at profits. There is no pure transnational corporation. It satisfies the characteristics of global company. Eg : Coca cola,pepsi

29. International trade policies International trade policies deal with the policies of national government relating to export of various goods & services for various countries based on terms & conditions. Trade policies also aim at protecting the domestic industry from competition of advanced countries through imposing quotas.

30. So government announce their trade policies from time to time. These are also called as instruments o trade policy Tariffs Subsidies Import quotas Voluntary export restraints Local content requirement Administrative policies

31. Subsidies A sum of money granted by government to help an industry to keep the price of a commodity or service low In order to encourage domestic production or to protect the domestic producer from the foreign competitors,government pays to a domestic producer by reducing operations cost.Such payments are called subsidies

32. Subsidies are in different like cash grants,loans & advances at low rate of interest,tax holidays,government procurement of output at a higher rate,equity participation & supply of inputs at lower prices.

33. Import quotas Import quotas is a direct restriction on the quantity of goods which are imported into a country. Import quotas provide protection to the domestic firms from the foreign competitors

34. Voluntary export restraints Voluntary export restraints is opposite form of import quotas. Voluntary export restraints is a quota on exports of the domestic firm imposed by exporting country. Eg : Japanese automobile exporters has such restraints in 1981 due to request of US government.

35. Local content requirement Local content requirement is a condition that requires some specific fraction of a product imported be produced domestically. Most of the developing countries insist on local content requirements in order to shift atleast certain part of manufacturing base in their country. This helps the country to enhance the employment opportunities,utilisation of local resources & economic activities.

36. Administrative policies Government in addition to the quotas & other restrictions use formal & informal policies to restrict imports & boost exports.

37. International economic relations Tariff policy International cartel International commodity agreement Dumping Pre emptive buying Quotas & licenses State trading Embargoes Boycott

38. International cartel Companies carrying out the same business join together in order to avoid competition among themselves in order to exert monopolistic influence over price,quality & quantity of product. International cartels are agreement among companies or countries,carrying out same business but located in different countries in order to exert monopolistic competition.

39. Dumping Dumping means selling the products at a price less than the ongoing price in the market or less than the cost of production. It is used to sell the excess production or to earn foreign exchange.

40. Pre emptive buying During the war crisis countries buy the goods from neutral countries in order to depriving the enemy from having the products needed by them.

41. Quotas & licenses Quotas are quantitative controls imposed by the importing country on import of goods. Quantitative restriction or quotas are to protect the domestic industry from foreign competitors.

42. Embargoes Embargoes may prohibit the shipment of all goods to a particular country or to a group of countries. Boycott It is opposite of embargo. It stops the import from a country or a group of countries