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Chapter- 1

Introduction to IBE-World Around Us

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International BusinessEnvironment

What is Business Environment?

All the forces surrounding and

influencing the life and developmentof the firm.

Sum total of the factors external toand beyond the control of themanagement of an enterprise.

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Environment Affecting International Business

DomesticEnvironment

ForeignEnvironment

InternationalEnvironment

InternationalBusiness

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Pre-globalization

DomesticEnvironment

Foreign/International

Environment

Competition from

imports

Foreign Competitors

in own market

DomesticBusiness

Post-globalization

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Environment of LPG

Liberalization (L)

Liberalizing policies and proceduresgoverning business.

Simplifying procedures relating tobusiness.

De-licensing

Privatization (P)

Encouraging privatization of ownership ofbusiness.

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Minimizing the role of the Government.

De-reservationDisinvestment

Globalization (G)

Integrating the economy into the worldeconomy- removing all sorts of barriers.

A world without walls.

Must have a global vision.

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Basic Functions

Principles

Domestic Business International Business

Same

Difference

Environment within which these functions areperformed and processes are carried out.

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Relevance of InternationalBusiness Environment

Central Issues in entering intointernational business -

Which market (s) to select?

How to enter into those markets?

- Decisions are strategic in nature and

influenced by the environmental forces.- Target markets should have enough

market potential.

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Understanding InternationalBusiness

Any sort of business activity that crossesnational boundaries or borders.

Activities relating to industry andcommerce performed on an internationallevel.

International Business includes: Import and Export of commodities,

manufactured goods and services.

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Investment of capital in severalmanufacturing and other related activities.

Investment of capital in internationalservices like banking, insurance, advertising,tourism, etc.

Transactions involving copyrights, patents,trademarks, etc.

(Levels of risks involved in international

business are higher than those in domestictransactions.)

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What we mean?

IB: Business whose activities involvecrossing national/ domestic borders.

MNC: A firm having operations in morethan one country, international sales and anationality mix of managers and owners.

A firm with multi-country affiliates, each ofwhich formulates its own businessstrategy based on perceived marketdifferences.

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Foreign Business: Domestic operations

within a foreign country.Used inter-changeably with internationalbusiness.

Global Company: A firm attempts tostandardize operations worldwide in allfunctional areas.

International company: Both global andmultinational companies.

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Multicultural Multinational: Firm attempts

to achieve economies of scale throughglobal integration and highly responsive todifferent local environments.

Global Localization:Thinkglobally but actlocally.

Balance between standardized and

localized approaches.

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Environmental Issues

Why watches, chocolate, cheese, precision

machinery, pharmaceuticals are producedin Switzerland?

What do they have in common?

Why Cambodia earns a good amount offoreign exchange from tourism services?

Why India is a major exporter of software

and also primary products? Why many US multinationals were

interested to venture Vietnam during the

late 1990s?

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Why some foreign investors desire to comeout from making any further investment in

Philippines during mid 2005? Why foreign investors consider China and

India as their right destinations?

What is common in both the countries?

Why the Share ofAsia in world merchandiseexports had fallen during 1997 - 1998?

Why many developed and developingcountries had faced fall in their growth, output and volume of trade in 2008 and 2009?

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International BusinessEnvironment The Trend

Intense competition among industries,firms and countries on a global level is arecent development.

The present trends are towards theincreasing globalization andinterdependence of firms, markets andcountries.

In a bid to meet commitments toinstitutions like WTO, IMF and WB,country after country is pulling down

barriers to foreign trade and investment.

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There is a growth of organization andadministrative structures to manage

resources and risks across nationalboundaries.

Quantitative restrictions on foreign tradeare being dismantled speedily and tariff

barriers are on the decline. New opportunities to foreign investors and

entrepreneurs are being provided to

operate in the countries. The MNCs are expanding their operations

by aggressively adopting marketingstrategies to local conditions.

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In the coming years there may beextinction of many business andconsiderable realignments in many othersby M & A, etc.

In future MNCs will gear up their activitiesdue to the presence of huge potential

market. Many firms having indigenous technology

in less developed economies will fail to

compete with the MNCs. Number of small units may close up their

activities or may merged with the bigcompanies.

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The World around us- Discussions

(Extra Sheet)