THEORIES OF INTERNATIONAL BUSINESS

INTERNATIONAL BUSINESS

Reference Books : International Business By• Subba Rao

• Francis Cherunilam

• Dr Chandran

• Sundaram and Black

• Daniels & Radebough

• Charles Hill & Jain

• Roebuck & Simon

International Business


1. Definition of IB, Domestic vs Int’I business, Adv & Disadv

2. International trade theories

3. Environmental challenges

4. Globalisation, Regional groups, Transnational economy.

5. Market entry strategies and Country selection processes

6. International Trade Institutions, IMF, IBRD, WTO and Policies

7. International finance & Foreign Direct Investments, GDR, ADR etc

8. International issues, G 20 issues, MFN status, Intellectual property rights, purchase power parity, ISO and world quality standards etc

9. Trade Barriers, Anti Dumping etc

10.Ethical business, CSR, Millineum goals, HR policies etc

11.Logistics, Information technology, cultural and social issues, Generalised topics etc

12.Case studies


Independence, Dependence and Interdependence

International Trade Policy• Laissez-faire approach (Free trade)

Vs Interventionist approach

Theories• Mercantilism (ex Colonial rule)• Absolute advantage and Comparative advantage (ex

India – tea, US- wheat)• Theory of Country size (ex India, China, Brazil, USA)• The Product Life Cycle Theory (Raymond Vernon’s

Theory)• Factor Proportions Theory (ex India, Hong kong,

Singapore, Dubai)


World Monetary and Exchange rate System• Gold Specie Standard

• Gold Bullion standard

• Gold Exchange Standard

Bretton Woods System 1944

1 Troy Ounce of Gold = 31.1 gms = Us $ 35

International Business : Prof Bharat Nadkarni

Components of Balance of Payments

Item Credit Debit Net

A)Current Account I Merchandise II Non Monetary Gold Movement III Invisibles

(B) Capital Account I Private II Banking III Official (Govt)

(C ) IMF

(D) SDR Allocation

(E) Errors & Omissions

(F ) Reserves and Monetary Gold


Scope : “World is turning into a Global village”.

“SMOOTH”1. Source raw materials wherever they are cheapest.

2. Manufacture anywhere in the world where it is most cost effective.

3. Obtain and Sell in those global markets where the returns are highest.

4. Organize and Raise finances globally.

5. Try and Forge international strategic alliances.

6. Hire the best talent from all over the world. To manage all the above points.

And you will have achieved the stature of a true Global Organization



International business can be defined as activities that buys

and sells goods and services across two or more national

boundaries, even if the management is located in a one

country. It includes any type of business activity that crosses

national borders. International business is related with

those enterprises which have operating units outside their

own country. There are institutional arrangements who

provide some managerial direction of economic activity

taking place abroad.

Conducting international business is really not like playing a

whole new ball game but it is like playing in a different ball

park, where the managers have to learn the factors unique to


the playing field. The guiding principles of a firm engaged in

international business activities should incorporate a global

perspective. Incorporating an international outlook into the

firm’s basic statement will help focus the attention of

management on the opportunities outside the domestic

economy.


Objectives of International Business

1. To integrate economies.

2. To offer new markets.

3. To facilitate transfer of ideas, services and capital across the world.

4. To facilitate mobility of factors of production.


Difference between Domestic and International business

1. Higher rate of profits (Absolute advantages, taxes, concessions and incentives)

2. Expansion of production capacities

3. Competition (pull & push effects)

4. Wide market

5. Political stability

6. Technology

7. High cost of transportation


Growing importance of International Business• Current trends are towards the increasing globalisation

and interdependence of firms, markets and countries.• Intense competition at global level• Exchange rate developments – shift from –ve to +ve

growth• Global capital flows to LDCs• Differences in Price and Cost• Restructuring the economy to integrate with global

economy• Increased importance of CSR• The growing importance on enhancing standard of living

in LDCs


• Liberal trade policies and procedures• Revolution in communication and transportation


International Business Corporate Approaches

E P R G Model

1. Ethnocentric (Home country orientation)

2. Polycentric (Host country orientation)

3. Regiocentric (Regional orientation)

4. Geocentric (World orientation)


Home Country Economic Environment

1. Domestic Markets & Size

2. Economic Policies

3. Promotional and Regulatory measures


Host Country Economic Environment

1. Size of the Markets

2. Gross Domestic Product

3. Industrialisation

4. Development of Banking Facilities

5. Purchasing Power and Standard of Living

6. Foreign Exchange Situation

7. Income levels

8. Economic diversity (urbanisation – Rural dev. Ex Johannesburg, Sao Paolo


Global Economic Environment

1. International organisations

2. Trading Blocs

3. Strategic Locations

4. Global Political Environments and Issues


SAARC (7): + Afghanistan (Total 8)South Asian Association for Regional CooperationIndia, Pakistan, Sri Lanka, Nepal, Bhutan, Bangladesh, Maldives (SAPTA – SAARC preferential trading agreement)

NAFTA (3) : North American Free Trade AgreementUSA, Canada, Mexico

LAFTA (9) : Latin American Free Trade AreaArgentina, Brazil, Mexico, Chile, Peru, Uruguay, Paraguay, Columbia, Ecuador

ASEAN (5) : The Association of South East Asian Nations was formed by the Bangkok Declaration, 1967, by five countries, viz., Indonesia, Malaysia, Philippines, Singapore and Thailand.

International Business EU (15) : European Union Austria, Belgium, Britain, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden.Euro : Common currency of the EU was launched by 11 members on 1.1.1999, Britain, Denmark, Sweden did’nt join. Greece joined in 1.1.2001

Maastricht Treaty of 1991 set the stage for the monetory union. EU AdditionsWith effect from May 1, 2004 the total membership of EU increased to 25. Following ten countries were inducted.Estonia, Latvia, Lithuania, Poland, Czech Republic, Hungary, Slovenia, Slovakia, Cyprus and Malta.Two more members, Bulgaria and Romania, were inducted in 2007, taking the tally to 27 countries.

International Business MERCOSUR : Mercado Comun del Sur – Brazil, Argentina, Paraguay and Uruguay.

In the post World War II period, the erstwhile Soviet Union and East European countries sought to foster economic development via the integration scheme of Council for Mutual EconomicAssistance (CMEA or COMECON). With the dissolution of the CMEA in 1991 following political changes, the regional trade of the eastern bloc also collapsed.

ASEAN – China free trade zone is under process. – AFTA – with more members like Cambodia, Laos, Myanmar and Vietnam also joining the group.

Thank you


International Business Environment

1. Internal Environment

Org. Structure ( I P O )

Production

Marketing

Finance

H R

R & D

I T

Business Development


International Business Environment

2. External Environment

a. External Micro Environment

All Stakeholders and Competitors

b. External Macro Environment

S T E P I N

(Social, Technical, Economical, Political, International, and Natural)

Foreign direct investment approvals will, however, be subject to sectoral caps: (as on 31.03.2010)• 20 percent (40'per cent for NRIs} in the banking sector;

•51 per cent in non-banking financial companies;

•100 per cent in power, roads, ports, tourism and venture capital funds;

•49 per cent in telecommunications;

•40 per cent (100 per cent for NRIs) in domestic air taxi operations/airlines;

•24 per cent in small-scale industries;

•51 per cent in drugs/pharma industry for bulk drugs;

•100 per cent in petroleum; and

• 50 per cent in mining ~ except for gold. silver, diamonds and precious stones

The Millennium Development Goals… as defined by UN

Eradicate extreme poverty and hunger

Achieve universal primary education

Promote gender equality and empower women

Reduce child mortality

Improve maternal health

Combat HIV/AIDS, malaria and other diseases

Ensure environmental sustainability

Develop a global partnership for development

Stop Child Labour

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THEORIES OF INTERNATIONAL BUSINESS

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