BUSINESS ENVIRONMENT

MODULE 3
 INTERNATIONAL BUSINESS
• International Business conducts business transactions all
over the world. These transactions include the transfer of
goods, services, technology, managerial knowledge, and
capital to other countries. International business involves
exports and imports.

• International business refers to the exchange of goods and

services across national boundaries. It also includes the
production and distribution of resources for profit and
transactions that span borders. International business can
also be driven by non-financial goals, such as corporate
social responsibility, that have an impact on a nation’s
future.
 International business environment

• The International business environment is a complex

network of economic, political, legal, and cultural forces that
shape how organisations conduct international business. It
consists of external and internal factors that impact a
company’s success or failure in different markets.
 Why should Firms go global?

➢Increase revenue potential

➢Gain a competitive advantage
➢Balance out seasonal fluctuations
➢Gain a first-mover advantage
➢Increased market size
➢Diversification
 STRATEGIC STEPS TO GLOBAL
MARKET EXPANSION

➢Define your business goals

➢Research your target markets
➢Do market analysis eg. PESTEL &
SWOT
➢Develop a market entry strategy
 Features of International Business

➢ Large scale operations

➢ Complex and dynamic
➢ Integration of economies
➢ Dominated by developed countries & MNC’s
➢ Benefits to participating countries(Cultural ,knowledge &
technological exchange)
➢ International restrictions
➢ Sensitive in nature(PESTEL impacts the firm)
 Challenges of International Business

➢ Geo politics
➢ Social & cultural barriers
➢ Competition on a global level
➢ Shortage of skilled labour
➢ Nature & manmade calamities
➢ Sustainability & climate change
➢ Dynamics in currency exchanges
 Porter Diamond Model

The Porter Diamond Theory of

National Advantage, or the Porter
Diamond Model, is a model that
describes the competitive
advantage that nations or groups
possess based on factors available
to them. The theory explains how
governments can act to improve a
country's position in a globally
competitive economic
environment.
 Internationalisation
➢ Internationalization can refer to a company that takes steps to
increase its footprint or capture greater market share outside of
its country of domicile by branching out into international
markets.

➢ Internationalization describes designing a product in a way that

it may be readily consumed across multiple countries.

➢ This process is used by companies looking to expand their global

footprint beyond their own domestic market understanding
consumers abroad may have different tastes or habits.

➢ Internationalization often requires modifying products to

conform to the technical or cultural needs of a given country,
such as creating plugs suitable for different types of electrical
outlets.
Internationalisation Process
 Stage 1-Domestic company

➢ The growing stage-one company, when it reaches growth

limits in its primary market, diversifies into new markets,
products and technologies instead of focusing on
penetrating international markets.

➢ A domestic company may extend its products to foreign

markets by exporting licensing and franchising. The
company, however is primarily domestic and the
orientation essentially is ethnocentric
 Stage 2-International Company

➢ International company is normally the second stage in the

development of a company towards the transnational
corporation.

➢ The orientation of the company is basically ethnocentric

and the marketing strategy is extension, i.e, the marketing
mix ‘developed’ for the home market is extended into the
foreign markets.
 Stage 3- Multinational Company

➢ In other words, “when a company decides to respond to

market differences, it evolves into a stage-three company is
multinational that pursues a multi-domestic strategy.

➢ The focus of the stage-three company is multinational or, in

strategic terms, multi-domestic (that is, the company
formulates a unique strategy for each country in which it
conducts business).
 Stage 4-Global Company

➢ It will either focus on global markets and source from the

home or a single country to supply these markets, or it will
focus on domestic market and source from the world to
supply its domestic channel.

➢ The global company will have either a global marketing

strategy or a global sourcing strategy but not both.
 Stage 5-Transnational Company

➢ The Transnational Corporation is much more than a

company with sales, investments and operations in many
countries.

➢ This company, which is increasingly dominating markets

and industries around the world, is an integrated world
enterprise that links global resources with global markets at
a profit.
 EPRG Framework

 EPRG Framework was developed and introduced by

Wind, Douglas, and Perlmutter and focuses on
the international marketing operations of
the company and the different attitudes towards the
company’s involvement on the front of
international marketing processes and environment.
 1) Ethnocentric Orientation
 2) Regiocentric Orientation
 3) Geocentric Orientation
 4) Polycentric Orientation
https://www.researchgate.net/publication/263927973_International_Entrepr
eneurship_and_Corporate_Growth_in_Visegrad_Countries
 Globalization
• Globalization is a process of interaction and integration among the people, companies, and
governments of different nations, a process driven by international trade and investment and
aided by information technology.
• The main features of Globalization:
• 1. Globalization involves expansion of business operations throughout the world.
• 2. It leads to integration of individual countries of the world into one global market thereby
erasing differences between domestic markets and foreign markets.
• 3. It creates interdependency between nations.
• 4. Buying and selling of goods and services takes place from to/any country in the world.
• 5. Manufacturing and marketing facilities are set up anywhere in the world n the basis of their
feasibility and viability rather than on national considerations.
• 6. Products are planned and developed for the world market.
• 7. Factors of production like raw materials, labour, finance, technology and managerial skills
are sourced from the entire globe.
• 8. Corporate strategies, organizational structures, managerial practices have a global
orientation. The entire globe is viewed as a single market.
• 9. Globalization does not take place overnight. It proceeds gradually through several stages of
internationalization.
 Positive Impact of globalization in India

 Globalization is the new catchphrase in the world economy, dominating

the globe since the nineties of the last century. People relied more on
the market economy, had more faith in private capital and resources,
international organizations started playing a vital role in the
development of developing countries. The impact of globalization has
been fair enough on the developing economies to a certain extent. It
brought along with it varied opportunities for the developing countries.
It gave a fillip for better access to the developed markets. The
technology transfer promised better productivity and thus improved
standard of living.
Negative Impact of globalization in India

• Inequality across and within different nations, volatility in

financial market spurt open and there were worsening in the
environmental situation.
• A majority of third world countries stayed away from the entire
limelight. Till the nineties, the process of globalization in the
Indian economy had been guarded by trade, investment and
financial barriers. Due to this, the liberalization process took time
to hasten up. The pace of globalization did not start that smoothly.
Economic integration by 'globalization' enabled the cross country
free flow of information, ideas, technologies, goods, services,
capital, finance and people. This cross border integration had
different dimensions - cultural, social, political and economic.
 More or less the economic integration happened through four
channels –
1. Trade in goods and services
2. Movement of capital
3. Flow of finance
4. Movement of people
 Modes of Entry into International Markets

 1. Licensing
 In this mode of entry, the domestic manufacturer leases
the right to use its intellectual property technology, copy
rights ,brand name etc. to a manufacturer in a foreign
country for a fee. Here the manufacturer in the domestic
country is called licensor and the manufacturer in the
foreign is called licensee.
 The cost of entering market through this mode is less
costly. The domestic company can choose any
international location and enjoy the advantages without
incurring any obligations and responsibilities of
ownership, managerial, investment etc.
Modes of Entry into International Markets

 2. Franchising:
 It involves the organization (franchiser) providing
branding, concepts, expertise, and in fact most facets that
are needed to operate in an overseas market, to the
franchisee. Management tends to be controlled by the
franchiser. Examples include Dominos Pizza, Coffee
Republic and McDonald’s Restaurant.

 3. TurnkeyProject:
 A turnkey project is a contract under which a firm agrees
to fully design, construct and equip a manufacturing/
business/services facility and turn the project over to the
purchase when it is ready for operation for a remuneration
like a fixed price , payment on cost plus basis. This form of
pricing allows the company to shift the risk of inflation
enhanced costs to the purchaser. Eg nuclear power plants,
airports, oil refinery, national highways, railway line etc.
Hence they are multiyear project
Modes of Entry into International Markets

 4.Joint Ventures :
 (JV) Joint Ventures tend to be equity-based i.e. a new company is set up with
parties owning a proportion of the new business. There are many reasons why
companies set up Joint Ventures to assist them to enter a new international
market:
 Access to technology, core competences or management skills. For example,
Honda’s relationship with Rover in the 1980’s.
 To gain entry to a foreign market. For example, any business wishing to enter
China needs to source local Chinese partners.
 Access to distribution channels, manufacturing and R&D are most common
forms of Joint Venture.
 5.Piggybacking:
 If your company has contacts who work for organizations that currently sell
products overseas, you may want to consider piggybacking. This market entry
strategy involves asking other businesses whether you can add your product to
their overseas inventory. If your company and an international company agree
to this arrangement, both parties share the profit for each sale. Your company
can also manage the risk of selling overseas by allowing its partner to handle
international marketing while your company focuses on domestic retail.
 Modes of Entry into International Markets

 8. Outsourcing
 Outsourcing involves hiring another company to manage certain aspects of
business operations for your company. As a market entry strategy, it refers
to making an agreement with another company to handle international
product sales on your company's behalf. Companies that choose to
outsource may relinquish a certain amount of control over the sale of their
products, but they may justify this risk with the revenue they save on
employment costs.
 9. Greenfield investments
 Greenfield investments are complex market entry strategies that some
companies choose to use. These investments involve buying the land and
resources to build a facility internationally and hiring a staff to run it.
Greenfield investments may subject a company to high risks and significant
costs, but they can also help companies comply with government
regulations in a new market. These investments typically benefit large,
established organizations as opposed to new enterprises.
 Economic integration

 Economic integration strives to harmonize economic

policies among member nations to promote mutual trade and
economic and political interests. The member countries agree
on fiscal rates, monetary policies, and export and import
regulations to achieve a stated economic plan.

 Regional Economic Integration is a part of economic

development, economic indicators can help measure it, such
as:
 Trade of products and services
 Cross-border capital movements
 Labor mobility
 Trade union membership
 Role of trade unions
Levels of Regional Economic Integration
 SAARC

 The South Asian Association for Regional Cooperation

(SAARC) was established on 8 December 1985. The
Secretariat of the Association was set up in Kathmandu,
Nepal, on 17 January 1987. SAARC has eight member
countries (Afghanistan, Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan and Sri-Lanka).
 The objectives of the Association are: to promote the welfare
of the peoples of South Asia and to improve their quality of
life; to accelerate economic growth, social progress and
cultural development in the region and to provide all
individuals the opportunity to live in dignity and to realize
their full potentials.
 SAARC also aims to strengthen cooperation with other
developing countries and to cooperate with international and
regional organizations with similar aims and purposes.
 What are the Objectives of the SAARC?

 To promote the welfare of the people of South Asia and to improve their
quality of life.
 To accelerate economic growth, social progress and cultural
development in the region and to provide all individuals the opportunity to
live in dignity and to realize their full potentials.
 To promote and strengthen collective self-reliance among the
countries of South Asia.
 To contribute to mutual trust, understanding and appreciation of one
another’s problems..
 To promote active collaboration and mutual assistance in the
economic, social, cultural, technical and scientific fields.
 To strengthen cooperation with other developing countries.
 To strengthen cooperation among themselves in international
forums on matters of common interests, and
 To cooperate with international and regional organizations with similar
aims and purposes.
 ASEAN

 ASEAN, which stands for the Association of

Southeast Asian Nations, is a political and
economic union comprising 10 states in Southeast
Asia.
 Member States: Brunei, Cambodia, Indonesia,
Laos, Malaysia, Myanmar, Philippines, Singapore,
Thailand, and Vietnam.
 Objectives: Economic growth, regional peace, and
stability.
 ASEAN

 ASEAN Fundamental Principles

 Mutual respect for the independence, sovereignty,
equality, territorial integrity, and national identity of all
nations;
 The right of every State to lead its national existence free
from external interference, subversion or coercion;
 Non-interference in the internal affairs of one another;
 Settlement of differences or disputes by peaceful
manner;
 Renunciation of the threat or use of force; and
 Effective cooperation among themselves.
 AIFTA

 The ASEAN-India Trade in Goods Agreement was

signed and entered into force on 1 January 2010.
Under the Agreement, ASEAN Member States and
India have agreed to open their respective markets
by progressively reducing and eliminating duties on
76.4% coverage of good.
 ASEAN–India Free Trade Area (AIFTA)

 The ASEAN–India Free Trade Area (AIFTA) aims to foster economic

cooperation and enhance market access between the ten member states of the
Association of Southeast Asian Nations (ASEAN) and the Republic of India. Here
are the key objectives of AIFTA:
 Tariff Reduction: AIFTA facilitates trade by lowering or eliminating
tariffs on goods exchanged between ASEAN countries and India. This reduction in
trade barriers promotes smoother commerce and encourages investment.
 Promoting Economic Ties: The agreement emerged from mutual interests of
both parties to expand their economic interactions in the Asia-Pacific region.
India’s Look East policy was reciprocated by ASEAN countries’ desire to
strengthen their ties westward. As India became a sectoral dialogue partner of
ASEAN, trade between the two increased significantly.
 Deepening Trade and Investment Ties: Recognizing the economic potential,
both sides negotiated a framework agreement to pave the way for establishing an
ASEAN–India Free Trade Area. The goal was to create a single market, increase
intra-ASEAN trade, attract foreign investment, and deepen economic linkages.
 India–Singapore Comprehensive Economic
Cooperation Agreement

 (CECA) is a free trade agreement between Singapore and India to

strengthen bilateral trade. It was signed on 29 June 2005.
 The CECA eliminated tariff barriers, double taxation, duplicate
processes and regulations and provided unhindered access and
collaboration between the financial institutions of Singapore and
India.
 The CECA also enhanced bilateral collaboration related to
education, science and technology, intellectual
property, aviation, information technology, and financial
fields. Singapore has invested in projects to upgrade India's ports,
airports and developing information technology parks and a Special
Economic Zone (SEZ).India has become Singapore's 4th biggest
tourist destination and more than 650,000 Indians visited
Singapore in 2006. Both nations have worked to collaborate on
aviation, aerospace engineering, space programmes, information
technology, biotechnology and energy
 TRIMS

 TRIMs believe that there is a strong connection between trade and

investment. The goal of trade-related investments measures is to give fair
treatment to all investing members across the world.
 As the TRIMs deal says, members have to inform the World Trade
Organization (WTO) council to buy and sell various services and goods of
their current TRIMs that are incompatible with the agreement.
 Main Features of TRIMs
 It only applies to investment measures related to goods trade.
 This doesn’t apply to service trade.
 It doesn’t regulate the entry of foreign industry or investment.
 It is about the discriminatory treatment of imported/exported products.
 Concern measures were applied to both foreign domestic firms.
 A transition period of 2 years in the case of developed countries, 5 years in
the case of developing countries and 7 years in the case of LDCs, from the
date this agreement came into effect, which is 1st January 1995.
 Advantages & Disadvantages of TRIMS

 Advantages of TRIMS:
 Facilitates Investment: TRIMS aims to promote foreign investment
by ensuring fair treatment for investors across member countries.
 Transparency: The agreement encourages transparency in investment
policies, which can lead to a more predictable business environment.
 Dispute Resolution: TRIMS provides mechanisms for resolving
disputes related to investment measures.
 Notification Requirement: Members are required to notify the WTO
Council for Trade in Goods of existing TRIMS that are inconsistent with
the agreement.
 Disadvantages of TRIMS:
 Negative Impact on Economic Efficiency: TRIMS can have a
negative impact on the economic efficiency of foreign operations in a
country. For instance, local content requirements (LCRs) may force
foreign investors to use local resources that lack comparative advantages.
 Trade Related Intellectual Property Rights
(TRIPs)

 TRIPs provide minimum standards in the form of

common set of rules for the protection of intellectual
property globally under WTO system.
 The TRIPs agreement gives set of provisions deals with
domestic procedures and remedies for the enforcement
of intellectual property rights.
 Member countries have to prepare necessary national
laws to implement the TRIPs provisions.
 TRIPs cover eight areas for IPRs legislation including
patent, copyright and geographical indications.
 The TRIPs regime
 TRIPS

 Advantages of TRIPS:
 Promotes Trade in Knowledge and Innovation: TRIPS facilitates trade by
protecting intellectual property rights (IPRs) globally. It encourages innovation
and creativity.
 Dispute Resolution: TRIPS provides a framework for resolving intellectual
property trade disputes.
 Freedom to Pursue Domestic Goals: The agreement ensures WTO
members’ freedom to pursue their domestic goals while respecting IPRs.
 Acknowledgment of IPR Importance: TRIPS formally recognizes the
significance of intellectual property in trade relations1.
 Disadvantages of TRIPS:
 Challenges for Developing Countries: TRIPS can be challenging for
developing countries due to the costs associated with implementing and
enforcing IPRs.
 Access to Medicines: TRIPS provisions on pharmaceutical patents have been
criticized for potentially limiting access to affordable medicines.
 Balance between Protection and Access: Striking the right balance between
protecting IPRs and ensuring access to essential goods and services remains a
challenge1.
 World Trade Organisation

 The World Trade Organization (WTO) is an intergovernmental

organization which regulates international trade.

 The WTO officially commenced on 1 January 1995 under the

Marrakesh Agreement, signed by 123 nations on 15 April 1994,
replacing the General Agreement on Tariffs and Trade (GATT),
which commenced in 1948.

 The WTO deals with regulation of trade between participating

countries by providing a framework for negotiating trade
agreements and a dispute resolution process aimed at enforcing
participants' adherence to WTO agreements, which are signed by
representatives of member governments and approved by their
parliaments.
 Objective of WTO

 a. To set and enforce rules for international trade,

 b. To provide a forum for negotiating and monitoring
further trade liberalization,
 c. To resolve trade disputes,
 d. To increase the transparency of decision-making
processes,
 e. To cooperate with other major international economic
institutions involved in global economic management,
and
 f. To help developing countries benefit fully from the
global trading system.
 Role of WTO in international business

 WTO facilitates implementation, administration and

smooth operations of trade agreements between the
countries.
 It provides a forum for the trade negotiations
between its member countries.
 Settlements of disputes between the member
countries through the established rules and
regulations.
 It cooperates with the IMF(International Monitory
Fund) and World Bank in terms of making
cohesiveness in making global economic policies.
 BRICS

 BRICS, an acronym for Brazil, Russia, India, China,

and South Africa, is a grouping of major emerging
economies that have gained significant global
attention since its inception in 2001. Formed with
the aim of fostering cooperation, economic growth,
and influence among its member nations, BRICS has
demonstrated both strengths and weaknesses over
the years.
 Pros Of BRICS

 Economic Powerhouse: One of the primary advantages of BRICS is its collective

economic might. Comprising countries with vast populations and abundant
resources, BRICS members collectively contribute a substantial portion of global
GDP. The combined economic clout has allowed these nations to exert influence in
international financial institutions and negotiate more favorable terms in trade
agreements.
 Diversification of Trade: BRICS nations have diversified their trade
relationships by promoting intra-group trade. This has helped reduce dependency
on traditional Western markets and provided opportunities for member nations to
tap into each other's growing consumer bases.
 Political Influence: BRICS has provided a platform for its member countries to
jointly address global issues and push for reforms in international organizations. By
presenting a united front on various global challenges, such as climate change and
poverty, BRICS has enhanced its members' political influence on the global stage.
 Infrastructure and Development: The establishment of the New Development
Bank (NDB) by BRICS members aims to support infrastructure and sustainable
development projects in emerging economies. This initiative can help bridge the
infrastructure gap in these countries, promoting economic growth and stability.
 Cons of BRICS

 Diverse Interests: Despite shared goals, the divergent economic,

political, and social interests of BRICS member nations can hinder cohesive
decision-making. Varying levels of economic development, governance
structures, and political ideologies can lead to disagreements on key issues,
potentially diluting the effectiveness of the group.
 Limited Institutionalization: BRICS lacks a well-defined institutional
framework compared to established organizations like the European
Union. This can lead to challenges in coordinating policies, implementing
joint initiatives, and resolving disputes.
 Inequality Among Members: The economic disparities among BRICS
members can lead to imbalanced benefits from the group's initiatives.
Larger economies like China tend to dominate decision-making, potentially
marginalizing smaller members and hindering equitable distribution of
benefits.
 Geopolitical Tensions: Geopolitical conflicts between BRICS members,
such as border disputes and political rivalries, can undermine the group's
efforts to present a united front. These tensions may hinder effective
cooperation and limit the group's ability to address global challenges.