LESSON 3: INTERNATIONAL BUSINESS

OPERATIONS
I. FACTORS TO CONSIDER IN INTERNATIONAL OPERATIONS
Geographical Factors
a. The climate, terrain, seaports, and natural resources of a country influence business
activities.
b. Very hot weather limits the types of crops that can be grown. It also restricts the types
of businesses that can operate in that climate.
c. A hot, sunny climate is critical for growing tropical fruit, but not suitable for a ski resort.
d. Mountainous terrain offers opportunities for mining but limits the amount of land
available for crops.
e. A nation with many rivers or seaports is able to easily ship products for foreign trade.
f. Countries with few natural resources must depend on imports.
Cultural and Social Factors
Cultural and Social - In some societies, hugging is an appropriate business greeting. In
other societies, a handshake is the custom. These differences represent different cultures.
- Culture is the accepted behaviors, customs, and values of a society. A society's culture
has a strong influence on business activities. For example, in Spain and parts of Latin
America, businesses traditionally were closed for several hours in the middle of the day
for a long lunch or a period of rest.
- The main cultural and social factors that affect international business are language,
education, religion, values, customs, and social relationships. These relationships include
interactions among families, labor unions, and other organizations.
Political and Legal Factors
- Political and Legal Factors Each day, we encounter examples of government influence on
business.
- Regulation of fair advertising, enforcement of contracts, and safety inspections of foods
and medications are a few examples.
- In general, however, people in the United States have a great deal of freedom when it
comes to business activities.
- However, not all countries are like the United States. In many places, government
restricts the activities of consumers and business operators.
 - The most common political and legal factors that affect international business activities
include the type of government, the stability of the government, and government
policies toward business.
Economic Conditions
- Economic Conditions Everyone faces the problem of limited resources to satisfy
numerous needs and wants.
- This basic economic problem is present for all of us. We continually make decisions
about the use of our time, money, and energy..
- Similarly, every country plans the use of its land, natural resources, workers, and wealth
to best serve the needs of its people
Factors that influence the economic situation of a country include the type of economic system,
the availability of natural resources, and the general education level of the country's population.
Other economic factors include the types of industries and jobs in the country and the stability
of the country s money supply. Available technology for producing and distributing goods and
services also influences a nation's economic situation.
II. THE NATURE AND SCOPE OF INTERNATIONAL BUSINESS
Business perspective (as opposed to functional view like marketing, financing,
management etc) grounded in global environment. To be realistic, it involves the broadest and
most generalized study of the field of business, adapted to a fairly unique across the border
environment. Many conditions and environmental variables that are significant in internal
business (such as foreign legal System, foreign exchange markets, inflationary trends, and
cultural differences) are mostly irrelevant to domestic business. However, global integration in
trade, investment, factor, technology and communication has been in practice for economies
together. International business can well be broken down into foreign trade, trade in services,
portfolio investment and direct investments (FDIS).
The fundamental and the largest international business activity in many countries is the
foreign trade comprising exports and imports. Physical goods / commodities or merchandise
leave the country in export. Imports are those goods brought across the national borders into a
country. The international firms also trade in services banking, insurance, consulting, travel and
transportation etc. earn in the form of feel or royalties. The fees are earned through short or
long term contractual agreements such as consultancy or management contracts or turn key
projects. Royalties are received from the use of one company‘s name, trademark, patent or
process by someone else.
Alternatively, a firm can earn royalties from abroad by licensing the use of its technology
information, Franchise in overseas markets. Portfolio investments are financial investments
made in foreign countries. The investor purchases debt or equity in the expectation of financial
return on the investment. Foreign direct investment or direct investment is one in which
investor is given collecting interest in foreign company. FDI maybe in the form of a joint venture
or a wholly owned subsidiary – joint venture is a shared ownership stake with equal share in a
foreign business. Indian joint ventures abroad are operated in more than 868 projects /
enterprises. A wholly owned subsidiary can be established in foreign markets either in the form
of totally new operation or acquisition of an established firm and use the firm to promote its
products. The subsidiary, if it is established starting from the ground up is called a Greenfield
investment. However, there needs to be the perspective of the international business. That is,
the firm‘s senior management should clearly define the firm‘s guiding principles in terms of
international mandate rather than to allow firm‘s international activities to develop as an
incidental or adjunct to its domestic activities. This would help to focus the attention of mangers
on the opportunities and threats external to domestic economy.
1. Sell in those global markets when prices are highest.
2. Reuse finances globally.
3. Forge international strategic alliances.
4. Take on the best talent from all over the world. You will have achieved the stature of a
true MNC

CASE:
Madagascar‘s reform program dates back to the elaboration of Madagascar Naturally,
Madagascar‘s vision on how to achieve the Millennium Development Goals, which was formally
unveiled in November 2004. To realize that vision, the Madagascar Action Plan (MAP) was
subsequently drawn up. One of its commitments is for the economy to achieve a growth rate of
between 7% and 10% by 2012. The document places a strong emphasis on the role of the
private sector in spurring and sustaining economic growth and identifies international trade
competitiveness as a key challenge to be addressed. Since the reform program was adopted,
Madagascar‘s full integration into the Common Market for Eastern and Southern Africa
(COMESA)‘s free trade framework in 2005, and into that of the Southern African Development
Community (SADC) in 2007, has created a new sense of urgency. ―It simply isn‘t possible to
continue our old ways. We have to catch up with our competitors in the region,‖ says Patrick
Ravaoarisoa, Director of the Bureau of Standards. A private sector respondent offers a more
somber analysis: ―Free trade has come too early for Madagascar—prepare for large-scale
disappearance of economic operators in the country.‖ Globalization and regional integration
were catching up with Malagasy reality—it was reform or demise. From the time the reform was
conceived until full implementation, the reform took less than two years. This is a considerably
shorter time than comparable reforms in other countries. How was this result achieved? Part of
the reason has to do with the fact that SGS had acquired experience from other countries, such
as Ghana and Côte d‘Ivoire in implementing similar projects. ―SGS have been a very competent
technical partner,‖ says Vola-Razafindramiandra. ―But the speed with which we implemented
the reform is also thanks to the fact that we had a clear idea of where we were going. Reforms
are never just a question of introducing information technology, you have to have a clear
strategy if things are to work out,‖ he adds. Another critical factor in the success of the reform
was the incentives provided to customs employees under the new system. Gasynet user fees
amount to 0.50% of the CIF value of goods and parts of this amount is paid to Customs and
distributed among customs inspectors. ―Before the reform, there was a problem with staff
assignments. Certain customs posts were more attractive than others due to the amount of
money an inspector could earn under the table. Now, everyone earns a similar amount no
matter where they are located, provided that their performance is satisfactory.‖ If it isn‘t,
supervisors retain the discretion of taking away this performance incentive. ―We are the only
country in the world to have adopted this exact arrangement,‖ says Vola-Razafindramiandra.
―It has greatly improved discipline within the customs service and strengthened management‘s
authority.

ASSESSMENTS:
1. What are the four parts of the international business environment?
2. What cultural factors affect international business activities?
3. Name four factors that influence a country‘s economic conditions.
4. What skills are important for success in an international business