Chapter Six:

International Business
 Definition of International Business

 All business activities across national

boundaries is called International
Business.
 Every nation in the world participates in
international business to some extent.
 Both Large Companies ( Coca-cola, IBM
etc) and Small Companies conduct
business internationally.
 Absolute Advantage - when a country
can produce a product more efficiently than
any other nation.

 Comparative Advantage – when a

country can produce one product more
efficiently and at a lower cost than other
products, in comparison to other nations.
 Important Concepts of IB
Exporting and Importing
 Exporting– Selling domestic-made goods in another

country
 Importing– Purchasing goods made in another

country
Balance of Trade
 The difference (in monetary terms i.e. TK, $) between

the amount a country exports and imports

 Trade Surplus– A nation that exports more than it

imports maintains a favorable balance of trade

 Trade Deficit– A nation that imports more than it

exports has an unfavorable balance of trade

 Important Concepts of IB
Balance of Payments
 The total flow of money into and out of a country

 It is determined by a country’s balance of trade,

foreign aid, foreign investments, military spending and

money spent by tourists in other countries 
 Favorable balance of payment – inflow > outflow

 Unfavorable balance of payment – outflow > inflow

 Important Concepts of IB
Exchange Rates
 The rate at which one country’s currency can be exchanged for
that of another country
 Devaluation– Reducing the value of a nation’s currency in
relation to currencies of other nations (the cost of Bangladeshi
goods in foreign countries would decrease)

 Revaluation– Increasing the value of a country’s currency in

relating to that of other countries (the cost of Bangladeshi
goods would increase in foreign countries)

 Fixed Exchange Rate – An unvarying exchange rate set by

government policy

 Floating Exchange Rate – An exchange rate that fluctuates

with market conditions
Barriers to International Business

Cultural and Social Barriers

 Culture consists of a country’s general concepts

and values and tangible items such as food,

clothing and buildings
 Social Forces include family, education, religion

and customs
Political Barriers
 Political climate of a country have major impact

on international business
Barriers to International Business
Tariffs and trade restrictions
 Import tariffs– A duty or tax, levied against

goods brought into a country (can be used to

discourage foreign competitors)
 Quotas– A limit on the amount of product that

can leave or enter a country

 Embargoes– A total ban on certain imports

and exports
 Exchange controls – restrictions on the

amount of a certain currency that can be

bought or sold in a nation
Approaches to International Business
 Exporting– Selling domestic goods to a foreign
country (requires lowest level of resources and
commitment)
 
 Licensing– An agreement in which one firm
(licensor) allows another firm (licensee) to sell its
product and use its brand name in return for a
commission or royalty.], Manufacturing Goods.
 Franchise-An agreement in which one firm (licensor)
allows another firm (licensee) to sell its product and
use its brand name in return for a commission or
royalty.], Service.
 Approaches to International Business

 Joint Ventures– A partnership between a domestic

firm and a firm in a foreign country
 
 Trading Companies– A firm that buys products in
one country and sells in another without being
involved in manufacturing
 Counter trading– Bartering agreements between
two or more countries
 Direct Ownership– The purchase of one or more
business operations in a foreign country
 Multinational Corporations– A firm that operates
on a global basis, committing assets to operations or
subsidiaries in foreign countries
Adapting To New Market
Because of differences from country to
country, a firm engage in international
trade must generally adapt to foreign
markets.
 Product
 Price
 Distribution
 Promotion
1. Product

 Same product may be sold in foreign

market.
 Usually product have to be altered to
meet conditions in a foreign market.
 Develop new product if can’t modify
existing product. Though it is costly to
adapt but it may provide a large payoff.
2. Price

 Usually different in foreign and

domestic market. Normally in foreign
market it is high.
 Because of cost of foreign trade, such
as taxes, tariff, and transportation etc.
Price…..

 In some instances, firms internationally

establish lower prices in foreign market.
 Dumping: The practice of selling
products in a foreign country at a lower
price than that in the country of origin.
3. Distribution

 Providing Products in foreign nations

often present challenges and problems.
 Existing Transportation systems, Stores,
Suppliers.
 If not available in the foreign country
the firm must develop themselves the
ways.
4. Promotion
 Uniform promotion, say advertising
and /or publicity, enable firms to gain
recognition through the world.
 Promotion must be modified because
language, laws, and culture different
from different.
Regulation of International Business

 GATT– The General Agreement on Tariffs and

Trade (GATT) was first signed in 1947. The
agreement was designed to provide an
international forum that encouraged free trade
between member states by regulating and
reducing tariffs on traded goods and by
providing a common mechanism for resolving
trade disputes. GATT membership now includes
more than 110 countries.
 EC– Economic Communities (founded in 1957
to reduce trade barriers among members )-
An organisation that facilitates the movement
of products among member nations through
the creation of common economic policies.
 highest possible degree of economic
cooperation, mutual assistance and joint
planning, consistent with socio-economic,
environmental and political realities.
-EFTA ( European Free Trade Association)
-NAFTA ( North American Free Trade
Association)
-SAFTA( South Asian Free Trade Association)
Regulation of International
Business….
 OPEC– Organization of Petroleum Exporting
Countries
(established in1960 to provide oil-producing
nations control over prices and reduce the
oversupply of oil)
Organization of Petroleum Exporting Countries
(OPEC) members include  Algeria, Indonesia,
Iran, Iraq, Kuwait, Libya, Nigeria, Qatar,
Saudi Arabia, the United Arab Emirates, and
Venezuela.
 The Organization of Petroleum Exporting
Countries (OPEC) was founded in Baghdad, Iraq,
in September 1960, to unify and coordinate
members' petroleum policies. OPEC members'
national oil ministers meet regularly to discuss
prices and, since 1982, to set crude oil production
quotas.
 Original OPEC members include Iran, Iraq,
Kuwait, Saudi Arabia, and Venezuela. Between
1960 and 1975,
 the organization expanded to include Qatar
(1961), Indonesia (1962), Libya (1962), the
United Arab Emirates (1967), Algeria (1969), and
Nigeria (1971).
 Ecuador and Gabon were members of
OPEC, but Ecuador withdrew in
December 1992, and Gabon followed
suit in January 1995. Although Iraq
remains a member of OPEC, Iraqi
production has not been a part of any
OPEC quota agreements since March
1998.
 EIA estimates that the current eleven
OPEC members account for about 40%
of world oil production, and about 2/3
of the world's proven oil reserves.
 IMF– International Monetary Fund
(founded in 1944 ).
The IMF is an international organization
of 184 member countries. It was
established to promote international
monetary cooperation, exchange
stability, and orderly exchange
arrangements; to foster economic
growth and high levels of employment;
and to provide temporary financial
assistance to countries to help ease
balance of payments adjustment.
 Since the IMF was established its
purposes have remained unchanged but
its operations—which involve
surveillance, financial assistance, and
technical assistance—have developed to
meet the changing needs of its member
countries in an evolving world economy.
 WB – World Bank

 (founded in 1946 to lend money to

underdeveloped and developing countries for a
variety of projects)
 The World Bank is a vital source of financial
and technical assistance to developing
countries around the world.
 They are not a bank in the common sense.
They are made up of two unique development
institutions owned by 184 member countries—
the International Bank for Reconstruction and
Development (IBRD) and the International
Development Association (IDA).
 Each institution plays a different but
supportive role in the mission of global
poverty reduction and the improvement
of living standards.
 The IBRD focuses on middle income
and creditworthy poor countries, while
IDA focuses on the poorest countries in
the world. Together they provide low-
interest loans, interest-free credit and
grants to developing countries for
education, health, infrastructure,
communications and many other
purposes.
ADB – Asian Development Bank
 The Asian Development Bank (ADB)'s work is aimed at
improving the welfare of the people in Asia and the Pacific,
particularly of the 1.9 billion who live on less than $2 a day.
Despite many success stories, Asia and the Pacific remains
home to two thirds of the world's poor.

 ADB is a multilateral development financial institution owned by

64 members, 46 from the region and 18 from other parts of the
globe.

 ADB's vision is a region free of poverty. Its mission is to help its

developing member countries reduce poverty and improve the
quality of life of their citizens.
 ADB's main instruments for providing
help to its developing member countries
are
 policy dialogues
 loans
 technical assistance
 grants
 guarantees
 equity investments.