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International Financial Management

Why do nations trade?What is the basis of such trade?What are the benefits/gains derived from such trade?Is there any pattern of such trade?What should the nation import and export?

2

International trade

“International trade consists of transactions between residents of different countries.”

-Wasserman and Haltman

“ Regions and nations specialize and trade with each other for the same reason that individuals specialize and trade. Some are better fitted by temperament for one work rather than another; one is a better gardener, the other better teacher, while the third proves an excellent doctor. The gardener would prove a poor doctor and so on. Thus the gain from specialization is clear.”

-Bertil Omlin

3

Why go International?

Pull factors Proactive reasons Push factors Reactive reasons

1). Profit Advantage

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2). Growth opportunities.

3). Domestic market constraints.

4). Competition.

5). Government policies and regulations.

6). Monopoly power.

“Exclusive market information is another proactive stimulus.”

-- Czinkota and Ronkainen

7). Spin-off benefit ‘white-skin advantage’- Mr. B.K Khaitan.

8). Strategic vision.

5

International Orientations

The degree and nature of involvement in international business i.e. , international orientation of companies vary widely.EPRG Framework provided by Wind, Douglas and Perlmutter.Identifies four types of attitudes or orientation towards internationalization.

1). Ethnocentrism Home country orientation.2). Polycentrism Host country orientation.3). Regiocentrism Regional orientation.4). Geocentrism World orientation.

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Factors affecting EPRG

Size of the firm. Experience gained in a given market. Size of the potential market. Type of the product. Cultural dependence.

7

Internationalization stages.

1). Domestic company: “ A purely domestic company operates domestically because it never considers the alternative of going international. The growing stage-one company, when it reaches growth limits in its primary market, diversifies into new market, products and technology instead of focusing on penetrating international market.”

-- Warren J. Keegan.2). International company:3). Multinational company: “In multi-national companies, each

foreign subsidiary is managed as if it were an independent city state. The subsidiaries are part of an area structure in which each country is part of a regional organization that reports to world headquarters.”

-- Keegan.

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4). Global / transnational company

Purely Domestic Company

Primarily Domestic company with some foreign business (indirect / direct export, licensing,

franchising. etc.)

International Company

Multinational Company

Global / Transnational Company

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International Business Decisions

International Business

Decisions

International Business

Decisions

Market selection Decisions

Market selection Decisions

Entry and Operating decisions

Entry and Operating decisions

Marketing MixDecisions

Marketing MixDecisions

Marketing Organization

Decision

Marketing Organization

Decision

Company objectives

Market Potential

Company resources

Environmental Factors

Promotion

Distribution

Product

Price

1). International Business Decisions.

2). Market Selection Decisions

3). Entry and Operating Decisions.

4). Marketing Mix Decisions.

5). International Organization Decisions.

Case 1. The Cola Impact