Module I international business

8/3/2019 Module I international business

1/21

Introduction to IB

International business is defined as any businessactivity or transaction that transcends thenational border.

International business takes different forms likeexporting, licensing, contract manufacturing,foreign assembly, foreign production, jointventuring etc.,

International marketing is an important aspectof international business.


2/21

According to Terpstra and Sarathy, International

marketing is finding out what customers want

around the world and then satisfying these wants

better than other competitors, both domestic and

international

International marketing is defined as marketing in an

internationally competitive environment, no matterwhether the market is domestic or foreign.

Emerging competitive environment and how the

local, national and international firms are facing

competitive can be studied with the help of a figure


3/21

The emerging competitive environment

Competition facing

local/national/internati

onal firms

Local

playersNational

Players

Foreign

players


4/21

Why go international ?

The factors which motivate or provoke firms to gointernational may be broadly divided into twogroups, pull factors and push factors.

The pull factors are proactive reasons

Companies are motivated to internationalizebecause of the attractiveness of the foreignmarket, profitability and growth prospects.

The push factors are reactive reasons,compulsions of the domestic market for eg.,saturation of the market.


5/21

Problems in International marketing

1. Political and legal differences

2. Cultural differences3. Economic differences

4. Differences in the currency unit

5. Differences in the language6. Differences in the marketing infrastructure-

Advtg

7. Trade restrictions

8. High costs of distance

9. Differences in trade practices


6/21

International Orientations

The degree and nature of involvement in internationalbusiness or the orientations of company vary very widely.

The EPRG framework identifies four types of attitudes ororientations towards internationalization that are associated

with successive stages in the evolution of internationaloperations.

1. Ethnocentric orientation (home country orientation)

- overseas operations are viewed as secondary

- overseas marketing is administered by export department- reliance on export agents.

- Extension strategy

-same product in the international market


7/21

2. Polycentric Orientation (host country

orientation)

- Subsidiaries are established in the overseas markets.

- Each of them operates independently with its own

marketing objectives and plans.

- Marketing is characterized by adaptation strategy

- Marketing segmentation based on country basis,

3. Regiocentrism (regional orientation)

- Views different regions as different markets

- A particular region with certain important marketing

characteristics is regarded as a single market, ignoring

the national boundaries


8/21

Geocentric orientation

- views the entire world as a single market and develops

standardized marketing mix, projecting a uniform image of

the company and its products for the global market.

- Global orientation

- Standardization will not be successful in many cases.


9/21

Internationalization Stages

Stages in the evolution of companies

Purely domestic company

Domestic company with some

foreign business (indirect/direct

export, licensing/franchising etc.,

International company

Multinational / Global company

Transnational company


10/21

Globalization

The IMF defines globalization as the growing economic

interdependence of countries worldwide through increasing volume

and variety of cross border transactions in goods and services and

of international capital flows, and also through the more rapid and

widespread diffusion of technology. There are various factors responsible for the momentum to the

forces of globalization

- The sweeping political and economic policy changes in the

communist and socialist countries.

- Shifts in the economic policies

- Privatization in a number of market economies

- Liberalization of trade and investment fostered by the GATT/WTO


11/21

Globalization, is not a new phenomenon.

The period of 187- to 1913 experienced a

growing trend toward globalization

The new phase of globalization started around

the mid 20th century

Globalization is considered at two levels, at

the macro level (globalization of the world

economy) and

The micro level (globalization of the business

and the firm)


12/21

Globalization of world economy

The world economy has been emerging as a global ortransnational economy.

Globalization is a process of development of the worldinto a single integrated economic unit

The transnational economy is a borderless worldeconomy characterized by free flow of trade andfactors of production across national borders.

The transnational economy is different from theinternational economy ( characterized by the existenceof different national economies and the economicrelations are regulated by the national governments)


13/21

Features of the transnational economy

According to Peter Drucker

1. The economy is shaped mainly by money flows rather

than by trade in goods and services.2. Management has emerged as the decisive factors of

production and the traditional factors aresecondary(prodn, land , labour)

3. The goal is market maximization and not profitmaximization

4. The decision making power is shifting from the nationalstate to the region (regional blocs, BRIC, NAFTA etc.,

5. It is organized by information which no longer knows

national boundaries.6. The entire world is a single market for production and

marketing of goods and services.


14/21

Globalization of Business

Globalisation encompasses the following :

1.Doing or planning to expand business globally2. Giving up the distinction between the domestic market and foreign

market and developing a global outlook of the business

3. Irrespective of national considerations, locating the production and

other physical facilities on a consideration f the global business

dynamics.

4. Basing product development and product planning on the global

market considerations

5. Global sourcing of factors of production, raw materials, components

machinery/ technology , finance etc., are obtained form the bestsource anywhere in the world.

6. Global orientation of organizational structure and management

culture.


15/21

For example:

Mazdas sports car,

was designed in California

Had its prototype created in England

Assembled in Michigan and Mexico

Electronic components invested in New Jersey

Fabricated in Japan

Financed from Tokyo and NewYork andmarketed globally


16/21

Stages of Gobalisation

Ohame identifies five different stages in thedevelopment of a firm into a global corporation.

Stage I : Domestic company which moves into new

markets overseas by linking up with local dealersand distributors

Stage II : the company takes over these activities onits own

Stage III : the domestic based company begins tocarry out its own manufacturing, marketing andsales in the key foreign markets.


17/21

Stage IV : R&D and engineering unit is set up.

The headquarters mentality continues to

dominate. Different local operations arelinked their relation to each other is

established by their relation to the centre

Stage V : the company moves toward agenuinely global mode of operation, global

localization,


18/21

Essential conditions for globalization

There are some essential conditions to be satisfied on thepart of the domestic economy as well as the firm for

successful globalization of the business.1. Business freedom : there should not be unnecessary

government intervention, import restriction,restrictions on sourcing finances, foreign investments

etc.,2. Facilities : infrastructural facilities

3. Government support : policy and procedural reforms,R&D support, financial market reforms etc.,

4. Resources : It is one of the important factor whichdecides the ability of a firm to globalize. It includes,finance, technology, company and brand image,human resources etc.,


19/21

Competitiveness: A firm may derive

competitive advantage from any one or more

of the factors, low costs, price, productquality, product differentiation, technological

superiority, after sales service, marketing

strength etc., Orientation : A global orientation on the part

of the business firms and suitable

globalization strategies are essential forglobalization


20/21

Factors determining competitive advantage of nations

Demand

conditions

Factor conditions

Related andsupporting

industries

Firm strategy

structure and

rivalry

Chance

Government


21/21

Benefits of Globalization

- it can make a substantial contribution to theeconomic development of the nation.

- Standard of living will grow up faster

-Increase in competition would make companies morecost and quality conscious and innovative

- Inflation is less likely to derail economic growth- Liberalization and global competition enhanceconsumer choice and consumer surplus.

- Globalization opens up enormous domestic and

global opportunities for firms in developing countries.- Unfettered capital flows give the country access toforeign investment and keep interest rates low.

Documents

Module I international business