International Business: An introductory note

Sumit Mitra

This subject of international business refers to doing business across country

borders and therefore to all issues of such business that confront managers of
firms or corporations operating internationally. Simply speaking, it refers to
survival of business in a more competitive, diverse and dynamic environment
than often found in domestic business.
As a subject involving business competition from across sovereign national
borders, there is considerable role for national government and its policy
makers in setting terms of international trade including import and export tariff
structures, conditions of operation of firms in foreign soil, exchange rates and
other terms of trade. Such issues can extend much beyond and refer to
government regulations on immigration and foreign labour. From an issues
approach International Business focuses on a range of topics from National
Economic Development to Cross-Cultural Management.
With the rise of globalization1 of business operating across national boundaries,
a need arose to create trans-national institutions and governing bodies that had
the authority and jurisdiction of following business across national boundaries
and administer them centrally at a global level. Beginning with Bretton Woods
towards the end of World War-II, these trans-national institutions include the
World Bank, IMF, UN that had both political and commercial interests, the most
recent and purely trade related body, the WTO highlight the increasing role of
trade and investment by firms across national borders. In the face of
globalization, countries in a region, thinking they possessed greater degree of
similarity and hence control on business tried to co-operate with one another
by creating trading blocks. Some of the big ones being NAFTA, EU, MERCOSUR,
ASEAN, and SAARC allowing for trade within and across blocks.
As the changing role of governing institutions above indicate, the deep divide
political ideology of the past between communist or Warsaw Pact countries
1

Globalization refers to the process by which more people across large distances become connected in more
and different ways.(Lechner and Boli in The Globalization Reader(4th Ed.) 2012).

Sumit Mitra, Associate Professor, IIMK, smitra@iimk.ac.in

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and the capitalist NATO allies has been increasingly replaced by a more trade
related economic divide between rich and poor or developed and developing
nations commonly referred to those of the north and south respectively.
Beginning with the availability of raw material and cheap labour in many of the
developing nations together with a large middle-class market, these nations
have been important locations for firms from developed countries to locate
their production as also markets. Such newly developed business models have
thrown up challenges for these multinational firms to decide, on how much of
commonality of features to maintain in their products across nations and how
much to customize them to the local needs of specific markets; Each of these
challenges to business being potential sources of cost as also competitive
advantage. New value chain activities like Outsourcing, Offshoring emanate
from such developments.
A large part of the globalization of business has been driven by developments in
communications technology like IT and the web besides developments in
physical transportation and logistics. The dollar has emerged as the
international exchange currency linking international financial markets allowing
movement of currency and making FDI/FII2 possible. The needs and wants of
customers have become increasingly uniform across regions under what
Theodore Leavitt called the McDonalization of demands. Therefore today with
reduced product life cycle of electronic products like Apple i-Phones, they need
to be launched in as many markets as possible so as to not only capture market
share but also recover cost of development before a new generation of
technology appears on the scene.
However in running their far flung businesses in many continents with widely
differing socio-cultural characteristics, Multinational Corporations have
challenges of designing their organization structures including reporting
relationship, location of R&D, human resource management. To overcome
spiralling costs, many MNCs collaborate across the globe to share R&D and
production costs. But does this benefit all equally?

FDIFII: Foreign Direct Investment/Foreign Indirect Investment

Sumit Mitra, Associate Professor, IIMK, smitra@iimk.ac.in

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Globalization has never been debated so hotly as now when the global economy
has slowed down. A number of times, as seen before, slowdown in one part of
the global economy threatened the other parts- be that the Latin American
Currency crises or the Asian crises or lately the European and Greek problems
as also the recession in US. This has led to widespread discontent and protests,
often violent, when jobs have moved out of developed countries to developing
nations that have lower labour costs while being closer to the markets. In the
new scenario, China can dictate terms as the manufacturing factory of the world
and sitting on large amounts of foreign currency while maintaining an artificially
low exchange rate of its Yuan/ Renminbi against the dollar3 to gain favourable
export terms for it.
Historically internationalization of business can be traced to before Christ (BCE)
when the land silk route between China and Europe carried through the Asia
Minor and Egypt. Beginning from this time the European centre for such trade
was Venice (famous as the Venetian traders). This continued till the other
European nations like England and Holland (the Dutch) used improved sea going
vessels, cannons using gun powder on these ships to discover a sea route around
Africa to China via India. This led to the creation of mercantile companies, the
most famous being the British East India Company. Trading as a monopoly in the
East Indies/India, under a charter from the British crown, the company used
bullion (silver and gold) to trade in Indian cotton/muslin, spices and saltpetre
(for gunpowder) besides tea, silk and porcelain from China. With publicly traded
stock in the British stock market and a rotating board of governors, the British
East India Company may well be looked at as the first Multinational Corporation.
Riding on the back of colonialism comes the first modern multinationals like
Unilever and Philips followed by those from the US like Procter and Gamble,
Caterpillar and Coke post WW-II. The next wave was the Japanese and Korean
multinationals like Matsushita, Toyota, Hyundai and Samsung. Finally now we
see the emergence of multinationals from emerging economies like Haier from
China, Tata Corus from India and CEMEX of Mexico. Primary benefits of
internationalization was to producers who had access to raw material and cheap
labour as also to consumers who had access to the best products of the world in
their local markets. However what it did to increasing the gap between the rich
3

One Chinese Yuan (CNY) = 0.157011 US$ (as on 03/05/2012)

Sumit Mitra, Associate Professor, IIMK, smitra@iimk.ac.in

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and the poor either at national or social levels beginning with the trade policy of
beggar thy neighbour is debateable.
Globalization has its pitfalls as well; besides economic crises spreading as
contagion across the world, even such curses as AIDS and Avian Flu spread due
to globalization. Popularizing genetically modified streams of seeds has seen
many countries lose their natural and indigenous strains of seeds that had
specific disease and drought resistant characteristics. Greece ran into problems,
some say, when the German and French bail outs saw increasing sale of BMW
cars and imported high speed trains using the same borrowed funds. Also as
George Soros, the most unlikely of international fund owners observed we
actually narrow the space for moral judgement and undermine public
moralityGlobalization has increased this aberration, because it has actually
reduced the power of individual states to determine their destiny4. Finally
American sociologist William I. Robinsons Globalization: Nine Theses on Our
Epoch5 may be interesting:
The process is the replacement for the first time in the history of the
modern world system, of all residual pre or non-capitalist production
relations with capitalist ones in every part of the globe.
A new social structure of accumulation is emerging, which, for the first
time in history, is global.
o The structure has as the agent of the global economy transnational capital, organized institutionally in global corporations and
in supra-national economic planning agencies (like IMF)
o The economic component is hyper-liberalism seeking to achieve
the conditions for the total mobility and unfettered worldwide
activity of capital. No state regulation be put on trans-national
capital.
o The cultural/ ideological component is consumerism and cut-throat
individualism
The brave new world of global capitalism is profoundly anti-democratic.
400 MNCs own two-thirds of planets fixed assets and control 70% of
world trade.
4
5

Quoted in Timothy OBrien, Hes seen the enemy: It looks like him, New York Times, December 6, 1998.
William I Robinson, Globalization: Nine Theses on Our Epoch. Race & Class, 38(2), 1996, pp13-31.

Sumit Mitra, Associate Professor, IIMK, smitra@iimk.ac.in

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 Poverty amidst plenty refers to drastic growth under globalization of

socio-economic inequality.
Deep and interwoven racial, ethnic and gender dimensions to escalating
global poverty and inequality
Deep contradictions in emergent world society that makes uncertain the
very survival of our species and portends prolonged global social conflict.
END.

Sumit Mitra, Associate Professor, IIMK, smitra@iimk.ac.in

Copyright: Sumit Mitra

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