Unit-1

International Business
Meaning:
International Business conducts business transactions all over the world.
In simple, carrying on business activities across national boundaries. It refers to all
business activities which involve cross border transactions of goods, services, resources
between two or more nations.
Objectives of International Business
1. Sales expansion
Company‘s sales depend on the consumers for two reasons:interest in the product & their
ability to purchase the product. The number of people and the amount of their purchasing
power are higher for the world as a whole than for a single country, so companies may
increase their sales by reaching international business.
2. To achieve higher profits:
The basic objective of business is to achieve profits. When the domestic markets do not
promise a higher rate of profits, business firms search for foreign markets that hold promise
for higher rate of profits.
3. Resource acquisition
Manufacturers and distributors also look for products, services and components produced
in foreign countries. They also peep for foreign capital, technologies, and information that
they can use at home country. Sometimes, they do this to reduce their costs
4. Minimize competitive risk
To minimize swings in sales and profits, company may search for foreign markets to take
advantage of recessions and expansions. Sales decrease in a country that is in a recession
and increase in such a country that is expanding economically. By obtaining supplies of the
same product or component from different countries, companies may be able to avoid the
full impact of price fluctuations in any one country.
5. Diversification
Many companies enter into international business to counter advantages competitors might
gain in foreign markets that could hurt them domestically.

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 6. Availability of technology;
Availability of advanced technology and competent human resources in some countries act
as pulling factors for business firms from the home country.
Features/Nature/Characteristics of International business

1. Large scale operations:

In international business, all the operations are conducted on a very huge scale.
Production and marketing activities are conducted on a large scale. It first sells its goods in
the local market. Then the surplus goods are exported.
2. Integration of economies:
International business integrates (combines) the economies of many countries. This
is because it uses finance from one country, labour from another country, and infrastructure
from another country.
3. Dominated by developed countries and MNCs :
International business is dominated by developed countries and their multinational
corporations (MNCs). This is because they have large financial and other resources. They
also have the best technology and research and development. This helps them to capture
and dominate the world market.
4. Benefits to participating countries:
International business gives benefits to all participating countries. However, the
developed (rich) countries get the maximum benefits. The developing (poor) countries also

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get benefits. They get foreign capital and technology. They get rapid industrial development.
They get more employment opportunities.
5. Keen competition:
International business has to face keen (too much) competition in the world market.
The competition is between unequal partners i.e. developed and developing countries. So,
developing countries find it very difficult to face competition from developed countries as
they produce superior quality goods and services at very low prices.
6. Special role of science and technology:
International business gives a lot of importance to science and technology. Science
and Technology (S & T) help the business to have large-scale production. Developed
countries use high technologies. Therefore, they dominate global business.
7. International restrictions:
International business faces many restrictions on the inflow and outflow of capital,
technology and goods. Many governments do not allow international businesses to enter
their countries. They have many trade blocks, tariff barriers, foreign exchange restrictions,
etc.
8. Sensitive nature:
The international business is very sensitive in nature. Any changes in the economic
policies, technology, political environment, etc. have a huge impact on it.
Need/Importance of International business

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  To increase market share

 Availability of technology
 Cost of manpower, transportation & communication
1. Earn foreign exchange :
International business exports its goods and services all over the world. This helps to
earn valuable foreign exchange. Foreign exchange helps to make the business more
profitable and to strengthen the economy of its country.
2. Optimum utilization of resources :
International business makes optimum utilization of resources. This is because it
produces goods on a very large scale for the international market. International business
utilizes resources from all over the world.
3. Achieve its objectives :
International business achieves its objectives easily and quickly. The main objective of
an international business is to earn high profits. This objective is achieved easily. This it
because it uses the best technology, best employees & produces high-quality goods.
4. To spread business risks :
International business spreads its business risk. This is because it does business all over
the world. So, a loss in one country can be balanced by a profit in another country. The
surplus goods in one country can be exported to another country.
5. Improve organization’s efficiency :
International business has very high organization efficiency. This is because without
efficiency, they will not be able to face the competition in the international market. So, they
use all the modern management techniques to improve their efficiency.
6. Get benefits from Government :
International business brings a lot of foreign exchange for the country. Therefore, it
gets many benefits, facilities and concessions from the government. It gets many financial
and tax benefits from the government.
7. Expand and diversify :

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 International business can expand and diversify its activities. This is because it earns
very high profits. It also gets financial help from the government.
8. Increase competitive capacity :
International business produces high-quality goods at low cost. It spends a lot of money
on advertising all over the world. It uses superior technology, management techniques,
marketing techniques, etc. All this makes it more competitive. So, it can fight competition
from foreign companies.
Causes /Reasons to International Business or Y firms go International?

Pull & Push factors

Other Important Reasons are,
1. Profit Motive
3. Sales expansion
5. Competition
7. Spin off benefits
9. Standard of living
2. Growth opportunities
4. Domestic Market Constraints
6. Government policies & regulations
8. Strategic vision
10. Survival

1. Pull Factor:
The pull factors, most of which are proactive reasons are those forces of attraction, which
pulls the business to the foreign markets. In other words, companies are motivated to
internationalize because of the attractiveness of the foreign market.
.2. Push Factor:
The push factor refers to the compulsion of the domestic market, which prompt companies
to internationalize. Most of the push factors are reactive in nature.
Other Important Reasons are,
1. Profit Advantage:
An important incentive for international business is the profit advantage.
International business could be more profitable than the domestic. There are several cases
where more than 100% of the total profit of the company is made in the foreign markets.

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2. Growth Opportunities:
The enormous growth potential of many foreign markets is very strong attraction for
companies. In number of developing countries, both the population and income are growing
very fast. This shows that there will be more growth more opportunities
3. Sales expansion
Company‘s sales depend on the consumers for two reasons: Interest in the product &
their ability to purchase the product. The number of people and the amount of their
purchasing power are higher for the world as a whole than for a single country, so
companies may increase their sales by reaching international business.
4. Domestic Market Constraints:
Domestic demand constraints drive many companies to expanding the market beyond
the national border. The market for number of products has tended to saturate or decline in
the advanced countries. This often happens when the market potential has been almost
tapped. Another type of domestic market constraints arises from the scale of economies.
5. Competition:
Competition may become a driving force behind internationalization. A product market
does not normally motivate companies to seek business outside the home market. This
drain can result in lost opportunities, reduced income, and limited production, impairing
the competitor‘s ability to make overseas thrust.
6. Government Policies and Regulations:
Government policies and regulations may also motivate internationalization. There
are both positive and negative factors, which could cause internationalization. Many
government give a number of incentives and other positive support to domestic companies
to export and to invest in foreign countries. Similarly several countries give a lot of
importance to import development and foreign investment.
7. Spin-off Benefit:
International business has certain spin-off benefit too. International business may help
the company to improve its domestic business; international business helps improve the
image of the company. Foreign exchange earnings may enable a company to imports capital

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goods, technology etc. Another attraction of exports is the economic incentives offered by
the government.
8. Strategic Vision:
The systematic and growing internationalization of many companies is essentially a
part of their business policy or strategic management. The stimulus for internationalization
comes from the urge to grow, the need to become competitive, the need to diversify and to
gain the strategic advantages of internationalization.
9. Standard of living:
Trade affords countries and their citizen‘s higher standards of living than other wise
possible. Trade also makes it easier for industries to specialize and gain access to raw materials,
while at the same time fostering competition and efficiency.
10. Survival:
Because most of the countries are not as fortunate as the United States in terms of
market size, resources, and opportunities, they must trade with others to survive

Advantages of International Business

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 Interactive Traditional Village
1. High standard of living:
Customers in various countries can buy more products with the same amount of money. In
turn, it can also enhance the living standards of the people through enhanced purchasing
power and by consuming high quality products
2. Wider Market:
International business widens the market and increases the market size. Therefore, the
companies need not depend on the demand for the product in a single country or customer‘s
tastes and preferences of a single country
3. Reduced Effects of Business Cycles:
The stages of business cycles vary from country to country. Therefore, MNCs shift from the
country experiencing a recession to the country experiencing ‗boom‘ conditions. This
enables international firms to escape recessionary conditions.
4. Reduced Risks:
Both commercial and political risks are reduced for the companies engaged in international
business due to spread in different countries.
5. Large-scale Economies:
Multinational companies due to wider and larger markets produce larger quantities, which
provide the benefits of large-scale economies like reduced cost of production, availability of
expertise, quality etc.
6. Provide the opportunity & challenge to domestic business
International Business firms provide opportunities to the domestic companies. These
opportunities include technology, management expertise, market intelligence, product
developments etc.
7. Potential Untapped Markets:
International business provides the chance of exploring and exploiting the potential
markets which are untapped so far. These markets provide the opportunity of selling the
product at a higher price than in domestic markets. For example Bata sells shoes in the UK
at £ 100 (Around Rs. 8000) whose price is around Rs. 1200 in India.

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 8. Division of labour & specialization
International business leads to division of labour and specialization. For example Brazil
specializes in coffee, Kenya in tea, Japan in automobiles and electronics, India in textile
garments etc.
9. Economic growth of the world
Specialization, division of labour, enhancement of productivity, posing challenges,
development to meet them, innovations and creations to meet the competition lead to
overall economic growth of the world nations.
10. Optimum utilization of resources
International business provides for the flow of raw materials, natural resources and human
resources from the countries where they are in excess supply to those countries where they
are in short supply or need most.
11. Cultural Transformation:
International business benefits are not purely economical or commercial, they are even
social and cultural. These days, we observe that the West is slowly tending towards the East
and vice-versa. It does mean that the good cultural factors and values of the East are
acquired by the West and vice-versa. Thus there is a close cultural transformation and
integration.
12. Increased Socio-Economic Welfare:
International business enhances consumption level, and economic welfare of the people of
the trading countries. For example the people of China are now enjoying a variety of
products of various countries like Coca-Cola, McDonald‘s range of products, electronic
products of Japan and coffee from Brazil. Thus the Chinese consumption levels and socio-
economic welfare has enhanced.
13. Interactive Traditional Village:
International business ultimately knits the global economies, societies and countries into a
closely interactive traditional village where one is for all and all are for one.

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  Adverse effects on economy:
One country affects the economy of another country through international business.
Moreover, large-scale exports discourage the industrial development of importing country.
Consequently, the economy of the importing country suffers.
 Competition with developed countries:
Developing countries are unable to compete with developed countries. It hampers the
growth and development of developing countries, unless international business is
controlled.

 Rivalry among nations:

Intense competition and eagerness to export more commodities may lead rivalry among
nations. As a consequence, international peace may be hampered.
 Colonization:
Sometimes, the importing country is reduced to a colony due to economic and political
dependence and industrial backwardness.
 Exploitation:

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International business leads to exploitation of developing countries the developed countries.
The prosperous and dominant countries regulate the economy poor nations.
 Legal problems:
Varied laws regulations and customs formalities followed different countries, have a direct b
earring on their export and import trade.
 Publicity of undesirable fashions:
Cultural values and heritages are not identical in all the countries. There are many aspects,
which may not be suitable for our atmosphere, culture, tradition, etc. This, indecency is
often found to be created in the name of cultural exchange.
 Language problems:
Different languages in different countries create barriers to establish trade relations
between various countries.
 Dumping policy:
Developed countries often sell their products to developing countries below the cost of
production. As a result, industries in developing countries of the close down.
 Complicated technical procedure:
International business in highly technical and it has complicated procedure. It involves
various uses of important documents. It required expert services to cope with complicate
procedures at different stages.

 Shortage of goods in the exporting country:

Sometimes, traders prefer to sell their goods to other countries instate of in their own
country in order to earn more profits. This results in the shortage of goods within the home
country.

 Adverse effects on home industry:

International business poses a threat to the survival of infant and nascent industries. Due to
foreign competition and unrestricted imports upcoming industries in the home country may
collapse.

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 Difference between International Business and Domestic Business

S.No Points International Business Domestic Business

1. Meaning Doing business across all countries Doing business in home country

2. Cultural barrier There is cultural barriers in MNC‘s Usually no cultural barrier

3. Competition Level of competition is high Comparatively low

4. Restrictions Will have face restrictions in trade No impact on domestic business

Nationality of buyers & sellers belongs Nationality of buyers & sellers

5. Buyers & Sellers
to different countries belong to the same country

Usually single degree technology is

6. Technology The degree of technology vary
used
Should be concerned about different
7. Religion issue Mainly one country
religion

8. Currencies Heterogeneous currencies are used Single currency is enough

Resource
9. Take advantages of location economies It cannot be easily shifted
advantage
Long distances & transaction time is Short distances & transaction time is
10. Transaction time
long short
Cost Advantage by automation, new
11. Cost advantage High Volume cost advantage.
methods etc.

12. Standardization Global Standardization No such advantage

Can Shift production bases to different

13. Shift Production countries whenever there are problems No such advantage
in taxes or markets

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 Challenges/Problems/Barriers of International Business
• Political & legal differences
The political and legal environment of foreign market is different from that of the
domestic market. It should be noted that political & legal is not same in all provinces
of many home markets. As business increases in more countries it will be difficult
problems in doing business.
• Cultural barriers or differences
As entrepreneur is new business in host country he may not be aware about language,
education, tradition, religion, values of citizens which will make it difficult for the
entrepreneur to understand mindset, taste and preference of customer in market.

• Language differences
An international marketer often encounters problems arising out of differences in
the language. Even when same language is used in different countries, the same
words may have different meanings. The multiplicity of languages in India is a great
example.
• Exchange instability( Differences in currency)
Currencies of countries are depreciated due to imbalances in the balance of payment
political instability and foreign indebt ness. This in turn leads to instability in the
exchange rates of domestic currencies in terms of foreign currencies.
• Entry requirements
Domestic governments impose entry requirements to multinational. i.e. entry
through merger, joint venture etc.. This will be great problem to enter into the
international business.
• Tariffs, quotas & trade barriers
Governments of various countries impose tariffs, import & export quotas in order to
protect the domestic business. This creates problems in doing international business.
• Corruption
Corruption has become an international phenomenon. The higher rate bribes and
kickbacks discourage the foreign investor to expand their operations.
• Technological pirating

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 Copying the original technology producing imitative products other areas of business
operations were common in Japan during 1950s and 1960s in Korea, India etc. This
practice invariably alarms the foreign companies against expansion.
• Quality maintenance
International business firms have to maintain quality of the product based on quality
norms of each country. The firms have to face server consequences if they fail to
conform to the country standards.
• Lack of information
As a person is new entrant in international market he is unaware about the market
conditions in host country and taste and preference of customers which may lead to
issues in terms of acceptance and locating product in market.

• Human resource barriers

Presence of labor unions, hostile management union‘s relations, strike, increase cost of
labor in foreign country may prove it difficult for entrepreneur to establish business in
foreign market.

• Market Infrastructure differences.

The availability and nature of the marketing facilities available in different countries
may vary widely. For example advertising medium will be effective in one market the
same will not be effective in underdeveloped market.
Globalization
Meaning:
• Globalization refers to the integration of markets in the global economy.
• Globalization is the process of international integration arising from the
interchange of world views, products, ideas and other aspects of culture.
• Advances in transportation and telecommunication infrastructure are major factors
in globalization, generating further interdependence of economic and cultural
activities.

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 Causes/Reasons for Globalisation/Factors (OR) Reasons for IB growth

 Improved Technology Improved transport

 Global Banking
 Free trade agreements
 Growth global trading blocs
 Sales expansion---profit
 Growth of global media
The growth of MNC’s
Liberalization of cross-border movements
Increase in Expansion of technology
Increased mobility of labour & capital
Growing Consumer Pressures

1. Improved Technology
The development of communication technologies such as internet, email and mobile phones
have been vital to the growth of globalization because they help MNCs to operate
throughout the world.
2. Improved transport
The development of refrigerated and container transport, bulk shipping and improved air
transport has allowed the easy mass movement of goods throughout the world. This assists
globalization.
3. Global Banking
Modern communication technologies allow vast amounts of capital to flow freely and
instantly throughout the world.
4. The growth of MNC’s
The rapid growth of big is a cause of globalization. The investment of MNCs in farms, mines
and factories across the world is a major part of globalization. Globalization allows MNCs to
produce goods and services and to sell products on a massive scale throughout the world.
5. Free trade agreements
MNCs and rich capitalist countries have always promoted global free trade as a way of
increasing their own wealth and influence. International organizations such as the World
Trade Organisation and the IMF also promote free trade.

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6. Liberalization of cross-border movements
Over time most governments have lowered restrictions on trade and foreign investment in
response to the expressed desires of their citizens and producers. (GATT)
7. Increase in Expansion of technology
Fast improvements in transportation and communications technology—including the
development of the Internet—have significantly increased the effectiveness and efficiency of
international business operations.
8. Growth global trading blocs
Growth global trading blocs which have reduced national barriers. (e.g. European Union,
NAFTA, ASEAN)
9. Sales expansion---profit
To increase the sales and to earn profit, the business is carried out in other countries. For
this reason the scale of economies will be high and the cost of the product will be low and
this leads to get more profit.
10. Increased mobility of labour & capital
In past few decades there has been a general reduction in capital barriers, making it easier
for capital to flow between different economies. This has increased the ability for firms to
receive finance. People are more willing to move between different countries in search for
work.
11. Growth of global media
The growth of international media and new media technologies has contributed greatly to
globalization, the reconfiguration of political, social, and cultural institutions, and how we
understand our role and impact in a global society.
12. Growing Consumer Pressures
Because of innovations in transportation and communications technology, consumers are
well-informed about and often able to access foreign products. Thus competitors the world
over have been forced to respond to consumers‘ demand for increasingly higher quality,
more cost-competitive offerings.

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 Stages in Internationalization

1. Domestic company (home/within nation)

2. International company (with other, export or import)
3. Multinational company (invest in other/no coordination/local)
4. Global company (invest in other/same brand in all)

5. Transnational company (invest/give decision making R&D)

1. Domestic Company
This is the first stage. It limits operation, mission and vision to the national political
boundaries. These companies focus its view on the domestic market opportunities domestic
suppliers, domestic financial companies, domestic customers etc. It never thinks of growing
globally. If it grows, beyond it present capacity the company selects the diversification
strategy of entering into new domestic markets, new products, technology etc. It does not
select the strategy of expansion into the international markets.
2. International Company:
This is the second stage.Some of the domestic companies which grow beyond their
production / marketing capacities think of internalizing their operations. Those companies
who decide to exploit the opportunity outside the domestic country. The focus of these
companies is domestic but extends the wings to the foreign countries. These companies
extend the domestic product, domestic price, promotion and other business practices to the
foreign markets.
3. Multinational Company
This is the third stage. It formulates different strategies for different markets thus the MNC
operate its offices, branches, subsidiaries in other country like domestic company. They
formulate distinct polices and strategies suitable to that country. Thus they operate like
concerned in each of their markets.
4. Global company
This is the fourth stage. A global company is the one which has either global marketing
strategy or a global sourcing strategy. Global company either produces in home country or
in a single country and focuses on marketing these products globally or produces globally or
focuses on marketing these products domestically.

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 5. Transnational company
This is the fifth stage. It produces, markets, invests and operates, across the world. It is an
integrated global enterprise which links global resources with global markets at profit.
There is no pure transnational companies satisfy many of the characteristics of a global
corporation. The Transnational Corporation is much more than a company with sales,
investments and operations in many countries

Types of International Business Approaches/Orientations

 Ethnocentric orientation (Domestic country)
 Polycentric Orientation (Host country MNC oriented)
 Regiocentric Orientation (Different region as different market)
 Geocentric Orientation (Entire world as single-global orientation)
1. Ethnocentric orientation:
It is the belief that the domestic or home country culture is superior to any other country.
The strategies, products and its operations focused national markets.
The belief which considers one‘s own culture as superior to others is termed as ethnocentric
orientation. It means that a firm or its managers are so obsessed with the belief that the
marketing strategy which has worked in the domestic market would also work in the
international markets‡ Thus, ethnocentric companies ignore the environmental differences
between markets. They continue the exports to the foreign countries and view the foreign
market as an extension to the domestic markets just like anew region. This organization is
suitable for smaller companies

Managing Director

Mgr- R&D Mgr Finance Mgr Production Mgr HR

Asst Mgr -North Asst Mgr -South Asst Mgr -Export

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2. Polycentric orientation:

The company establishes the foreign subsidiary with best suited to local market
conditions. Decentralizations of control and autonomy to the oversea units

Contrary to the ethnocentric approach, polycentric approach is highly market-oriented. It is

based on the belief that substantial differences exist among various markets.‡ The company
establishes foreign subsidiary companies and decentralizes all the operation and delegates‘
decision – making and policy making authority to its executives. In fact the company appoints
executives and personnel including chief executives who reports directly to the Managing
director of the company. The executives of the subsidiary formulate the policies and strategies
design the product based on the host country‘s environment and the customer preferences.

Managing Director

CEO Foreign Subsidiary

Mgr- R&D Mgr Finance Mgr Production Mgr HR

3. Regiocentric orientation:

Different regions as different markets, the foreign subsidiary has to develop the market
of neighboring countries of host country with different strategies and products.

This is a transitional phase between polycentric and geocentric orientation. Firm accepts a
regional marketing policy covering a group of countries which have comparable market
characteristics. The company offer operating successfully in a foreign country thinks
of exporting to the neighboring countries of the host countries. At this stage the foreign
subsidiary considers the regional environment for formulating policies and strategies. The
company views the similarities and differences between regions.

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 Managing Director

CEO Foreign Subsidiary

Marketing- Lesotho Marketing- Lesotho Marketing-Kenya

Marketing-Namibia

Marketing-Kenya
Mgr- R&D Mgr Finance Mgr Production Mgr HR
Marketing-Namibia
4. Geocentric orientation:
With the view of the entire world is the single market and develop a standardized
marketing mix.
The geocentric approach considers the whole world as a single market and attempts to
formulate integrated marketing strategies‡ A geocentric orientation identifies similarities
between various markets and formulates a uniform marketing strategy‡ The companies that
follow the geocentric approach strive to analyze and manage the marketing strategy with
integrated marketing programmes.‡ The geocentric orientation represents a synthesis of
ethnocentrism and polycentrism.

Managing Director-Head quarters

Subsidiary-Kenya Subsidiary-Namibia Subsidiary-India Subsidiary-Lesotho

Business Environment:
Business Environment may be defined as a set of conditions – Social, Legal,
Economical, Political or Institutional that are uncontrollable in nature and affects the
functioning of organization
International business environment
The environment or factors that surround the international business is referred as
international business environment. Factors that influence the environmental factors.

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 Business Environment has two components:
• Internal Environment
• External Environment
Components of International Business:
Business Environment has two components:
• Internal Environment
• External Environment
Internal Environment:
It includes 5 M‘s i.e. man, material, money, machinery and management, usually
within the control of business.
External Environment: It is of two Types:
1. Micro/Operating Environment
2. Macro/General Environment
(i) Micro/Operating Environment:
The environment which is close to business and affects its capacity to work is known as
Micro or Operating Environment. It consists of Suppliers, Customers, Market
Intermediaries, Competitors and Public.
(ii) Macro/General Environment:
It includes factors that create opportunities and threats to business units. Following are the
elements of Macro Environment:
• Economic Environment
• Social & cultural environment
• Political environment
• Technological environment
• Natural Environment
• International Environment
(i) Economic Environment: - It is very complex and dynamic in nature that keeps on
changing with the change in policies or political situations. Important factors are:
• Nature of the economy

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 • Purchasing power (income)
• Structure of the company
• Economic policies
There are several economic policies which can have a very great impact on business.
Important economic policies are industrial policy, trade policy, foreign exchange policy,
monetary policy, fiscal policy and foreign investment and technology policy. Some
categories of business are favorably affected by government, some are adversely affected
• Economic conditions
Economies pass through periods of boom and recession. A boom is characterized by high
level of output, employment and rising demand and prices.
• Inflation rate – high –low purchase
• Interest rate
• Tax & Tariff
(ii) Political Environment: - Government actions which affects the operations of a
company or business.
Important factors are:
• Political Belief of Government
• Political Strength of the Country
• Relation with other countries
• Defense and Military Policies
• Centre State Relationship in the Country
• Thinking Opposition Parties towards Business Unit
• Government control restrictions
(iii) Socio & Cultural Environment: - Influence exercised by social and cultural factors,
not within the control of business, is known as Socio-Cultural Environment. Important
factors are:
• Organization of culture
• Cultural adaptation
The term cultural adaptation refers to the manner in which a social system or an
individual fits into the physical or social environment.

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 • Cultural shock
Environmental changes sometimes produce cultural shock - a feeling of confusion,
insecurity, and anxiety caused by the strangeness of the new environment.
• Cultural transmission
The elements of culture are transmitted among the members of the culture, from one
generation to the next, and to the new members admitted into the culture.
• Cultural conformity
Individuals in a culture tend either to conform to the cultural norms or to deviate from
them. ‗Strong Cultures‘ are those where the people have a passionate belief for its values
and norms
• Cultural lag
The term cultural lag refers to the notion that culture takes time to catch up with
technological innovations, and that social problems and conflicts are caused by this lag.
• Cultural traits
• Cultural stereotypes :the belief that everyone of the same race, religion all act the same
way
• Religion
• Language
• Etiquette
• Social trends

Country Attractiveness
It depends on balancing the benefits, costs & risks
The political, economic, and legal environment of a country clearly influences the
attractiveness of that country as a market and/or investment site.

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 Framework of Attractiveness

Figure 2.1: Country Attractiveness

Costs
Benefits Corruption
Size of Economy Lack of Infrastructure
Likely Economic Growth Legal Costs

Overall
Attractiveness

Risks
Political Risks: Social Unrest/Anti-Business Trends
Economic Risks: Economic Mismanagement
Legal Risks: Failure to Safeguard Property Rights

General investment frameworks

Country attractiveness analysis/Factors/Determinants of CA

A country attractiveness assessment is based on three dimensions
1. Market opportunities
2. Industry opportunities
3. Country risks (based on various economic/political/social factors)
1. Market opportunities
Market opportunities assessment measures the potential demand in the country for a firm‘s
products or services based on:

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  Market size
 Growth
 Quality
 Demand
2. Industry opportunities
Industry opportunities assessment determines profitability potential of a company‘s
presence in a country given the following factors:
• Quality of industry competitive structure
• Resource availability
3. Country risk
• Political risks, Economic risks, Competitive risks, Operational risks.
 Political risks
Political risks are probable disruptions owing to internal or external events or
regulations resulting from political action of governments or societal crisis and unrest.
 Economic risks
Economic risks expose business performance to the extent that the economic business
drivers can vary and therefore put profitability at stake.
 Competitive risks
Competitive risks are related to non-economic distortion of the competitive context
owing to cartels and networks as well as corrupt practices. The competitive battlefield is
not even and investors who base their competitive advantage on product quality and
economics are at disadvantage.
 Operational risks.
Operational risks are those that directly affect the bottom line, either because
government regulations and bureaucracies add costly taxation or constraints to foreign
investors or because the infrastructure is not reliable.
Protectionism
Protectionism
A government policy that attempts to limit imports. It refers to the practice of
protecting a country's domestic industries from foreign competition by certain restrictions.

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 1. Tariff barriers 2. Quotas 3. Non tariff barriers
1. Tariff barriers
A tariff is a tax on imported products or services.
1.Specific Duty:
Specific duty is based on the physical characteristics of goods. When a fixed
sum of money, keeping in view the weight or measurement of a commodity, is
levied as tariff, it is known as specific duty.
2. Ad valorem Duty:
These duties are imposed ―according to value.‖
3.Combined or Compound Duty:
It is a combination of the specific duty and ad valorem duty on a single
product. For instance, there can be a combined duty when 10% of value (ad
valorem) and Re 1/- on every meter of cloth is charged as duty
2. Quotas
A quota is a limit on the amount of goods that can be imported. Putting a quota on a
good creates a shortage (or a scarcity).
3. Non Tariff barriers
 Standards:
Standards are rules about the quality of imported goods.
 Subsidies:
Subsidies involve direct financial aid, often through tax credits or tax
deductions, to certain domestic industries.
 Embargo:
The most severe type of trade barrier – is a total ban on one or more products
from a particular nation.
 Other Regulations:
Inspection, quality regulations, packaging etc

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 Liberalization
• It refers to the relaxation of previous government restriction. There will be reduction
of restrictions. It refers to free trade.
• Free trade – It means no government restrictions, no obstacles for doing business.
Benefits:

 Promotes international specialisation and increases world output

 Promotes efficient use and allocation of world resources
 Allows developing countries access to the heavily protected markets of the developed
world thus helping promote development
 Facilitates the working of the international market system and the working of price
signals to ensure efficient allocation of resources, international competition and the
associated benefits to all
 Enlarged market

 Greater welfare

 Competition

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 Unit 1
Two Marks
1. What is international business?
International Business conducts business transactions all over the world. In simple,
carrying on business activities across national boundaries. It refers to all business activities
which involve cross border transactions of goods, services, resources between two or more
nations.
2. What is Globalization?
It refers to the integration of markets in the global economy. Globalization is the process
of international integration arising from the interchange of world views, products, ideas and
other aspects of culture
3. What are the elements of globalization?
 Economic globalization
 Cultural globalization
 Political globalization
4. What are the factors causing globalization?
 Improved Technology
 Improved transport
 Global Banking
 The growth of MNC‘s
 Free trade agreements
5. What are the motives for internationalization?
 Increased profits
 Optimum capacity of utilization
 Market motives
 Strategic moves
6. What are the stages of internationalization?
 Domestic company

 International company
 Multinational company

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  Global company
 Transnational company
7. What is multinational company (MNC)?
The managerial headquarters are located in one country while enterprise carries out
operations in a number of other countries as well.
8. What is global company?
A global company is a firm doing business in more than one country. The company
which has the either global marketing strategy or a global strategy. It focuses in home country or
in a single country and focus on marketing these products globally.
9. Define the transnational company.
Transnational company produces, markets, invests and operates across the world. It is
the integrated global enterprise that links global resources with global markets at profit.
10. What is socio cultural environment?
Social and cultural factors in various countries of the globe affect the international
business. These factors may include attitude of the people to work, attitude to wealth, family,
marriage and religion etc.
11. What is inward oriented strategy?
Inward Oriented development focuses on building and improving domestic industries.
This means that the government is interested in helping infant industries grow to become
competitive enough to compete on the world market, by gaining the comparative advantage
12. What is outward oriented strategy?
Outward oriented strategies are essentially the opposite of the inward oriented
development strategies. Countries that use this strategy focus on increasing international trade.
These countries reduce trade barriers, remove subsidies to domestic firms, and encourage high
levels of FDI.
13. What is the meaning of privatization?
Privatization is the incidence or process of transferring ownership of a business,
enterprise, agency or public service from the public sector (government) to the private sector
(business).

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14. What is Economic environment?
Economic Environment refers to all those economic factors, which have a bearing on the
functioning of a business. It includes economic factors, such as employment, income, inflation,
interest rates, productivity, and wealth, that influence the buying behavior of consumers and
institutions.

15. What is technological environment?

It is one of the important determinants of the success of the firm as well as the socio and
economic development of the nation. Technology includes the tools- both machines (hard
technology) and ways of thinking (soft technology) available to solve problems and promote
progress between among and between societies.
16. What is political environment?
It includes the characteristics and policies of the political parties, the nature of the
constitutions and government systems encompassing the economic and business policies and
regulations are utmost importance in the market selection and business strategy formulation.
17. What is Etiquette?
Etiquette is a code of polite conduct. Etiquette is a set of practices and forms which are
followed in a wide variety of situations.
Example: The way of meeting and greeting the people, expression of appreciation, or
disapproval, methods of showing respect, ways of conducting the meeting and functions .
18. Define ethno domination.
―A situation where an ethnic group occupies a majority position in a channel of
distribution with respect to the ownership and control of physical and financial resources or
through the manipulation of social environment‖
19. What is cultural shock?
Environmental changes sometimes produces the cultural shock- a feeling of confusion,
insecurity and anxiety caused by the strangeness of the new environment.
20. What is ethnocentric orientation?
It is the belief that the domestic or home country culture is superior to any other country.
The strategies, products and its operations focused national markets.

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21. What is Polycentric orientation?
The company establishes the foreign subsidiary with best suited to local market
conditions. Decentralizations of control and autonomy to the oversea units
22. What is Regiocentric orientation?
Different regions as different markets, the foreign subsidiary has to develop the market
of neighboring countries of host country with different strategies and products.
23. What is geocentric orientation?
With the view of the entire world is the single market and develop a standardized
marketing mix.
24. What are the factors to be considered in country attractiveness?
1. Market opportunities
2. Industry opportunities
3. Country risks (based on various economic/political/social factors)
25. What is green field strategy?
This is a form of foreign direct investment where a parent company starts a new venture
in a foreign country. It is a strategy to enter into a new market without the help of another
business who is already there.
26. What is Tariff?
A tax on a good coming into a country.It Increases the price of the good and makes it
less competitive.
27. What is protectionism?
A government policy that attempts to limit imports. It refers to the practice of protecting
a country's domestic industries from foreign competition by certain restrictions.
1. Tariff barriers 2. Quotas 3. Non tariff barriers
28. What are Quotas?
A quota is a limit on the amount of goods that can be imported. Putting a quota on a
good creates a shortage (or a scarcity).
29. What are non tariff barriers?
It is a form of restrictive trade where barriers to trade are set up and take a form other
than a tariff. Such as Standards, Subsidies, Embargo etc.

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30. What are the perils of liberalization?
 Economic instability
 Lead to pollution and environmental problems.
 Lead to job losses and hurt developing industries
 Illegal goods export becomes easier.

31. What is a domestic company/business?

A company that does business within the home country is termed as domestic company.
Set of all Commercial activities conducted within a nation or a commercial entity that conducts
economic transactions inside the borders of its home nation.

32. What is free trade zone?

Free Trade Zone, popularly known as FTZ, is an area where goods may be traded without
any barriers imposed by customs authorities like quotas and tariffs. It is a special economic zone
within a country where normal trade barriers like quotas, tariffs are removed

33. What is liberalization?

It refers to the relaxation of previous government restriction. There will be reduction of
restrictions. It refers to free trade.
 Free trade – It means no government restrictions, no obstacles for doing business.
34. What is demographic environment?
This refers to the population size, birth rates, age structure, migration and ethnic aspects
of regions or countries.

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