1. What is International Business?

Discuss its need and importance in the current

global scenario.

International business deals with business activities (both production and services) that
cross the national boundaries. This activity includes movement of goods, services capital
or personnel, transfer of technology, etc. Functionally, by business we mean those human
activities, which involve production or purchase of goods and services with the object of
selling them at a profit. Today’s world is an era of Global Village or specialization. A
particular country is not self-dependent for producing goods and services. One country
depends on another for goods and services as well as one area of a particular country
depends on another area for meeting demand. This interdependence creates internationals
Business.

International business is a term used to collectively describe all commercial transactions

(private and governmental, sales, investments, logistics, and transportation) that take
place between two or more nations. Usually, private companies undertake such
transactions for profit; governments undertake them for profit and for political reasons. It
refers to all those business activities which involves cross border transactions of goods,
services, resources between two or more nations. Transaction of economic resources
include capital, skills, people etc. for international production of physical goods and
services such as finance, banking, insurance, construction etc.

International business is defined as ‘any commercial transaction taking place across

boundary lines of a sovereign entity.’ It can also be defined as ‘The economic system of
exchanging good and services, conducted between individuals and businesses in multiple
countries.’

International business = Business transactions crossing national borders at any

stage of the transaction.

Need and Importance of International Business:

International business is all business transactions-private and governmental-that involve

two or more countries. Why should one be interested in studying international business?
The simplest answer is that international business comprises a large and growing portion
of the world's total business. Today, almost all companies, large or small, are affected by
global events and competition because most sell output to and/or secure suppliers from
foreign countries and/or compete against products and services that come from abroad.

The following are the reasons for the growing importance of International Business:

1. Helps as growth strategy:- Geographic expansion may be used as a business strategy.

Even though companies may expand their business at home.

2. Helps in managing product life cycle:- Every product has to pass through different
stages of product life cycle-when the product reaches the last stages of life cycle in
present market; it may get proper response at other markets.

3. Technology advantages:- Some companies have outstanding technology advantages

through which they enjoy core competency. This technology helps the company in
capturing other markets.

4. New business opportunities:- Business opportunities in overseas markets help in

expansion of many companies. They might have reached a saturation point in domestic
market.

5. Proper use of resources:- Sometimes industrial resources like labor, minerals etc. are
available in a country but are not productively utilized.

6. Availability of quality products:- when markets are open, better quality goods will be
available every where. Foreign companies will market latest products at reasonable
prices. Good product will be available in the markets.

7. Earning foreign exchange:- international business helps in earning foreign exchange

which may be used for strategic imports .India needs foreign exchange to import crude
oil, deface equipment, raw material and machinery.

8. Helps in mutual growth:- countries depend upon each other for meeting their
requirements. India depends on gulf countries for its crude oil supplies.

9. Investment in infrastructure:- international business necessitates proper development of

infrastructure. A company entering international business must invest in roads.
10. Social Responsibility:- The increased importance of social responsibility corresponds
to the growing scope of activities undertaken by the enterprises in the globalizing world
economy.
 2. Discuss the various environmental factors affecting International Business.
Business environment means the factors which affect the business. Study of Business
environment helps the management to formulate strategies and run the business
efficiently in the competitive global market. The environment has significant and crucial
impact on the business. Thus, the fundamental basis for strategy formulation is the
environment analysis. The Business should enhance its strengths in order to face the
challenges posed by the environment.
The factors which affect the International Business are as follows:

• The Economic Environment:

International Business is directly influenced by the economic environment of various

countries. International economic environment and global business interact with each
other. Business helps for identification of needs of the people, their wants, production of
goods, supply of goods, etc. thus, it leads to economic development. This element
comprises the nature of the economic system and institutions of a particular country or
region. It also takes into account the nature of human and natural resources within the
target market. A firm will function very differently in a libertarian environment than
within a highly statist one. Here, the activities and functions of local economic elites are
also very important.

These include interest rates, taxation changes, economic growth, inflation and exchange
rates. As you will see throughout the "Foundations of Economics" book economic change
can have a major impact on a firm's behavior. For example; higher interest rates may
deter investment because it costs more to borrow, a strong currency may make exporting
more difficult because it may raise the price in terms of foreign currency, inflation may
provoke higher wage demands from employees and raise costs, and higher national
income growth may boost demand for a firm's products.

• The Political and Legal Environment:

Closely tied to the economic environment is the political one, itself also dealing with the
nature of systems and institutions. Many variables to consider here are the stability of the
political system, the existence of local or international conflict, the role of state
enterprises and the nature of the bureaucracy.

The existence of bureaucratic systems and cultures is central in making the decision to
invest globally. The nature of corruption, local values and assumptions that are built into
national ideologies are major variables in this field. A great concern is the extent to which
there is a culture of law or a culture of personal patronage, where negotiations are done
on a personal rather than a legal basis. The impact of international lending agencies such
as the International Monetary Fund or the World Bank is also important in creating a
legal culture that a business will have to take seriously. The past ten years have brought
enormous political changes to this world, changes that are affecting the global marketing
operations of global firms. Although these changes have resulted in the opening of many
previously closed markets, numerous uncertainties remain.

• Cultural and Social Environment:

Cultural anthropology examines all human behaviors. Culture includes the entire heritage
of a society transmitted by word, literature, or any other form. It includes all traditions,
habits, religion, art and language. Culture reflects the human aspect of a person’s
environment; it consists of beliefs, morals, customs, and habits learned from others.
These culture elements send direct and indirect messages to consumers regarding the
selection of goods and services. That brings the reason that marketers must understand
the culture, especially in an international environment. Language is a key component of
culture because most of a society’s culture finds its way into the spoken language. Thus,
in many ways language embodies the culture of the society. Knowing the language of a
society can become the key to understanding its culture. Global marketing
communications are heavily affected by the existence of different languages. To
overcome this language barrier, business people all over the world have to draw two
major conclusions about the impact of language on global marketing. First, a firm must
adjust its communication program and design communications to include the languages
used by its customers. Second, the firm must be aware that a foreign language may
contain different thinking patterns or indicate varying motivations on the part of
prospective clients. Changes in social trends can impact on the demand for a firm's
products and the availability and willingness of individuals to work.

• Technological Environment:

New technologies create new products and new processes. MP3 players, computer
games, online gambling and high definition TVs are all new markets created by
technological advances. Online shopping, bar coding and computer aided design are all
improvements to the way we do business as a result of better technology. Technology can
reduce costs, improve quality and lead to innovation. These developments can benefit
consumers as well as the organizations providing the products. Technological changes
have enabled international business to take up the shape of transnational business through
the concept of global business. Technology is one of the significant factors which
determine the level of economic development of a country.
 3. Discuss the impact of technology on International Business.

The introduction of any new technology in international trade will have some legal
consequences. Most technologies will offer new opportunities for the erection of non-
tariff trade barriers. Most technologies are expensive in the short term, thereby widening
the gap between rich and poor nations, and most technologies have some impact on the
social and economic structure of the receiving country. Technology has revolutionized
the lives of consumers and businesses alike. The increased array of products on the
shelves, the lowered cost of goods and services, and the ease of accessing information are
just a few of the ways technology has enhanced society. The field of international
business is particularly sensitive to technological innovations.

Computerization has changed the way business is conducted the world over. No aspect of
business has remained untouched by the information technology (IT) revolution. This is
especially true of international business where people located in different parts of the
world conduct transactions with each other. The activities of international business
include manufacturing, in-land transportation, customs and excise matters, port operation,
shipping, clearing and forwarding, etc. During the course of these transactions, a large
number of documents are created and exchanged, many of these documents or the
information contained therein is repeated, while creating and mailing these documents
before the advent of IT., hundreds of man-hours would be lost in repetitive operation,
innovations in IT have revolutionized international business; the use of technology in
managing and processing information. Especially in large organizations helps save time,
bring down costs, and reduce manpower, manual data input and transfer has now become
not only obsolete, but also irrational.

Areas

In international business today, IT finds maximum utility in the following areas:

1. Electronic procurement

2. Electronic marketing

3. Electronic logistics

1. Electronic Procurement

E-procurement essentially comprises a number of inter-related methods for improving the

procurement process through the use of electronic systems and processes. The need for
e-procurement stems from the fact that in today’s globalized world, a manufacturer can
source inputs such as raw materials, components, machinery and consumables from any
part of the world. The manufacturer is constantly looking for suppliers who can offer
quality materials at the most competitive rates. The internet has become a favorite
hunting ground for the best bargains. Small companies can purchase their inputs through
various websites, which sell a variety of items. However, for the larger organizations,
electronic procurement is a systematically outlined process. Here, enterprises use
automated applications to streamline buying both production and non-production goods
and services.

2. Electronic Marketing

Internet has changed the way we exchange goods for money. It has broken
geographical barriers between buyers and sellers. The internet enables a manufacturer in
India to sell his/her goods to a customer in any part of the world through the World Wide
Web. It is necessary, however, that the buyer has access to internet and has the necessary
know-how and desire to make online purchases.

The internet has provided a very effective platform for electronic marketing or e-
marketing. E-marketing means using digital technologies to help sell your goods or
services. This is different from a conventional market place, where sellers display their
goods and buyers can touch and feel the goods and bargain with sellers. In case of e-
marketing, sellers can display photographs, video films and specifications of their
products. In most cases, the prices are also displayed so that buyers have a clear idea
about the product and price.

3. Electronic Logistics

Electronic logistics is use of web –based technologies to support warehousing and

transportation management processes. E-logistics enables distribution to couple routing
optimization with inventory tracking and tracking information. In international trade and
distribution, computerization is slowly but surely tacking hold of every aspect of
business. From computerized trade leads available through the department of commerce,
to electronic letters of credit, to telecommunicated documents, to computerized freight
booking, tracing and documentation system, to electronic freight tariffs, automated
freight payment systems, computerized loss and damage reporting.

There is a tremendous scope of the application of IT in logistics. In fact, modern

supply chains are held together by the strength of IT, through its ability to transmit huge
amount of data speedily, or make global data available to expedite the decision making
process. Due to the advantages offered by IT, many logistics providers are planning to
handle majority of their commercial transactions electronically. Also, exporters are
already using IT for various activities ranging from e-procurement of goods to availing
transportation services on the net

Technology is changing at a very fast pace. Various aspects of electronic business such
as e-procurement, e-marketing, e-logistics use a number of technology products. The life
cycle of technology products is very short. We are living in a knowledge-driven era,
where everyone has access to information thanks to internet and a variety of other sources
of information. However, the market is dominated by those, who translate information
into knowledge and use the knowledge to improve productivity and efficiency of their
enterprises. Thus, to conclude, technology has a huge impact on international business.
 4. Discuss the role of history in the development of international Business in the 21 st
century.

Global economy has expanded at a higher rate. The Global economy is mostly shaped by
the flow of goods and services. The trends in the international money market and capital
markets influence the monetary policies of the sovereign governments. Management of
international business in the 21st Century is the primary and decisive factor whereas the
other factors of production like land, capital and human resource are secondary in the
transactional economy. Money markets and capital markets have also become
transactional. The goal of the transnational business is market expansion rather than
profit maximization. The decision making power has shifted from the national
government to the group of governments like the European Community, North American
Free Trade Association, World Trade Organization, etc. Information has been flowing
through advanced information technology. There is a flow of money, capital and
investment across the national boundaries. Business houses see the entire globe as a
single market for production and market for goods and services.

The last quarter of twentieth century has seen rapid changes in the global economy.
Barriers to the free flow of goods, services and capital have come down. The volume of
cross border trade and investment has been growing more rapidly than global output,
indicating that national economies are becoming more closely integrated into a single,
interdependent and global economic system.

The move towards a global economy has been further strengthened by the widespread
adoption of liberal economic policies by countries that had firmly opposed them for two
generations or more. Thus, in keeping with the normative prescriptions of liberal
economic ideology, country after country are privatizing their state owned business,
adopting widespread deregulation and opening markets for more competition and
increased commitments to removing barriers to cross border trade and investment. Thus,
the current trend indicates that the world is moving rapidly towards an economic system
that is more favorable for the practice of international business.

The world may be moving towards a more global economic system, but globalization is
not inevitable. Countries may pull back from the recent commitment to liberal economic
ideology if their experiences do not match their expectations. There have been periodic
signs of a retreat from liberal economic ideology in Russia. It has experienced
considerable economic pain as it tries to shift from a centrally planned economy to a
market economy. Greater globalization brings with it risks of its own. This was
demonstrated in 1997 and 1998 when financial crisis in Thailand spread first to other East
Asia nations and then to Russia and Brazil. The crisis threatened to plunge the economies
of the developed world into a recession. Even from a purely economic perspective,
globalization is not all good. The opportunities for doing business in a global economy
may be significantly enhanced but the risks associated with global financial contagion are
also greater.
Globalization stimulates economic growth, raises the income of consumers and helps to
create jobs in all countries that participate in the global trading system.

However, globalization has been protested against a wide range of issues including job
losses in industries under attack from foreign competitors, downward pressure on the
wage rates of unskilled workers, environmental degradation and the cultural imperialism
of global media and multinational companies. The World Trade Organization was
meeting to try to launch a new round of talks to cut barriers to cross border trade and
investment. The important concern about globalization is that falling barriers to
international trade destroy manufacturing jobs in wealthy advanced economies.

Free trade encourages firms from advanced countries to move manufacturing facilities to
less developed countries that lack adequate regulations to protect labour and the
environment. However, the globalization critics argue that such regulations significantly
increase the cost of manufacturing enterprises and put them at a competitive disadvantage
in the global market place as compared to the less developed countries.
 5. Write a note on European Union.

The European Union (EU) is an economic and political union of 27 member states
which are located primarily in Europe. The EU traces its origins from the European Coal
and Steel Community (ECSC) and the European Economic Community (EEC) formed by
six countries in the 1950s. In the intervening years the EU has grown, in size, by the
accession of new member states and, in power, by the addition of policy areas to its
remit. The Maastricht Treaty established the European Union under its current name in
1993. The last amendment to the constitutional basis of the EU, the Treaty of Lisbon,
came into force in 2009.

The EU operates through a hybrid system of supranational independent institutions and

intergovernmental made decisions negotiated by the member states. Important institutions
of the EU include the European Commission, the Council of the European Union, the
European Council, the Court of Justice of the European Union, and the European Central
Bank. The European Parliament is elected every five years by EU citizens.

A monetary union, the euro zone, was established in 1999 and is currently composed of
sixteen member states. Through the Common Foreign and Security Policy the EU has
developed a limited role in external relations and defence. Permanent diplomatic missions
have been established around the world and the EU is represented at the United Nations,
the WTO, the G8 and the G-20.

With a population of 500 million inhabitants, the EU generated an estimated 21% (US$
14.8 trillion) share of the global economy (GDP PPP) in 2009. As a trading bloc the EU
accounts for 20% of global imports and exports.

The European Commission acts as the EU's executive arm and is responsible for
initiating legislation and the day-to-day running of the EU. The commission is also seen
as the motor of European integration. The Commission operates as a cabinet government,
with 27 Commissioners for different areas of policy, one from each member state, though
Commissioners are bound to represent the interests of the EU as a whole rather than their
home state.

The European Union (EU) is not a federation like the United States. Nor is it simply an
organization for co-operation between governments, like the United Nations. It is, in fact,
unique. The countries that make up the EU (its ‘member states’) remain independent
sovereign nations but they pool their sovereignty in order to gain a strength and world
influence none of them could have on their own.
Pooling sovereignty means, in practice, that the member states delegate some of their
decision-making powers to shared institutions they have created, so that decisions on
specific matters of joint interest can be made democratically at European level.
The EU's decision-making process in general and the co-decision procedure in particular
involve three main institutions:
  the European Parliament (EP), which represents the EU’s citizens and is directly
elected by them;
 the Council of the European Union, which represents the individual member
states;
 the European Commission, which seeks to uphold the interests of the Union as a
whole.

The EU member countries have transferred some of their law-making authority to the EU
in certain policy areas, such as agriculture and fisheries. In other areas, such as culture,
policy-making is shared between the EU and national governments. The European
Council gives direction to the EU, and convenes at least four times a year. It comprises
the President of the European Council, the President of the European Commission and
one representative per member state; either its head of state or head of government. The
European Council has been described by some as the Union's "supreme political
authority". It is actively involved in the negotiation of the treaty changes and defines the
EU's policy agenda and strategies.

The European Council uses its leadership role to sort out disputes between member states
and the institutions, and to resolve political crises and disagreements over controversial
issues and policies. It acts externally as a "collective Head of State" and ratifies important
documents (e.g. international agreements and treaties).

Since its inception, the EU had as a core objective the establishment of a single market
across the territory of all its member states. Currently, a single currency is in use between
the 16 members of the euro zone. The creation of a European single currency became an
official objective of the European Economic Community in 1969.
The EU has developed a single market through a standardized system of laws which
apply in all member states including the abolition of passport controls within the
Schengen area. It ensures the free movement of people, goods, services, and capital,
enacts legislation in justice and home affairs, and maintains common policies on trade,
agriculture, fisheries and regional development.