An overview of the International

Business Process
Prof. C.K.Sreedharan

International Business
Business can be defined as the activities

related to the following:

- Production
- Buying
- Selling
The above activities are applicable to both
goods and services.

In other words business can be defined an

any activity involving any or combination of

the following:
Marketing
Production
Sourcing / buying
Logistics and supply chain management

When these activities are carried out within

the political boundaries of a country it is

called as domestic business.
When these activities are carried out across
the political boundaries of a country it is
termed as International Business.

Meaning of IB
IB is all those business transactions that

involve the crossing of national boundaries,

that include:
Product presence in different markets of the
world (Marketing)
Production bases across the globe

Human resource having global diversity

Investment in international services like

banking, advertising, tourism, retailing ,

construction and turnkey projects
Transactions involving intellectual
properties such as copyrights, patents,
trade marks and process technology
Supply chain and logistics management.

Evaluation of International
Business

Trade is so old that one cant really say when

it began.
World trade existed in Babylon, Mesopotamia,
Euphrates and Tigris in 3000 BCE, thousands
of years before Christ.
World trade also existed in Egypt, Indus River
Valley and in China.

Global trade played a vital role in the

formation and decline of the Roman

Empire.
The Romans ensured that merchants were
able to travel safely, protected by troops.
Common coinage was used to enable
smooth transaction across its empire.

International business flourished within

Roman empire and soon outside nations

that were not part of the empire decided to
join as allies.
These nations agreed to pay taxes to the
Roman empire to do business with the
Romans.
The immense growth of the empire
occurred mainly through the linkages of
business.

International trade was also very much

prevalent in ancient India.

Trade across the seas was popular by the time
of the Buddha.
By the time of Buddha sailors had navigated
the subcontinent, and made contacts with
Burma, Malaya (present Malaysia) and
Indonesia.

Spain and Portugal discovered sea routes to

Asian countries in 14 and 15 centuries.

Vasco da Gama reached India by sea in 1498.
Soon England, France and Portugal
monopolized the sea routes and many
countries became the political colonies of the
above countries.

By the middle of 18 th century, Briton

became the undisputed world economic

power due to Industrial Revolution.
This is due to the discovery of steam
engine, technical progress in textiles, iron
and steel.
Industrial base and the wealth plundered
from the colonies made Briton the worlds
first industrial country.
By mid 19 th century, England accounted
for about 40% of the world trade.

The earliest Multi National Enterprises were

mainly European firms ( England, France,

Portugal and Spain), setting up manufacturing
facilities in the colonies to extract primary
resources for conversion to finished goods
back home.

The Dutch and British East India Companies-

perhaps among the earliest Multi National

Enterprises in the world.
They were also closely connected with the
globalization of South Asia.

By the beginning of 20 th century United

States of America, became the worlds

greatest economic power due to its market
oriented policies

Globalization
Globalization is the process by which an

activity of a firm becomes worldwide in scope.

The term also refers to the integration of
world economies through the reduction of
barriers to trade, capital, technology and
people.

What essentially happens in globalization is

the economic integration among countries

across the globe.
The term Global village is often used to
describe globalization.
Global village does not mean that there is
complete fusion among all countries.
It only means that there is economic
integration but not political
amalgamation.

Drivers of globalization

Growth of developing economies:

As explained earlier developing countries

like China, India, Brazil, Argentina, Mexico

etc are likely to come close to developed
countries in terms of economic growth.
This growth will mean huge market substantial consumption of consumer and
industrial goods.

Capital and cost advantage of emerging

economies:
Emerging Economy Countries ( EEC) offer
immense opportunities to reduce operating
costs and capital investments.
Major savings come from low wages for
example a factory worker in the US or
Europe costs $15 to $30 per hour, where as
Chinese factory worker costs approximately
$1 per hour- offering a cost advantage of
more than fifteen times.

Capital investment is reduced in EECs

since labour cost is less compared to

developed economies, more labour can be
used in place of costly technology.
Hence companies that globalize can realize
a savings to the tune of 20 to 30%.

Availability, talent and capabilities:

Developed countries face a shortage of

working age people where as EECs have

plenty of working age population.
In case of China, governments strict policy
of one child norm is going to affect the
availability of working age population in
future.

India has not only the number but also the

quality of workforce.
India produces about over 5 lakhs of
engineers, 9 lakhs of graduates and over 1
lakh of diploma holders every year.
This large pool will limit the increase in wage
rates for the next 20 years.

The Boston Consulting Group (India),

estimates that by 2020 , India would have one

of the largest workforce of around 47 million,
while countries such as the USA, China and
Japan would face a labour pool shortage of 17
million, 10 million and 9 million respectively.

Declining trade and investment barriers:

The early period of 20 th. Century witnessed

high levels of barriers on trade and

investment.
The aim of such restrictions were to protect
domestic industries from foreign competitionthe infant industry argument.

Soon EECs realized the importance of free

trade, which resulted in the liberalization of

trade.
Also international institutions like World Trade
Organization (WTO), International Monitory
Fund (IMF) etc. advocated and promoted free
world trade without any barriers.

Technology:
Revolution is the best word which can best

describe the pace at which technology has

changed in the recent years and is
continuing to change.
Significant developments are being
witnessed in communication, transportation
and information processing, including the
emergence of the Internet and the World
Wide Web.

For example the cost of a three minute

telephone call from New York to Mumbai

has dropped from about $ 50 to a few cents
today.
Due to these developments in technology
firms are able to locate production facilities
anywhere in the world to take advantage of
low cost production.

Trend in global
The rapid growth in emerging markets is
economy
increasing their importance in the global
economy.
They account for nearly two-thirds of the
total growth in global output in the past two
years, compared with one-third in the
1960s.
Their contribution to foreign trade is also
large and increasing.

The overall economic conditions in

emerging economies are quite favorable:

Relatively small fiscal deficits,
Manageable public debt,
Stable banking systems,
Low cyclical unemployment, and
Strong growth momentum

In contrast, many advanced economies are

facing serious challenges that stem from :

Big government deficits,
Large public debt,
Problems in their banking systems,
High unemployment rates, and
Weak growth

Figures for 2011 are projections

Source: WTO Secretariat.

Figures for 2011 are projections

Source: WTO Secretariat

Currently about 25% of world production is

sold outside the country of origin, as

opposed to about 7% in 1950.
Nearly all business enterprises, large and
small are inspired to carry on business
across the globe.

Features of a Global Company

A true global company has the following

features:
1.Globalization of market presence:
- This refers to the extent to which a
company targets customers in all major
markets within its industry throughout the
world.
- Examples- Sony, IBM, Cannon etc.

2. Globalization of supply chain:

- This refers to the extent to which a company
is accessing the most optimal locations for the
performance of various activities in its supply
chain- like sourcing of raw materials,
manufacturing, warehousing, transportation
etc.

Example: supply chain of Toyota.

Toyota produces in Japan as well as in its

affiliate companies spread over 25

countries in America, Europe and Asia.
Toyota is also engaged in intra-firm flows
among the affiliates.
It exports diesel engines from Thailand,
Steering gears from Malaysia and engines
from Indonesia.

3. Globalization of capital base:

- This refers to the extent a company is
accessing optimal sources of capital on
worldwide basis.
- Example: Many Indian Companies
(Reliance, Essar, Aditya Birla Group) have
accessed global capital through ADR and
GDR.

4. Globalization of corporate mindset:

-This dimension refers to the ability of the
company to understand and integrate
diversity across cultures and markets.
- The human capital is globalized and leadership
is diverse.

A true global company is one which scores

high on all four dimensions.

A global firm can be high on one dimension
and low on others.

Globalization is synonymous with

International Business.
Hence Globalization means International
Business and International Business means
Globalization.

Why study IB?

Today global events and competition affect all

most all companies- large or small- because

most of them sell their outputs to and source
supplies from foreign countries.
Many companies also compete with products
and services that come from abroad.

Most managers, regardless of industry or

company size, need to approach their

operating strategies from an international
perceptive.
A manager in any industry needs to
consider where to obtain the inputs (global
sourcing), desired quality and at what best
possible price and where to sell the
products more profitably.

In this present globalization era, a manager

needs to know about:

Best management practices across the globe.
Best human resource practices
Best supply chain, logistic management,
inventory management practices.