Introduction to IB

International business is defined as any business activity or transaction that transcends the national border. International business takes different forms like exporting, licensing, contract manufacturing, foreign assembly, foreign production, joint venturing etc., International marketing is an important aspect of international business.

 According to Terpstra and Sarathy, International marketing is finding out what customers want around the world and then satisfying these wants better than other competitors, both domestic and international International marketing is defined as marketing in an internationally competitive environment, no matter whether the market is domestic or foreign. Emerging competitive environment and how the local, national and international firms are facing competitive can be studied with the help of a figure

The emerging competitive environment

Foreign players

Competition facing local/national/internati onal firms

Local players National Players

Why go international ?
The factors which motivate or provoke firms to go international may be broadly divided into two groups, pull factors and push factors. The pull factors are proactive reasons Companies are motivated to internationalize because of the attractiveness of the foreign market, profitability and growth prospects. The push factors are reactive reasons, compulsions of the domestic market for eg., saturation of the market.

 Problems in International marketing 1. Political and legal differences 2. Cultural differences 3. Economic differences 4. Differences in the currency unit 5. Differences in the language 6. Differences in the marketing infrastructureAdvtg 7. Trade restrictions 8. High costs of distance 9. Differences in trade practices

International Orientations
The degree and nature of involvement in international business or the orientations of company vary very widely. The EPRG framework identifies four types of attitudes or orientations towards internationalization that are associated with successive stages in the evolution of international operations. 1. Ethnocentric orientation (home country orientation) - overseas operations are viewed as secondary - overseas marketing is administered by export department - reliance on export agents. - Extension strategy -same product in the international market

 2. Polycentric Orientation (host country orientation)

- Subsidiaries are established in the overseas markets.

- Each of them operates independently with its own marketing objectives and plans. - Marketing is characterized by adaptation strategy - Marketing segmentation based on country basis,
3.

Regiocentrism (regional orientation)

- Views different regions as different markets - A particular region with certain important marketing characteristics is regarded as a single market, ignoring the national boundaries

 Geocentric orientation
- views the entire world as a single market and develops standardized marketing mix, projecting a uniform image of the company and its products for the global market. - Global orientation - Standardization will not be successful in many cases.

Internationalization Stages
Stages in the evolution of companies
Purely domestic company Domestic company with some foreign business (indirect/direct export, licensing/franchising etc., International company

Multinational / Global company

Transnational company

Globalization
The IMF defines globalization as the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology. There are various factors responsible for the momentum to the forces of globalization - The sweeping political and economic policy changes in the communist and socialist countries. - Shifts in the economic policies - Privatization in a number of market economies - Liberalization of trade and investment fostered by the GATT/WTO

 Globalization, is not a new phenomenon. The period of 187- to 1913 experienced a growing trend toward globalization The new phase of globalization started around the mid 20th century Globalization is considered at two levels, at the macro level (globalization of the world economy) and The micro level (globalization of the business and the firm)

Globalization of world economy

The world economy has been emerging as a global or transnational economy. Globalization is a process of development of the world into a single integrated economic unit The transnational economy is a borderless world economy characterized by free flow of trade and factors of production across national borders. The transnational economy is different from the international economy ( characterized by the existence of different national economies and the economic relations are regulated by the national governments)

 Features of the transnational economy According to Peter Drucker 1. The economy is shaped mainly by money flows rather than by trade in goods and services. 2. Management has emerged as the decisive factors of production and the traditional factors are secondary(prodn, land , labour) 3. The goal is market maximization and not profit maximization 4. The decision making power is shifting from the national state to the region (regional blocs, BRIC, NAFTA etc., 5. It is organized by information which no longer knows national boundaries. 6. The entire world is a single market for production and marketing of goods and services.

 Globalization of Business Globalisation encompasses the following :

1.Doing or planning to expand business globally 2. Giving up the distinction between the domestic market and foreign market and developing a global outlook of the business 3. Irrespective of national considerations, locating the production and other physical facilities on a consideration f the global business dynamics. 4. Basing product development and product planning on the global market considerations 5. Global sourcing of factors of production, raw materials, components machinery/ technology , finance etc., are obtained form the best source anywhere in the world. 6. Global orientation of organizational structure and management culture.

 For example: Mazdas sports car, was designed in California Had its prototype created in England Assembled in Michigan and Mexico Electronic components invested in New Jersey Fabricated in Japan Financed from Tokyo and NewYork and marketed globally

Stages of Gobalisation
Ohame identifies five different stages in the development of a firm into a global corporation. Stage I : Domestic company which moves into new markets overseas by linking up with local dealers and distributors Stage II : the company takes over these activities on its own Stage III : the domestic based company begins to carry out its own manufacturing, marketing and sales in the key foreign markets.

 Stage IV : R&D and engineering unit is set up. The headquarters mentality continues to dominate. Different local operations are linked their relation to each other is established by their relation to the centre Stage V : the company moves toward a genuinely global mode of operation, global localization,

 Essential conditions for globalization There are some essential conditions to be satisfied on the part of the domestic economy as well as the firm for successful globalization of the business. 1. Business freedom : there should not be unnecessary government intervention, import restriction, restrictions on sourcing finances, foreign investments etc., 2. Facilities : infrastructural facilities 3. Government support : policy and procedural reforms, R&D support, financial market reforms etc., 4. Resources : It is one of the important factor which decides the ability of a firm to globalize. It includes, finance, technology, company and brand image, human resources etc.,

 Competitiveness: A firm may derive competitive advantage from any one or more of the factors, low costs, price, product quality, product differentiation, technological superiority, after sales service, marketing strength etc., Orientation : A global orientation on the part of the business firms and suitable globalization strategies are essential for globalization

Factors determining competitive advantage of nations

Demand conditions

Chance

Factor conditions

Firm strategy structure and rivalry

Related and supporting industries

Government

 Benefits of Globalization - it can make a substantial contribution to the economic development of the nation. - Standard of living will grow up faster -Increase in competition would make companies more cost and quality conscious and innovative - Inflation is less likely to derail economic growth - Liberalization and global competition enhance consumer choice and consumer surplus. - Globalization opens up enormous domestic and global opportunities for firms in developing countries. - Unfettered capital flows give the country access to foreign investment and keep interest rates low.