What is International Business & it’s Importance?

What Is International Business?

To Conduct Business Overseas, Multinational Companies Need To Bridge Separate National Market Into One Global Market Place.

Trade of Goods, Services, Technology, Capital OR Knowledge Across National Boundaries and at a Global Or Transactional Scale.

Example – Amazon, Coca-Cola, Etc.

This companies have independent operations in each country and each country has its own setup offices, employees, etc.

Even the products and marketing campaign are customise as per local needs.

 

International Management

  • Business operations in an organisation
  • Serving markets and operating in more than one country.

MNE- MultiNational enterprises

MNC- Multinational companies or corporation

 

Domestic, Multinational and Transnational business

1. Domestic Business

  • Companies that operate mostly or solely within one country are domestic firms.
  • The products and services are typically tailored to the local environment which may lead customer to trust or prefer domestic companies over foreign business.

2. Multinational Business 

  • Companies operate in more than one country and have a centralised management system.
  • Owns a home country and its subsidiaries.

3. Transnational Business 

  • Transnational business have many companies around the world but do not have a centralized management system.

         Example – Apple, Unilever, McDonald’s

 

International Business Environment

An international business environment is the surrounding in which international companies run their business.

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Macro(External) Environment

1. The Economic Environment 

Economic system, economic resources, the level of income, the distribution of income and assets.

2. Social and Cultural Environment 

Customs, Traditions, Taste & Preference

3. Political, Legal & Regulatory Environment

Taxes, Subsidy, Other Business Related Laws

4. Technology Environment

Need of Technology Changes

 

Globalization

International Business

 

(Globalization Of Business Means doing Business In Multiple Countries)

Globalization means allowing interaction, integration among the people, companies, and government of different nations by international trade and investment and aided by information technology.

Importance Of Globalisation

  • Increase in Trade
  • Greater Competition
  • Increase Capital & Labour Mobility
  • Removing Monopoly
  • More efficient Productivity

Types Of Globalisation

  • Political Globalization – UN,EU,WHO
  • Social Globalization – By Which People’s Lifestyle is spread over global networks.
  • Economical Globalization – Production, Trade, Labour, Capital, Direct investment, etc.

Stages Of Globalisation

Stage 1 – Domestic Stage

Marketing and production activities limited to home country

Stage 2 – International Stage

Marketing and production activities expand from home to another country. (Export Increase)

Stage 3 – Multinational Stage

Marketing and production activities located in many countries.

Stage 4 – Global Stage

Ownership control and top management can be dispersed to different countries. Marketing sale and acquiring resources in country offering based deal.

Features Of Globalisation

  1. Liberalisation
  2. Free Trade
  3. Globalisation Of Economic
  4. Privatisation
  5. Increase collaboration
  6. Liberalisation in import and export.

 

Foreign market entry strategy

  1. Export – selling or delivering products into another country directly or indirectly.
  2. Piggy Banking – Exporting with the help of another experienced company.(indirect export)
  3. Merger and acquisition – doing merger or acquiring an overseas company.
  4. Franchising – Allowing to use trademark and distribution of supplier goods.
  5. Licensing- quite similar to franchising, firm transfer the right to use the product and  services by another company.
  6. Joint venture – from of partnership two companies agree to work together & creating a third independently managed company.  Ex- Sony & Ericsson Producing Mobile Phone With The Brand Name “Sony Ericsson”
  7. Turnkey Projects – facility is built by a company for another company and handed over after completion of the work.
  8. Greenfield Projects – Type of FDI, parent company create a newly wholly owned subsidiary in a different country.
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LPG Models

(Brought under economic reform in 1990’s by PM PV Narasimha Rao and finance minister Manmohan Singh)

LPG Stands For – Liberalisation, Privatisation and Globalisation

To develop India’s economy LPG model was followed

It was aimed at making the Indian economy as fastest growing economy and globally competitive.

Liberalisation – means to free the economy from direct or physical controls imposed by the government. (Industrial licensing system, price control on goods, import licence, foreign exchange control, etc. was liberalised)

i,e. Reduction in restrictions.

Privatisation – means allowing the private sector to set up more and more industries that were previously reserved for public sector. (joint venture, leasing, franchising)

Globalisation – Means allowing interaction, integration among the people, companies and government of different nations by international trade and investment and added by information technology.

 

 

MNC(Multinational Companies/Corporation)

MNC is are the companies that have their head office in one country and regional branches all over the world.

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Their function is to provide access of different products to different countries.

Simply a company with production and distribution facilities in more than one country.

Ex- Microsoft Corporation India (American), Nestle (Switzerland)

Merits Of MNC’s

  1. Employment generation
  2. Flow of foreign capital
  3. Proper use of resources
  4. Technical development
  5. End of local monopoly
  6. Improvement in standard of living

Demerits Of MNC’S

  1. Danger for domestic resources
  2. Danger to independence
  3. Exploitation of peoples
  4. Competition to MSME

 

Foreign Direct Investment (FDI)

Foreign Direct Investment

Investment made by company or entity based in one country into a company or entity based in another country.

FDI policy of the Government of India prescribed the foreign capital in specific industries sector.

Broadly The Industrial Sector are Categorised As:-

  • Restricted – (49% in Insurance, Banking, R&D, Courier)
  • Unrestricted – (100% FDI is allowed Mining, IT Services, Airlines, E-commerce)
  • Prohibited – (Atomic energy, Tobacco related industry, Agriculture, Housing, etc.)

FDI Can be done through two ways – 

  1. Automatic Route – No Approval from Government is required
  2. Government Route – Approval from Government is required

 

Conclusion: In this article we learn that What is International Business?, LPG Models, Foreign Market Entry Strategy & Foreign Direct Investment and etc.This Article Is Very Important For All students who adopt ‘international Business’ Subject.

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