International Business Project

Made bySONALI MALHOTRA TYBBI ROLL NO: !

"# $%at is International Business& 'iscuss its Need and I()ortance in t%e current *lobal scenario+ International business may be defined simply as business transactions that take place across national borders. This broad definition includes the very small firm that exports (or imports) a small quantity to only one country, as well as the very large global firm with integrated operations and strategic alliances around the world. ithin this broad array, distinctions are often made among different types of international firms, and these distinctions are helpful in understanding a firm!s strategy, organi"ation, and functional decisions (for example, its financial, administrative, marketing, human resource, or operations decisions). #ne distinction that can be helpful is the distinction between multi$domestic operations, with independent subsidiaries which act essentially as domestic firms, and global operations, with integrated subsidiaries which are closely related and interconnected. These may be thought of as the two ends of a continuum, with many possibilities in between. %irms are unlikely to be at one end of the continuum, though, as they often combine aspects of multi$domestic operations with aspects of global operations. International business grew over the last half of the twentieth century partly because of liberali"ation of both trade and investment, and partly because doing business internationally had become easier. In terms of liberali"ation, the &eneral 'greement on Tariffs and Trade (&'TT) negotiation rounds resulted in trade liberali"ation, and this was continued with the formation of the orld Trade #rgani"ation ( T#) in ())*. 't the same time, worldwide capital movements were liberali"ed by most governments, particularly with the advent of electronic funds transfers. In addition, the introduction of a new +uropean monetary unit, the euro, into circulation in ,anuary -..- has impacted international business economically. The euro is the currency of the +uropean /nion, membership in 0arch -..* of -* countries, and the euro replaced each country!s previous currency. 's of early -..*, the /nited 1tates dollar continues to struggle against the euro and the impacts are being felt across industries worldwide. In terms of ease of doing business internationally, two ma2or forces are important3 (. Technological developments which make global communication and transportation relatively quick and convenient4 and

-. The disappearance of a substantial part of the communist world, opening many of the world!s economies to private business.

I()ortance o, International Business International business is all business transactions$private and governmental$that involve two or more countries. hy should one be interested in studying international business5 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 and6or secure suppliers from foreign countries and6or compete against products and services that come from abroad. 0ore companies that engage in some form of international business are involved in exporting and importing than in any other type of business transaction. 0any of the international business experts argue that exporting is a logical process with a natural structure, which can be viewed primarily as a method of understanding the target country!s environment, using the appropriate marketing mix, developing a marketing plan based upon the use of the mix, implementing a plan through a strategy and finally, using a control method to ensure the strategy is adhered to. This exporting process is reviewed and evaluated regularly and modifications are made to the use of the mix, to take account of market changes impacting upon competitiveness. This view seems to suggest that much of the international business theory related to enterprises, which are internationally based and have global ambitions, does often change depending on the special requirements of each country. 'nother core issue is the company!s growth and the importance of networking and interaction. This view looks at the way in which companies and organisations interact and consequently network with each other to gain commercial advantage in world markets. The network can be using similar subcontractors or components, sharing research and development costs or operating within the same governmental framework. 7learly, when businesses formulate a trading block with no internal barriers they are actually creating their own networks. 7ollaborations in aerospace, vehicle manufactures and engineering have all sponsored the development of a country!s or a group of countries! outlook based on their own internal market network. This network and interaction approach to internationalisation shows the substance of being able to influence decisions when knowing how the global network players work or interact. %or example, a crucial market network is that of the 0iddle +ast. 0iddle +ast countries are rich, diverse markets, with a vibrant and varied cultural heritage. This means that although there has

been a harmonisation process during the past few years, differences still exist. 8ather than business being simpler as a result, it should be recognised that because of regulations and the need those countries have to restructure as they enter the global market, performing any kind of business can be highly complex. It should be remembered though that the 0iddle$+astern countries have a low$income average and like to have their cultural differences recognised. Those firms that will or have recognised these facts have a good chance of developing a successful marketing strategy to meet their needs. %ortunately some firms have realised these important differences and reacted adequately when strategic decisions had to be made regarding their penetration to this kind of markets.

-# 'iscuss t%e .arious en.iron(ental ,actors a,,ectin* international business+ +nvironmental factors for international business comprise the external relations a firm will face in going global. These include, most importantly, the economic, political and legal environments, each of these always entangled with the others. "+ Basic Issues The central issues for the decision to go global are concerned with minimi"ing risk. ' company, when considering the environment that it will deal with when entering a new market, has to deal with certain variables. These concern, for example, the cultural barriers to investment, the ability to reach a competitive edge with new investments and the strategic use of new technologies and natural resources that international investment might bring. -+ T%e /cono(ic /n.iron(ent 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. ' firm will function very differently in a libertarian environment than within a highly statist one. 9ere, the activities and functions of local economic elites are also very important. + T%e Political /n.iron(ent 7losely tied to the economic environment is the political one, itself also dealing with the nature of systems and institutions. 0any 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. 0+ T%e Le*al /n.iron(ent 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 ma2or variables in this field. ' 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

0onetary %und or the

orld :ank is also important in creating a legal culture that a business

will have to take seriously. !+ Social Structure +xperts such as 8obert :rown and 'lan &utterman hold that social structure comprises the basic values of a people and transcends the institutions mentioned above. Issues such as the relation between the individual and the collective, religion, family life and even time concepts and gender roles are all significant in terms of dealing with a new population. :eing sensitive to these might be the difference between success and failure.

# 'iscuss t%e i()act o, tec%nolo*y on international business+ Technology has revolutioni"ed 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 2ust a few of the ways technology has enhanced society. The field of international business is particularly sensitive to technological innovations. History In the early (;..s, international trade was impeded by economic forces that included wildly fluctuating currency exchange rates, handwritten correspondence via an unreliable postal service, and common supply$chain disruptions such as theft and vandalism of passing ships. %urthermore, as <ouglas Irwin explains in a =>ibrary of +conomics and >iberty= article, imports used to be highly regulated and taxed to discourage countries from running trade deficits. Improvements in the legal system allowed for contracts with greater transparency and enforceability, and improvements in the mode of transportation allowed goods to be transported in less time. Identi,ication The most important modes of technology in international business include electronic communication such as emails, texts, faxes and virtual conferences. Tracking methods for shipping and purchasing is another huge technological innovation, as it allows businesses to verify the delivery of goods and the quantity of inventory purchased. +lectronic spreadsheets and databases are other inventions that allow international companies to manage and store their information with greater ease. 1onsiderations: 1o((unication The improvement in technology regarding communication is a linchpin of international business. The ability to instantaneously communicate with a manager in 7hina or a factory in 1ingapore, for example, allows companies to expand overseas. Though multinational companies existed before the Internet, the ease of communication allows companies to outsource their operations with greater assurance3 ?ideo monitoring of factory and working conditions, inexpensive conference calls to consultants working in different countries, emailed reports to

foreign vendors, and cheap long$distance phone calls are 2ust a few of the ways technology has facilitated international business trade and operations. 1onsiderations: Lo*istics 0ultinational corporations have much more complex supply chains than local brick$and$mortar businesses. International companies often have vendors, factories, customers and consultants in different parts of the globe. @eeping track of how a product is developed, manufactured, shipped and purchased can involve hundreds of steps in several countries. Technological innovations streamline the supply chain by allowing up$to$the$minute results on the assembly of a product, and global tracking technology highlights where the product is moving. 8%I< technology assists companies such as al$0art 1tores with inventory control. ,ack Alunkett, al$ author of =Alunkett!s Transportation, 1upply 7hain and >ogistics 'lmanac,= states that 0art mandated B.. of its suppliers to implement 8%I< technology to track and monitor deliveries and shipments. Bene,its Technology allows companies to produce products for less money. 's 1udalaimuthu and 'nthony 8a2 explain in the textbook =>ogistics 0anagement for International :usiness,= the cost of shipping goods can account for -* percent of production costs4 thus, the reduction in the cost of shipping significantly decreases the cost of producing goods. %urthermore, companies have a wider selection of vendors from which to choose which lowers the cost as well. %or instance, technological innovations enable a clothing company to choose from textile plants in ?ietnam, 1ingapore, Taiwan and several other locations. The increased selection lowers the cost as these foreign companies bid against the others for contracts.

0# 'iscuss t%e role o, %istory in t%e de.elo)(ent o, International Ban2in* in t%e -"st century+ International business commands center stage in today!s global economy. The international business standards focus on3 8aising awareness of the interrelatedness of one country!s political policies and economic practices on another4 >earning to improve international business relations through appropriate communication strategies4 /nderstanding the global business environment$$that is, the interconnected$ness of cultural, political, legal, economic, and ethical systems4 +xploring basic concepts underlying international finance, management, marketing, and trade relations4 Identifying forms of business ownership and international business opportunities.

The International :ank for 8econstruction and <evelopment (I:8<) is one of five institutions that comprise the orld :ank &roup. The I:8< is an international organi"ation whose original orld ar II. Cow, its mission was to finance the reconstruction of nations devastated by

mission has expanded to fight poverty by means of financing states. Its operation is maintained through payments as regulated by member states. It came into existence on <ecember -;, ()D* following international ratification of the agreements reached at the /nited Cations 0onetary and %inancial 7onference of ,uly ( to ,uly --, ()DD in :retton oods, Cew 9ampshire. The I:8< provides loans to governments, and public enterprises, always with a government (or =sovereign=) guarantee of repayment sub2ect to general conditions. The funds for this lending come primarily from the issuing of orld :ank bonds on the global capital marketsEtypically F(-G(* billion per year. These bonds are rated ''' (the highest possible) because they are backed by member states! share capital, as well as by borrowers! sovereign guarantees. (In addition, loans that are repaid are recycled, or relent.) :ecause of the I:8<!s credit rating, it is able to borrow at relatively low interest rates. 's most developing countries have considerably lower credit ratings, the I:8< can lend to countries at interest rates that are usually quite attractive to them, even after adding a small margin (about (H) to cover administrative overheads.