Theories of International Business

INTERNATIONAL BUSINESS
Reference Books : International Business By
Subba Rao
Francis Cherunilam
Dr Chandran
Sundaram and Black
Daniels & Radebough
Charles Hill & Jain
Roebuck & Simon
International Business
1. Definition of IB, Domestic vs IntI business, Adv & Disadv
2. International trade theories
3. Environmental challenges
4. Globalisation, Regional groups, Transnational economy.
5. Market entry strategies and Country selection processes
6. International Trade Institutions, IMF, IBRD, WTO and Policies
7. International finance & Foreign Direct Investments, GDR, ADR etc
8. International issues, G 20 issues, MFN status, Intellectual property
rights, purchase power parity, ISO and world quality standards etc
9. Trade Barriers, Anti Dumping etc
10.Ethical business, CSR, Millineum goals, HR policies etc
11.Logistics, Information technology, cultural and social issues,
Generalised topics etc
12.Case studies
Independence, Dependence and Interdependence
International Trade Policy
Laissez-faire approach (Free trade)

Vs Interventionist approach
Theories
Mercantilism (ex Colonial rule)
Absolute advantage and Comparative advantage (ex

India tea, US- wheat)
Theory of Country size (ex India, China, Brazil, USA)
The Product Life Cycle Theory (Raymond Vernons

Theory)
Factor Proportions Theory (ex India, Hong kong,

Singapore, Dubai)
World Monetary and Exchange rate System
Gold Specie Standard
Gold Bullion standard
Gold Exchange Standard
Bretton Woods System 1944

1 Troy Ounce of Gold = 31.1 gms = Us $ 35
International Business : Prof Bharat Nadkarni

Components of Balance of Payments
Item
A)Current Account
I Merchandise
II Non Monetary Gold
Movement
III Invisibles
(B) Capital Account
I Private
II Banking
III Official (Govt)
(C ) IMF
(D) SDR Allocation
(E) Errors & Omissions
(F ) Reserves and Monetary Gold
Credit
Debit
Net
Scope : World is turning into a Global village.
SMOOTH
1. Source raw materials wherever they are cheapest.
2. Manufacture anywhere in the world where it is most
cost effective.
3. Obtain and Sell in those global markets where the

returns are highest.
4. Organize and Raise finances globally.

5. Try and Forge international strategic alliances.
6. Hire the best talent from all over the world. To
manage all the above points.

And you will have achieved the stature of a true Global
Organization
International business can be defined as activities that buys
and sells goods and services across two or more national
boundaries, even if the management is located in a one
country. It includes any type of business activity that crosses
national borders. International business is related with
those enterprises which have operating units outside their
own country. There are institutional arrangements who
provide some managerial direction of economic activity
taking place abroad.
Conducting international business is really not like playing a
whole new ball game but it is like playing in a different ball
park, where the managers have to learn the factors unique to
the playing field. The guiding principles of a firm engaged in

international business activities should incorporate a global
perspective. Incorporating an international outlook into the
firms basic statement will help focus the attention of
management on the opportunities outside the domestic
economy.
Objectives of International Business

1. To integrate economies.
2.
To offer new markets.
3.
To facilitate transfer of ideas, services and capital across

the world.
4.
To facilitate mobility of factors of production.
Difference between Domestic and International business

1. Higher rate of profits (Absolute advantages, taxes,
concessions and incentives)
2. Expansion of production capacities
3. Competition (pull & push effects)
4. Wide market
5. Political stability
6. Technology
7. High cost of transportation
Growing importance of International Business
Current trends are towards the increasing globalisation

and interdependence of firms, markets and countries.
Intense competition at global level
Exchange rate developments shift from ve to +ve

growth
Global capital flows to LDCs
Differences in Price and Cost
Restructuring the economy to integrate with global

economy
Increased importance of CSR
The growing importance on enhancing standard of living

in LDCs
Liberal trade policies and procedures

Revolution in communication and transportation
International Business Corporate Approaches

E P R G Model
1. Ethnocentric (Home country orientation)
2.
Polycentric (Host country orientation)
3.
Regiocentric (Regional orientation)
4.
Geocentric (World orientation)
Home Country Economic Environment
1.
Domestic Markets & Size
2.
Economic Policies
3.
Promotional and Regulatory measures
Host Country Economic Environment

1. Size of the Markets
2. Gross Domestic Product
3. Industrialisation
4. Development of Banking Facilities
5. Purchasing Power and Standard of Living
6. Foreign Exchange Situation
7. Income levels
8. Economic diversity (urbanisation Rural dev. Ex
Johannesburg, Sao Paolo
Global Economic Environment

1. International organisations
2.
Trading Blocs
3.
Strategic Locations
4.
Global Political Environments and Issues
SAARC (7): + Afghanistan (Total 8)
South Asian Association for Regional Cooperation
India, Pakistan, Sri Lanka, Nepal, Bhutan, Bangladesh,
Maldives (SAPTA SAARC preferential trading agreement)
NAFTA (3) : North American Free Trade Agreement
USA, Canada, Mexico
LAFTA (9) : Latin American Free Trade Area
Argentina, Brazil, Mexico, Chile, Peru, Uruguay, Paraguay,
Columbia, Ecuador
ASEAN (5) : The Association of South East Asian Nations was
formed by the Bangkok Declaration, 1967, by five countries,
viz., Indonesia, Malaysia, Philippines, Singapore and
Thailand.
EU (15) : European Union
Austria, Belgium, Britain, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Netherlands,
Portugal, Spain, Sweden.
Euro : Common currency of the EU was launched by 11
members on 1.1.1999, Britain, Denmark, Sweden didnt join. Greece joined
in 1.1.2001
Maastricht Treaty of 1991 set the stage for the monetory

union.
EU Additions
With effect from May 1, 2004 the total membership of EU
increased to 25. Following ten countries were inducted.
Estonia, Latvia, Lithuania, Poland, Czech Republic, Hungary,
Slovenia, Slovakia, Cyprus and Malta.
Two more members, Bulgaria and Romania, were inducted in
2007, taking the tally to 27 countries.
MERCOSUR : Mercado Comun del Sur Brazil, Argentina,
Paraguay and Uruguay.
In the post World War II period, the erstwhile Soviet Union
and East European countries sought to foster economic
development via the integration scheme of Council for Mutual
EconomicAssistance (CMEA or COMECON). With the
dissolution of the CMEA in 1991 following political changes,
the regional trade of the eastern bloc also collapsed.
ASEAN China free trade zone is under process. AFTA
with more members like Cambodia, Laos, Myanmar and
Vietnam also joining the group.
Thank you
International Business Environment

1. Internal Environment
Org. Structure ( I
P
O)
Production
Marketing
Finance
HR
R&D
IT
Business Development
International Business Environment

2. External Environment
a. External Micro Environment
All Stakeholders and Competitors
b. External Macro Environment
STEPIN
(Social, Technical, Economical, Political, International,
and Natural)
Foreign direct investment approvals will, however, be

subject to sectoral caps: (as on 31.03.2010)
20 percent (40'per cent for NRIs} in the banking sector;
51 per cent in non-banking financial companies;
100 per cent in power, roads, ports, tourism and venture capital funds;
49 per cent in telecommunications;
40 per cent (100 per cent for NRIs) in domestic air taxi operations/airlines;
24 per cent in small-scale industries;
51 per cent in drugs/pharma industry for bulk drugs;
100 per cent in petroleum; and
50 per cent in mining ~ except for gold. silver, diamonds and precious
stones
The Millennium Development Goals

as defined by UN
Eradicate extreme poverty and hunger
Achieve universal primary education
Promote gender equality and empower women
Reduce child mortality
Improve maternal health
Combat HIV/AIDS, malaria and other diseases
Ensure environmental sustainability
Develop a global partnership for development
Stop Child Labour

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INTERNATIONAL BUSINESS

Reference Books : International Business By

Sundaram and Black

Daniels & Radebough

Charles Hill & Jain

Roebuck & Simon

Laissez-faire approach (Free trade)

Mercantilism (ex Colonial rule)

Absolute advantage and Comparative advantage (ex

Theory of Country size (ex India, China, Brazil, USA)

The Product Life Cycle Theory (Raymond Vernons

Factor Proportions Theory (ex India, Hong kong,

Gold Specie Standard

Gold Bullion standard

Gold Exchange Standard

Bretton Woods System 1944

International Business : Prof Bharat Nadkarni

Scope : World is turning into a Global village.

3. Obtain and Sell in those global markets where the

4. Organize and Raise finances globally.

manage all the above points.

the playing field. The guiding principles of a firm engaged in

Objectives of International Business

To offer new markets.

To facilitate transfer of ideas, services and capital across

To facilitate mobility of factors of production.

Difference between Domestic and International business

Growing importance of International Business

Current trends are towards the increasing globalisation

Intense competition at global level

Exchange rate developments shift from ve to +ve

Global capital flows to LDCs

Differences in Price and Cost

Restructuring the economy to integrate with global

Increased importance of CSR

The growing importance on enhancing standard of living

Liberal trade policies and procedures

International Business Corporate Approaches

Polycentric (Host country orientation)

Regiocentric (Regional orientation)

Geocentric (World orientation)

Home Country Economic Environment

Domestic Markets & Size

Promotional and Regulatory measures

Host Country Economic Environment

Global Economic Environment

Global Political Environments and Issues

Maastricht Treaty of 1991 set the stage for the monetory

International Business Environment

International Business Environment

Foreign direct investment approvals will, however, be

The Millennium Development Goals

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