UNIT-1

UNIT-1
INTERNATIONAL BUSINESS
International Business: Nature, importance and scope
• It encompasses all commercial activities that take place to promote
the transfer of goods, services, resources, people, ideas, and
technologies across national boundaries.
IMPORTANCE-
Why Engage in International Business
• Expand sales
• Volkswagen (Germany)
• Ericsson (Sweden)
• IBM (United States)
• Acquire resources
• Better components, services, products
• Foreign capital
• Technologies
• information
• Minimize risk
• Take advantage of the business cycle for products/services
• Diversify among international markets
Reasons for Growth in International
Business
• Rapid increase in and expansion of technology
• Transportation is quicker while costs are lower
• Communication enables control from afar
• Liberal government policies on trade and resources
• Development of institutions that support
international trade
• Consumer pressures
• Increased global competition
Scope of International Business
• 1.Foreign Investments: Foreign investment is an important part of international
business. Foreign investment contain investments of funds from the abroad in
exchange for financial return. Foreign investment is done through investment in
foreign countries through international business. Foreign investments are two
types which are direct investment and portfolio investment.
• 2. Exports And Imports Of Merchandise: Merchandise are the goods which are
tangible. (those goods which can be seen and touched.) export means sending
the home country’s goods to other countries which are tangible and
merchandise imports means bringing tangible goods to the home country.
• 3. Licensing And Franchising: Franchising means giving permission
to the new party of the foreign country in order to produce and sell
goods under your trademarks, patents or copyrights in exchange of
some fee is also the way to enter into the international business.
• 4. Service Exports And Imports: Services exports and imports consist
of the intangible items which cannot be seen and touched. The trade
between the countries of the services is also known as invisible trade.
There is a variety of services like tourism, travel, boarding, lodging,
constructing, training, educational, financial services etc. Tourism
and travel are major components of world trade in business.
5.Exchange of technical and managerial knowledge: There are lots of growth
opportunities for both of the countries, developing and under-developing
countries by trading with each other at a global level. The imports and
exports of the countries technical and managerial knowledge help to increase
their profits and help them to grow at a global level.
6.Benefiting From Currency Exchange: International business also plays an

important role while the currency exchange rate as one can take advantage of
the currency fluctuations.
7. Limitations Of The Domestic Market: If the domestic market of a country is

small then the international business is a good option for the growth of the
business in the host country. Depression of domestic market firms force to
explore foreign markets.
Factors affecting International Business
Environment
Factors affecting International Business
Environment
• Multinational companies operate in different geographic regions around the
world and have to deal with a wide variety of economic, political, legal,
socio-cultural, and technological factors.
• These factors constitute an operating environment that includes political,
social, legislative, economic, cultural, and natural environmental
factors that significantly affect the business of any international firm.
• These factors need to be considered during planning to ensure the strategies
fit the operational environment and are based on current local conditions.
• An organization has to pay attention to all factors that are a part of the
operating environment as these factors influenced organization operations
significantly. As the operating environment inserts its impacts on business
success, scale, vision, and development strategy, having a full
understanding of this issue should be prioritized by top management of the
companies.
Political and Legal Factors
“Politics is the art of controlling your environment.”
It reflects the impact of the political factor on overall international business operations. Politics and laws are always and everywhere dynamic. At
different times, different parties champion different ideologies that endorse different political systems.
ECONOMIC FACTORS-
Economic factors talk about the type of economic environment in terms of its
state of development, the economic freedom managers have to make
investments and run operations, the orientation of the economic system that
shapes its path of development, performance, and potential and the drivers of
economic change, particularly the moderators of productivity, innovation, and
competitiveness.
Command Economy: The state owns and controls the
factors of production. Public officials and not private
agents, decide what products to make, in what quantity,
at what price, and in what way. Examples: China, Russia,
and Saudi Arabia. The philosophical anchor for such an
economy is communism.
Mixed Economy: It falls between the market and

command types. It is a system in which economic
decisions are principally market-driven and ownership is
largely private, but the government intervenes, from a
little to a lot, in valuing assets, allocating resources,
regulating activities, and organizing the market.
Examples: Japan, South Kore, Brazil, and India. The
philosophical anchor for such an economy is socialism.
Market Economy: It is a system whereby individuals,

rather than government, make most of the decisions.
Optimal resource allocation follows from consumers
exercising their freedom of choice and producers
responding accordingly. This economy is commonly
found in developed economies like the US, Australia, and
Canada. The philosophical anchor for such an economy
is capitalism.
Cultural factors -
Culture and society have an impact on each aspect of the international business
of multinational companies.
However, culture and society are not directly included in international business
operations; they indirectly appear as important elements in directing how the
business is managed, from what products are manufactured, and how and
through what ways they will be sold, to the creation of managerial and
operational patterns and the evaluation of the success or failure of foreign
subsidiaries.
Technological Factors –
Technological factors are variables that are being used for evaluating available alternatives concerning
technological capabilities. Multinational companies consider it an important tool for improving operations
and functions.
Technological Factors influencing International Business operations
These factors consider the rate of technological innovation and development that could affect a market or
industry
• changes in information and communication technology,
• automation,
• research and development.

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UNIT-1

6.Benefiting From Currency Exchange: International business also plays an

7. Limitations Of The Domestic Market: If the domestic market of a country is

Mixed Economy: It falls between the market and

Market Economy: It is a system whereby individuals,

Technological Factors influencing International Business operations

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