International business - Manu Melwin Joy

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Manu Melwin Joy
Assistant Professor
Ilahia School of Management Studies
Kerala, India.
Phone – 9744551114
Mail – manu_melwinjoy@yahoo.com

Definition
“ All institutions have to make
global competitiveness a
strategic goal. No institution,
whether a business, a
university or a hospital, can
hope to survive, let alone to
succeed unless it measures up
to the standards set by the
leaders in its fields, any place
in the world.”
-Management challenges
of 21st century by Peter
drucker.

Definition
Although its market is
confined almost entirely
to India, the competition
which Nirma encounters
is indeed global. Its major
competitor include MNCs
such as Unilever, P&G,
Colgate, Palmolive and
Henkel.

Definition
International business
relates to any situation
where the production
or distribution of goods
or services crosses
country borders.

Why go international?
• Survival.
• Growth Opportunities.
• Sales and profit.
• Diversification.
• Domestic Market constraints.
• Inflation and price moderation.
• Employment.
• Standard of living.
• Competition.

SURVIVAL
• Because most of the countries are
not as fortunate as the United
States in terms of market size,
resources, and opportunities,
they must trade with others to
survive; Hong Kong, has
historically underscored this point
well, for without food and water
from china proper, the British
colony would not have survived
along. The countries of Europe
have had similar experience,
since most European nations are
relatively small in size. Without
foreign markets,

GROWTH OPPORTUNTIES
An important reason for
going international is to
take advantage of the
opportunities in other
countries. MNCs are
getting increasingly
interested in a number
of developing countries
as the income and
population are rapidly
rising in these countries.

GROWTH OPPORTUNTIES
Developing countries, in spite of
economic and marketing problems,
are excellent markets. According to
a report prepared for the U.S.
CONGRESS by the U.S. trade
representative, Latin America and
Asia/Pacific are experiencing the
strongest economic growth.
American markets cannot ignore the
vast potential of international
markets. The world is more than
four times larger than the U.S.
market. In the case of Amway corps.
a privately held U.S. manufacturer of
cosmetics, soaps and vitamins,
Japan represents a larger market
than the United States.

Example
In recent years, a
number of Indian
pharmaceutical
companies have
achieved a much faster
growth of their foreign
business than the
domestic. The US market
alone is expected to
contribute as much as
half of the total sales of
Ranbaxy shortly.

SALES AND PROFIT
Foreign markets constitute a
larger share of the total business
of many firms that have wisely
cultivated markets aboard. Many
large U.S. companies have done
well because of their overseas
customers. IBM and Compaq, foe
ex, sell more computers aboard
than at home. According to the
US dept. of commerce, foreign
profits of American firms rose at
a compound annual rate of 10%
between 1982 and 1991, almost
twice as fast as domestic profits
of the same companies.

SALES AND PROFIT
The important
incentive of
international business
is the profit
advantage. There are
cases of companies
which earned more
than 100 % of the
total profit from
foreign market.

Example
MNCs are lured to
china by cheap labor.
Philips now has 23
factories in China and
exports $ 5 billion in
goods produced every
year. Chine is making
more than 50 % of
cameras, 30 % of AC
and TVs, 25 % of
washing machines sold
world wide.

DIVERSIFICATION
• Demand for mast products is
affected by such cyclical factors as
recession and such seasonal
factors as climate. The
unfortunate consequence of
these variables is sales
fluctuation, which can frequently
be substantial enough to cause
layoffs of personnel. One way to
diversify a companies’ risk is to
consider foreign markets as a
solution for variable demand.
Such markets, even out
fluctuations by providing outlets
for excess production capacity.

DIVERSIFICATION
• Cold weather, for instance may
depress soft drink consumption.
Yet not all countries enter the
winter season at the same time,
and some countries are relatively
warm year round. Bird, USA, inc.,
a Nebraska manufacturer of go
carts, and mini cars, for
promotional purposes has found
that global selling has enabled
the company to have year round
production. It may be winter in
Nebraska but its summer in the
southern hemisphere-somewhere
there is a demand and that
stabilizes the business.

Domestic Market constraints
The market for a
number of products
tend to saturate or
decline in advanced
countries. In US, the
stock of several
consumer durables like
cars, TV sets etc
exceeds the total
number of households.

INFLATION AND PRICE MODERATION
• The benefits of export are readily
self-evident. Imports can also be
highly beneficial to a country
because they constitute reserve
capacity for the local economy.
Without imports, there is no
incentive for domestic firms to
moderate their prices. The lack of
imported product alternatives forces
consumers to pay more, resulting in
inflation and excessive profits for
local firms. This development
usually acts as prelude to workers
demand for higher wages, further
exacerbating the problem of
inflation.

INFLATION AND PRICE MODERATION
• Import quotas imposed on
Japanese automobiles in the
1980’s saved 46200 US
production jobs but at a cost of
$160,000 per job per year. This
cost was a result of the addition
of $400 to the prices of US cars,
and $1000 to the prices of
Japanese imports. This windfall
for Detroit resulted in record high
profits for US automakers. Not
only do trade restrictions depress
price competition in the short
run, but they also can adversely
affect demand for year to come

EMPLOYMENT
Trade restrictions, such as high tariffs
caused by the 1930’s smoot-hawley bill,
which forced the average tariff rates
across the board to climb above 60%,
contributed significantly to the great
depression and have the potential to
cause wide spread unemployment again.
Unrestricted trade on the other hand
improves the world’s GNP and enhances
employment generally for all nations.
Importing products and foreign
ownership can provide benefits to a
nation. According to the institute for
international Economics-a private, non-
profit research institute – the growth of
foreign ownership has not resulted in a
loss of jobs for Americans; and foreign
firms have paid their American workers
the same, as have domestic firms.

STANDARDS OF LIVING
Trade affords countries and their citizen’s
higher standards of living than other wise
possible. Without trade, product
shortages force people to pay more for
less, products taken for granted, such as
coffee and bananas may become
unavailable overnight. Life in most
countries would be much more difficult
were it not for the many strategic metals
that must be imported. Trade also makes
it easier for industries to specialize and
gain access to raw materials, while at the
same time fostering competition and
efficiency. A diffusion of innovations
across national boundaries is useful by-
products of international trade. A lack of
such trade would inhibit the flow
innovative ideas.

Competition
Competition become a
driving force behind
internationalization.
The economic
liberalization ushered
in India since 1991,
which has increased
competition from
foreign firms as well as
from those within the
country.

Important factors of economic
environment
Structure and
nature of economy
Economic
conditions
Economic policies Global linkage
• Levels of
development of
the economy.
• Sectoral
composition of
output.
• Inter – sectoral
linkage.
• Income levels.
• Distribution of
income.
• GDP Trends.
• Demand and
supply trends.
• Price trends.
• Trade and BPO
trends.
1. Industrial
policy.
2. Trade policy.
3. Foreign
exchange
policy.
4. Foreign
investment and
technology
policy.
5. Fiscal policy.
6. Monetary
Policy.
• Magnitude and
nature of cross
border.
• Trade flows.
• Financial flows.
• Membership of
WTO, IMF,
World Bank,
trade blocs etc

Economic Environment
• Economic conditions, economic
policies and the economic system
are the important external factors
that constitute the economic
environment of a business. The
economic conditions of a country-
for example, the nature of the
economy, the stage of development
of the economy, economic
resources, and the level of income,
the distribution of income and
assets, etc- are among the very
important determinants of business
strategies.

Nature of economy
• Low income economies-
Very low level of per capita
income.
• High income economies –
Very rich income per capita.
• Middle income economies –
Per capita income lies
between that of low income
and high income economies.

Nature of economy
• Developing economies –
This include Low income
and middle income are
economies.
• Developed economies –
High income economies.

In a developing country, the low
income may be the reason for the
very low demand for a product. The
sale of a product for which the
demand is income elastic naturally
increases with an increase in income.
But a firm is unable to increase the
purchasing power of the people to
generate a higher demand for its
product. Hence, it may have to
reduce the price of the product to
increase the sales. The reduction in
the cost of production may have to
be effected to facilitate price
reduction. It may even be necessary
to invent or develop a new low-cost
product to suit the low-income
market

Colgate designed a simple,
hand-driven, inexpensive ($10)
washing machine for low-
income buyers in less
developed countries. Similarly,
the National Cash Register
Company took an innovative
step backward by developing a
crank-operated cash register
that would sell at half the cost
of a modern cash register and
this was well received in a
number of developing
countries.

In countries where investment and
income are steadily and rapidly rising,
business prospects are generally
bright, and further investments are
encouraged. There are a number of
economists and businessmen who
feel that the developed countries are
no longer worthwhile propositions
for investment because these
economies have reached more or less
saturation levels in certain respects.
In developed economies,
replacement demand accounts for a
considerable part of the total
demand for many consumer durables
whereas the replacement demand is
negligible in the developing
economies.

The economic policy of the
government, needless to say,
has a very great impact on
business. Some types or
categories of business are
favourably affected by
government policy, some
adversely affected, while it is
neutral in respect of others. For
example, a restrictive import
policy, or a policy of protecting
the home industries, may
greatly help the import-
competing industries.

Political Environment
International Business

A political system is basically the
system of politics and
government in a country. It
governs a complete set of rules,
regulations, institutions, and
attitudes. A main differentiator
of political systems is each
system’s philosophy on the
rights of the individual and the
group as well as the role of
government. Each political
system’s philosophy impacts the
policies that govern the local
economy and business
environment.

Authoritarian governments centralize
all control in the hands of one strong
leader or a small group of leaders, who
have full authority. These leaders are
not democratically elected and are not
politically, economically, or socially
accountable to the people in the
country. Totalitarianism, a more
extreme form of authoritarianism,
occurs when an authoritarian
leadership is motivated by a distinct
ideology, such as communism. In
totalitarianism, the ideology influences
or controls the people, not just a
person or party. Authoritarian leaders
tend not to have a guiding philosophy
and use more fear and corruption to
maintain control.

For example, the communist
countries had a centrally
planned economic system.
In most countries, apart
from those laws that control
investment and related
matters, there are a number
of laws that regulate the
conduct of the business.
These laws cover such
matters as standards of
products, packaging,
promotion etc.

Democracy is the most
common form of government
around the world today.
Democratic governments
derive their power from the
people of the country, either
by direct referendum (called a
direct democracy) or by means
of elected representatives of
the people (a representative
democracy). Half of the world’s
population lives in a
democracy of some sort,
although only some 14 percent
reside in full democracies.

What businesses must focus on is
how a country’s political system
impacts the economy as well as
the particular firm and industry.
Firms need to assess the balance
to determine how local policies,
rules, and regulations will affect
their business. Depending on
how long a company expects to
operate in a country and how
easy it is for it to enter and exit, a
firm may also assess the
country’s political risk and
stability. A company may ask
several questions regarding a
prospective country’s
government to assess possible
risks.

1. How stable is the government?
2. Is it a democracy or a dictatorship?
3. If a new party comes into power, will
the rules of business change
dramatically?
4. Is power concentrated in the hands of
a few, or is it clearly outlined in a
constitution or similar national legal
document?
5. How involved is the government in the
private sector?
6. Is there a well-established legal
environment both to enforce policies
and rules as well as to challenge them?
7. How transparent is the government’s
political, legal, and economic decision-
making process?

Example
China is one of the more visible
examples, with its strong
government and limited individual
rights. Chinese government
control on the Internet, for
example, has helped propel
homegrown, Baidu, a Chinese
search engine, which earns more
than 73 percent of the Chinese
search-engine revenues. Baidu
self-censors and, as a result, has
seen its revenues soar after
Google limited its operations in
the country

Demographic Environment

• Age structure.
• Gender.
• Income distribution.
• Family size.
• Family life cycle.
• Occupation.
• Education.
• Social class.

Demographic factors such
as size of the population,
population growth rate,
age composition, life
expectancy, family size,
spatial dispersal,
occupational status,
employment pattern etc,
affect the demand for
goods and services.

Markets with growing
population and income are
growth markets. But the
decline in the birth rates in
countries like the United
States have affected the
demand for baby products.
Johnson and Johnson have
overcome this problem by
repositioning their products
like baby shampoo and baby
soap, promoting them also to
the adult segment,
particularly to the females.

The occupational and spatial
mobilities of population have
implications for business. If
labour is easily mobile between
different occupations and
regions, its supply will be
relatively smooth, and this will
affect the wage rate. If labour is
highly heterogeneous in respect
of language, caste and religion,
ethnicity, etc., personnel
management is likely to become
a more complex task. The
heterogeneous population with
its varied tastes, preferences,
beliefs, temperaments, etc. gives
rise to differing demand patterns
and calls for different marketing
strategies.

Social and cultural Environment

• The socio-cultural fabric
is an important
environmental factor that
should be analysed while
formulating business
strategies. The cost of
ignoring the customs,
traditions, taboos, tastes
and preferences, etc., of
people could be very
high.

Elements of culture
• Culture is the sum total
of the societal behavior.
It is simply the totally
life way of people.

Culture Definition
• Knowledge and beliefs - It refers
to a people’s prevailing notions
of reality.
• Ideals – It refer to the societal
norms which define what is
expected.
• Preferences – It refer to society’s
definitions of those things in life
which are attractive or
unattractive as objects of desire.

• The buying and
consumption habits of
the people, their
language, beliefs and
values, customs and
traditions, tastes and
preferences, education
are all factors that
affect business.

In Thailand, Helene Curtis
switched to black
shampoo because Thai
women felt that it made
their hair look glossier.
Nestle, a Swiss
multinational company,
today brews more than
forty varieties of instant
coffee to satisfy different
national tastes.

Even when people of different
cultures use the same basic
product, the mode of
consumption, conditions of
use, purpose of use or the
perceptions of the product
attributes may vary so much
so that the product attributes
method of presentation,
positioning, or method of
promoting the product may
have to be varied to suit the
characteristics of different
markets.

For example, the two most
important foreign markets for
Indian shrimp are the U.S and
Japan. The product attributes for
the success of the product in these
two markets differ. In the U.S.
market, correct weight and
bacteriological factors are more
important rather than eye appeal,
colour, uniformity of size and
arrangement of the shrimp which
are very important in Japan.
Similarly, the mode of consumption
of tuna, another seafood export
from India, differs between the U.S.
and European countries.

The values and beliefs
associated with colour
vary significantly between
different cultures. Blue,
considered feminine and
warm in Holland is
regarded as masculine
and cold in Sweden. Green
is a favourite colour in the
Muslim world; but in
Malaysia, it is associated
with illness.

White indicates death and
mourning in China and
Korea; but in some
countries, it expresses
happiness and is the
colour of the wedding
dress of the bride. Red is a
popular colour in the
communist countries; but
many African countries
have a national distaste
for red colour.

Hofstede’s Research on National Culture
• Individualism versus
collectivism
• Power distance
• Uncertainty avoidance
• Masculinity versus
femininity
• long-term versus short-
term orientation

Individualism versus
collectivism refers to
whether a person functions
primarily as an individual or
within a group. In
individualistic societies, ties
among people are relatively
loose, and each person tends
to focus on his or her own
self-interest. These societies
prefer individualism over
group conformity.

Power distance describes
how a society deals with
the inequalities in power
that exist among people.
Societies characterized by
high power distance are
relatively indifferent to
inequalities and allow
them to grow over time.
There are substantial gaps
between the powerful and
the weak.

Uncertainty avoidance
refers to the extent to
which people can
tolerate risk and
uncertainty in their lives.
People in societies with
high uncertainty
avoidance create
institutions that
minimize risk and ensure
financial security.

Masculinity versus
femininity refers to a
society’s orientation, based
on traditional male and
female values. Masculine
cultures tend to value
competitiveness,
assertiveness, ambition, and
the accumulation of wealth.
They are characterized by
men and women who are
assertive, focused on career
and earning money, and may
care little for others.

long-term versus short-
term orientation . This
dimension denotes the
degree to which people
and organizations defer
gratification to achieve
long-term success. That is,
firms and people in
cultures with a long-term
orientation tend to take
the long view to planning
and living. They focus on
years and decades.

High-Context Cultures
• Infer information from
message context, rather than
from content.
• Prefer indirectness,
politeness & ambiguity.
• Convey little information
explicitly.
• Rely heavily on nonverbal
signs.
• Asian
• Latin American
• Middle Eastern

Low-Context Cultures
• Rely more on content
rather than on context.
• Explicitly spell out
information.
• Value directness.
• See indirectness as
manipulative.
• Value written word more than
oral statements.
• European
• Scandinavian
• North American

Some Cultural Scenarios
Japan China
India Mexico

JAPAN
To help her American Company establish a
presence in Japan, Mrs. Torres wants to hire a
local interpreter who can advise her on business
customs. Ms. Tomari has superb qualifications
on paper, but when Mrs. Torres tries to probe
about her experience, Ms. Tomari just says, “I
will do my best. I will try very hard.” She never
gives details about any of the previous positions
she has held. Mrs. Torres begins to wonder if
Ms. Tamari's résumé is inflated.

CHINA
Stan Williams wants to negotiate a joint venture
between his American firm and a Beijing-based
company. He asks Tung-Sen Lee if the Chinese
people have enough discretionary income to afford
his product. Mr. Lee is silent for a time, and then
says, “Your product is good. People in the West
must like it.” Stan smiles, pleased that Mr. Lee
recognizes the quality of his product, and he leaves
a contract for Mr. Lee to sign. Weeks later, Stan still
hasn’t heard anything. If China is going to be so
inefficient, he wonders if his company should try to
do business there.

INDIA
Gloria Johnson is proud of her participatory
management style. Assigned in Bombay on behalf of
her U.S.-based company, she is careful not to give
orders but to ask for suggestions. But the employees
rarely suggest anything. Even a formal suggestion
system she established does not work. Worse still,
she doesn’t sense the respect and camaraderie that
she felt at the plant she managed in Texas. Perhaps
the people in India just are not ready for a woman
boss.

MEXICO
Alan Caldwell is a U.S. sales representative in Mexico
City. He makes appointments with Senõr Lopez and
is careful to be on time, but his host is frequently
late. To save time, Alan tries to get right to business,
his host wants to talk about sightseeing and about
Alan’s family. Even worse, the meetings are
interrupted constantly with phone calls, long
conversations with other people, and even
customers’ children who come into the office. Alan’s
first report to his home office is very negative. He
hasn’t yet made a sale. Perhaps Mexico just isn’t the
right place to do business.

Religion
• The cost of ignoring certain
religious aspects could be
very high, sometimes fatal,
in international business.
• When Mac Donalds was
planning to enter India, one
political party stated that it
would oppose the marketing
of beef products in the
country by MNC.

Language
• Differences in the language
are a very important
problem area in business.,
• Non verbal
communications create
equally difficult problems.

Etiquette
• The ways of meeting and
greeting people,
expression of appreciation
or disapproval, methods of
showing respect etc vary
quite widely between
cultures.
• Handshake.

In Japan, bowing is the norm in both business and personal settings. Here,
Japanese Foreign Minister Yoriko Kawaguchi and a U.S. Trade representative
(left) bow to each other before a 2004 meeting

• There are even differences in
one country and some may
consider certain regions more
hospitable and polite; it is
often just a matter of
understanding their traditions.

For example, friends can give three kisses in
certain countries if they meet each other; others
will give one, two and there are even consider
kissing between friends as insulted. There is no
difference between the hospitality and politeness
between these countries; they have just different
etiquettes.

• Most everyone knows the traditional Thai Greeting (the
Wang). Thai people put both hands in a prayer position and
bow their head a little bit to their hands. They always smile
and only use this “Way greeting” to foreigners or elderly
persons. This kind of greeting is also used in some other
countries in Asia, for example India, the Philippines,
Myanmar, China and many others.

• Kissing and shaking hands are the most common greeting
gestures between different countries and cultures. Shaking
hands is a traditional way of greeting when American people
meet someone for the first time.

• American people are friendly people and say “hi” to everyone
they meet, even if they don’t know them. It is more a form of
politeness and they expect you return the same greeting. No
return of greeting is considered to be a form of rudeness. It is
unusual to kiss foreigners and even friends. Cheek kissing is
acceptable but unusual in Northern America.

Cheek kissing is more common in Europe and Latin America.
There are either differences between the countries in these
continents.
• For example in France, Spain, Portugal, Switzerland, Belgium they usually
give one on each cheek
• there are either parts of Belgium, France and Switzerland where they gave
three or even four kisses.
• Cheek kissing is uncommon in Asia, they greet mostly with a bow or they
shake hands. Shaking hands is also the most common form of greeting in
Africa.

• People in Turkey are talkative and welcome almost all visitors
of their country. They invite you at home for a drink or to
spend some time with the family. People of this country are
proud of their country and want to show all the beauties to
every tourist.

• Life in Asia is not easy and they treat every tourist with
respect. It is a part of their culture. You may find some
countries impolite at first sight because you don’t know the
meaning of their traditions.
• For example; Chinese people are noisy when they eat and they
even slurp when they eat noodles.

• People of Europe, America and many other countries of the
world may consider this as impolite but according theChinese
culture, it is a sign they enjoyed the meal. There is no reason to
consider their behavior as less polite than western culture; it is
just different.

• It is more a matter of accepting these differences and you will
find hospitable and polite people in every country and culture
of the world. Discovering the differences in traditions between
countries and cultures is really a wonderful experience and
may help you to see the positive things in every culture.

Legal Environment

Legal Environment
Managers must be aware of the
legal systems in the countries in
which their firms operate, the
basic nature of the legal
profession (both domestic and
international) and the legal
relationships that exist between
and among countries. Legal
systems differ both in terms of
the nature of the system and the
degree of independence of the
judiciary from the political
process.

Kinds of Legal Systems
Common law originated in
the United Kingdom and is
based upon tradition,
precedent, custom and
usage; therefore, courts
play an important role in
interpreting the law.

Civil law, also known as
codified law, originated
with the Romans and is
based upon a detailed set
of laws that make up a
detailed code that includes
rules for conducting
business; courts play an
important role in applying
the law.

Theocratic law is based
upon religious precepts.
The best example is Islamic
law, or Shair’a. The key for
businesses is to adhere to
the constraints of ancient
Islamic laws while
maintaining sufficient
flexibility to operate in a
modern global economy.

Consumer Safeguards
Different legal systems
provide varying safeguards
with respect to product
liability and other legal
issues. For example, access
to and assistance from the
legal community, legal fees
and the ability to use
foreign lawyers all differ
across countries.

The Legal Profession
Although lawyers and law firms
vary in terms of how they practice
law and service clients, MNEs must
use lawyers for a variety of
services, such as negotiating
contracts, formalizing agent-
distributor relationships and
protecting intellectual property.
The key for managers doing
business overseas is to choose a
law firm with the needed expertise
and overseas connections, whether
through the company’s own
offices, a merger, or correspondent
relationships.

Legal Issues in International Business
National laws may affect the
business climate both within and
beyond a country’s borders and
pertain to both domestic and
foreign firms. Areas addressed
include health and safety
standards, employment practices,
antitrust prohibitions, contractual
relationships, environmental
practices, intellectual property,
cross-border investment flows,
tariffs and non-tariff barriers, to
name but a few. In addition,
international treaties among
nations may also affect the nature
and extent of business operations.

Technological Environment

Technological change can have
impact on the decisions taken by
international business.
Technological change can involve:
– New process of production: new
ways of doing things which rises
productivity of factor inputs, as with
use of robotics in car assembly
techniques which has dramatically
raised output per assembly line
worker. For example around 80% of
technological change has been
process innovation.
– New products: For example, online
banking and many new financial
services are direct result of advances
in micro processor based
technologies.

Technological factors
sometimes pose problems.
A firm, which is unable to
cope with the technological
changes, may not survive.
Further, the differing
technological environment
of different markets or
countires may call for
product modifications.

For example, many
appliances and instruments
in the U.S.A. are designed
for 110 volts but this needs
to be converted into 240
volts in countries which
have that power system.

Technological developments may
increase the demand for some existing
products. For example, voltage
stabilisers help increase the sale of
electrical appliances in markets
characterised by frequent voltage
fluctuations I power supply. However,
the introduction of TV’s, Fridges etc,
with in built voltage stabilizer adversely
affects the demand for voltage
stabilizers.

Advances in the technologies of
food processing and
preservation, packaging etc.,
have facilitated product
improvements and introduction
of new products and have
considerably improved the
marketability of products.

Technology and employment
New technologies can both
create and destroy jobs. For
example, the US Internet
banking company has
introduced ‘smart’
technologies into every
aspect of its operations, so
that its $2.4bn of deposits
are now managed by just 180
people, compared to the
2,000 people required to
manage deposits of this size
in less technologically
advanced banks.

Technology and competitive advantage
Technological change provides
national and international
business with both opportunities
and threats. For example, five
new broadband wavelengths
were auctioned in the UK in early
2000. Access to such wavelengths
has been regarded as vital for the
new generation of wireless
application Protocol (WAP)
products, making possible the
internet, television and other
interactive application on the
third-generation of mobile
phones.

Transfer of Technology
Technology transfer is the
process by which commercial
technology is disseminated.
Two forms are
– Internalized TT – Refers to
investment associated with TT,
where control resides with the
technology transferor.
– Externalized TT – refers to all
other forms, such as joint
ventures with local control,
licensing, strategic alliances and
internal subcontracting.

Entry Strategies

Entry Strategies
• Market entry
strategy is
influenced by the
firm and product
characteristics and
the domestic and
international market
characteristics.

Foreign Market Entry and Operations Strategies
Exporting
• Direct Exporting.
• Indirect Exporting.
Contractual Agreement
• Licensing & Franchising.
• Strategic Alliance.
• Contract Manufacturing.
Production facility in foreign
market.
• Assembly Operations.
• Wholly owned
manufacturing facility.
• Joint Ventures.
Mergers and Acquisitions

Direct exporting
In direct exporting,
the firm becomes
directly involved in
marketing its
products in foreign
markets, because the
firm itself performs
the export task
(rather than
delegating it to
others).

Direct exporting
To implement a direct exporting
strategy, the firm must have
representation in the foreign
markets. This can be achieved in a
number of ways:
– Sending international sales
representatives into the foreign
market.
– Selecting local representatives or
agents to prospect the market.
– Using independent local distributors
who will buy the products to resell
them in the local market.
– Creating a fully owned commercial
subsidiary to have a greater control
over foreign operations.

Indirect exporting
The market-entry
technique that offers the
lowest level of risk and the
least market control is
indirect export, in which
products are carried
abroad by others. The firm
is not engaging in
international marketing
and no special activity is
carried on within the firm;
the sale is handled like
domestic sales

Indirect exporting
There are several different
methods of indirect
exporting:
– The simplest method is to deal
with foreign sales through the
domestic sales organisation.
– A second form of indirect
exporting is the use of
international trading
companies with local offices
all over the world.
– A third form of indirect
exporting is the export
management company
located in the same country as
the producing firm and which
plays the role of an export
department.

Example
The mumbai based
American Dry Fruits
(ADF) which began
selling a range of
packaged foods liked
Chutneys, Spices,
Canned vegetables,
ready to eat dals, etc
under different brand
names later moved to
other countries with
large Indian population.

Licensing & Franchising
Licensing is another way
to enter a foreign market
with a limited degree of
risk. Under international
Licensing, a firm in one
country permits a firm in
another country to use
its intellectual property(
Patents, trade marks
etc).

Franchising is a business model
in which many different
owners share a single brand
name. A parent company
allows entrepreneurs to use
the company's strategies and
trademarks; in exchange, the
franchisee pays an initial fee
and royalties based on
revenues. The parent company
also provides the franchisee
with support, including
advertising and training, as
part of the franchising
agreement.

Licensing is similar to
franchising except that
the franchising
organisation tends to be
more directly involved in
the development and
control of the marketing
programme.

The major drawback of
licensing is the problem of
controlling the licensee
due to the absence of
direct commitment from
the international firm
granting the licence. After
few years, once the know-
how is transferred, there is
a risk that the foreign firm
may begin to act on its
own and the international
firm may therefore lose
that market.

Example
ITC Hotels and ITT
Sheraton corporation had
an agreement under which
ITC Hotel’s Welcom group
franchised two of its hotels
in Bangkok and Hong kong
to ITT Sheraton holding, in
exchange, the franchise for
Sheraton in India. Later,
partners decided to set up
a joint venture with
Sheraton having major
stake to manage all new
ITC hotel projects in India.

Strategic Alliance
It is an arrangement
between two companies
that have decided to share
resources to undertake a
specific, mutually
beneficial project. A
strategic alliance is less
involved and less
permanent than a joint
venture, in which two
companies typically pool
resources to create a
separate business entity.

Strategic Alliance
In a strategic alliance,
each company maintains
its autonomy while
gaining a new
opportunity. A strategic
alliance could help a
company develop a more
effective process, expand
into a new market or
develop an advantage
over a competitor,
among other
possibilities.

Example
An oil and natural gas
company might form a
strategic alliance with a
research laboratory to
develop more commercially
viable recovery processes. A
clothing retailer might form
a strategic alliance with a
single clothing
manufacturer to ensure
consistent quality and
sizing. A major website
could form a strategic
alliance with an analytics
company to improve its
marketing efforts.

Contract Manufacturing
In contract
manufacturing, the firm’s
product is produced in
the foreign market by
local producer under
contract with the firm.
Because the contract
covers only
manufacturing, marketing
is handled by a sales
subsidiary of the firm
which keeps the market
control.

Contract Manufacturing
Contract manufacturing
obviates the need for plant
investment, transportation
costs and custom tariffs and
the firm gets the advantage
of advertising its product as
locally made. Contract
manufacturing also enables
the firm to avoid labour and
other problems that may
arise from its lack of
familiarity with the local
economy and culture.

Example
Balsara’s private label
manufacturing activity is
focused on the supply of
children’s toothpaste
formulations. Balsara’s
empahsis on Private lable
products and contract
manufacturing has
resulted in increased
business from North
American and European
Markets.

Assembly Operations
Assembling is a
compromise between
exporting and foreign
manufacturing. The firm
produces domestically all
or most of the
components or
ingredients of its product
and ships them to foreign
markets to be put
together as a finished
product.

Assembly Operations
By shipping CKD
(completely knocked
down), the firm is saving on
transportation costs and
also on custom tariffs which
are generally lower on
unassembled equipment
than on finished products.
Another benefit is the use
of local employment which
facilitates the integration of
the firm in the foreign
market.

Example
Notable examples of
foreign assembly are the
automobile and farm
equipment industries. In
similar fashion, Coca-Cola
ships its syrup to foreign
markets where local bottle
plants add the water and
the container.

Wholly owned manufacturing facility.
Companies with long term
and substantial interest in
the foreign market normally
establish wholly owned
manufacturing facilities
there. A number of factors
like trade barriers,
difference in the production
and other costs encourage
the establishment of
production facilities in the
foreign markets.

Joint Ventures
Foreign joint ventures have
much in common with
licensing. The major
difference is that in joint
ventures, the international
firm has an equity position
and a management voice in
the foreign firm. A
partnership between host-
and home-country firms is
formed, usually resulting in
the creation of a third firm.

Mergers and Acquisitions
From a legal point of view,
a merger is a legal
consolidation of two
companies into one
entity, whereas an
acquisition occurs when
one company takes over
another and completely
establishes itself as the
new owner

Globalization

Global World
• Each day, an average person
makes use of goods and
services of multiple origins—
for instance, the Finnish
mobile Nokia and the US toy-
maker’s Barbie doll made in
China but used across the
world; a software from the
US-based Microsoft,
developed by an Indian
software engineer based in
Singapore, used in Japan; the
Thailand-manufactured US
sports shoe Nike used by a
Saudi consumer.

Definition
The IMF defines globalization
as “ the growing economic
and interdependence of
countries worldwide through
increasing volume and
variety of cross border
transactions in goods and
services and of international
capital flow and also through
the more rapid and
widespread diffusion of
technology”.

Factors affecting Globalization

Mover and restraining factors of globalization

Movers of Globalization
1. Economic liberalization.
2. Technological breakthroughs .
3. Multilateral institutions.
4. International Economic Integrations.
5. Move towards free marketing system .
6. Rising R&D cost.
7. Advents in Logistics Management.
8. Emergence of global customer segment.

Economic Liberalization
• Economic liberalization, both
in terms of regulations and
tariff structure, has greatly
contributed to the
globalization of trade and
investment. The emergence of
the multilateral trade regime
under the WTO has facilitated
the reduction of tariffs and
non-tariff trade barriers. In the
coming years, the tariffs are
expected to decline
considerably further.

Technological breakthroughs
• The breakthroughs in science
and technology have
transformed the world virtually
into a global village, especially
manufacturing, transportation,
and information and
communication technologies.

Multilateral institutions
• A number of multilateral
institutions under the UN
framework, set up during the
post-World War II era, have
facilitated exchanges among
countries and became prominent
forces in present-day
globalization. Multilateral
organizations such as the GATT
and WTO contributed to the
process of globalization and the
opening up of markets by
consistently reducing tariffs and
increasing market access through
various rounds of multilateral
trade negotiations.

International Economic Integrations
• Consequent to World War II, a
number of countries across the
world collaborated to form
economic groupings so as to
promote trade and investment
among the members. The Treaty
of Rome in 1957 led to the
creation of the European
Economic Community (EEC) that
graduated to the European Union
(EU) so as to form a stronger
Economic Union. The US, Canada,
and Mexico collaborated to form
the North American Free Trade
Agreement (NAFTA) in 1994.

Move towards free marketing system
• The demise of centrally
planned economies in Eastern
Europe, the former USSR, and
China has also contributed to
the process of globalization as
these countries gradually
integrated themselves with the
world economy. The
Commonwealth of
Independent States (CIS)
countries—all former Soviet
Republics—and China have
opened up and are moving
towards market-driven
economic systems at fast
pace.

Rising R&D cost
• The rapid growth in market
competition and the ever-
increasing insatiable consumer
demand for newer and
increasingly sophisticated
goods and services compel
businesses to invest huge
amounts on research and
development (R&D). In order
to recover the costs of massive
investments in R&D and
achieve economic viability, it
becomes necessary to
globalize the business
operations.

Example
• For instance, software
companies such as
Microsoft, Novel, and
Oracle, commercial aircraft
manufacturers like Boeing
and Airbus, pharmaceutical
giants such as Pfizer, Glaxo
SmithKline, Johnson &
Johnson, Merck, and
Novartis, etc., can hardly be
commercially viable unless
global scale of operations
are adopted.

Advents in Logistics Management
• Besides these, the greater
availability of speedier and
increasingly cost-effective
means of transport,
breakthroughs in logistics
management such as
multimodal transport
technology, and third-party
logistics management
contributed to the faster
and efficient movement of
goods internationally.

Emergence of global customer segment
• Customers around the world
are fast exhibiting convergence
of tastes and preferences in
terms of their product likings
and buying habits.
Automobiles, fast-food outlets,
music systems, and even
fashion goods are becoming
amazingly similar across
countries. The proliferation of
transnational satellite
television and
telecommunication has
accelerated the process of
cultural convergence.

Factors restraining of
globalization

Factors restraining of globalization
1. Regulatory controls .
2. Emerging trade barriers.
3. Cultural Factors.
4. Nationalism.
5. War and civil disturbances.
6. Management Myopia .

Regulatory controls
• The restrictions imposed by
national governments by way
of regulatory measures in their
trade, industrial, monetary,
and fiscal policies restrain
companies from global
expansion. Restrictions on
portfolio and foreign direct
investment considerably
influence monetary and capital
flows across borders. The high
incidence of import duties
makes imported goods
uncompetitive and deters
them from entering domestic
markets.

Emerging trade barriers
• The integration of national economies
under the WTO framework has
restrained countries from increasing
tariffs and imposing explicit non-tariff
trade barriers. However, countries are
consistently evolving innovative
marketing barriers that are WTO
compatible. Such barriers include
quality and technical specifications,
environmental issues, regulations
related to human exploitation, such as
child labour, etc. Innovative technical
jargons and justifications are often
evolved by developed countries to
impose such restrictions over goods
from developing countries, who find it
very hard to defend against such
measures.

Cultural Factors
• Cultural factors can restrain
the benefits of globalization.
For instance, France’s
collective nationalism favours
home-grown agriculture and
the US fear of terrorism has
made foreign management of
its ports difficult and
restrained the entry of the
Dubai Port World.

Nationalism
• The feeling of nationalism often
aroused by local trade and
industry, trade unions, political
parties, and other nationalistic
interest groups exerts
considerable pressure against
globalization. The increased
availability of quality goods at
comparatively lower prices
generally benefits the mass
consumers in the importing
country but hurts the interests
of the domestic industry.

War and civil disturbances
• The inability to maintain
conducive business
environment with sufficient
freedom of operations restricts
foreign companies from
investing. Companies often
prefer to expand their business
operations in countries that
offer peace and security.
Countries engaged in prolonged
war and civil disturbances are
generally avoided for
international trade and
investment.

Management Myopia
• A number of well-established
business enterprises
operating indigenously
exhibit little interest in
expanding their business
overseas. Besides, several
other factors such as resource
availability, risks, and the
attitude of top management
play a significant role in the
internationalization of
business activities.

Globalization of Indian business

India – An emerging market
• India is one of the largest and
fastest growing markets in the
world.
• India is the second most
populous nation in the world.
• Although the per capita
income of India is low, the size
of GNI is large.
• 1n 2006, India was the 10th
largest economy in the world.

India – An emerging market
• In Purchase Power Parity
terms, India is the fourth
largest economy in the
world and it is estimated
that by 2030, it will be
the third largest after
china and USA.

Growth of outsourced IT and business
process outsourcing (BPO) services
• One of the major forces of
globalization in India has been in the
growth of outsourced IT and business
process outsourcing (BPO) services.
The last few years have seen an
increase in the number of skilled
professionals in India employed by
both local and foreign companies to
service customers in the US and
Europe in particular. Taking advantage
of India’s lower cost but educated and
English-speaking work force, and
utilizing global communications
technologies such as voice-over IP
(VOIP), email and the internet,
international enterprises have been
able to lower their cost base by
establishing outsourced knowledge-
worker operations in India.

Indian companies
• Indian companies are rapidly
gaining confidence and are
themselves now major
players in globalization
through international
expansion. From steel to
Bollywood, from cars to IT,
Indian companies are setting
themselves up as
powerhouses of tomorrow’s
global economy.

LPG model
• Indian economy had experienced
major policy changes in early
1990s. The new economic
reform, popularly known
as, Liberalization, Privatization
and Globalization (LPG model)
aimed at making the Indian
economy as fastest growing
economy and globally
competitive. The series of
reforms undertaken with respect
to industrial sector, trade as well
as financial sector aimed at
making the economy more
efficient.

LPG model
• With the onset of reforms to
liberalize the Indian economy in
July of 1991, a new chapter has
dawned for India and her billion
plus population. This period of
economic transition has had a
tremendous impact on the overall
economic development of almost
all major sectors of the economy,
and its effects over the last
decade can hardly be overlooked.
Besides, it also marks the advent
of the real integration of the
Indian economy into the global
economy.

Foreign Direct Investment (FDI)
• Now that India is in the process of
restructuring her economy, with
aspirations of elevating herself from
her present desolate position in the
world, the need to speed up her
economic development is even more
imperative. And having witnessed the
positive role that Foreign Direct
Investment (FDI) has played in the
rapid economic growth of most of the
Southeast Asian countries and most
notably China, India has embarked on
an ambitious plan to emulate the
successes of her neighbors to the
east and is trying to sell herself as a
safe and profitable destination for
FDI.

Example
• Notable examples of
international companies
that have done well in
India in the recent years
include Pepsi, Coca-Cola,
McDonald’s, and Kentucky
Fried Chicken, whose
products have been well
accepted by Indians at
large.

World Trade Organization

Introduction
• The World Trade
Organization (WTO) is
the only international
organization dealing
with the global rules of
trade between nations.
Its main function is to
ensure that trade flows
as smoothly, predictably
and freely as possible.

Introduction
• The World Trade
Organization (WTO) is an
organization that intends to
supervise and liberalize
international trade . The
organization officially
commenced on 1 January
1995 under the Marrakech
agreement , replacing the
General Agreement on
Tariffs and Trade (GATT),
which commenced in 1948.

Introduction
• The organization deals with
regulation of trade between
participating countries; it
provides a framework for
negotiating and formalizing
trade agreements, and a
dispute resolution process
aimed at enforcing
participant's adherence to
WTO agreements, which are
signed by representatives of
member governments and
ratified by their parliaments.

Green - Members
Blue - Members, dually represented by the EU
Yellow - Observers
Red - Non-members

WTO - Facts
• Location: Geneva, Switzerland
• Established:1 January 1995
• Created by: Uruguay Round negotiations
(1986-94).
• Membership : 159 countries on 2 March 2013.
• Budget : 197 million Swiss francs for 2013.
• Secretariat staff: 640.
• Head: Roberto Azevêdo (Director-General)

Functions
1. Administering WTO trade agreements
2. Forum for trade negotiations
3. Handling trade disputes
4. Monitoring national trade policies
5. Technical assistance and training for
developing countries
6. Cooperation with other international
organizations

Principles of the trading system
• Non-discrimination.
• Reciprocity.
• Binding and enforceable commitments.
• Transparency.
• Safety valves.

Non-discrimination
• It has two major
components: the most
favored nation (MFN) rule,
and the national treatment
policy. The MFN rule requires
that a WTO member must
apply the same conditions on
all trade with other WTO
members. National
treatment means that
imported goods should be
treated no less favorably
than domestically produced
goods.

Reciprocity
• It reflects both a desire
to limit the scope of
free- riding that may
arise because of the
MFN rule, and a desire
to obtain better access
to foreign markets.

Binding and enforceable commitments
• The tariff commitments made
by WTO members in a
multilateral trade negotiation
and on accession are
enumerated in a schedule (list)
of concessions. These
schedules establish "ceiling
bindings": a country can
change its bindings, but only
after negotiating with its
trading partners, which could
mean compensating them for
loss of trade.

Transparency
• The WTO members are
required to publish their trade
regulations, to maintain
institutions allowing for the
review of administrative
decisions affecting trade, to
respond to requests for
information by other
members, and to notify
changes in trade policies to
the WTO.

Safety valves
• In specific circumstances,
governments are able to
restrict trade. The WTO's
agreements permit
members to take
measures to protect not
only the environment but
also public health, animal
health and plant health.

Organizational structure
• The General Council has the following
subsidiary bodies which oversee committees
in different areas:
– Council for Trade in Goods.
– Council for Trade-Related Aspects of Intellectual
Property Rights.
– Council for Trade in Services.
– Trade Negotiations Committee.

Council for Trade in Goods
• There are 11 committees under
the jurisdiction of the Goods
Council each with a specific task.
All members of the WTO
participate in the committees.
The Textiles Monitoring Body is
separate from the other
committees but still under the
jurisdiction of Goods Council.
The body has its own chairman
and only 10 members. The body
also has several groups relating
to textiles.

Council for Trade-Related Aspects of
Intellectual Property Rights
• Information on intellectual
property in the WTO, news
and official records of the
activities of the TRIPS
Council, and details of the
WTO's work with other
international organizations
in the field.

Council for Trade in Services
• The Council for Trade in
Services operates under the
guidance of the General
Council and is responsible
for overseeing the
functioning of the General
Agreement on the Trade in
Services (GATS). It is open to
all WTO members, and can
create subsidiary bodies as
required.

Trade Negotiations Committee
• The Trade Negotiations
Committee (TNC) is the
committee that deals
with the current trade
talks round. The chair is
WTO's director-general.
As of June 2012 the
committee was tasked
with the Doha
Development Round.

Regional Blocks

ASEAN
Association of Southeast Asian Nations

Introduction
• The Association of
Southeast Asian Nations, or
ASEAN, was established on
8 August 1967 in Bangkok,
Thailand, with the signing
of the ASEAN
Declaration (Bangkok
Declaration) by the
Founding Fathers of
ASEAN, namely Indonesia,
Malaysia, Philippines,
Singapore and Thailand.

AIMS AND PURPOSES
• To accelerate the economic growth, social
progress and cultural development in the
region through joint endeavours in the spirit
of equality and partnership in order to
strengthen the foundation for a prosperous
and peaceful community of Southeast Asian
Nations.
• To promote regional peace and stability
through abiding respect for justice and the
rule of law in the relationship among
countries of the region and adherence to the
principles of the United Nations Charter.
• To promote active collaboration and mutual
assistance on matters of common interest in
the economic, social, cultural, technical,
scientific and administrative fields.
• To provide assistance to each other in the
form of training and research facilities in the
educational, professional, technical and
administrative spheres.

AIMS AND PURPOSES
• To collaborate more effectively for the
greater utilisation of their agriculture
and industries, the expansion of their
trade, including the study of the
problems of international commodity
trade, the improvement of their
transportation and communications
facilities and the raising of the living
standards of their peoples;
• To promote Southeast Asian studies.
• To maintain close and beneficial
cooperation with existing international
and regional organisations with similar
aims and purposes, and explore all
avenues for even closer cooperation
among themselves.

FUNDAMENTAL PRINCIPLES
• Mutual respect for the independence,
sovereignty, equality, territorial
integrity, and national identity of all
nations.
• The right of every State to lead its
national existence free from external
interference, subversion or coercion.
• Non-interference in the internal affairs
of one another
• Settlement of differences or disputes by
peaceful manner.
• Renunciation of the threat or use of
force.
• Effective cooperation among
themselves.

Introduction
• The EU is a unique
economic and political
partnership between 28
European countries that
together cover much of
the continent.

Introduction
• The EU was created in the
aftermath of the Second
World War. The first steps
were to foster economic
cooperation: the idea
being that countries who
trade with one another
become economically
interdependent and so
more likely to avoid
conflict.

Introduction
• The result was the European
Economic Community (EEC),
created in 1958, and initially
increasing economic
cooperation between six
countries: Belgium, Germany,
France, Italy, Luxembourg
and the Netherlands. Since
then, a huge single market
has been created and
continues to develop towards
its full potential.

Functions
• The overall function of the
European Union is to create and
implement laws and regulations
that integrate the member
states of the EU. The countries
of the EU are supposed to have
uniform laws and policies
concerning a variety of things
(like immigration, labor, weights
and measures -- all sorts of
things). The function of the EU
government is to decide how
this integration should be done
and to carry it out.

Functions
• For example, 16 members of the
EU use the Euro as their
Currency. One of the functions of
a part of the EU government was
to devise the currency -- to decide
what it would be called, what it
would look like, etc. Another part
of the EU government tries to get
countries using the Euro to enact
fiscal policies that will keep the
Euro stable. They try, in other
words, to prevent fiascos like
what happened in Greece this
past year and they try to remedy
them if they happen.

South Asian Association for Regional Cooperation

Introduction
• The South Asian Association for
Regional Cooperation (SAARC) is
an economic and geopolitical
union of eight member
nations that are primarily located
in South asia contingent. Its
secretariat is headquartered in
Kathmandu, Nepal.

Introduction
• The idea of regional
political and economic
cooperation in south
asia was first coined in
1980 and the first summit
held in Dhaka on 8
December in 1985 led to
its official establishment
by the governments of
Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan
and Srilanka.

Objectives
• To promote the welfare of the people
of South Asia and to improve their
quality of life.
• To accelerate economic growth, social
progress and cultural development in
the region and to provide all
individuals the opportunity to live in
dignity and to realise their full
potential.
• To promote and strengthen selective
self-reliance among the countries of
South Asia.
• To contribute to mutual trust,
understanding and appreciation of one
another's problems.

Objectives
• To promote active collaboration
and mutual assistance in the
economic, social, cultural,
technical and scientific fields.
• To strengthen co-operation with
other developing countries.
• To strengthen co-operation among
themselves in international forums
on matters of common interest.
• To co-operate with international
and regional organisations with
similar aims and purposes.
• To maintain peace in the region.

Apex and Recognized Bodies
• SAARC has six Apex Bodies namely,
– SCCI - SAARC Chamber of Commerce & Industry
– SAARCLAW - South Asian Association For Regional
Cooperation In Law
– SAFA - South Asian Federation of Accountants
– SAF - South Asia Foundation
– SAIEVAC - South Asia Initiative to End Violence
Against Children
– FOSWAL - Foundation of SAARC Writers and
Literature.

Organization of the Petroleum Exporting Countries

Introduction
• OPEC (Organization of the
Petroleum Exporting
Countries) is an oil cartel
whose mission is to
coordinate the policies of the
oil-producing countries. The
goal is to secure a steady
income to the member states
and to secure supply of oil to
the consumers.

History
• OPEC was formed at a time when
the international oil market was
largely separate from centrally
planned economies, and was
dominated by multinational
companies. OPEC's ‘Policy
Statement' states that there is a
right of all countries to exercise
sovereignty over their natural
resources. Because OPEC is an
organisation of countries (not oil
companies), individual members
have sovereign immunity for their
actions, meaning that OPEC is not
regarded as being subject to
"Antitrust" or Competition Law in
the normal way.

Growth
• In the 1970s, OPEC began
to gain influence and
steeply raised oil prices
during the 1973 oil crisis in
response to US aid to Israel
during the Yom Kippur
War. It lasted until March
1974. OPEC added to its
goals the selling of oil for
socio-economic growth of
the poorer member
nations, and membership
grew to 13 by 1975.

Growth
• In the 1980s, the price of oil was
allowed to rise before the adverse
effects of higher prices caused
demand and price to fall. The
OPEC nations, which depended on
revenue from oil sales,
experienced severe economic
hardship from the lower demand
for oil and consequently cut
production in order to boost the
price of oil. During this time,
environmental issues began to
emerge on the international
energy agenda. Lower demand for
oil saw the price of oil fall back to
1986 levels by 1998–99.

Growth
• In the 2000s, a combination of
factors pushed up oil prices
even as supply remained high.
Prices rose to then record-high
levels in mid-2008 before falling
in response to the 2007
financial crisis . OPEC's summits
in Caracas and Riyadh in 2000
and 2007 had guiding themes of
stable energy markets,
sustainable oil production, and
environmental sustainability.

Objectives
• OPEC's objective is to co-
ordinate and unify
petroleum policies among
Member Countries, in order
to secure fair and stable
prices for petroleum
producers; an efficient,
economic and regular supply
of petroleum to consuming
nations; and a fair return on
capital to those investing in
the industry.

North American Free Trade Agreement

History
• In 1994, the North American
Free Trade Agreement
(NAFTA), a state-of-the-art
market-opening agreement,
came into force. Since then,
NAFTA has systematically
eliminated most tariff and
non-tariff barriers to trade and
investment between Canada,
the United States, and Mexico.

Chronology of Events
• June 10, 1990: Canada, the U.S.,
and Mexico agree to pursue a
free trade agreement
• February 5, 1991: NAFTA
negotiations begin.
• December 17, 1992: NAFTA is
signed by leaders from Canada,
the U.S., and Mexico.
• August 1993: Additional side
agreements on labor and the
environment are negotiated.
• January 1, 1994: NAFTA enters
into force

History
• Negotiations toward a free
trade agreement between
the United States and
Canada began in 1985.
Sixteen months later, the
two nations came together
and agreed to the Canada-
U.S. Free Trade Agreement
(FTA). It was a historic
agreement that placed
Canada and the United
States at the forefront of
trade liberalization.

Key elements of the Agreement
• Key elements of the Agreement
included the elimination of tariffs
and the reduction of many non-
tariff barriers to trade. The FTA
was also among the first trade
agreements to address trade in
services. It also included a dispute
settlement mechanism for the
fair and expeditious resolution of
trade disagreements, and
established a ground-breaking
system for the binational review
of trade remedy determinations,
thereby providing an alternative
to domestic judicial review.

Example
• In practical terms, Canada
and the United States agreed
to remove bilateral border
measures on traded goods,
which included the removal
of tariffs on goods such as
meat products, fruits and
vegetables, beverages,
processed foods, live
animals, wine, clothing and
textiles, fuels, electrical
goods and machinery.

Global Supply Chain and logistics Management

Global logistics
• The design and
management of a
system that controls
the flow of materials
into, through and out
of the international
corporation.

Global Supply Chain Management
• Covers both logistics and
operations
• Includes activities such as
sourcing, procurement,
order processing,
manufacturing,
warehousing, inventory
control, servicing and
warranty, customs
clearing, wholesaling and
distribution

Global Supply Chain Management
• The activities involved
in Supply chain are
• Purchasing
• Manufacturing
• Logistics
• Distribution
• Transportation and
• Marketing

Areas to be considered while moving from
domestic to International supply chain
• Substantial geographical
distances
• Forecasting
problems/difficulties in
foreign markets
• Fluctuations in exchange
rates for different
currencies
• Demand for great variety of
products
• Inadequate infrastructures
such as labor skills,
availability of supply etc

International Logistics & SCM
• Scheduling the arrival of
materials and other
inputs
• Warehousing and
inventory control
• Strategic choice of
international warehousing
facilities
• Scheduling production
• Packaging, transportation
and final delivery
• Analysis of transportation
costs

Investment environment

Classification of investment environment
• Narrow and broad.
• Macro and micro .
• Hard and soft.

Narrow and broad investment environment
• Narrow investment
environment means the
economic environment,
including a country's level of
economic development,
economic development
strategy, economic system,
infrastructure, market
sophistication, industrial
structure, foreign exchange
control and economic price
stability and so on.
• Broad investment environment
includes political, legal, social
and cultural impact on the
investment potential of all the
external factors.

Macro and micro Investment environment
• Macroeconomic environment
for investment is the
environment in the country,
the factors of which affect the
sum total of the investment.
• Microeconomic environment
for investment is the
environment in the country
which works within the
factors affecting the total
investment.

Hard and soft investment environment
• Hard investment environment
includes external material
conditions, such as energy
supply, transportation,
telecommunications, natural
resources and social life of
service facilities.
• Soft investment environment
includes a variety of non-
material form factors, such as
policies, regulations,
administrative efficiency, the
level of government and
religious belief.

Elements of Investment environment
Natural resources
1. Geographic.
2. Demographic
3. Climatic.
Economic Status
• Level of
Development.
• Infrastructure
conditions.
• Economic and
price stability.
• Economic
Policy.
Social and
cultural status.
• Language and
cultural
traditions.
• Educational
status.
• Social
psychology.
• Religious
beliefs.
Political and legal
Status
• Political
stability.
• Government’s
foreign
relations.
• Political system.
• Legal integrity
of system.

Natural resources
• Geographical factors
• Demographic factors.
• The climatic factors.

Geographical factors
Geographical factors,
including geographical
location, size, topography,
mineral resources, water
resources, forest resources.
For example, investors ready
to invest in precision
instruments industry, we
must study the host
country whether the terrain
conditions affect the degree
of precision.

Demographic factors
Population constitute
one of the conditions
essential to the market.
For example, high levels
of education in densely
populated areas affect
demand on the books,
music and movies which
are quite different for
that of rural areas.

Climatic factors
The climatic factors include
temperature, sunlight,
rainfall, storms and
typhoons. Many different
aspects of climate factors
will affect the investment
industry.

Economic Status
• Level of economic
development.
• Infrastructure conditions.
• Economic and price
stability.
• Economic Policy.

Level of economic development
A higher level of
economic development of
the country means that
the state-owns large
market, more
opportunities and better
business conditions and
greater appeal for foreign
investors will have greater
appeal.

Infrastructure conditions
Infrastructure conditions
include two aspects: First
one is the industrial
infrastructure which is
needed to attract foreign
investors. This contains
energy, transportation,
communication facilities,
raw materials supply
system etc.

Economic and price stability
In this, the factors
considered are rate of
sustainable growth, level
of inflation and size of
national debt. If the
economic and price
stability is not favourable,
if is very difficult to make
profit.

Economic Policy
Trade and tariff policy,
economic development
policy and foreign
exchange policy
constitute the economic
policy component.

Political and legal status
• Political stability
• The Government's foreign
relations.
• Political system
• legal integrity of the system

Political stability
This includes the
government's stability
and policy continuity.
Government should have
the resilience to deal with
all conflicts, if there is
instability. The greater a
country's policy of
continuity, higher the
country's political stability
and the more attractive
to foreign investors.

The Government's foreign relations
Government's external
relations, including
relations with major
trading partner’s plays a
crucial role in investment
environment.

Political system
This include the country's
form of management,
structure and electoral
system and citizens
power to exercise their
political rights system.

legal integrity of the system
Health of the legal
system, mainly referring
to a sound legal system
and the implementation
of codes.

Social and cultural status
• Language and
cultural traditions
• Educational status
• Social Psychology
• Religious beliefs

Language and cultural traditions
Diverse cultural traditions
caused by the different
social attitudes,
consumer habits, living
standards, ways of
thinking, etc., will
produce different levels
of international
investment

Educational status
High levels of education
ensures that labour force
is quality bound. This
results in high production
efficiency and economic
benefits which are
attractive to foreign
investors.

Social Psychology
This includes the attitude
of the matter distribution,
the general view of
industry and commerce,
attitude of superior-
subordinate relationship
and the existing inter-
relationships, national
psychology and national
consciousness.

Religious beliefs
Different religious beliefs
affects people's values,
attitudes and consumption
patterns. For example, from
the traditional point of view,
the Christian advocates to
work, thrift, savings;
Buddhism and Hinduism
emphasizes spiritual values,
degrading material desires;
Islam forbids eating pork,
drinking, etc.

International commodity Agreement

Introduction
• After the establishment of UN
and its specialized agencies
certain other financial
institutions like IMF, IBRD and
GATT were also set up. Along
with them, the_ FAO, WHO and
UNICEF were also established.
In addition to these, certain
other agreements also took
place regarding exports of
developing countries. Such
agreements are given the name
of International Commodity
Agreements

Introduction
• Such agreements regarding
five main items like wheat,
sugar, coffee, tin and olive oil
took place. These agreements
are given the name of
Agreements between
Consumers and Producers.
Out of these international
Commodity Agreements, the
agreements of exports and
imports of wheat and tin got
much more importance.

Objectives
• The main objective behind
world commodity agreement is
to restrict the quantities of
exports, particularly the
primary goods. The purpose
behind is to increase export
incomes or stabilize them.
• These agreements will lead to
economic. Stabilization as the
fluctuations regarding their
prices and quantities will come
down in their producing
countries.

Objectives
• The demand and supply of
so many primary exports
and imports are less elastic.
As a result, dis-equilibrium
rises in their consumption
and production. This gives
rise to so many negative
effects. Hence, these
agreements will help to
remove these disequilibria
and distortions.

Objectives
• So many countries follow
protectionist policies or
adopt preferential
treatment with other
countries. As a result, the
markets of primary goods
shrink. But if such
agreements are made
such like circumstances
will not rise.

Major Agreements
• In connection with international agreements
regarding commodities, we discuss three main
agreements out of them.
– Multi-lateral Contract Agreement
– International Buffer Stocks
– Export Restriction Agreement

Multi-lateral Contract Agreement
• Under such agreements
it is made compulsory
between exporters and
importers that they will
sell or purchase specific
quantities of goods.
Again, such quantities
are attached with some
maximum or minimum
price.

Multi-lateral Contract Agreement
• Amongst these agreements, the
most important and the sole
agreement is ‘International
Wheat Agreement’. This
agreement took place in 1949
where two-third of the world
trade of wheat was included.
Under this agreement, the
maximum price of wheat was set
at $1.80 per bushel and the
minimum price for the first year
would be $1.50 per bushel, while
for the fourth and the last year
such minimum price would be
$1.20 per bushel.

International Buffer Stocks
• International buffer stock
agreements seek to stabilize
commodity prices by
maintaining the demand
supply balance.
• Buffer stock agreements
stabilize the price by
increasing the market
supply by the sale of the
commodity when the price
tends to rise and by
absorbing the excess supply
to prevent fall in the price.

International Buffer Stocks
• Buffer stock Plan requires an
international agency to set a
range of prices and to buy
the commodity at the
minimum and sell at the
maximum. Buffer pool
method was tried in case of
tin, cocoa and sugar and
commodities like tea,
rubber and copper have
been suggested as
prospective candidates for
new agreements.

Export Restriction Agreement
• Under this agreement, the
member countries will have the
right to restrict the quantities of
their exports. They could do so
as long as the prices of exports
are not stabilized to some
extent. Apparently, this scheme
may be like the scheme of an
individual producer who wants
to restrict his output, and it may
not be a ‘joint programme on
the part of all the producers or
exporters

Export Restriction Agreement
• Moreover, if it becomes a
joint programme of all the
exporters, it cannot succeed
till the importers join it.
Moreover, it is not necessary
that the costs of all the
producers are same. Those
producers and exporters
whose costs are lower will be
prepared to sell at some
lower price. While the higher
costs exporters may ask for
some higher price.

Introduction
• International trade theories
are simply different theories
to explain international
trade. Trade is the concept
of exchanging goods and
services between two
people or entities.
International trade is then
the concept of this exchange
between people or entities
in two different countries.

International Trade Theories
Classical country based
theories
Modern Firm based theories
1. Factor proportion.
2. Country similarity.
3. Product life cycle.
4. Global Strategic Rivalry theory.
1. Mercantilism.
2. Absolute Advantage.
3. Comparative Advantage.

Mercantilism
• Developed in the sixteenth
century, mercantilism was one
of the earliest efforts to
develop an economic theory.
This theory stated that a
country’s wealth was
determined by the amount of
its gold and silver holdings. In
it’s simplest sense,
mercantilists believed that a
country should increase its
holdings of gold and silver by
promoting exports and
discouraging imports.

Absolute Advantage
• In 1776, Adam Smith
questioned the leading
mercantile theory of the
time in The Wealth of
Nations Smith offered a
new trade theory called
absolute advantage,
which focused on the
ability of a country to
produce a good more
efficiently than another
nation.

Comparative Advantage
• David Ricardo, an English
economist, introduced the
theory of comparative advantage
in 1817. Comparative Advantage
occurs when a country cannot
produce a product more
efficiently than the other
country; however, it can produce
that product better and more
efficiently than it does other
goods. The difference between
these two theories is subtle.
Comparative advantage focuses
on the relative productivity
differences, whereas absolute
advantage looks at the absolute
productivity.

Factor Proportions Theory
• In the early 1900s, two
Swedish economists, Eli
Heckscher and Bertil Ohlin,
focused their attention on
how a country could gain
comparative advantage by
producing products that
utilized factors that were in
abundance in the country.
Their theory is based on a
country’s production factors—
land, labor, and capital, which
provide the funds for
investment in plants and
equipment.

Country Similarity Theory
• Swedish economist
Steffan Linder developed
the country similarity
theory in 1961, as he
tried to explain the
concept of intraindustry
trade. Linder’s theory
proposed that consumers
in countries that are in
the same or similar stage
of development would
have similar preferences.

Product Life Cycle Theory
• Raymond Vernon, a Harvard
Business School professor,
developed the product life
cycle theory in the 1960s. The
theory, originating in the field
of marketing, stated that a
product life cycle has three
distinct stages: (1) new
product, (2) maturing product,
and (3) standardized product.
The theory assumed that
production of the new
product will occur completely
in the home country of its
innovation.

Global Strategic Rivalry Theory
• Global strategic rivalry theory
emerged in the 1980s and was
based on the work of
economists Paul Krugman and
Kelvin Lancaster. Their theory
focused on MNCs and their
efforts to gain a competitive
advantage against other global
firms in their industry. Firms
will encounter global
competition in their industries
and in order to prosper, they
must develop competitive
advantages.

International Monetary Fund (IMF)

Introduction
• The International
Monetary Fund (IMF)
is an international
organization that was
initiated in 1944 at
the Bretton Wodds
Conference and
formally created in
1945 by 29 member
countries.

Introduction
• The IMF is a self-described
"organization of 188
countries, working to foster
global monetary
cooperation, secure
financial stability, facilitate
international trade,
promote high employment
and sustainable economic
growth, and reduce poverty
around the world.”

Official Goal
• The IMF's stated goal was
to assist in the
reconstruction of the
world's International
payment system post–
World War II. Countries
contribute funds to a pool
through a quota system
from which countries with
payment imbalances
temporarily can borrow
money and other
resources.

Official goal
• As of the 14th General Review
of Quotas in late 2010 the
fund stood at SDR476.8bn, or
about US$755.7bn at then-
current exchange rates.
Through this fund, and other
activities such as surveillance
of its members economies
and the demand for self-
correcting policies, the IMF
works to improve the
economies of its member
countries.

The IMF’s responsibilities
• The IMF's primary
purpose is to ensure the
stability of the
international monetary
system—the system of
exchange rates and
international payments
that enables countries
(and their citizens) to
transact with each other.

• Surveillance: To maintain
stability and prevent crises in
the international monetary
system, the IMF reviews
country policies and national,
regional, and global economic
and financial developments
through a formal system
known as surveillance. The IMF
advises its 188 member
countries, encouraging policies
that foster economic stability,
reduce vulnerability to
economic and financial crises,
and raise living standards.

• Financial Assistance: IMF
financing provides member
countries the breathing room
they need to correct balance of
payments problems. A policy
program supported by IMF
financing is designed by the
national authorities in close
cooperation with the IMF, and
continued financial support is
conditioned on effective
implementation of this program.

• Technical Assistance: The IMF
provides technical assistance
and training to help member
countries strengthen their
capacity to design and
implement effective policies.
Technical assistance is offered
in several areas, including tax
policy and administration,
expenditure management,
monetary and exchange rate
policies, banking and financial
system supervision and
regulation, legislative
frameworks, and statistics.

Resources
• The primary source of the
IMF's financial resources is its
members’ quotas, which
broadly reflect members’
relative position in the world
economy. Currently, total
quota resources amount to
about SDR 238 billion (about
$368 billion). In addition, the
IMF can borrow temporarily to
supplement its quota
resources.

Governance and organization
• The IMF is accountable to the
governments of its member
countries. At the top of its
organizational structure is the
Board of Governors, which
consists of one Governor and one
Alternate Governor from each
member country. The Board of
Governors meets once each year
at the IMF – World Bank Annual
Meetings. Twenty-four of the
Governors sit on the
International Monetary and
Financial Committee (IMFC) and
normally meet twice each year.

Governance and organization
• The day-to-day work of the IMF
is overseen by its 24-member
executive board, which
represents the entire
membership; this work is guided
by the IMFC and supported by
the IMF staff. A proposed
Amendment of the IMF’s Articles
of Agreement will introduce for
the first time an Executive Board
whose members are all elected.
The Managing Director is the
head of the IMF Staff and
Chairman of the Executive Board
and is assisted by four Deputy
Managing Directors.

History
• The World Bank was
created at the 1944
Bretton Woods
Conference, along with
three other institutions,
including the International
Monetary Fund (IMF). The
World Bank and the IMF
are both based in
Washington D C, and work
closely with each other.

Leadership
• The President of the Bank is
the president of the entire
World Bank Group. The vice
presidents of the Bank are its
principal managers, in charge
of regions, sectors, networks
and functions. There are two
Executive Vice Presidents,
three Senior Vice Presidents,
and 24 Vice Presidents. The
Boards of Directors consist of
the World Bank Group
President and 25 Executive
Directors.

History
• The World Bank is a
United Nations
international financial
institution that provides
loans to developing
countries for Capital
programs. The World
Bank is a component of
the World Bank Group,
and a member of the
United Nations
Development Group.

Official Goal
• The World Bank's official
goal is the reduction of
poverty. According to its
Articles of Agreement,
all its decisions must be
guided by a
commitment to the
promotion of foreign
investment and
international trade and
to the facilitation of
capital investment.

Objectives
1. To provide long-run capital to member countries
for economic reconstruction and development.
2. To induce long-run capital investment for
assuring Balance of Payments (BoP) equilibrium
and balanced development of international
trade.
3. To provide guarantee for loans granted to small
and large units and other projects of member
countries.
4. To ensure the implementation of development
projects so as to bring about a smooth
transference from a war-time to peace economy.
5. To promote capital investment in member
countries by the following ways;
– (a) To provide guarantee on private loans or capital
investment.
– (b) If private capital is not available even after providing
guarantee, then IBRD provides loans for productive
activities on considerate conditions.

Functions
1. World Bank provides various technical services
to the member countries. For this purpose, the
Bank has established “The Economic
Development Institute” and a Staff College in
Washington.
2. Bank can grant loans to a member country up to
20% of its share in the paid-up capital.
3. The quantities of loans, interest rate and terms
and conditions are determined by the Bank
itself.
4. Generally, Bank grants loans for a particular
project duly submitted to the Bank by the
member country.
5. The debtor nation has to repay either in reserve
currencies or in the currency in which the loan
was sanctioned.
6. Bank also provides loan to private investors
belonging to member countries on its own
guarantee, but for this loan private investors
have to seek prior permission from those
counties where this amount will be collected.

The United Nations Conference on
Trade and Development (UNCTAD)

Introduction
• The United Nations
Conference on Trade and
Development (UNCTAD)
was established in 1964
as a permanent
intergovernmental body.
UNCTAD is the principal
organ of the United
Nations General
Assembly dealing with
trade, investment, and
development issues.

Main Goals
• The organization's
goals are to: "maximize
the trade, investment
and development
opportunities of
developing countries
and assist them in their
efforts to integrate into
the world economy on
an equitable basis."

Primary objective
• The primary objective of
UNCTAD is to formulate
policies relating to all
aspects of development
including trade, aid,
transport, finance and
technology. The conference
ordinarily meets once in
four years; the permanent
secretariat is in Geneva.

Achievements
• One of the principal
achievements of UNCTAD has
been to conceive and
implement the Generalized
System of Preferences (GSP). It
was argued in UNCTAD that to
promote exports of
manufactured goods from
developing countries, it would
be necessary to offer special
tariff concessions to such
exports.

Achievements
• Accepting this argument, the
developed countries formulated
the GSP scheme under which
manufacturers' exports and
some agricultural goods from
the developing countries enter
duty-free or at reduced rates in
the developed countries. Since
imports of such items from
other developed countries are
subject to the normal rates of
duties, imports of the same
items from developing countries
would enjoy a competitive
advantage.

United Nations Industrial
Development Organization (UNIDO)

Introduction
• The United Nations
Industrial Development
Organization (UNIDO) is
a specialized agency in
the United Nations
system, headquartered in
Viena , Austria.

Primary Objective
• The Organization's
primary objective is the
promotion and
acceleration of industrial
development in
developing countries and
countries with economies
in transition and the
promotion of international
industrial cooperation.

Current status
• As of 1 January 2014, 171 states are members of
UNIDO. The organization employs some 670 staff at
Headquarters and in field representations in about 80
countries, and draws on the services of some 2,800
international and national experts (approx. 50% from
developing countries) annually, who work in project
assignments throughout the world.
• The estimated total volume of UNIDO operations for
the biennium 2012–2013 is €460 million, the value of
technical cooperation delivery in 2012 amounted to
$189.2 million.

Primary Objective
• The Organization works towards improving
the quality of life of the world's poor by
drawing on its combined global resources and
expertise in the following three interrelated
thematic areas:
– Poverty reduction through productive activities;
– Trade capacity-building; and
– Energy and environment.

Poverty reduction through productive
activities
• UNIDO's services therefore
focus on encouraging the
creation of decent
employment and income to
overcome poverty. Now,These
services are customized for
developing countries and
range from industrial policy
advice to entrepreneurship
and SME development, and
from investment and
technology promotion to the
provision of rural energy for
productive uses.

Trade capacity-building
• UNIDO is one of the largest
providers of trade-related
development services,
offering focused and neutral
advice and technical
cooperation in the areas of
competitiveness, industrial
modernization and
upgrading, compliance with
international trade
standards, testing methods
and metrology.

Energy and environment
• UNIDO promotes
sustainable patterns of
industrial consumption and
production to de-link the
processes of economic
growth and environmental
degradation. UNIDO is a
leading provider of services
for improved industrial
energy efficiency and the
promotion of renewable
sources of energy.

Introduction
• The Asian Development Bank
(ADB) is a regional
development bank established
on 22 August 1966 which is
headquartered in Metro
Manila, Philippines to facilitate
economic development of
countries in Asia. The bank
employs 3,051 people, of
which 1,463 (48%) are from
the Philippines.[

Introduction
• The bank admits the
members of the United
Nations Economic and Social
Commission for Asia and the
Pacific (UNESCAP, formerly
known as the United Nations
Economic Commission for
Asia and the Far East) and
non-regional developed
countries.

International business - Manu Melwin Joy

International business - Manu Melwin Joy

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