International Business

International Business
For, III Semester BBM

PAPER 3.1: INTERNATIONAL BUSINESS
Sl.No CHAPTER NAME TOPICS 1. International Business (16 Hours) Introduction to International business—Meaning—Objectives and importance—Problems; Factors affecting international business—Political factors—Socio-economic—Cultural — technological and legal; Modes of Entering International Business (meaning only); Stages of International Business. 2. MNCs and International Business (10 Hours) Definitions: Distinction among Indian Companies; MNC, Global Companies and TNC; Organizational Structure of MNCs and their Merits and Demerits; MNCs in India; Globalization–methods and Essential conditions for Globalization— impact of globalization on India. 3. International Marketing & Intelligence (14 Hours) Information required; Sources of Information International Marketing Information System and Marketing Research. International Marketing - nature compared with domestic marketing. Benefits from international marketing. Major activities - market assessment, product decisions, promotion decisions, pricing decisions, distribution decisions; International product life cycle 4. International Human Resource Management (10 Hours) IHRM and domestic HRM compared; Sources of global recruitment; Global selection approaches; Need of induction and orientation for international employees; International adjustment stages. Need & importance of training for global jobs. 5. Regional Integration and Foreign trade. (10 Hours) Integration between countries—Levels of integration— Impact of Integration. Regional trading blocks; WTO—Formation, Objectives, function, difference between GATT and WTO; EU—Formation, Objectives, function; EXIM Trade— Process of imports and exports trade. Aswathappa. K. (2012). International Business. Tata McGraw Hill Subba Rao (2014). International Business. Himalaya Publishers

Nature of International Business
Chapter 1

Basic Elements Trade Business Commerce
commerce refers not only buying and selling of goods, but also other activities, such as transport, insurance, warehousing, banking and advertising, which helps buying and selling of goods. Trade refers to mere exchange of goods. Trade involves the exchange of goods, services or currency. The regular production or purchase and sale of goods undertaken with an objective of earning profit and acquiring wealth through the satisfaction of human wants.

Making Sense of International Marketing
No country in today’s era can be totally self-sufficient a country is said to be self-sufficient when it does not need to trade with other countries and able to produce everything that the people need inside the country. A common reason for a country not being self-sufficient is non- availability of all favorable conditions needed to produce goods and services. Thus it is very difficult for countries to aim achieving a greater self- sufficiency and by not pursuing self-sufficiency, the country faces the question of buying the requirement from other nations and this result in International Trade.

Conceptual understanding of INTERNATIONAL BUSINESS
IB refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc. International Trade International trade is a narrow term which involves exchange of goods or services across international borders or territories. E.g. Exports and imports of goods and services. International Business International business is a much broader concept and not only includes international trade but also covers economic transactions across countries conducted for managing and carrying out business operations. E.g. Outsourcing, Licensing and technological transfers. International Marketing International marketing is a process of meeting the needs of global customers by creating and delivering and exchanging offerings that have values for global customers.

Nature of International Marketing
Information & technology Driven Bound by International restrictions Highly prospective markets Complexity in operations Diversified Markets & Segmented Supremacy of Big Corporation Subject to Diplomatic relations Severe competition Large scale operations Interconnectedness among countries

International Vs. Domestic Business
Area of Operation Degree of Competition Customer Characteristics Mobility Factors Economic Conditions Cultures Natural & Geographic conditions Political Circumstances Law & Regulations Benefits Costs Documentation To summarize, doing business internationally is not the same as doing business at home on account of variations in business practices, political systems, varied business regulations and policies, use of different currencies. Risks also arise due to different market characteristics. Therefore differences in between international and domestic business are not just substance but also procedural.

Forms of International Business
Trade Firms Inter-firm Intra-firm Goverment Bilateral Unilateral Multilateral

International Trade Trade here refers to the exchange of goods and services across international territories. Inter-firm trade: Inter firm trade is process of buying, selling or exchanging goods and services between two or firm more firms hailing from different countries. Intra-firm trade: Intra-firm trade is between affiliates of companies located in different countries, in other words it is the trade between two subsidiaries of a company. Inter-Governmental trade: Whenever a buyer and a seller come together, each expects to gain something from the other. The same expectation applies to nations that trade with each other. Bilateral Trade: Exchange of resources between two countries and also covers establishment of commercial relationships to facilitate trade and investment. Unilateral Trade: Unilateral trade means that one country reduces its trade restrictions without any formal agreement for correspond from its trade partners. Multilateral Trade: A multilateral trade involves three or more countries that allows them to trade with each other without discrimination. Forms of International Business International businesses can take on a variety of forms, firms and countries use several methods to conduct international business and these methods can be categorized into following types:

Participating nations
Major Trading Blocs A trade bloc is a type of intergovernmental agreement, often part of a region. Abbreviation Title Trade type Form of Integration Participating nations NAFTA North American Free Trade Agreement Multilateral Free Trade Area Canada, Mexico and the United States ASEAN Association of Southeast Asian Nations Brunei, Cambodia, Indonesia, Laos, Malaysia, Burma, Philippines, Singapore, Thailand and Vietnam EU European Union Economic&Political Union 28 member countries that are located primarily in Europe MERCOSUR Southern Common Market Customs union Argentina, Brazil, Paraguay, Uruguay, Venezuela and Bolivia

Global outsourcing is an arrangement in which one company provides services related to any business process for another company located in a different country rather than completing it internally for a specified duration.  Advantages 1 Focus on core operation by outsourcing non-core activities 2 Helps in reducing overhead costs and increase profitability 3 Access to professional, expert and high-quality services 4 Help organizations save on capital expenditures 5 Shift certain responsibilities& Risk to the outsourced vendor Outsourcing  Disadvantages 1 Loss of management control of business functions 2 Problems with quality due to undesirable results 3 Threat to security and confidentiality of client’s data 4 Lack of customer focus 5 Difficulties to manage the outsource provider

Why is India the world's favorite outsourcing destination?
According to NASSCOM, the major reasons behind India's success in ITES/ BPO industry are: Abundant, skilled, English-speaking manpower, which is being harnessed even by ITES hubs such as Singapore and Ireland. High-end telecom facilities and infrastructure which are on par with global standards. Better focus on maintaining quality and performance standards. Fast turnaround times, and the ability to offer 24x7 services based on the country's unique geographic locations that allow for leveraging time zone differences. A friendly tax structure, which places the ITES/BPO industry on par with IT services companies. Proactive and positive policy environment which encourages ITES/BPO investments and simplifies rules and procedure. The growth story of India’s outsourcing industry has been rapid and exponential, and sees no sign of stopping, despite of recent protectionism steps initiated by U.S.A Government. Indian outsourcing companies have grown incredibly large; all the major international (mostly American) software houses have thousands of employees who are now based in India.

Outsourcing: Quick Facts
India is the leading country for outsourcing, IT and BPO export sector amounts to $47 billion and capture more than half the outsourcing industry. The Americas and Europe are the largest customers for the Indian outsourcing industry and account for 60 percent and 31 percent respectively of IT and BPO exports. The largest vertical sectors are financial services (41 percent), high-tech/ telecom (20 percent), manufacturing (17 percent) and retail (8 percent). Top 10 Outsourcing Destinations Rankings According to Tholons 2013 Top 100 Outsourcing Destinations Report Rank Region Country City 1 South Asia India Bangalore 2 Mumbai 3 Southeast Asia Philippines Manila 4 Delhi 5 Chennai 6 Hyderabad 7 Pune 8 Cebu City 9 Western Europe Ireland Dublin 10 Eastern Europe Poland Kraków

Offshoring relocation of a company's business process to a foreign country. Usually Offshoring is done by companies from developed countries to less-developed countries, with an intention of reducing the cost of doing business. The difference between outsourcing and Offshoring is that Offshoring involves getting work done in a different country; this means a business moves all or some of its activities to another country. Whereas in outsourcing traditionally in-house business tasks are contracted to an external organization outside the company's home country. Forms of International Business Offshoring

Offshoring relocation of a company's business process to a foreign country. Forms of International Business Broad classification of Offshoring services Call/contact center services Back-office services IT services Help desk Claims processing Software development Technical support/advice Accounts processing Application testing After-sales Transaction processing Content development Employees enquires Query management Engineering and design Claims enquires Customer administration Processing Product optimization Customer support/advice HR/payroll processing Market research Data processing Answering services IT outsourcing Prospecting Logistics processing Information services Quality assurance Customer relationship management Supplier invoices Offshoring

Objectives of International Business
All business activities are primarily focused on identifying opportunities in markets and developing suitable strategies to take advantage of these. Objectives of International Business Profit Maximization Diversification Saturated domestic market Intense competition in home market Government Incentives Expand market share Exploit competitive advantage Resources access and cost savings Potential for Growth Why do Companies GO Global?

Stage of Lifecyle in other counrtries
Saturated domestic market and International Exploration Exhibit: 1.5 Product Current Stage in India Stage of Lifecyle in other counrtries Major Player Digital Cable TV Growth stage Maturity Stage in US Sky, Foxtel, Virgin, AT&T Smart Television Introduction Stage Growth stage in UK Samsung, Sony, LG Laptops Growth Stage Decline stage in Japan Lenovo, HP, Dell Digital Cameras Introduction stage Growth Stage in Dubai Cannon, Nikkon, Sony

IT Revolution in India is an outcome of Government incentives
Benefits under STP Scheme: Income Tax benefits under Section 10 A& 10 B of the IT Act upto 31st March 2011. Customs Duty Exemption in full on imports. Central Excise Duty Exemption in full on indigenous procurement. Central Sales Tax Reimbursement on indigenous purchase against from C. All relevant equipment / goods including second hand equipment can be imported (except prohibited items). Equipment can also be imported on loan basis/lease. 100% FDI is permitted through automatic route. Sales in the DTA up to 50% of the FOB value of exports permissible. Use of computer imported for training permissible subject to certain conditions. Depreciation on computers at accelerated rates up to 100% over 5 years is permissible. Computers can be donated after two years of use to recognized non-commercial Educational Institutions/Hospitals without payment of duty. Export proceeds will be realized within 12 months. Units will be allowed to retain 100% of its export earning in the EEFC account. IT Revolution in India is an outcome of Government incentives Software Technology Parks (STPs) For the promotion of Software exports from the country, the Software Technology Parks of India was set up as an Autonomous Society under the Department of Electronics and Information Technology.

Expansion and Market Leadership
Company Segment Market Share Area Operated Origin Nestlé Baby food Largest baby food company in the world Worldwide Switzerland Wal-Mart Departmental stores Largest retailer in the world United States Boeing Aerospace Largest global aircraft manufacturers Toyota Automotive manufacture World's biggest car manufacturer Japan

Exhibit: 1.6 Comapines and their competitive advantage Company
Industry Type Competitive advantage IKEA Furniture industry Superior product at an affordable rate backed by a strong customer support system. Facebook Social networking service Superior database management and data processing capabilities Addidas Apparel, accessories Uses brand name as leverage to break into new markets in completely new territories. McDonald's Restaurants Providing convenience when people need and want to eat fast food at prices that are competitive and provide best value for the customer's money.

Players in International Business
Focal Firms A focal firm is the originator of an international business transaction, they directly initiate and implement international business activities such as designing and producing goods or services intended for consumption. MULTINATIONAL CORPORATIONS OR MNCs MNCs are companies that manufacture and market products or services in several countries. SMALL AND MEDIUM ENTERPRISES (SMES) BUSINESSES SME isacompanywith500orfeweremployees.The internationalization of SMEs not only takes the form of export activity, but also involves importing, foreign direct investment, international subcontracting and international technical cooperation. BORN-GLOBAL FIRM It is a business enterprise that from inception attempts moving rapidly into foreign markets to derive significant competitive advantage from the use of resources.

Players in International Business
Distribution channel intermediary Intermediaries in business whether at local or global level make it possible for a company to deliver its products to the end user without needing to own the whole supply chain. Facilitator A facilitator is a firm or an individual that performs broad range of activities that aim to streamline the movement of goods and services across national borders. Facilitators make it possible for focal firms to use their strategies in order to help them achieve their goals. Government NGOs or Non-Governmental Organizations NGOs refers to organizations that are neither a part of a government nor conventional for-profit businesses, they are voluntary citizens' group which is organized on a local, national or international level.

How various participants in IB create an International Value Chain?
Distribution Channel Intermediaries Exhibitions Innovation fests Government trade fairs Trading company Broker Importer Franchisor Manufacturer's Representative Export management company Sales representative Distributor Foreign Distributor Export management company Sales representative Retailer Activities of Focal Firm  Marketing Research Product Development Procurement of Resources Production Marketing Post sale service Facilitators Data Agencies Research Companies Survey firms Government research agencies In-house R&D External Research Labs Universities Specialized Institutions Banks Financial agencies Custom Brokers Logistics firms Business development agents Outsourcing firms (Optional) Consultant Marketresearch Firm Government ministries Lawyer Tax accountant Logistics service provider Freight forwarder Insurance company Consolidator Carrier Customs broker Call centers BPOs Government Incentives their country’s companies to export and this often results in many companies entering markets they would otherwise not have tackled, further more governmental policy have a significant influence over the focal companies’ activity. Distribution Channel Intermediaries are specialist firm that provides a variety of logistics and marketing services for focal firms as part of the international supply chain, both in the home country and abroad. Facilitators perform broad range of activities that aim to streamline the movement of goods and services across national borders.

Modes of entry into international business—Choices of market entry
A mode of entry into an international business is the channel which an organization employs to gain entry to a new international market. Factors influencing choice of entry mode 1. Size of the firm and volume of its operations 2. Multinational experience 3. Ability to develop differentiated products 4. Potential for sales and profit generation 5. Investment recovery duration 6. Cost factors 7. Exposure to risk 8. Industry Feasibility& Viability 9. Market Growth Rate 10. Socio – cultural gap between home & host 11. Degree of control 12. Speed achieving of market coverage 13. Financial support

Entry Modes Alliances Joint Ventures Turn key projects Licensing Franchising Exporting Strategic alliance Contracting Standalone Wholly owned subsidy Foreign assembly Classification of methods or strategies of entering international Marketing

1. Joint Venture A Joint Venture (JV) is business arrangement between two or more business entities from different countries to carry a specific business or a project by sharing share resources such as management, right to control and profits and losses.

Major Joint Venture in India
Company Industry Type Description Tata Docomo Telecom TATA DOCOMO, is an Indian cellular service provider on the GSM, CDMA and platform-arising out of the strategic joint venture between Tata Teleservices and NTT Docomo in November It is the country's sixth largest operator in terms of subscribers (including both GSM and CDMA). Aviva India Insurance Aviva India is an Indian life assurance company, and a joint venture between Aviva plc, a British assurance company, and Dabur Group, an Indian conglomerate. Aviva began operations in July 2002 as a joint venture with Dabur Group, one of India’s oldest business houses. As per the Indian insurance sector regulations, Aviva plc has a 26% stake and Dabur has a 74% stake in the JV partnership.

PVR Cinemas Entertainment (movie theatres) Priya Village Roadshow (PVR) Cinemas is one of the cinema chains in India. The Company, which began as a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow Limited in 1995 with 60:40 ratio, began its commercial operations in June 1997 with the launch of PVR Anupam in Saket, India's first multiplex. AirAsia India Aviation AirAsia India is a Indian-Malaysian low cost carrier. It is a subsidiary of AirAsia, Asia's largest low-fare, no-frills airline. Announced on 19 February 2013, the airline would be operated as a joint venture between Tata Sons and AirAsia, with AirAsia holding 49% of the airline, Tata Sons holding 30% and Amit Bhatia taking up the remaining 21% in the airline. The joint venture would also mark Tata's return to aviation industry after 60 years.

Divorced Joint Ventures in India
Model Reason for break-up Hero-BMW F650 Poor consumer response Mahindra Renault Logan Car failed to take off after its length put it into a higher tax bracket Suzuki-TVS Fiero, Max 100,Shogun, Shaolin Ownership issues Yamaha-Escorts RD 350, RX 100 and RX 135 Falling demand Kinetic-Honda Zoom, DX, Marvel Kinetic buys partner’s stake Wal-Mart and Bharti Wholesale cash-and-carry business Government's foreign investment regime

Evaluation of Joint Venture
Advantages: Disadvantages: Access to new markets and distribution networks Leverage the local company’s facilities in manufacturing, distribution and retailing Sharing of risks and costs with a partner Access to greater resources, including specialized staff, technology and finance Increased capacity JV’s offer a creative way for companies to exit from non-core businesses Joint ventures often enable growth without having to borrow funds Difference in culture and motivation behind the participation lead to poor co-operation Lack of communication between the partners may affect the business Disagreement in managerial styles Imbalance in levels of expertise, investment or assets brought into the venture Selection of the right partner is a challenging task

2. Turnkey Projects Arrangement in which the focal firm or a consortium of firms plans, finances, organizes, manages, and implements all phases of a project abroad and then hands it over to a foreign customer after training local workers.

Licensing agreement Arrangement in which the owner of intellectual property grants a firm the right to use that property for a specified period of time in exchange for royalties or other compensation

Companies Involved Licensor licensee Property Descrption Acer Ferrari Ferrari Acer Brandname or Trademark Acer choice of associating with ferrari with established world leaders in their respective sectors has helped grow the brand perception of Acer around the world. Sony and Other TV Channels Sony & WSG Other TV channels though out the world IPL Broadcast Rights The global IPL broadcasting rights are held by Sony Entertainment Television network and Singapore’s World Sport Group. Sony and WSG then sold these rights to other companies based on their geographical locations.This tournament has gained a lot of popularity abroad which came as a surprise to many. In the UK ITV4 of ITV network is showing this tournament, while in USA, Eco star, Willow TV & Neo Sports are broadcasting this festival of cricket and Seven Network will run the coverage in Australia. Cricone of Arab Digital network was showcasing this event in UAE. While the Caribean people watched their star players through Sports Max. The viewers from New Zealand saw it courtesy Sky Television Network. The African nations will watch this event through Super Sports. Tokyo Disneyland Walt Disney Company The Oriental Land Company Design of park or Patent Tokyo Disneyland is a park constructed by Walt Disney Imagineering in the same style as Disneyland in California and Magic Kingdom in Florida. It is owned by The Oriental Land Company, which licenses the theme from The Walt Disney Company. Tokyo Disneyland and its companion park, Tokyo DisneySea, are the only Disney parks not wholly or partially owned by the Walt Disney Company.

4. Franchaising The International Franchise Association defines franchising as a "continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organizing training, merchandising and management in return for a consideration from the franchisee".

International Profile
Major Top Global Franchisors in India Exhibit: 1.8 Franchisor Type of Business International Profile Major Markets Domino's Pizza Pizza, pastas, beverages and esserts. 10,000 stores in 70 countries. Canada, United States, Japan, and India. Pizza Hut Pizza, pasta, chicken wings 13,500 outlets in 98 countries China, Brazil, Canada, Japan Dunkin Donuts Coffee and donuts 8,924 restaurants in 30 countries China, Japan, Taiwan McDonald’s Fast-food restaurants 32,000 restaurants in 120 countries Canada, France, UK, Australia, China and India Subway Submarine, sandwiches & salads 32,239 shops in 90 countries Canada, Australia, UK, New Zealand, Germany

Internationalization of IMAX: Though Licensing & Franchising
Under the franchise and licensing system, IMAX provides the technology manufactured in Canada. IMAX (an acronym for Image MAXimum) is a motion picture film format and a set of cinema projection standards created by the Canadian company IMAX Corporation. IMAX has the capacity to record and display images of far greater size and resolution than conventional film systems. IMAX's 15/70 format, which is ten times larger than the conventional 35mm format, and delivers the clearest, brightest and steadiest images in the worldIMAX is the most widely used system for special-venue film presentations

Franchisee or licensee
Location Prasads Hyderabad BIG Cinemas& PVR Mumbai Cinepolis Thane City Palazzo&Luxe Chennai PVR Bangalore

Contracting Contracting is an agreement between two or more parties for the doing or not doing of something specified. Contracting agreements includes various categories such as contract manufacturing, Management Contracts and international leasing. A management contract is an arrangement under which operational control of an enterprise is governed by a management company hired for coordinating and overseeing the activities or other facility in exchange for compensation. In international leasing, another contractual strategy, a focal firm (the lessor) rents out machinery or equipment to corporate or government clients abroad (lessees), often for several years at a time. The lessor retains ownership of the property throughout the lease period and receives regular payments from the lessee.

Contracting is emerging
Company Type of Contracting Contract given to whom? For what the contract is given? Micromax Contract manufacturing Foxconn, China Micromax is currently the third largest handset brand in India after Nokia and Samsung. Micromax, however, does not have a manufacturing facility in the country and is primarily dependent on contract manufacturing for supply of its handsets. Micromax has production tie ups with Chinese companies such as Foxconn which also supplies iPhones and iPads to Apple. Infact most of Indian phone vendors are not considering manufacturing plants in India because of lack of ecosystem at present. India Post Management Contracting Infosys, India Infosys bagged Financial services System (FSI) Integration contract from India Post, which is presently undergoing a modernization programme.As rural system integration partner, company to help India Post offer tech-enabled services in rural areas. Kingfisher Airlines International leasing GE Commercial Aviation Services, Ireland (GECAS) is a unit of GE Capital, itself part of the large conglomerate General Electric.GECAS buys aircraft from manufacturers like Airbus and Boeing and then leases them to airlines, typically on three to five year leases, usually on dry lease contracts.Kingfisher has nearly 50 A320-family aircraft from a long list of lessors that includes GECAS, AerCap, Aircastle, Aviation Capital Group, AWAS and ILFC.

Strategic alliance A strategic alliance involves a contractual agreement between two or more companies stipulating that the involved parties will cooperate in a certain way for a certain time to achieve a common purpose.

ICICI Bank and Vodafone India
Companies Involved Purpose ICICI Bank and Vodafone India On Nov 08, 2012, ICICI Bank, India’s largest private sector bank and Vodafone India, one of India’s largest telecom service providers, announced a strategic alliance to launch a unique mobile money transfer and payment service called ‘m-pesa’. ‘m-pesa’ is the trademark of Vodafone. Fiat Group and Tata Motors In the year 2005, Fiat Group and Tata Motors signed of an agreement to co-operate on dealer network sharing, which encompasses the sale of Fiat-branded cars through selected Tata outlets throughout India. Tata Motors will manage the marketing and distribution of the Fiat-branded cats in India. Following the agreement, a targeted selection of Fiat cars and the Tata product range along with sale and service of spare parts will be available from March 2006 through the Tata dealership network. Dealers will display the new Fiat logo alongside the Tata logo at their outlets. In 2012 Six years after Fiat agreed to sell its cars through Tata Motors dealers, the Italian auto maker has decided to call off its distribution and commercial alliance and go solo in India.

Exporting In exporting goods produced in one country are marketed in another country another country for future sale or trade through marketing and distribution channels. It can be further categorized into direct or indirect export. direct exporting, the firm becomes directly involved in marketing its products in foreign markets, because the firm itself performs the export operations. In Indirect Exporting products are exported through trading companies, the firm is not engaging ininternational marketing and no special activity is carried on within the firm.

Wholly Owned Subsidiary or Direct investments
A subsidiary is a separate company that is owned by the mother company. Many organizations prefer to establish their presence in foreign markets with 100% ownership through wholly owned subsidiaries. wholly owned subsidiaries entry method: A subsidiary will typically operate independently from the mother company, but will receive guidance from it. A subsidiary may be eligible to receive government benefits in some countries because it is, in fact, a local company. Direct acquisition or merger in the host market: This is done by acquiring the equity of the firm that previously owned the facility. In some countries, governments prohibit 100% ownership by the international firm and demand alliance instead.

Foreign Assembly 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.

Alliances: Advantages
Entry into numerous foreign markets can be accomplished quickly and cost effectively Established brand name encourages early and ongoing sales potential abroad Useful when trade barriers reduce the viability of exporting or when governments restrict ownership of local operations by foreign firms The firm can leverage partner’s knowledge to efficiently navigate and develop local markets. Well selected partners bring financial investment as well as managerial capabilities to the operation.

Disadvantages Conflicts with partner are likely, including legal disputes Foreign partner may take advantage of acquired knowledge and become competitors in the future Maintaining control over partner maybe difficult Dilution of control Company viewed as an outsider Limits access to local information Wrong choice of market and partner may lead to inadequate market feedback affecting the international success of the company.

Standalone: + Standalone: -
Allows simultaneous expansion into different regions of the world Can better apply specialized skills Minimizes knowledge spillover Standalone: - Higher start-up costs and higher risks as opposed to alliances mode Greater information requirements Requires more resources and commitment

Make in India: International Restrictions
Industry FDI Policy Restrictions Automobile 100% allowed under the automatic route in the auto sector, subject to all the applicable regulations and laws. Aviation 100% FDI is allowed 100% FDI is permitted for Greenfield airport Up to 74% FDI is permitted for existing airport projects Up to 49% FDI is permitted in domestic scheduled passenger airline Up to 100% FDI is permitted in helicopter services and seaplanes Up to 100% FDI is permitted in maintenance and repair organizations Bio Technology 49-100% 100% is permitted through the automatic route Chemicals 100% FDI is allowed under the automatic route Certain products such as wax candles, laundry soaps, safety matches, fireworks and incense sticks fall under items reserved for the MSME (24%) Constructions 100% FDI through the automatic route Defense Up to 49% under the government route Electrical Machinery under the automatic route IT and BPM 100% is permitted under the automatic route Pharmaceuticals Tourism & Hospitality Broad casting carrier (49%), TV Channels & FM (24%), Print Media (26%)

Stages of Internationalization
Multinational Global Transnational

International Company International company is an enterprise which exists in one country but sells products in more than one country. Multinational Corporation (MNC) A Multinational Corporation (MNC) is an enterprise operating in several countries but managed from one country. Global Company A global firm pursues a unified strategy to coordinate various international operations. Transnational company A TNC corporations essentially shed their home nation identity and act as stateless organizations, in other words they do not identify itself with one national home like an MNC.

Characteristics of different organizational models
Difference International Multinational Meaning International company is an enterprise which exists in one country but sells products in more than one country. A Multinational Corporation (MNC) is an enterprise operating in several countries but managed from one country. Configuration of assets and capabilities Sources core competencies centralized and others decentralized. Decentralized and nationally self-sufficient. Roles of overseas operations Adapting and leveraging parent company strategies. Sensing and exploiting local opportunities. Development and diffusion of knowledge Knowledge developed at the center and transferred to the overseas units. Knowledge developed and retained within each unit.

Centralized and globally scaled
Difference Global Transnational Meaning A global firm pursues a unified strategy to coordinate various international operations. A TNC corporations essentially shed their home nation identity and act as stateless organizations, in other words they do not identify itself with one national home like an MNC. Configuration of assets and capabilities Centralized and globally scaled Dispersed. Interdependent and specialized. Roles of overseas operations Implementing parent company strategies Differentiated contributions by national units to integrated worldwide operations. Development and diffusion of knowledge Knowledge developed and retained at the center. Knowledge developed jointly and shared worldwide.

Political Environment
Political environment consist of a set of political factors and government activities in a foreign market that can either facilitate or hinder a business' ability to conduct business activities in the foreign market Therefore political trends can be prime motivators for many business decisions. Governments and politics play a large role in international business as it influences the legislation, rules and regulations under which a foreign firm operates.

Political Environment Components
What should be studied in political trends? Political Risks Political System Style of governance Instability indicators

Instability indicators
Attitude of Nationals Regulatory Quality Social Unrest Control of Corruption Political Instability Index Exhibit: 4.1 Most Politically Stable Least Politically Stable 1. Norway, 2. Denmark, 3. Canada, 4. Sweden, 5. Finland 1. Zimbabwe, 2. Chad, 3. Congo, 4. Cambodia, 5. Sudan Peace and Conflict Instability Index Most Peaceful (Top five) Most Conflicted (Top five) Slovenia, Sweden, Finland, Ireland and Netherlands Afghanistan, Congo, Burundi, Guinea and Djibouti Country Indicators for Foreign Policy: Failed and Fragile Least Fragile Most Fragile Denmark, Sweden, Finland, Japan & Switzerland Somalia, Afghanistan, Chad, Congo and Yemen

How to minimize political Risk?
Simulation of Local Economy Employment of Nationals Sharing Ownership Being Civic Minded Political Neutrality Behind the Scene lobby

Bases for Legal Systems
Three heritages form the bases for the majority of the legal systems of the world. Common law Civil or code law Islamic law

Common and Code Law Common law seeks “interpretation through the past decisions of higher courts which interpret the same statues or apply established and customary principles of law to a similar set of facts.” Under code law the legal system is generally divided into three separate codes: Commercial Civil Criminal Common law is recognized as not being all-inclusive, whereas code law is considered complete as a result of catchall provisions found in most code-law systems. Under common law, ownership is established by use; under code law, ownership is determined by registration.

Islamic Law The basis for the Islamic law is interpretations of the Koran. Islamic law defines a complete system that prescribes specific patterns of social and economic behavior for all individuals. Property rights Economic decision making Types of economic freedom Among the unique aspects of Islamic law is the prohibition against the payment of interest. The Islamic system places emphasis on the ethical, moral, social, and religious dimensions to enhance equality and fairness for the good of society.

Jurisdiction in International Legal Disputes
No judicial body exists to deal with legal commercial problems arising between citizens of different countries. Legal disputes can arise in three situations: Between governments Between a company and a government Between two companies The most clear-cut decisions can be made when the contracts or legal documents supporting a business transactions include a jurisdictional clause.

International Dispute Resolution: Arbitration
Most arbitration is conducted under the auspices of one of the more formal domestic and international arbitration groups organized specifically to facilitate the resolution of commercial disputes. The popularity of arbitration has led to a proliferation of arbitral centers established by countries, organizations, and institutions. Contracts and other legal documents should include clauses specifying the use of arbitration to settle disputes. Arbitration clauses require agreement on two counts: The parties agree to arbitrate in the case of a dispute according to the rules and procedures of some arbitration tribunal. They agree to abide by the awards resulting from the arbitration.

U.S. Laws Apply in Host Countries
Foreign Corrupt Practices Act Makes it illegal for companies to pay bribes to foreign officials, candidates, or political parties. National security laws Prohibit a U.S. company, its subsidiaries, joint ventures, or licenses to sell controlled products without special permission from the U.S. government. Antiboycott law U.S. companies are forbidden to participate in any unauthorized foreign boycott. Required to report any request to cooperate with a boycott

Technological Environment
Technological Environment means the advancements in the field of technology which influences business by new inventions of productions and other innovations in techniques to perform the business operations and product development. Degree of Automation & productivity Emerging Technologies R&D Activity Technology Transfer Use of IT & communication

When was the last time you wrote a paper check?
Old Technology When was the last time you wrote a paper check? New technology has given us ATM cards, check cards and credit cards. We pay bills and everything else on line or over the phone. Stores prefer the new technology that cuts down on losses and lines. Consumers love the new convenience and speed. Those old paper checks are just not as useful as the new technology. The written word will soon exist mainly on- line. Already computer technology provides us with faster news, classifieds, coupons and such than the old morning newspaper. Even phone books are on line. Travel Guide People find their way around using new GPS technology. Newspaper readership is down. Yellow Books are old, paper wasteful and unnecessary. Now new and information on your finger tips When did you last write a letter? : So much easier to pick up the cell phone or send an . Remember those old CB radios that gained popularity in the seventies? Those were new technology then but now they have been ousted by cell phones. Another old technology bumped by cell phone is the good old land line. The old technology of VCR's. the old TV, Video stores. The old technology of VCR's has been replaced by new DVD's. Now we have the new technology of Blue Ray that may overtake those as well. Video stores are disappearing as more people use the new technology of red box $1.00 rentals and on line video. Pretty soon the old TV may be gone as new computer viewing options get better and better. Cameras with film in them are a thing of the past as well. No fumbling with that old technology anymore. Just develop what you want and if the picture turns out bad, delete it. New technology has even improved on Edison's light bulb. Now we have new energy efficient bulbs that last for years. Turntables, eight track tapes, old cassettes, a bygone era. New Cd's and I pods have taken care of that technology. Maybe Cd's are the next technology to go as well. After all, don't see many old Walkman's around anymore.

E: Natural Environment
Geographical Location Availability of resource Access to natural resources Concern for environment Increased energy cost

Problems in IB Inadequate infrastructure Rigid bureaucratic procedures
Inconsistent industrial policy and rules Labor Regulations and Protections Foreign Exchange Control Regulations on Foreign Investment Stock Price Control Political dramas

Multinational Global Transnational

International Company International company is an enterprise which exists in one country but sells products in more than one country. Multinational Corporation (MNC) A Multinational Corporation (MNC) is an enterprise operating in several countries but managed from one country. Global Company A global firm pursues a unified strategy to coordinate various international operations. Transnational company A TNC corporations essentially shed their home nation identity and act as stateless organizations, in other words they do not identify itself with one national home like an MNC.

Characteristics of different organizational models
Difference International Multinational Meaning International company is an enterprise which exists in one country but sells products in more than one country. A Multinational Corporation (MNC) is an enterprise operating in several countries but managed from one country. Configuration of assets and capabilities Sources core competencies centralized and others decentralized. Decentralized and nationally self-sufficient. Roles of overseas operations Adapting and leveraging parent company strategies. Sensing and exploiting local opportunities. Development and diffusion of knowledge Knowledge developed at the center and transferred to the overseas units. Knowledge developed and retained within each unit.

Centralized and globally scaled
Difference Global Transnational Meaning A global firm pursues a unified strategy to coordinate various international operations. A TNC corporations essentially shed their home nation identity and act as stateless organizations, in other words they do not identify itself with one national home like an MNC. Configuration of assets and capabilities Centralized and globally scaled Dispersed. Interdependent and specialized. Roles of overseas operations Implementing parent company strategies Differentiated contributions by national units to integrated worldwide operations. Development and diffusion of knowledge Knowledge developed and retained at the center. Knowledge developed jointly and shared worldwide.

International Business

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International Business

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