International Business CHPT 1
International Business CHPT 1
International Business CHPT 1
- Nirav Parekh
International business
Activities that buys and sells goods and services across two or more national boundaries, even if the management is located in one country.
Competition
Cont.
Wide Market Political Stability Technology High Cost of Transportation Foreign Exchange
Can be worked out for short term and carried forward to long term Many domestic and some international players and one can understand their movement.
Only long term planning and strategy will work International competitive forces play a vital role and it is very difficult to understand the motive and movement
3) Competition
5) Legal aspects
8) Investment
One can start with minimum investment. Also regulatory bodies are less involved
9) Business risk
10) Research
Competition, rising cost in domestic markets, falling transport and communication cost have encouraged firms to look for opportunities abroad
As countries get richer, they enact tougher environmental and labour regulations Free trade enables developing countries to increase their economic growth and become richer The pollution levels are rising in the worlds poor countries, while they have been falling in developed countries. Eg:- the US manufacturing firms have been moving to Mexico.
Social Environment:
1) national taste:
In Thailand , people prefer black shampoo.
Nestle brews different varieties of instant coffee as people in different countries have different taste. Green is a favourite colour in Middle east countries. 2) Language 3) demographic profile:
A number of demographic factors such as age, sex ratio, family size and occupation influence the business of many companies. Different companies concentrate on different segments. e.g Barbie generates huge revenues through the childrens segment of affluent countries. Also brands like Osh Kosh BGosh and Jini and Joni can do well in India considering the huge children population.
Social Environment:
4) Literacy rate: Countries with a high literacy rate experience a better standard of living . Here the need is for standardised goods, supported by technical services. For a country with an educated population , the amount of training required for the staff will be far less than in the case of a country which has a low literacy rate. This is an important parameter as it influences the costs incurred.
Social Environment:
5) Female workforce:
With economic independency in countries like China, India , women no longer depend on men to make decisions about what to buy.
As they have the required purchasing ability, they make decisions on their own. In India , china , Thailand and Russia, there is a huge demand for categories like Jewellery, Cosmetics, vehicles, ready to eat foods, primarily because of the working women.
6) Double Income families (from to nuclear families): As the household income increase the demand for the number of products, increases proportionately.
Technological Environment
Cont.
International Business has gained significance due to advancement in technology It flows from the advance countries to developing countries through multinationals, JV, technological alliances, licensing and franchising. It influences the way we live, cook, communicate or sell. Advanced countries spend considerable amount on research and development Developing countries like India allow MNCs entry into their country to develop domestic markets. Hence technology and global business are interdependent. MNCs have to understand and analyze more of economic environment of the foreign countries for strategy formulation.
Economic Environment
Cont.
IB is directly influenced by the Economic environment of various countries. Business helps for identification of needs of the people, their wants, demand, supply etc. Developing countries concentrate on allocation of scarce resources, increasing production and productivity, to meet the growing need of the people. IB houses streamlines the distribution of goods from the manufacturing centers to customers.
Economic environment :
Before entering any country, the economic study is of vital importance
A) Size of the market : most companies are looking at India because of the huge potential. A case in point is HP which is now focusing on India to sell their range of laptops and printers in India. Indias middle class and upper class population is more then the population of Europe.
B) Gross Domestic Product (GDP) : If a constant good rate is maintained , MNCs would definitely look at such countries. India is maintaining around 7-8% growth rate. In the 1990s it was Malaysia and Indonesia.
Economic environment :
C) Purchasing Power: Higher PP leads to a highly potential market. D) Banking : is the only channel through which remittances take place and hence is a major infrastructure for IB. Europe and American and the Far east economies have a highly effective banking system. On the other hand, Africa and CIS are not able to provide good banking services to the International business community.
Economic environment :
E) Foreign exchange : countries with sufficient foreign exchange reserves, a liberal policy on repatriation and which have demand for the products and services are an ideal destination for any company to do IB
Economic environment :
F) Income levels: Economies are classified into low and high income economies. Industrialised nations are high income economies and enjoy a high per capita income. Companies marketing premium quality or high technology products have an easy entry into such advanced economies with the proper strategy e.g IPOD and Playstations. Similarly developing countries which are low income economies are price sensitive. Accordingly foreign companies will think of cheaper or middle level products for these economies.
Political Environment
Countries with stable government and political system enjoy successful business operations. Includes Policies and characteristics of political party, the nature of constitution and government system. Eg. USA is the best example of better Political environment Political friendship results in growth of bilateral or multilateral trade. International business face political risk as and when there are changes in government policies and political power.
Political Environment :
Host country political environment : The political parities in each country have different ideologies. It is imperative to know these ideologies before entering any country. Both Coke and IBM had to leave India , when in 1977 , Janata party came to power in India. Global Political environment : formation of strategic alliances like EU helps companies in that region to enter any country in that alliance as it benefits them more than companies form non EU.
Cont.
Low Income Countries - Countries having less than US $ 400 per capita. Also called as Third countries. Characteristics are high birth rate, limited industrialization, low literacy rate, etc Lower-middle Income countries Countries having GNP per capital of US $ between 400 and 2000. Called as LDCs. Characteristics are early stage of industrialization, availability of cheap labour, dependency on agriculture
etc.
Upper Middle income countries GNP per capita of US $ ranging from 2000 to 12000. Also known as industrializing countries. Characteristics are increase in literacy, low wage costs, high exports, and rapid economic developments. High Income countries Countries with more than GNP of US $ 12000. Characteristics are high income, industrialization, development of
technology etc