NMBA 032: INTERNATIONAL BUSINESS MANAGEMENT Max.

Hours: 40
Course Objective
This course will provide the students an opportunity to learn and understand how business is
conducted in the
international arena. The syllabus is designed to allow students to gain managerial skills to
meet the challenges
they will face in the global workplace.
Unit I (6 sessions)
An Overview of International Business: Introduction, Definition of International Business,
Changing
Environment of International Business, Globalization of Markets, Trends in Globalization,
Effects and
Benefits of Globalization.
Unit II (10 sessions)
International Trade and Investment Theories: Mercantilism; Absolute Cost theory,
Comparative Cost theory,
Opportunity Cost theory, factor endowment theory, Complimentary trade theories stopler
Samuelson
theorem, International Product life Cycles. Investment Theories Theory of Capital
Movements, Market
Imperfections theory; Internationalisation Theory; Location Specific Advantage Theory;
Eclectic Theory;
other theories, Instruments of Trade Policy- Tariffs, Subsidies, Import Quotas, Voluntary
Export Restraints,
Administrative Policy, Anti-dumping Policy.
Unit III (08) sessions)
Foreign Exchange Determination Systems: Basic Concepts Relating to Foreign Exchange,
Various types of
Exchange Rate Regimes Floating Rate Regimes, Managed Fixed Rate Regime, Purchasing
Power Parity,
Mint Parity, Interest rates, other Factors Affecting Exchange Rates, Brief History of Indian
Rupees Exchange
Rates.
Unit IV (10 Sessions)
International Institution: UNCTAD, Its Basic Principles and Major Achievements, IMF, Role
of IMF, IBRD,
Features of IBRD, WTO, Role and Advantages of WTO.
Regional Economic Integration: Introduction, Levels of Economic Integration, Regional
Economic Integration
in Europe, Regional Economic Integration in U.S.A., ASEAN, SAARC, Integration for
Business.
Unit V (06 Sessions)
Strategic Functions of International HRM, Staffing Policy Ethnocentric, Polycentric and
Geocentric
Approach, Expatriate Preparation and development, Expatriate Repatriation, International
Labor Relations

1.Exporting
:It means the sale abroad of an item produced ,stored or processed in thesupplying firms
home country. It is a convenient method to increase thesales. Passive exporting occurs when
a firm receives canvassedthem. Active exporting conversely results from a strategic decision
toestablish proper systems for organizing the export fuctions and for procuring foreign sales.
Advantages Of Exporting
:a.
Need for limited finance
;If the company selects a company in the host country to distribute thecompany can enter
international market with no or less financialresources but this amount would be quite less
compared to that would be necessary under other modes. b.
Less Risks
;Exporting involves less risk as the company understand the culture ,customer and the market
of the host country gradually. Later after understanding the host country the company can
enter on a full scale.c.
Motivation for exporting
:Motivation for exporting are proactive and reactive. Proactivemotivations are opportunities
available in the host country. Reactivemotivators are those efforts taken by the company to
export the product to a foreign country due to the decline in demand for its product in the
home country.2.
Licensing :
In this mode of entry ,the domestic manufacturer leases the right to useits intellectual
property (ie) technology , copy rights ,brand name etc toa manufacturer in a foreign country
for a fee. Here the manufacturer in thedomestic country is called licensor and
the manufacturer in the foreign iscalled licensee. The cost of entering market through this
mode is lesscostly. The domestic company can choose any international location andenjoy the
advantages without incurring any obligations and responsibilitiesof ownership ,managerial
,investment etc.
Advantages
;1. Low investment on the part of licensor.2. Low financial risk to the licensor 3. Licensor can
investigate the foreign market without much efforts onhis part.4. Licensee gets the benefits
with less investment on research anddevelopment5. Licensee escapes himself from the risk of
product failure.
Disadvantages
:1. It reduces market opportunities for both2. Both parties have to maintain the product
quality and promote the product . Therefore one party can affect the other through
their improper acts.3. Chance for misunderstanding between the parties.
4. Chance for leakages of the trade secrets of the licensor.5. Licensee may develop his
reputation6. Licensee may sell the product outside the agreed territory and after theexpiry of
the contract.
3.Franchising
Under franchising an independent organization called the franchiseeoperates the business
under the name of another company called thefranchisor under this agreement the franchisee
pays a fee to the franchisor.The franchisor provides the following services to the franchisee.1.
Trade marks2. Operating System3. Product reoutation4. Continuous support system like
advertising , employee training ,reservation services quality assurances program etc.
Advantages:

1. Low investment and low risk 2. Franchisor can get the information regarding the market
culture,customs and environment of the host country.3. Franchisor learns more from the
experience of the franchisees.4. Franchisee get the benefits of R& D with low cost.5.
Franchisee escapes from the risk of product failure.
Disadvantages
:1. It may be more complicating than domestic franchising.2. It is difficult to control the
international franchisee.3. It reduce the market opportunities for both4. Both the parties
have the responsibilities to maintain product qualityand product promotion.5. There is a
problem of leakage of trade secrets.
4.Turnkey Project
:A turnkey project is a contract under which a firm agrees to fullydesign , construct and equip
a manufacturing/ business/services facilityand turn the project over to the purchase when it is
ready for operation for a remuneration like a fixed price , payment on cost plus basis.
This formof pricing allows the company to shift the risk of inflation enhanced coststo the
purchaser. Eg nuclear power plants , airports,oil refinery , nationalhighways , railway line etc.
Hence they are multiyear project.
5.Mergers & Acquistions
:A domestic company selects a foreign company and merger itself withforeign company in
order to enter international business. Alternatively thedomestic company may purchase the
foreign company and acquires itownership and control. It provides immediate access to
internationalmanufacturing facilities and marketing network
Advantages
:1. The company immediately gets the ownership and control over theacquired firms
factories, employee, technology ,brand name anddistribution networks.2. The company can
formulate international strategy and generate morerevenues.3. If the industry already reached
the stage of optimum capacity level or overcapacity level in the host country. This strategy
helps the hostcountry.
Disadvantages:
1. Acquiring a firm in a foreign country is a complex task involving bankers, lawyers
regulation, mergers and acquisition specialists fromthe two countries.2. This strategy adds no
capacity to the industry.3. Sometimes host countries imposed restrictions on acquisition of
localcompanies by the foreign companies.4. Labour problem of the host countrys companies
are also transferred tothe acquired company.
6.Joint Venture
Two or more firm join together to create a new business entity that islegally separate and
distinct from its parents. It involves shared ownership.Various environmental factors like
social , technological economic and political encourage the formation of joint ventures. It
provides strength interms of required capital. Latest technology required human talent etc.
andenable the companies to share the risk in the foreign markets. This actimproves the local
image in the host country and also satisfies thegovernmental joint venture.
Advantages
:1. Joint venture provide large capital funds suitable for major projects.2. It spread the risk
between or among partners.3. It provide skills like technical skills, technology, human
skills ,expertise , marketing skills.4. It make large projects and turn key projects feasible and
possible.5. It synergy due to combined efforts of varied parties.
Disadvantages:
1. Conflict may arise2. Partner delay the decision making once the dispute arises. Then
theoperations become unresponsive and inefficient.3. Life cycle of a joint venture is hindered
by many causes of collapse.4. Scope for collapse of a joint venture is more due to entry

of competitors changes in the partners strength.5. The decision making is slowed down in
joint ventures due to theinvolvement of a number of parties.
7.Acquisitions & Mergers
:A mergers is a voluntary and permanent combination of businesswhereby one or more firms
integrate their operations and identities
with those of another and henceforth work under a common name andin the interests of the
newly formed amalgamations.
Motives for acquisitions
:1. Removal of competitor 2. Reduction of the Co failure through spreading risk over a
wider range of activities.3. The desire to acquire business already trading in certainmarkets &
possessing certain specialist employees &equipments.4. Obtaining patents, license &
intellectual property.5. Economies of scale possibly made through more
extensiveoperations.6. Acquisition of land, building & other fixed asset that can be profitably
sold off.7. The ability to control supplies of raw materials.8. Expert use of resources.9. Tax
consideration.10. Desire to become involved with new technologies &management method
particularly in high risk industries.
8.Wholly Owned Subsidiary
Subsidiary means individual body under parent body. This Subsidiary or individual body as
per their own generates revenue. They give their ownrent, salary to employees, etc.
But policies and trademark will beimplemented from the Parent body. There are no branches
here. Only thecertain percentage of the profit will be given to the parent body.A subsidiary, in
business matters, is an entity that is controlled by a bigger and more powerful entity. The
controlled entity is called a company,corporation, or limited liability company, and the
controlling entity is calledits parent (or the parent company). The reason for this distinction is
that alone company cannot be a subsidiary of any organization; only an entityrepresenting
alegal fictionas a separate entity can be a subsidiary. Whileindividuals have the capacity to
act on their own initiative, a business entitycan only act through its directors, officers and
employees.The most common way that control of a subsidiary is achieved is throughthe
ownership of sharesin the subsidiary by the parent. These shares givethe parent the necessary
votes to determine the composition of the board of the subsidiary and so exercise control.
This gives rise to the common

presumption that 50% plus one share is enough to create a subsidiary. Thereare, however,
other ways that control can come about and the exact rules both as to what control is needed
and how it is achieved can be complex (see below). A subsidiary may itself have subsidiaries,
and these, in turn, mayhave subsidiaries of their own. A parent and all its subsidiaries
together arecalled a group, although this term can also apply to cooperating companiesand
their subsidiaries with varying degrees of shared ownership.Subsidiaries are separate,
distinctlegalentities for the purposes of taxation andregulation. For this reason, they differ
from divisions, which are businesses fully integrated within the main company, and not
legally or otherwise distinct from it.Subsidiaries are a common feature of business life and
most if not all major businesses organize their operations in this way. Examples
includeholdingcompaniessuch asBerkshire Hathaway,Time Warner , or Citigroupas wellas
more focused companies such asIBM, or Xerox Corporation. These, andothers, organize their
businesses into national or functional subsidiaries,sometimes with multiple levels of
subsidiaries.