International Business Management: Unit-1

INTERNATIONAL BUSINESS
MANAGEMENT
UNIT- 1
16-MARKS QUES&ANSWERS
1. FACTORS TO BE CONSIDER TO DECIDE COUNTRY

ATTRACTIVENESS:
 Companies planning international business must plan strategies for going in a

sequential manner from one country to another for allotting resources and
entering a new country.
 Companies should become aware of the tools for comparing and rating
different countries. Thus, they get into the promising and profit-making
opportunities.
 They should also avoid getting into expensive detailed scrutiny to survey a
wide spectrum of countries. Market size, case and matching areas of operations
and geographic proximity, language and similarities in buying situations in the
market are some of the parameters.
 Besides government interference, the country’s view on outside companies and

more especially its expatriates should be the deciding factors to enter country or
not.
 Other variables include the following areas that heed a significant

understanding by the companies planning to enter another country:
(a) Do the business requirements of the country matching with the

company’s capabilities and policies.
(b) Company size is adequate for the business.
(c) Company has the requisite technology for the country.
(d) The country allows high percentage of ownership to outside country
companies.
(e) The country allows easy remittance of profits.
(f) Costs, resources, infrastructure and transportation are manageable.
 Besides, the company must look at the country where the business certainty can be
expected rather than going to a country where there is uncertainty. Political stability
is one good criterion to work for. In some countries product copying is norm rather
than an exception. Companies should avoid such country: otherwise, is first move
advantage would get eroded in no time.
 On the financial side, country promising higher liquidity should be preferred even at
the cost of lower returns.
 Political risks can be apprehended by understanding past historical patterns, where

experts could requested to analyze current scene by looking at the level of frustration
among the citizens that would provide for the instability factor of the government.
2. STRATEGIES FOR COUNTRY ATTRACTIVENESS:
 The companies have to decide when they should go for diversification plans and
when should plan for consolidation and concentration.
(a) Sales response is on the increase.

(b) Markets are on high growth path.
(c) Sales are stable.
(d) Combination entry is a long way off.
(e) There are spin offs of sales on other products of the brand.
3. ECONOMIC RISK IN INTERNATIONAL BUSINESS:
 Exchange controls:
Stems from shortage of foreign exchange held by the country. When this
happens, controls may be placed upon all movement of capital or selectively against
most politically vulnerable companies.
 Local-content laws:
Companies often require a portion of any sold in a country to have a local
content. For example, for all cars manufactured in member counties, NAFTA imposes
62% as local content requirement.
 Import restrictions:
Selective restrictions on import of certain raw materials, machine and spare
parts are common strategies used to foreign companies to purchase more materials
within host country markets for local products.
 Tax control:
Taxes are a classified risk when used as a means of controlling foreign
investments. They are often raised without warning and in violation of formal
agreements.
 Price controls:
Essential products that command considerable public are often subject to price
controls.
4. FACTORS THAT CAUSES GLOBALIZATION BUSINESS

Globalization refers to the shift toward a more integrated and interdependent world
economy. It is a process of interaction among the people, companies and governments of
different nations, a process driven by international trade and investment and aided by
information technology.
 Increase in global competition.

 Rapid increase and expansion of technology.
 Liberalization of cross boarder movement.
 Development of barriers to trade and investment.
 High rate of profit.
 Untapped markets.
 Expansion of production beyond the demand of house market.
 Limited domestic market.
 Proximity to raw materials
 Availability of labour.
 Increasing market share.
 Product development cost and effort.
 World economic trends.
Increase in global competition

The pressure of increased foreign competition can force a company to expand its
business into international market. Nowadays companies can respond rapidly to many
foregin sales oppporunities. so increase in global competition lead to globalization .
Rapid Increase And Expansion Of Technology
The pace of the technology advance has accelerated to greater heights
and the knowledge of product and services is available more quikly and due to
communication and transportation technology.
Liberaliztion of Cross Border Movement:

World Trade Organizations(WTO) in 1995 made some
rules due to which the restrictions imposed on international trade are diminishing.
Though liberalization ha been occurring even in countries outside WTO. Liberalization of
cross border movement also causes globalization.
Development of Supporting Services:

Banks have developed efficient means for companies to receive payments for
their foreign sales, e.g Western Union money transfer. These developments in supporting
services also facilitates globalization.
Decline of Barriers to Trade and Investment:

Average tariff rates have significantly since 1950’s, and under the
Uruguay agreement, this removal of arriers to trade has taken place in conjunction with
increased trade, world output and foreign direct investment.
High rate of Profit:
When the firms do not earn higher profits or expected profits in the domestic markets,
business firms search for foreign markets, which may promise higher rate of profit.
Untapped Markets:
International business may produce ample chances of exploring foreign markets,

so that the production could be considerably increased. For e. g. bata shoe company sells the
shoes in UK at price which is ten times more than their prices in India.
Expansion of Production beyond the Demand of house markets:
Some of the companies may be compelled to produce to the fullest capacities of

the plant, which will be far more than domestic demand. These companies, in such cases, will
forced to sell their excess production in foreign countries.
Limited Domestic Market:
If the size of the home market happens to be very small due to smaller size of the country and
also lower purchasing power of the people or both the companies have to internationalize their
operations.
Proximity to Raw Materials:
In some cases, establishing the manufacturing centers in the foreign countries in the foreign
countries will be more advantageous due to nearness of the raw material. For e. g. US companies
Located their manufacturing centres in Saudi Arabia due the availability of crude petroleum.
Availability of Labour:
Many developed countries establish their business concerns in less developed countries due to
availability of cheap labor in the less developed nation. E.g. Outsourcing jobs.
Increasing Market Share:
Many lare scale business companies would like to enhance their market share in the global
market. For this purpose, they would explore all possibilities of setting up manufacturing centers
or marketing centers. Hence there will be need for them to turn global.
Product Development Cost and Efforts
In several industries, the cost of new product development is very high and the domestic market
or restricted overseas market are not adequate to meet the huge cost of product development. To
restrain such high costs, globalization of business is required.
World Economic Trends:
Another important factor for globalization of business is the difference in the growth rates of
the difference in the growth rates of the different economies and markets of the world.

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INTERNATIONAL BUSINESS

1. FACTORS TO BE CONSIDER TO DECIDE COUNTRY

 Companies planning international business must plan strategies for going in a

 Besides government interference, the country’s view on outside companies and

 Other variables include the following areas that heed a significant

(a) Do the business requirements of the country matching with the

 Political risks can be apprehended by understanding past historical patterns, where

2. STRATEGIES FOR COUNTRY ATTRACTIVENESS:

(a) Sales response is on the increase.

3. ECONOMIC RISK IN INTERNATIONAL BUSINESS:

4. FACTORS THAT CAUSES GLOBALIZATION BUSINESS

 Increase in global competition.

Increase in global competition

Liberaliztion of Cross Border Movement:

Development of Supporting Services:

Decline of Barriers to Trade and Investment:

High rate of Profit:

International business may produce ample chances of exploring foreign markets,

Expansion of Production beyond the Demand of house markets:

Some of the companies may be compelled to produce to the fullest capacities of

Proximity to Raw Materials:

Increasing Market Share:

Product Development Cost and Efforts

World Economic Trends:

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