BEL First Grade College

Jalahalli-13

BBA 6th semester

Module1: Introduction to International Business

• Introduction- Meaning and definition of international business

• Need and importance of international business,
• Stages of internationalization,
• Tariffs and non-tariff barriers to international business.
• Mode of entry into international business :
o Exporting (Direct And Indirect),
o Licensing And Franchising,
o Contract Manufacturing,
o Turnkey Projects,
o Management Contracts,
o Wholly Owned Manufacturing Facility,
o Assembly Operations,
o Joint Ventures,
o Third Country Location,
o Mergers And Acquisition, Strategic Alliance,
o Counter Trade; Foreign Investments.

• Introduction:
International business encompasses commercial activities that
promote the transfer of goods, services, resources, people, ideas, and
technologies across national boundaries. It can involve the movement
of goods through exporting and importing, contractual agreements
like licensing and franchising, and operations in foreign markets
through facilities like sales offices, manufacturing plants, and
research centers. Globalization has accelerated since the 19th century
due to advances in transportation and communication. While
globalization has a long history dating back thousands of years, the
modern era of globalization is generally considered to have begun in
the late 15th century during the Age of Discovery when European
exploration connected different regions globally through trade.

• Meaning :
The term "international business" refers to any commercial activity
that involves transactions or operations across national borders. This
encompasses a wide range of activities, including the exchange of
goods, services, technology, capital, and intellectual property between
 individuals, businesses, and governments located in different
countries.

• Definition: Various authors and economists have offered definitions of

international business, reflecting different perspectives and emphases. Here
are some definitions provided by prominent figures in the field:

Charles W. L. Hill and Arun Kumar Jain: "International business

consists of transactions that are devised and carried out across
national borders to satisfy the objectives of individuals, companies,
and organizations."

John D. Daniels and Lee H. Radebaugh: "International business

involves the performance of trade and investment activities by firms
across national borders."

Michael R. Czinkota and Ilkka A. Ronkainen: "International business

includes all commercial transactions (private and governmental, sales,
investments, logistics, and transportation) that take place between
two or more regions, countries, and nations beyond their political
boundaries."

Peter J. Buckley and Mark Casson: "International business refers to

the conduct of business outside the domestic boundaries of a
country."

Need and importance of International Business

The need and importance of international business stem from several
factors, reflecting the realities of the global economy and the
interconnectedness of nations. Here are some key reasons why international
business is crucial:
1. Access to Larger Markets: International business allows companies
to access larger markets beyond their domestic borders. This enables
them to tap into new customer segments, increase sales, and expand
their revenue streams.
2. Diversification of Revenue Streams: Operating in multiple countries
helps companies diversify their revenue streams, reducing dependence
on any single market. This diversification strategy can help mitigate
risks associated with economic downturns or political instability in
specific regions.
3. Resource Access and Cost Efficiency: International business
enables companies to access resources such as raw materials, labor,
and technology that may be unavailable or more costly in their home
 countries. By sourcing inputs from different countries, firms can
enhance cost efficiency and competitiveness.
4. Innovation and Knowledge Transfer: International business
facilitates the exchange of ideas, technologies, and best practices
across borders. Collaboration with foreign partners or subsidiaries
can spur innovation, leading to the development of new products,
processes, and business models.
5. Economies of Scale and Scope: Operating on a global scale allows
companies to achieve economies of scale and scope in production,
distribution, and marketing. This can lead to lower per-unit costs,
higher profitability, and increased competitiveness in the global
marketplace.
6. Risk Mitigation: International business enables companies to spread
risks by diversifying their operations across different countries and
regions. This helps reduce exposure to country-specific risks such as
political instability, regulatory changes, currency fluctuations, and
natural disasters.
7. Competitive Advantage: Engaging in international business can
confer competitive advantages such as brand recognition, access to
new technologies, and first-mover advantages in emerging markets.
Companies that successfully navigate international markets can
strengthen their market position and outperform competitors.
8. Enhanced Learning and Cultural Understanding: International
business provides opportunities for individuals and organizations to
learn about diverse cultures, languages, and business practices. This
exposure fosters cross-cultural understanding, tolerance, and
cooperation, which are essential in today's interconnected world.
9. Contribution to Economic Development: International business can
contribute to economic development by generating employment,
fostering innovation, stimulating investment, and promoting trade
between countries. It can also help raise living standards and reduce
poverty by creating opportunities for economic growth and prosperity.

In summary, international business is essential for companies seeking

growth opportunities, efficiency gains, risk diversification, and competitive
advantages in the global marketplace. It plays a vital role in driving
economic development, fostering innovation, and promoting cross-cultural
exchange and cooperation on a global scale.
 Stages of Internationalization
The journey of a company's expansion into international markets can be
delineated through five distinct stages of internationalization. This
progression encapsulates the evolution from a domestically focused entity to
a globally integrated enterprise, each stage marked by a significant shift in
strategy, operations, and market focus.

1. Domestic Company
At the inception, a Domestic Company confines its operations, vision, and
strategic planning within the national boundaries. Such companies are
primarily concentrated on leveraging domestic market opportunities,
catering to local customer needs, and navigating through the national
environmental constraints. The overarching belief driving their strategy is
encapsulated in the adage, "If it is not happening in the home country, it is
not happening." Examples of domestic companies include giants
like Reliance Industries Limited and Tata Motors Limited, which initially
focused on mastering the home market before considering any global
footprint.
 2. International Company
Transitioning from a domestic outlook, an International Company ventures
beyond its national borders, extending its operational wings to foreign
countries. This stage is characterized by the strategic decision to tap into
overseas markets by establishing branches or subsidiaries, thus stepping
into the realm of international business. The move is driven by the desire to
explore opportunities outside the domestic sphere, marking the company's
initial foray into the global market.
3. Multi-National Company
The evolution continues as international companies transform into Multi-
National Companies (MNCs). This transition is signified by a shift towards
addressing the specific needs of different country markets with tailored
product offerings, pricing strategies, and promotional activities. MNCs, or
Multi-Domestic companies as they are sometimes called, adopt a localized
approach, formulating distinct strategies for diverse markets to resonate
with the local customer base. This stage emphasizes the importance of
understanding and integrating into the cultural and consumer fabric of each
market they enter.
4. Global Company
A further evolution is seen in the emergence of the Global Company, which
adopts a comprehensive global strategy. Whether by producing in a single
country and marketing products globally or by leveraging global production
for domestic marketing, global companies strive for efficiency and market
penetration on a worldwide scale. The strategy here pivots towards
exploiting global synergies, emphasizing the integration of global operations
to achieve a seamless flow of goods and services across borders.
5. Transnational Company
The pinnacle of internationalization is represented by the Transnational
Company, which epitomizes the zenith of global integration. These
companies are distinguished by their ability to produce, market, invest, and
operate across the world, linking global resources with global markets to
optimize profits. Despite the complexity, transnational companies like Coca-
Cola, Apple, McDonald's, and Nike manage to maintain centralized control
while operating extensively across international borders. They aim to
combine global efficiency with local responsiveness, navigating the delicate
balance between global standardization and local adaptation.

Tariffs and non-Tariff barriers to International Business

Tariffs and non-tariff barriers (NTBs) are two types of measures used by
governments to regulate international trade. They can significantly impact
the operations and profitability of businesses engaged in international trade.
Here's an overview of tariffs and non-tariff barriers:

1. Tariffs: Tariffs are taxes imposed on imported goods and, in some

cases, exported goods. They increase the price of imported products,
making them less competitive compared to domestically produced
goods. Tariffs serve several purposes for governments, including:

• Protecting domestic industries from foreign competition.

• Generating revenue for the government.

• Correcting trade imbalances.

• Encouraging domestic production and consumption.

Types of tariffs include:

• Ad valorem tariffs: Calculated as a percentage of the value of

the imported goods.

• Specific tariffs: Imposed as a fixed amount per unit of the

imported goods.

• Compound tariffs: Combining elements of both ad valorem and

specific tariffs.

Tariffs can lead to higher prices for consumers, reduced market access for
foreign producers, and trade distortions. They often result in retaliatory
measures from trading partners, leading to trade tensions and potentially
escalating into trade wars.

2. Non-Tariff Barriers (NTBs): Non-tariff barriers encompass a wide

range of measures that restrict or impede trade without involving the
imposition of tariffs. They can take various forms, including:

• Import quotas: Limiting the quantity of certain goods that can

be imported.

• Import licensing requirements: Requiring importers to obtain

licenses or permits before importing specific goods.

• Technical barriers to trade (TBT): Regulations related to

product standards, testing, labeling, and certification, which
may vary across countries.
 • Sanitary and phytosanitary measures (SPS): Regulations
aimed at protecting human, animal, or plant health, which can
sometimes be used as disguised protectionist measures.

• Customs procedures and administrative requirements:

Complex customs procedures, paperwork, and bureaucratic
hurdles that can increase the cost and time required to import
or export goods.

• Quarantine and inspection requirements: Mandating

inspections of imported goods to ensure compliance with health,
safety, or quality standards.

• Subsidies and domestic support: Government subsidies

provided to domestic industries, which can distort international
trade by artificially lowering production costs or increasing
exports.

• Currency manipulation: Interventions in currency markets to

gain an unfair competitive advantage in trade.

Non-tariff barriers are often more difficult to quantify and address compared
to tariffs. They can create uncertainty for businesses, hinder market access,
and increase trade costs, thereby impeding international trade and
investment flows.

Overall, tariffs and non-tariff barriers represent significant challenges for

businesses engaged in international trade, requiring careful navigation and
strategic adaptation to comply with regulatory requirements and maintain
competitiveness in global markets.

Why Should Companies Expand Globally?

A truly international corporation has a globally distributed supply chain.

Even if a global supply chain has flaws that are frequently beyond a
company's control, there are various reasons why a company might want to
explore foreign markets.
Companies Usually Decide To Enter International Markets For The
Following Reasons:

1. Determine Which Markets Will Be More Profitable

This is why many domestic companies are expanding into international
markets. A global market's purchasing power may increase, resulting in
higher earnings for the same products. This excludes the initial go-to-
market costs associated with entering that foreign market.
2. Revenue Growth
One of the primary benefits of globalisation is an increase in revenue.
International marketing allows you to reach a larger audience than your
local market, which increases sales more effectively. Global expansion is
required for business growth that is not limited to the typical revenue your
local market can provide for your organisation.

Mode of entry into international business

o Exporting (Direct And Indirect),

o Licensing And Franchising,
o Contract Manufacturing,
o Turnkey Projects,
o Management Contracts,
o Wholly Owned Manufacturing Facility,
o Assembly Operations,
o Joint Ventures,
o Third Country Location,
o Mergers And Acquisition,
o Strategic Alliance,
o Counter Trade;
o Foreign Investments