International Business
Chapter : 1 International Business: Concept and Definition
Q. What is the Meaning of International Business? Also give define of international business .
Ans: International Business refers to any business activity that involves the exchange of goods, services, capital, technology, or knowledge between two or more countries. It encompasses a wide range of transactions, including trade, investment, and licensing agreements, and involves various entities, including individuals, companies, and government entities.
The primary objective of International Business is to satisfy the needs and objectives of the parties involved, including profit-making, political or strategic objectives, and knowledge sharing.
Definition :
According to the American philosopher and writer Roger Bennett "International business involves commercial activities that cross national frontiers".
John D. Daniels and Lee H. Radebaugh observe, "International business is all business transactions private and governmental that involve two or more countries. Private companies undertake such transactions for profits; governments may or may not do the same in their transactions"
Q. What are the features of international business ?
Ans: The following are the features of international business :
1. Involvement of two Countries: The most striking feature of international business is that there must be at least two countries involved in the transaction. This means to say that the parties involved in the transaction must belong to two separate countries. In the absence of this feature, a business transaction does not qualify to be an International Business.
2. Use of Common Currency: International transactions require the use of a common currency. 83.3% of international transactions are traded in US dollars, followed by Euro, Japanese yen, and Great Britain pound. There are 35 foreign currencies used in international business transactions.
3. Large Scale Operation: International business leads to large scale operation of businesses. Due to huge marketing prospect throughout the world, all activities including production and marketing are conducted in very huge scale. The entrepreneurs first meet their domestic needs and then expand their market span in international market.
4. Integration of Economies: International business integrates the economies of many countries. This is so because, it uses finance from one country, labour from another country and infrastructure from still another country. Moreover, it designs the product in one country, produces its parts and components in many different countries and assembles the product in some other country.
5. Legal Compulsions: Every country is subject to various internal laws, policies of foreign trade. To conduct international business, one must comply with all such formalities.
6. Government Interventions: International transactions are subject to more Government interventions due to variety of reasons.
7. High Degree of Risk: International businesses are mostly subject to high degree of risk with regard to price fluctuations and fear of being obsolesce due to fast changing technological environment of businesses.
8.Sensitive Nature: International Business is very sensitive in nature. Any change in the economic policies, technology, political environment, etc impels huge impact on it.
Q. What are the scope of international business explained ?
Ans: The scope of international business is much broader than international trade. It includes not only international trade but also a wide variety of other ways in which the firms operate internationally. Major forms of business operations that come under the scope of international business are as follows:
a. International business includes not only international trade but also various other ways in which firms operate globally.
b. The major forms of business operations that come under the scope of international business include export and import of goods and services, licensing and franchising, foreign investment, outsourcing and offshoring, and joint ventures and strategic partnerships.
c. Export and import of goods involve the trade of tangible goods such as machinery, gold, and electronic products.
d. Export and import of services involve the trade of intangible services such as tourism, transportation, and business services.
e. Licensing and franchising involve contractual agreements in which one firm grants access to its patents, copyrights, trademarks, or technology to another firm in a foreign country in exchange for some fee called royalty.
f. Foreign investment involves investments of funds abroad in exchange for financial return and can be of two types: direct and portfolio investments.
g. Outsourcing and offshoring involve giving out some of a company's business processes to international firms or physically moving the facility to another country. Joint ventures and strategic partnerships occur when two or more firms join together for a common purpose and mutual benefit.
Q. What are the difference between International business and Domestic business ? (2022)
Ans:
Q. What is International business ? Point out the complexity is involved in the doing international business as compared to domestic business.
Ans: International business refers to the exchange of goods, services, and information across national borders, involving companies and organizations from different countries. It includes activities such as importing and exporting goods, setting up production facilities and sales operations in foreign markets, and conducting joint ventures and partnerships with foreign firms.
According to the American philosopher and writer Roger Bennett "International business involves commercial activities that cross national frontiers".
International business involves a higher level of complexity as compared to domestic business due to several reasons, including:
a).Cultural Differences: International business involves dealing with people from diverse cultures, which can create communication barriers, misunderstandings, and conflicts.
b).Legal and Regulatory Frameworks: Every country has its own laws, regulations, and policies related to international trade, investment, and business operations. This can make it challenging for companies to navigate and comply with different legal systems.
c).Political and Economic Instability: International business can be affected by political and economic instability in different countries, such as wars, political conflicts, and economic crises.
d).Currency and Exchange Rate Fluctuations: International business involves transactions in different currencies, which can be affected by exchange rate fluctuations, creating financial risks for companies.
d).Logistics and Supply Chain Management: International business requires effective management of logistics and supply chains across different countries, which can involve dealing with transportation, customs, and other regulatory issues.
e).Ethical Considerations: International business also involves ethical considerations, such as respecting human rights, environmental protection, and fair labor practices, which can vary across different countries.
Overall, international business requires a higher level of understanding, expertise, and resources as compared to domestic business, making it more complex and challenging for companies to succeed in the global marketplace.
Q. Explain the various mode of entry into international business.
Ans: The following are the various mode of entry into International discuss below :
a) Exporting: A company produces its products in its home country and sells them in foreign markets.
b) Licensing: A company grants the right to use its intellectual property (such as patents, trademarks, and copyrights) to a foreign company in exchange for a royalty or fee.
c) Franchising: A company grants the right to use its business model and brand name to a foreign company in exchange for a fee or royalty.
d) Management contract: A company provides management services to a foreign company in exchange for a fee.
e) Turnkey projects: A company designs, builds, and installs a complete facility for a foreign company, which is ready to operate upon completion.
f) Contract manufacturing: A company outsources its production to a foreign company to reduce costs and increase efficiency.
g) Joint venture: Two or more companies form a partnership to undertake a specific business venture in a foreign market, sharing ownership, management, and profits.
h) Foreign direct investment (FDI): A company invests in a foreign country by establishing a subsidiary or acquiring a local company.
i) Portfolio Investment: A company invests in the stocks, bonds, or other financial instruments of a foreign company or country, without taking an active role in its management.
Q. What do you mean by International Business environment ? Explain the domestic business environment required for doing international business .
Ans: International business environment refers to the various external factors, both at the micro and macro levels, that affect the operations and decision-making processes of businesses engaged in international trade and investment. These factors can include economic, political, social, cultural, legal, and technological factors, among others
The domestic business environment refers to the various factors within a country that can affect the operations and decision-making processes of businesses engaged in international trade and investment. The following are some of the key factors of the domestic business environment that are required for doing international business:
Economic Factors: The economic conditions of a country, such as the level of economic development, inflation, exchange rates, and availability of resources, can significantly affect a company's ability to do business internationally.
Political Factors: The political stability of a country, government policies related to trade and investment, and the relationship between the home country and foreign countries are important considerations for companies engaged in international business.
Legal and Regulatory Factors: Laws and regulations related to trade, investment, and intellectual property protection vary from country to country, and companies must comply with these regulations to operate successfully in the international marketplace.
Cultural Factors: Cultural differences, such as language, customs, religion, and values, can impact a company's ability to communicate effectively with customers, suppliers, and other stakeholders in foreign countries.
Technological Factors: The level of technological advancement in a country can impact a company's ability to access new markets, improve production processes, and stay competitive in the global marketplace.
Infrastructure: The quality of a country's infrastructure, such as transportation, communication, and energy systems, can impact a company's ability to conduct business efficiently in foreign markets.
Human Resources: A company's ability to recruit and retain skilled and diverse employees is crucial to its success in the international marketplace.
Q. Examine the various domestic and foreign environmental factor need to be studied in doing international business .
Ans: The various domestic and foreign environmental factors that need to be studied in doing international business, are as follows:
1. Domestic Environmental Factors:
a) Economic Factors: economic growth, inflation, exchange rates, availability of resources, and consumer behavior.
b) Political Factors: government policies, regulations, and stability, as well as the relationship between the home country and foreign countries.
c) Legal and Regulatory Factors: laws and regulations related to trade, investment, and intellectual property protection.
d) Cultural Factors: language, customs, religion, and values that impact communication and relationships with stakeholders.
2. Foreign Environmental Factors :
a) Economic Factors: economic conditions of the target market, including GDP, inflation, and exchange rates.
b) Political Factors: political stability, government policies related to trade and investment, and the relationship between the home country and the target market.
c) Legal and Regulatory Factors: laws and regulations related to trade, investment, and intellectual property protection in the target market.
d) Cultural Factors: differences in language, customs, religion, and values that can impact communication and relationships with stakeholders in the target market.
Q. What is Globalisation? What are the importance of globalisation in world economy ? (2022)
Ans: Globalization refers to the increased openness of an economy to the international trade, capital flows, technology transfer and free movement of human resources. Thus, it integrates the economies of the world through the free flow of trade, capital, technology and human resources.
The official definition of "globalization" is the process by which businesses or other organizations develop international influence or start operating on an international scale.
The importance of globalization for the world economy can be examined under the following points :
Globalization integrates the economies of the world by promoting cross-border trade and investments.
It helps in better utilization of resources, particularly in underdeveloped countries with cheap manpower and those lacking modern technology.
Globalization promotes open and competitive economies, resulting in improved efficiency, productivity, and economic growth.
It benefits consumers by providing quality goods at lower prices due to increased competition and the use of world-class technologies.
Globalization leads to income generation and employment creation, particularly in developing countries, through the advent of multinational enterprises (MNEs) that bring modern technology, investment funds, and managerial culture.
Q. What are the positive and negative impacts of globalization ?
Ans:
A. Positive Impact
Following are the major positive impacts of Globalisation:
1. Benefit to the Consumers: Globalization results in greater competition among producers which is a great advantage to consumers as there is greater choice before them. Consumers are now able to enjoy benefit in the form of varieties of goods, improved quality and lower prices for several products.
2. Increased Output and Employment: Under the regime of globalization liberal trade and capital flows generate more employment avenues. The growth of export based industries and greater capital flows in the form of Foreign Direct Investment have multiplier effects on the growth of output and employment. Local companies supplying raw materials to the MNCs have also been benefited.
3. Inflow of Foreign Capital: Globalization boosts up the inflow of foreign capital in the form of portfolio investment and foreign direct investment. Portfolio investment brings foreign exchange currencies to a country which can help to remove the balance of payment difficulties. This is helpful especially to those countries which are suffering from acute deficit in balance of payment.
4. Transfer of Technology: Globalization acts as a mechanism for transferring advanced technology from the developed countries to the developing countries. The MNCs through their collaboration with domestic companies transfer the technology to the developing countries. Thus, it results in faster diffusion of new technology and ideas among the countries of the world. Domestic companies have gained from such collaborations with foreign companies.
5. Increased Market Access: Globalization widens the market for domestic production. It gives free access to the world markets without any physical (Quota) or fiscal (Tariff) restriction.The wider market increases the incentives for investment in new technology and innovations for producing larger output and to avail the economies of large scale production.
6. Advantage from Trade in Services: Globalisation also created new opportunities for trade in services in which the developing countries have comparative advantages. These services include data entry, accounting and administrative tasks which are now being done in developing countries with surplus labour force at cheaper rates and thus they can enjoy benefits by exporting such services to the developed countries. This has generated thousands of jobs for educated youths.
Negative Impact:
Some of the major negative impacts are explained below:
1. Growing Inequalities: The benefits of globalization are not universal. The rich are getting richer and the poor are becoming poorer thereby raising the regional disparities Globalisation operates mostly in the interests of the richest countries, which continue to dominate world trade at the expense of developing countries. The developing countries are playing the role as the suppliers of cheap labour and raw materials in the world market.
2. Loss of National Sovereignty: In the regime of globalization a country's national sovereignty may be lost. The process of decision making in a country is often influenced by the directions of the IMF and World Bank. Thus, the economic as well as political freedom of a country may be under threat in the era of globalization.
3. Outflow of Resources: There is no guarantee that the capital from foreign investment will always benefit the local community. It is observed, often, profits from such investment, instead of reinvesting it, are sent back to the country where the MNC is based. Further, the transnational companies (TNCs), with their huge economies of scale, may drive local companies out of business. Moreover, if it becomes cheaper to operate in another country, then they might close down the factory by withdrawing their investible resources, thereby making local people redundant thereby aggravating the unemployment problem.
4. Harm to the Society and Environment: An absence of strictly enforced international laws, in fact, facilitates the MNCs to operate in developing countries in a way that may cause harm to the society and the environment. In countries with poor regulation of pollution, the foreign companies may take the opportunity of setting up hazardous industries. They may pollute the environment, run risks with safety or impose poor working conditions and low wages on local workers. Safety standards may be ignored to produce cheap goods.
5. Threat to Cultural Values: Globalization is viewed by many as a threat to the cultural values of different communities. Faster diffusion of cultures as a result of globalization may drown out local economies, traditions, food habits and languages which may be of greater value. With the entry of MNCs the preference for junk foods, fast food chains like Mc Donald's and KFC have been increasing. In some developing countries, to copy the western culture becomes a fashion which may pose threat to local cultures and lead to many anti social activities.
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