internt buzz.docx

7/27/2019 internt buzz.docx

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What is International Business? Meaning

International Business conducts business transactions all over the world. These transactions include the transfer of

goods, services, technology, managerial knowledge, and capital to other countries. International business involves

exports and imports.

International Business is also known, called or referred as a Global Business or an International Marketing.

international business

Image Credits Eliway Education.

An international business has many options for doing business, it includes,

Exporting goods and services.

Giving license to produce goods in the host country.

Starting a joint venture with a company.

Opening a branch for producing & distributing goods in the host country.

Providing managerial services to companies in the host country.

squareFeatures of International Business

The nature and characteristics or features of international business are:-

features of international business

Large scale operations: In international business, all the operations are conducted on a very huge scale. Production andmarketing activities are conducted on a large scale. It first sells its goods in the local market. Then the surplus goods are

exported.

Intergration of economies: International business integrates (combines) the economies of many countries. This is

because it uses finance from one country, labour from another country, and infrastructure from another country. It

designs the product in one country, produces its parts in many different countries and assembles the product in another

country. It sells the product in many countries, i.e. in the international market.

Dominated by developed countries and MNCs: International business is dominated by developed countries and their

multinational corporations (MNCs). At present, MNCs from USA, Europe and Japan dominate (fully control) foreign

trade. This is because they have large financial and other resources. They also have the best technology and research

and development (R & D). They have highly skilled employees and managers because they give very high salaries and

other benefits. Therefore, they produce good quality goods and services at low prices. This helps them to capture and

dominate the world market.

Benefits to participating countries : International business gives benefits to all participating countries. However, the

developed (rich) countries get the maximum benefits. The developing (poor) countries also get benefits. They get

foreign capital and technology. They get rapid industrial development. They get more employment opportunities. All thi

results in economic development of the developing countries. Therefore, developing countries open up their economies

through liberal economic policies.


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Keen competition: International business has to face keen (too much) competition in the world market. The

competition is between unequal partners i.e. developed and developing countries. In this keen competition, developed

countries and their MNCs are in a favourable position because they produce superior quality goods and services at very

low prices. Developed countries also have many contacts in the world market. So, developing countries find it very

difficult to face competition from developed countries.

Special role of science and technology: International business gives a lot of importance to science and technology.

Science and Technology (S & T) help the business to have large-scale production. Developed countries use high

technologies. Therefore, they dominate global business. International business helps them to transfer such top high-end

technologies to the developing countries.

International restrictions: International business faces many restrictions on the inflow and outflow of capital,

technology and goods. Many governments do not allow international businesses to enter their countries. They have

many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is harmful to international business.

Sensitive nature: The international business is very sensitive in nature. Any changes in the economic policies,

technology, political environment, etc. has a huge impact on it. Therefore, international business must conduct

marketing research to find out and study these changes. They must adjust their business activities and adapt accordingly

to survive changes.

Reason for Growth in International Business1. Saturation of Domestic Markets

In most of the countries due to continuous production of similar products over the years has led to the saturation of

domestic markets. For example in Japan 95% of people have all types of electronic appliances and there is no growth of

organization there, as a result they have to look out for new markets overseas.

2. Opportunities in Foreign Markets

As domestic markets in some countries have saturated, there are many developing countries where these markets are

blooming. Organizations have great opportunities to boost their sales and profits by selling their products in these

markets. Also countries that are attaining economic growth are demanding new goods and services at unprecedented

levels.

3. Availability of Low Cost Labor

When we compare labor cost in developed countries with respect to developing countries they are very high as a result

organizations find it cheaper to shift production in these countries. This leads to lower production cost for the

organization and increased profits.

4. Competitive Reasons

Either to stem the increased presence of foreign companies in their own domestic markets or to counter the expansion

of their domestic markets more and more organizations are expanding their operations abroad. International companies

are using overseas market entry as a counter measure to increase competition.

5. Increased Demands

Consumers in counties that did not have the purchasing power to acquire high-quality products are now purchasing

them due to improved economic conditions


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6. Diversification

To counter cyclical patterns of business in different parts of the world, most of the companies expand and diversify their

business, to attain profitability and uncover new markets. This is one of the reasons why international business is

developing at a rapid pace.

7. Reduction of Trade Barriers

Most of the developing economics are now relaxing their trade barriers and opening doors to foreign multinationals andallowing their companies to set-up their organizations abroad. This has stimulated cross border trade between countries

and opened markets that were previously unavailable for international companies.

8. Development of communications and Technology

Over last few years there has been a tremendous development in communication and technology, which has enabled

people sitting at their home at one part of the world to know about demands, products and services offered in other

part of the world. Adding to this is the reducing cost of transport and improved efficiency has also led to people

expanding their business.

9. Consumer Pressure

Innovations in transport and communication as led to development of more aware consumer. This has led to consumers

demanding new and better goods and services. The pressure has led to companies researching, merging or entering into

new zones.

10. Global Competition

More companies operate internationally because

- New products quickly become known globally

- Companies can produce in different countries

- Domestic companies, competitors, suppliers have becomes international

As international companies venture into foreign markets, these companies will need managers and other personals who

understand and are exposed to the concepts and practices that govern international companies. Therefore the study of

international business may be essential to work in global environment


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Main Difference Between Domestic and international Business are as follows :

S.No International Business Domestic Business

1. It is extension of Domestic Business and

Marketing Principles remain same.

The Domestic Business Follow the marketing

Principles

2. Difference is customs, cultural factors No such difference. In a large countries

languages likeIndia, we have many languages.

3. Conduct and selling procedure changes Selling Procedures remain unaltered4. Working environment and management practices

change to suit local conditions.

No such changes are necessary

5. Will have to face restrictions in trade practices,

licenses and government rules.

These have little or no impact on Domestic trade.

6. Long Distances and hence more transaction time. Short Distances, quick business is possible.

7. Currency, interest rates, taxation, inflation and

economy have impact on trade.

Currency, interest rates, taxation, inflation and

economy have little or no impact on Domestic

Trade.

8. MNCs have perfected principles, procedures and

practices at international level

No such experience or exposure.

9. MNCs take advantage of location economies

wherever cheaper resources available.

No such advantage once plant is built it cannot be

easily shifted.

10. Large companies enjoy benefits of experience

curve

It is possible to get this benefit through

collaborators.

11. High Volume cost advantage. Cost Advantage by automation, new methods etc.

12. Global Standardization No such advantage

13. Global business seeks to create new values and

global brand image.

No such advantage

14. Can Shift production bases to different countries

whenever there are problems in taxes or markets

No such advantage and get competition from

some spurious or SSI Unit who get patronage of

Government.

Related posts:

Modes of international business

The six major modes of international business are imports and exports, tourism and transportation,licensing and franchising, turnkey operations, management contracts, and direct and portfolioinvestment.

Imports and exports are the most common mode of international business, particularly in smaller companies

even though they are less likely to export. Large companies are more likely to engage in other modes of international

business in conjunction with importing and exporting. Companies may import and export merchandise, defined astangible goods brought into or out of (respectively) a country. While exports and imports apply mainly to goods, they

can also apply to services, or nonproducts.

Most service imports and exports revolve around tourism and transportation. The revenue gained from

international tourism and transportation is best seen in hotels, airlines, travel agencies, and shipping companies.

For many countries, especially in the Caribbean and Southeast Asia, their income on foreign tourism is more

important than their income from exports. The same holds true in countries such as Norway and Greece, who earn a

considerable amount from foreign shipping.


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Many companies enter into international licensing agreements, allowing other countries around the world to

use their assets (ie: trademarks, patents, copyrights, or expertise) under contract, receiving royalty payments in

return. Similarly, many companies engage in franchising, a mode of business where the franchisor allows the

franchisee to use a trademark that is an essential part of the franchisee's business. For example, Gloria Vanderbilt

has franchised her name out to several clothing companies, forming the Gloria Vanderbilt line. The franchisor also

assists on a continuing basis in the operation of the business-for example, by providing components, management

services, and technology.

Companies also pay fees that may be incurred on an international level for engineering services handled through

turnkey operationsand management contracts. A turnkey operation involves construction of facilities, performed

under contract, which is then transferred to the owner when the company is ready to begin operating.

Management contractsare initiated when one company supplies personnel to perform general or specialized

management functions for another company. This is most evident in Disney's theme parks in France, Japan, and

China.

Finally, international business occurs within direct and portfolio investments. By investing in a foreign

company, the investor takes ownership in a foreign property for a financial return. A foreign direct investment (the

more common of the two) gives the investor a controlling interest in the foreign company. When two or more

companies share in an FDI, it is known as a joint venture. When a government joins a company in an FDI, it

becomes a mixed venture. Conversely, a portfolio investment is a noncontrolling interest in a company that usually

involves either taking stock in a company or making loans to a company in the form of bonds, bills, or notes that the

investor purchases. Portfolioinvestmentsare particularly popular with multinational enterprises as they offer a safe

means towards short-term financial gain.

The Three Stages of the International Product Life Cycle Theoryby Bert Markgraf, Demand Media

Product life cycle theory divides the marketing of a product into four stages: introduction, growth, maturity and decline. When product

life cycle is based on sales volume, introduction and growth often become one stage. For internationally available products, these three

remaining stages include the effects of outsourcing and foreign production. When a product grows rapidly in a home market, it

experiences saturation when low-wage countries imitate it and flood the international markets. Afterward, a product declines as new,

better products or products with new features repeat the cycle.

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General Theory

When a product is first introduced in a particular country, it sees rapid growth in sales volume because market demand is unsatisfied.

As more people who want the product buy it, demand and sales level off. When demand has been satisfied, product sales decline to the

level required for product replacement. In international markets, the product life cycle accelerates due to the presence of "follower"

economies that rarely introduce new innovations but quickly imitate the successes of others. They introduce low-cost versions of the

new product and precipitate a faster market saturation and decline.
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Growth

An effectively marketed product meets a need in its target market. The supplier of the product has conducted market surveys and has

established estimates for market size and composition. He introduces the product, and the identified need creates immediate demand

that the supplier is ready to satisfy. Competition is low. Sales volume grows rapidly. This initial stage of the product life cycle is

characterized by high prices, high profits and wide promotion of the product. International followers have not had time to develop

imitations. The supplier of the product may export it, even into follower economies.

Maturity

In the maturity phase of the product life cycle, demand levels off and sales volume increases at a slower rate. Imitations appear in

foreign markets and export sales decline. The original supplier may reduce prices to maintain market share and support sales. Profit

margins decrease, but the business remains attractive because volume is high and costs, such as those related to development and

promotion, are also lower.

Decline

In the final phase of the product life cycle, sales volume decreases and many such products are eventually phased out and

discontinued. The follower economies have developed imitations as good as the original product and are able to export them to the

original supplier's home market, further depressing sales and prices. The original supplier can no longer produce the product

competitively but can generate some return by cleaning out inventory and selling the remaining products at discontinued-items prices.

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