UNIT I
Meaning of International Business:
International business refers to commercial activities that go beyond the geographical limits of
a country.
Therefore, it includes not only the international movement of goods and services but also the
capital, personnel, technology, and intellectual property such as patents, trademarks, technical
knowledge, and copyrights.
It is a business that takes place outside the border, that is, between two countries. This includes
the international movement of goods and services, capital, personnel, technology, and
intellectual property rights such as patents, trademarks, and know-how. It refers to the purchase
and sale of goods and services that exceed the geographical limits of the country.
It comes in three types:
1. Export Trade: It is the sale of goods and services to foreign countries.
2.
Import
trade: Purchase
goods
and
services
from
other
countries.
3. Entrepot Trade: Import of goods and services for re-export to other countries.
Scope of International Business:
1. International trade: International business includes the import and export of goods.
2. Service export and import: It is also known as invisible commerce. Invisible commerce
items include tourism, transportation, telecommunications, banking, warehousing, distribution,
and advertising.
3. Licenses and franchises: A license is a contractual arrangement that allows one company
(licensor) access to its patents, copyrights, trademarks, or technologies to another foreign
company (licensee) at a rate called royalties. Pepsi and Coca-Cola are produced and sold
worldwide under a licensing system. A franchise is similar to a license, but a term used in
connection with the provision of services. For example, McDonald’s operates fast-food
restaurants around the world through its franchise system.
4. Foreign investment: It involves investing funds abroad in exchange for economic
profitability.
There are two types of foreign investment.
(A) Foreign Direct Investment (FDI)- Investing in foreign assets such as plants and machinery
for the purpose of producing and marketing goods and services abroad.
(B) Portfolio Investment- Investing in foreign company stocks or obligations to earn income
through dividends or interest.
Features of International Business:
1. It includes two countries: international business is only possible when there are
transactions in different countries.
2. Use of currencies: Each country has its own different currency. This causes currency
exchange problems as foreign currencies are used to carry out transactions.
3. Legal obligations: Each country has its own laws regarding foreign trade, which must be
complied with. Moreover, in the case of international transactions, there is more government
intervention.
4. High risk: International companies face great risks due to long distances, the risk of
fluctuations between the two currencies, and the risk of obsolescence.
5. Heavy document: Subject to a series of steps. Many documents need to be completed and
sent to the other party.
6. Time consumption: The time interval from sending and receiving goods to payment is
longer than that of domestic transactions.
7. Lack of personal contact: Lack of direct and personal contact between importers and
exporters.
Factors:
Factor # 1. culture: Due to the variety of cultures, companies need to learn about foreign
cultures before doing business abroad. Bad decisions can result from the improper assessment
of national preferences, customs, and customs. Many companies are aware that culture is
changing and are tailoring their products to that culture. For example, McDonald’s sells Veggie
burgers instead of beef burgers in India.
Factor # 2. Economic system: Companies need to be aware of the types of economic systems
used in the countries they are considering doing business with. The country’s economic system
reflects the degree of state ownership of a company and its intervention in the company. Many
companies usually prefer countries without excessive government intervention.
Governments have their own policies regarding business ownership, but most policies can be
categorized as capitalist, communist, or socialist.
Factor # 3. economic situation: To forecast the demand for products in a foreign country,
companies need to forecast the economic situation in that country. The overall performance of
a company depends on the company’s sensitivity to foreign economic growth and the
circumstances of that country.
Factor # 4. Exchange rate: Countries generally have their own currency. The United States
uses dollars ($), the United Kingdom uses British pounds (£), Canada uses Canadian dollars
(C $), and Japan uses Japanese yen (¥). Recently, 12 European countries have adopted the euro
(€) as their currency.
Exchange rates between the US dollar and currencies fluctuate over time. As a result, the
amount required by a US company to purchase a foreign supply may change, even if the actual
price charged to the supply by the foreign producer does not change.
Factor # 5. Political risks and regulations: Companies also need to consider the political
risks and regulatory environment of a country before deciding to do business in that country.
Political risk is the risk that a country’s political behavior can adversely affect a company.
Political crises are occurring in many countries in Eastern Europe, Latin America, and the
Middle East. Companies are subject to policies imposed by the foreign governments in which
they operate.
International Business Environment
By Mayashree Acharya
|
Updated on: Apr 28th, 2022
|
8 min read
International business refers to trading services and goods in a worldwide market. It can also
be recognised as the globalisation of trade. An International Business Environment (IBE) refers
to the surroundings in which international companies carry on their businesses. It plays a
critical role in the development and growth of a country.
An International Business Environment (IBE) involves different aspects like political risks,
cultural differences, exchange risks, and legal and taxation issues. Thus, it is mandatory for the
people at the managerial levels to work on factors comprising the international business
environment as it is crucial for a country’s economy.
Forms of International Business Environment

Cross border trading (Import and export)

Franchising

Licensing

Joint venture

Foreign Direct Investment (FDI)
Types of International Business Environment
The various types or aspects of the international business environment are provided below.
Political Environment in International Business
The political environment means the political risk, the government’s relationship with a
business, and the type of government in the country. Conducting business internationally
implies dealing with different kinds of governments, levels of risk and relationships.
There are different types of political systems, such as one-party states, multi-party democracies,
dictatorships (military and non-military) and constitutional monarchies. Thus, an organisation
needs to take into account the following aspects while planning a business plan for the overseas
location:

Political system of the business

Approach of the government towards business, i.e. facilitating or restrictive

Incentives and facilities offered by the government

Legal restrictions for licensing requirements and reservations to a specific sector
like the private, public or small-scale sector

Restrictions on importing capital goods, technical know-how and raw materials

Restrictions on exporting services and products

Restrictions on distribution and pricing of goods

Required procedural formalities in setting the business
Economic Environment in International Business
The economic environment refers to the factors contributing to the country’s attractiveness to
foreign businesses. It can differ from one nation to another. Better infrastructure, education,
healthcare, technology, etc., are also often associated with high levels of economic
development. The levels of economic activities combined with infrastructure, education, and
the degree of government control affect the facets of doing a business.
Usually, countries are divided into three main economic categories, i.e. more industrialised or
developed, less developed or third world, and the newly emerging or industrialising economies.
There are significant variations within each economic category. Overall, the more developed
countries are rich, the less developed are poor, and the newly industrialising are those moving
from poor to rich. These distinctions are made based on the Gross Domestic Product per capita
(GDP/capita).
A business needs to recognise the economic environment to operate in international markets
successfully. While analysing the economic environment, an organisation intending to work in
a particular business sector should consider the following aspects:

Economic system to enter the business sector

Stage and pace of economic growth

Level of national GDP and per capita income

Incidents of taxes, direct and indirect tax

Available infrastructure facilities and the difficulties

Availability of components, raw materials and their cost

Sources of financial resources and their costs

Availability of workforce, managerial and technical workers, their salary and
wage structures
Technological Environment in International Business
The technological environment includes factors related to the machines and materials used in
manufacturing services and goods. As organisations do not have control over the external
environment, their success depends on how they will adapt to the external environment. A
significant aspect of the international business environment is the level and acceptance of
technological innovation in countries.
The last decade of the twentieth century saw significant advances in technology, and it is also
continuing in the twenty-first century. Technology often gives organisations a competitive
advantage. Hence, organisations compete to access the latest technology, and international
organisations transfer technology to be globally competitive.
Due to the internet, it is easier even for a small business plan to have a global presence, which
grows its exposure, market, and potential customer base. For political, economic and cultural
reasons, some countries are more accepting of technological innovations, while others are less
accepting. In analysing the technological environment, the organisations should consider the
following aspects:

Level of technological developments in the country as a whole and specific
business sector

Pace of technological changes and obsolescence

Sources of technology

Facilities and restrictions for technology transfer

Time taken for the absorption of technology
Cultural Environment in International Business
The cultural environment is one of the crucial components of the international business
environment. It is the most difficult to understand as the cultural environment is unseen. It has
been described as a commonly held and shared body of general values and beliefs that
determine what is right for one group, according to Kluckhohn and Strodtbeck.
National culture is defined as the body of general values and beliefs shared by a nation. Beliefs
and values are usually formed by factors such as language, history, geographic location,
religion, education and government. Thus, organisations begin a cultural analysis by
understanding these factors. The well-known model is the one developed by Hofstede in 1980.
The model by Hofstede proposes four dimensions of cultural values, which are as follows:

Individualism – It is the degree to which a nation encourages and values
individual decision making and action

Uncertainty avoidance – It is the degree to which a nation is willing to deal with
and accept uncertainty

Power distance – It is the degree to which a nation sanctions and accepts
differences in power

Masculinity – It is the degree of the gender gap in a society
Hofstede’s model of cultural values has been extensively used as it provides data for a wide
array of countries. Many managers and academics found this model helpful in exploring
management approaches appropriate in different cultures.
For example, in a country that is high on individualism, one expects individual tasks, goals and
individual reward systems to be effective, while the reverse would be the case in a country that
is low on individualism. While analysing cultural factors, the organisation should consider the
following aspects:

Approaches to society towards business in specific and general areas

Influence of cultural, social, and religious factors on the acceptability of the
product

Lifestyle of people and the products used by them

Level of acceptance and resistance to change

Demand for a specific product for a specific occasion

Values attached to particular products, i.e. possessive or the functional value of
products

Consumption pattern of the buyers
Competitive Environment
The competitive environment differs from country to country. The political, economic, and
cultural environmental factors help determine the degree and type of competition that exists in
a country. The most likely sources of competition can be well understood for a domestic
organisation, but it isn’t the case when an organisation moves to compete in a new environment.
Competition can come from various sources, such as it can come from the private or public
sector, large or small organisations, domestic or global organisations and traditional or new
competitors.
Benefits of the International Business Environment

It unites and brings countries together, making the world a big global village

It increases employment opportunities as it results in the exchange of
information, ideas, capital across borders and services

There is equal growth in wealth, availability of goods and services and price
stability

It brings a new environment of development, alliance, affluence, stability,
modernisation, and technology across the globe
What is marketing globalization?
Marketing globalization is a term that refers to the marketing strategies of companies
intending to sell their products worldwide, as opposed to specific demographics. The global
market has become increasingly integrated, meaning that the barriers that previously hindered
financial exchanges and partnerships have started to disappear, making the entire world a
marketing audience.
As international trading has increased, so has the need for developing goods and services that
appeal to individuals from different cultural backgrounds. What used to be individual country
economies has transformed into one large global economy, where foreign companies have the
ability to market their brands overseas with considerations of language, culture and financial
status to appeal to demographics around the globe.
This is largely in part to advancements in technology that have made it easier than ever
before to communicate with people from all corners of the world, including the internet and
media. Transportation and manufacturing services have also advanced, making the
production and exchanging of goods simpler as well.
What are the benefits of marketing globalization?
Marketing globalization is a framework that allows companies to market their products and
services to people around the world with little interference in the marketing materials or
campaigns. Because of this strategy, companies can benefit significantly from the streamlined
marketing process of globalization. Here are some of the major benefits of a globalized market:
Increased consumer exposure
A benefit of using marketing globalization techniques is that you can increase the size of your
clientele. By appealing to worldwide markets, you can bring in an entirely new consumer
audience and, therefore, increase the number of people exposed to your product or service. Just
by making slight alterations to a marketing campaign, it can appeal to a whole new
demographic that has the power to boost your company or product's reputation and eventual
profits.
Competitive advantage
Another benefit of using globalization techniques in marketing is the ability to compete with
worldwide companies. Entering global markets exposes your business to a new audience, and
using globalization techniques to appeal to those audiences can give you a competitive
advantage over other companies that aren't considering cultural and language differences. You
can conduct thorough market research on the demographics, wants and needs of your global
audience to determine the best methods for marketing your products.
Saves time and money
Marketing globalization can also save companies a significant amount of money over time.
Rather than having to create specialized marketing campaigns for each country or cultural
group you want to sell your product or service to, you can instead make a broad campaign that
appeals to individuals from different backgrounds. This can save money and time that would
otherwise go into creating localized marketing campaigns and products for each country or
group as opposed to a general one that has mass appeal.
Appeals to global consumers
One of the main benefits of marketing globalization is the ability to appeal to global consumers
by creating campaigns that are culturally relevant across different areas of the world. For
example, a company that produces sodas may have a single marketing campaign for a new
drink, but it can keep the content applicable to all kinds of people and give consumers the
ability to translate the campaign into their native language. Globalization in marketing can
result in consumer feelings of appreciation and acknowledgment, as large companies have
considered their cultural and linguistic circumstances in their advertising.
Major Trends in International Business
As the economy grows slowly at home, your business may have to look at selling
internationally to remain profitable. Before examining foreign markets, you have to be aware
of the major trends in international business so you can take advantage of those that might
favour your company. International markets are evolving rapidly, and you can take advantage
of the changing environment to create a niche for your company.
Growing Emerging Markets
Developing countries will see the highest economic growth as they come closer to the
standards of living of the developed world. If you want your business to grow rapidly,
consider selling into one of these emerging markets. Language, financial stability, economic
system and local cultural factors can influence which markets you should favour.
Population and Demographic Shifts
The population of the industrialized world is aging while many developing countries still
have very youthful populations. Businesses catering to well-off pensioners can profit from a
focus on developed countries, while those targeting young families, mothers and children can
look in Latin America, Africa and the Far East for growth.
Speed of Innovation
The pace of innovation is increasing as many new companies develop new products and
improved versions of traditional items. Western companies no longer can expect to be
automatically at the forefront of technical development, and this trend will intensify as more
businesses in developing countries acquire the expertise to innovate successfully.
More Informed Buyers
More intense and more rapid communications allow customers everywhere to purchase
products made anywhere around the globe and to access information about what to buy. As
pricing and quality information become available across all markets, businesses will lose
pricing power, especially the power to set different prices in different markets.
Increased Business Competition
As more businesses enter international markets, Western companies will see increased
competition. Because companies based in developing markets often have lower labor costs,
the challenge for Western firms is to keep ahead with faster and more effective innovation as
well as a high degree of automation.
Slower Economic Growth
The motor of rapid growth has been the Western economies and the largest of the emerging
markets, such as China and Brazil. Western economies are stagnating, and emerging market
growth has slowed, so economic growth over the next several years will be slower.
International businesses must plan for profitability in the face of more slowly growing
demand.
Emergence of Clean Technology
Environmental factors are already a major influence in the West and will become more so
worldwide. Businesses must take into account the environmental impact of their normal
operations. They can try to market environmentally friendly technologies internationally. The
advantage of this market is that it is expected to grow more rapidly than the overall economy.
ADVANTAGES OF GLOBALIZATION
1. Economic Growth
It’s widely believed that increased globalization leads to greater economic growth for all
parties. There are several reasons why this might be the case, including:

Access to labor: Globalization gives all nations access to a wider labor pool.
Developing nations with a shortage of knowledge workers might, for example,
“import” labor to kickstart industry. Wealthier nations, on the other hand, might
outsource low-skill work to developing nations with a lower cost of living to reduce
the cost of goods sold and pass those savings on to the customer.
 Access to jobs: This point is directly related to labor. Through globalization,
developing nations often gain access to jobs in the form of work that’s been
outsourced by wealthier nations. While there are potential pitfalls to this (see
“Disproportionate Growth” below), this work can significantly contribute to the
local economy.
 Access to resources: One of the primary reasons nations trade is to gain access to
resources they otherwise wouldn’t have. Without this flow of resources across
borders, many modern luxuries would be impossible to manufacture or produce.
Smartphones, for example, are dependent on rare earth metals found in limited areas
around the world.
 The ability for nations to “specialize”: Global and regional cooperation allow
nations to heavily lean into their economic strengths, knowing they can trade
products for other resources. An example is a tropical nation that specializes in
exporting a certain fruit. It’s been shown that when nations specialize in the
production of goods or services in which they have an advantage, trade benefits both
parties.
2. Increased Global Cooperation
For a globalized economy to exist, nations must be willing to put their differences aside and
work together. Due to this, increased globalization has been linked to a reduction—though not
an elimination—of conflict.
“Of course, as long as there have been nations, they've been connected with each other through
the exchange of lethal force—through war and conquest—and this threat has never gone
away,” Reinhardt says in Global Business. “The conventional wisdom has been that the
increased intensity of these other flows—goods, services, capital, people, and so on—have
reduced the probability that the world's nations will fall back into the catastrophe of war.”
3. Increased Cross-Border Investment
According to the course Global Business, globalization has led to an increase in cross-border
investment. At the macroeconomic level, this international investment has been shown to
enhance welfare on both sides of the equation.
The country that’s the source of the capital benefits because it can often earn a higher return
abroad than domestically. The country that receives the inflow of capital benefits because that
capital contributes to investment and, therefore, to productivity. Foreign investment also often
comes with, or in the form of, technology, know-how, or access to distribution channels that
can help the recipient nation.
DISADVANTAGES OF GLOBALIZATION
1. Increased Competition
When viewed as a whole, global free trade is beneficial to the entire system. Individual
companies, organizations, and workers can be disadvantaged, however, by global competition.
This is similar to how these parties might be disadvantaged by domestic competition: The pool
has simply widened.
With this in mind, some firms, industries, and citizens may elect governments to pursue
protectionist policies designed to buffer domestic firms or workers from foreign competition.
Protectionism often takes the form of tariffs, quotas, or non-tariff barriers, such as quality or
sanitation requirements that make it more difficult for a competing nation or business to justify
doing business in the country. These efforts can often be detrimental to the overall economic
performance of both parties.
“Although we live in an age of globalization, we also seem to be living in an age of antiglobalization,” Reinhardt says in Global Business. “Dissatisfaction with the results of freer
trade, concern about foreign investment, and polarized views about immigration all seem to be
playing important roles in rich-country politics in the United States and Europe. The threats in
Western democracy to the post-war globalist consensus have never been stronger.”
2. Disproportionate Growth
Globalization can introduce disproportionate growth both between and within nations. These
effects must be carefully managed economically and morally.
Within countries, globalization often has the effect of increasing immigration.
Macroeconomically, immigration increases gross domestic product (GDP), which can be an
economic boon to the recipient nation. Immigration may, however, reduce GDP per capita in
the short run if immigrants’ income is lower than the average income of those already living in
the country.
Additionally, as with competition, immigration can benefit the country as a whole while
imposing costs on people who may want their government to restrict immigration to protect
them from those costs. These sentiments are often tied to and motivated—at least in part—by
racism and xenophobia.
“Meanwhile, outside the rich world, hundreds of millions of people remain mired in poverty,”
Reinhardt says in Global Business. “We don't seem to be able to agree about whether this is
because of too much globalization or not enough.”
3. Environmental Concerns
Increased globalization has been linked to various environmental challenges, many of which
are serious, including:

Deforestation and loss of biodiversity caused by economic specialization and
infrastructure development
 Greenhouse gas emissions and other forms of pollution caused by increased
transportation of goods
 The introduction of potentially invasive species into new environments
While such issues are governed by existing or proposed laws and regulations, businesses have
made environmental concerns and sustainability a priority by, for example, embracing the
tenets of the triple bottom line and the idea of corporate social responsibility.
The impacts of globalization on India’s economy
Globalization has had a significant and nearly instantaneous impact on India as a whole.
The reduction of export subsidies and import barriers enabled free trade that made the untapped
Indian market incredibly attractive to the international community. And nowhere were these
reforms more consequential than the significant changes made to its industrial, financial and
agricultural sectors:


Industrial – There has been a massive influx of both foreign capital investment and
companies expanding to and offshoring in India, particularly in the pharmaceutical
manufacturing, chemical and petroleum industries. They brought with them advanced
technologies and processes that have helped modernize the Indian industrial sector.
Financial – Prior to globalization and privatization, India’s financial sector had been
mismanaged by a combination of corrupt and inept government officials—many of
whom were risk-averse and reluctant to embrace change. By taking control of the

financial sector out of the hands of the bureaucracy, market competition spurred on
innovation, creating a much more dynamic financial services sector.
Agricultural – India used to be a largely an agrarian society, with a significant majority
of the country’s population depending on this sector either directly or indirectly for
their livelihood. Thanks to India opening its doors, the technological capabilities of
farmers have increased—helping drive global exports of Indian products such as tea,
coffee and sugar.
The byproduct of these sectors has brought about an increase in national income, employment,
exports and GDP growth.
The advantages of globalization for foreign entities and investors
For international companies, the globalization of India presented an unprecedented opportunity
for growth and expansion. Suddenly, the world’s second-most populous country was open for
business. And this development still has advantageous ripple effects to this day, including:
1. Access to untapped markets
The increasing globalization of India has opened up the country to eager foreign companies
seeking to invest and operate within the massive Indian market.


For the country and its citizenry, this boosted foreign capital inflows both from portfolio
investment and foreign direct investment. As a result, the import-export sector
experienced explosive growth.
For international companies, it expanded their capabilities and market share—they
gained instant access to hundreds of millions of new consumers and potential workers.
Thanks to globalization, now is a great time to expand your business to India. You can not only
grow your potential market share but can also increase your economies of scale and
specialization, thus lowering your unit cost per production.
2. A surplus of employment opportunities
The revitalization and expansion of the Indian economy helped lift hundreds of millions out of
extreme poverty, while also improving the employee benefits offered. This was due to two
primary factors:


Export growth thanks to comparative cost advantage created countless new jobs across
the country.
The lifting of restrictions on capital inflows and outflows increased employment
opportunities.
Initially, globalization gave foreigners access to an inexpensive, robust labor force. And, as the
country has progressed, that labor force has grown more skilled and educated over time. Along
these lines, India has the largest diaspora living abroad.
These expatriates work and attend school in foreign countries. This helps facilitate the transfer
of skills, knowledge and technology back to the Indian economy, seeing as a significant
minority of Indians living abroad eventually return home.
For product-based businesses and multinational corporations, labor costs are often the largest
expenditure. Offshoring in and outsourcing to a place like India enables companies to reduce
their labor costs. This results in a freeing up of capital for strategic reinvestment while also
driving specialization.
However, businesses can’t seize on the hiring opportunities in India without a legal entity,
which can be a costly and timely process. However, an employer of record like Global
Employment Outsourcing (GEO) enables businesses to hire employees in India quickly and
compliantly without the need for an entity.
3. Reduced risk profile
For companies considering global expansion to the Indian market, especially for manufacturing
purposes, doing so can help reduce your overall risk profile. Having multiple locations around
the globe helps prevent supply chain issues. If one location is held up, it won’t negatively
impact the entire supply chain.
And for foreign investors considering the economy as a whole, India offers a well-diversified
export basket. According to OECD’s 2019 Economic Survey of India:
“India has succeeded in increasing the number of goods exported and in serving new
markets/countries. Its export basket is highly diversified and exports to emerging
markets are growing fast. Such a diversification reveals the high potential of the Indian
economy to adjust to new demands. It also reduces exposure to risks such as lower
demand in one country or for one specific product.”
Expansion to India
Globalization of the Indian economy has helped change the world economy for the better. And
for foreign companies, it presents them with the competitive advantage of accessing massive
consumer and labor markets, thus creating an attractive opportunity for strategic investment
and expansion.
India is quickly becoming a top destination for new operations—and if it’s not on your radar,
it should be. Avoid costly and lengthy entity set-up with Global Employment Outsourcing
(GEO) from Safeguard Global. With GEO acting as the legal employer of record, companies
can quickly expand to India and seize on the opportunities that globalization has brought to the
economy.