Chapter 2
Understanding International
Business & Management
International Business

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Any sort of business activity that crosses national
boundaries.
The economic system of exchanging good and
services, conducted between individuals and
businesses in multiple countries.
Activities relating to industry and commerce
performed on an international level.
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International Management

International Management- Process of
applying management concepts and
techniques in a multinational environment.
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What is the deference between
domestic and International
business?
Domestic Business
International Business
Same
 Basic Functions
 Processes
Difference
Environment within which these functions
are performed and processes are carried out. 4
Why Internationalization? -The
Trends

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Intense competition among industries, firms
and countries on a global level is a recent
development.
The present trends are towards the
increasing globalization and interdependence
of firms, markets and countries.
In a bid to meet commitments to institutions
like WTO, IMF and WB, country after country
is pulling down barriers to foreign trade and
investment.
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There is a growth of organization and
administrative structures to manage
resources and risks across national
boundaries.
Quantitative restrictions on foreign trade are
being dismantled speedily and tariff barriers
are on the decline.
New opportunities to foreign investors and
entrepreneurs are being provided to operate
in the countries.
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Reasons to become international
Desire for
continued growth
Domestic market
saturation
Unsolicited foreign
order
Potential to exploit
new technological
advantage
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Internationalization
Pull factors
(Proactive reasons)


Push Factors
(Reactive reasons)
Pull factors are forces of attraction which pull
the business to the foreign markets.
Push factors are forces of compulsion which
prompt companies to internationalize.
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Pull Factors
Relative Profitability
Growth Prospects
Push Factors
Domestic
market constraints
Competition
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Profit Advantage:

Even when international business is less
profitable than the domestic, it would increase
the total profit.
The AC per unit will be lowest if the plants is
operated at optimum capacity OQ1
Domestic demand constraint makes it to produce
OQ and hence AC is OC or QR much higher than
OC1 or Q1I. AC to the extent of CC1 can be
reduced by exporting QQ1 amount and the
profitability will increase per unit by CC1 per unit.
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R
AC
C
I
C1
0
Q
Q1
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Growth Opportunities:

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
MNCS are getting increasingly interested in a
number of developing countries due to the
rapid rise of income and population in these
countries.
1 billion people estimated to be added to the
world population between 1999 and 2014.
For going international is to take advantage
of the opportunities in other countries
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Domestic Market Constraints:

Domestic demand constraints drive
many companies to expand the market
beyond the national border.
FS
Sale
TS
DS
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
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For Example:
Nestle derives only about 2% of its total
sales from its to home market,
Switzerland.
For Philips, only 8 % of the total sales
coming from the home market, Holland,
but many different subsidiaries of Philips
have contributed much larger share of the
total revenues than the parent company.
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Competition

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
Protected market does not normally motivate
Companies to seek business outside the home market.
Economic liberalization brings competition from
foreign firms as well as from those within the country.
Companies take an offensive international competitive
strategy by way of counter competition.
To penetrate the home market of the potential foreign
competitor so as to diminish its competitive strength &
to protect domestic market share.
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Dimensions of
Internationalization
Inward-looking
(Impact of global
competitors on
domestically
oriented firms)
Outward-looking
(Nature of
competition in foreign
market)
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Inward-looking
( Impact of global competitors on
domestically oriented firms)
1.
2.
3.
4.
Importing/sourcing
Acting as Licensee from a foreign company
Establishing JV inside the home country
with foreign companies
Managing as a wholly owned subsidiary of
a foreign firm.
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Outward-Looking
(Nature of competition in foreign market)
1.
2.
3.
4.
Exporting
Acting as Licensor to a foreign
company
Establishing JV outside the home
country with foreign companies
Establishing wholly owned business
outside the home country.
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Managerial Issues on Production and
Sourcing
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From where should the firm supply the target market?
To what extent should the firm itself undertake production?
To the extent that it does not, what and where should it buy
from others?
To the extent that a firm opts to do at least some
manufacturing, how should it acquire facilities.
Should the firm produce in one plant or many, related or
autonomous?
What sort of technology should it use?
Where should research and development be located?
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Review


Define International business.
Discuss the forces driving companies
towards International business.
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