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BA 9209 - International Business Management (IBM)
UNIT I INTRODUCTION
International Business – Definition – Internationalizing Business – Advantages – Factors Causing Globalization of Business –
International Business Environment – Country Attractiveness – Political, Economic and Cultural Environment – Protection Vs
Liberalization of Global Business Environment.
UNIT II INTERNATIONAL TRADE AND INVESTMENT
Promotion of Global Business – The Role of GATT/WTO – Multilateral Trade Negotiation and
Agreements – VIII and IX, Round Discussions and Agreements – Challenges for Global Business – Global Trade and Investment
– Theories of International Trade and Theories of International Investment – Need for Global Competitiveness – Regional Trade
Block – Types – Advantages and Disadvantages – RTBs Across the Globe – Brief History.
UNIT III INTERNATIONAL STRATEGIC MANAGEMENT
Strategic Compulsions – Standardization vs. Differentiation – Strategic Options – Global Portfolio Management – Global Entry
Strategy – Different Forms of International Business – Advantages– Organizational Issues of International Business –
Organizational Structures – Controlling of International Business – Approaches to Control – Performance of Global Business –
Performance Evaluation System.
UNIT IV PRODUCTION, MARKETING, FINANCIAL AND HUMAN RESOURCE

MANAGEMENT OF GLOBAL BUSINESS
Global Production – Location – Scale of Operations – Cost of Production – Make or Buy Decisions – Global Supply Chain Issues
– Quality Considerations – Globalization of Markets, Marketing Strategy – Challenges in Product Development, Pricing,
Production and Channel Management – Investment Decisions – Economic – Political Risk – Sources of Fund – Exchange Rate
Risk and Management – Strategic Orientation – Selection of Expatriate Managers – Training and Development – Compensation.
UNIT V CONFLICT MANAGEMENT AND ETHICS IN INTERNATIONAL

BUSINESS MANAGEMENT
Disadvantages of International Business – Conflict in International Business – Sources and Types of Conflict – Conflict
Resolutions – Negotiation – The Role of International Agencies – Ethical Issues in International Business – Ethical Decision-
Making.
Ponjesly college of Engineering .

UNIT I INTRODUCTION
International Business – Definition – Internationalizing Business – Advantages – Factors

Causing Globalization of Business – International Business Environment – Country
Attractiveness – Political, Economic and Cultural Environment – Protection Vs Liberalization of
Global Business Environment.
International business - Definition:

International business may be defined simply as business transactions that take place across
national borders. Nearly all business enterprises, large and small, are inspired to carry on
business across the globe. This may include, purchase of raw materials, from foreign suppliers,
assembling products from components made in several countries or selling products or services
to customers in other nations.
Internationalization of business has benefited TCS, Asian paints, Wipro, Infosys. It may be
understood as those business transactions that involve the crossing of national boundaries'. They
include;
1. Product presence in different markets of the world.
2. Production bases across the globe.
3. Human resource to contain high diversity
4. Investment in international services like banking, advertising, tourism, retailing, and
construction
5. Transactions involving intellectual properties such as copyrights, patents, trademarks and
process technology.
Benefits of international business:
 Causes the flow of ideas, services, and capital around the world
 Offers consumers new choices and greater variety
 Allows the mobility of labor, capital and technology
 Provides employment opportunities
 Reallocates resources and shifts activities to a global level

Assessing corporate globally:
1. Globalization of supply chain
To which the company is accessing the most optimal locations for the performance of various
activities. For ex; Toyota
2. Globalization of market presence
To which a company targets customers in all major markets within its industry throughout the
world. For ex; IBM
3. Globalization of capital
To which the company is accessing the optimal sources of capital on a worldwide basis. For ex;
Hong Kong based internet service provider china.com
4. Globalization of corporate mindset
This dimension refers to the ability of the company to understand and integrate diversity across
cultures. For ex; General electric (GE)
One of the most comprehensive indices is the one provided by A.T Kearney, a management
consultancy and foreign policy magazine.
Each nation’s globally is assessed considering four variables, such as;
1. Political engagement
2. Technological connectivity
3. Personal contact
4. Economic integration.
Why study international business?
1. Increasingly, companies are sourcing their human resource requirement globally, Sony
corporation.
2. Most of the products we consume everyday are supplied to us by global businesses. We are
sure of quality if the products bear such names as Nike, Toyota, Colgate, Gap T-shirt, and the
like. To know these brands is to understand international business
3. Managing an international business is major complex than running a domestic business.
Global business involves production of goods in facilities located in different countries with
resources, human and physical sourced from all parts of the globe and marketing goods and
services to users across the globe.

4. The major impact of international business in this area has been impetus on governments to
open up their borders to international trade and investment, standardize their systems and
procedures, and adopt internationally acceptable values and attitudes.
5. International business executives play a powerful role in determining the relative
competitiveness of various countries in the global arena.
Drivers of international business:
More and more companies are seeking to internalize or globalize their economics for a number
of reasons.
1. Developing markets have huge markets
2. Many MNC’s are locating their subsidiaries in low wage countries to take advantage of
low cost production.
3. Changing demographics also adds to increasing globalization
4. Regional trading blocks are adding to the pace of globalization. WTO, EU, NAFTA,
MERCOSUR and FTAA are major alliances among countries. Trading blocks seek to
promote international business by removing trade and investment barriers.
5. Declining trade and investment barriers have vastly contributed to globalization.
6. The most powerful instrument that triggered globalization is technology.
7. The Boston consulting group (2005) has identified five currents of globalization. These
currents are;
a) Growth of rapidly developing economics (RDE’s)
b) Continuing cost and capital advantages of RDE’s
c) Development of talent and capabilities in RDE’s
d) Migration of customers to RDE’s
e) Emergence of RDE based global competitors.
8. There is money in international business and no organizations would wish to miss the
opportunity.
9. Resource seeking is another motive for firms going international.
10. Globalization is triggered world bodies and institutions. WTO is the international
organizations that regulates and promotes business across nations. The main purposes of WTO
are a) help free trade b) help negotiate further opening of markets c) settle trade disputes between
members.

Ripple effects of globalization:
1. Globalization and management
2. Globalization and jobs
3. Globalization and wages
4. Globalization and child labor
5. Globalization and women
6. Globalization and developing countries
7. Inequalities
8.
Difference between international business and domestic business
Business, whether global or domestic, involving buying and selling goods and services. In most
case, profit is the driving force behind each transaction. The difference between these two
pronounced primarily in the areas of currency, interest rates, inflation, taxation systems,
government regulations, language and cultural and economic barriers.
Routes of globalization
A business firm seeking to globalize itself needs to choose one of the several modes of entering
cross border markets.
1. Exports and imports:
Exports are goods and services produced in one country but marketed in another country.
Imports are goods and services produced in one country but bought by another country.
European community (EC) is the world’s single largest trading unit, followed by Asia and North
America. The majority of this export and import activity is in the area of manufacturing such as
industrial machinery, computers, cars, televisions, VCR’s and other electronic goods.
2. Tourism and transportation:
These are the routes of globalization for such industries as shipping, airlines, hotel and travel
agency. Some countries, Greece and Norway for example, depend on international tourism and
transportation for employment, profits and foreign exchange earnings
3. Performance of services:
International businesses earn money in the form of fees for services rendered. This is particularly
true in insurance, banking, rentals, engineering, management services and the like. Turnkey
operations are typical modes for earning such fees.

Companies also earn fees through management contracts, arrangements in which one firm
contracts with a foreign corporation or government to manage an entire project or undertaking
for a specific period.
4. Use of assets:
Licensing and franchising are the modes which facilitate companies to allow others to use their
assets. Under a license agreement, one firm permits another to use its intellectual property for
compensation called royalty.
Another route of globalization is franchising, which involves the granting of right by a parent
company (the franchiser) to anther (the franchiser) to do business in a prescribed manner.
5. Direct investment:
a) Joint venture:
A joint venture is a shared ownership in a foreign business. Generally, the venture is 50-50
ownership in which there are two parties, each of which holds a 50 percent ownership stake and
contributes a team of managers to share operating control.
b) Wholly owned subsidiary:
A wholly owned subsidiary can be set up in a foreign market in either of two ways. The
company can set up a totally new operation or can acquire an established firm and use the firm to
promote its products.
The subsidiary that is established starting from the ground up (i.e., from a green field) is called a
Greenfield investment.
Portfolio investment represents a non-controlling interest, return-motivated interest in a
company, or a loan to another company.
International business environment
The environment of international business is regarded as the sum total of all the external forces
working upon the firm as it goes about its affairs in foreign and domestic markets. The
environment can be classified in terms of domestic, foreign, and international spheres of impact.
1. The domestic environment – is familiar to managers and consists of those uncontrollable
external forces that affect the firm in its home market.
2. The foreign environment - can be taken as those factors which operate in those other
countries within which the MNC operates.

3. The international environment - is conceived as the interaction between domestic and
foreign factors and indeed they cover a wide spectrum of forces
The forces:
 Political environment
 Legal environment
 Cultural environment
 Technological environment
 Economic environment.
Political environment
It refers to the influence of the system of government and judiciary in a nation on international
business. The type and structure of government prevailing in a country decides, promotes,
fosters, encourages, shelters, directs, and controls the business of that country.
A political system is stable, honest, efficient, and dynamic and which ensures
political participation to the people and assures personal security to the citizens, is a primary
factor for economic development.
Democracy: refers to a political arrangement in which the supreme power is vested in the
people. Democracies maintain stable business environments primarily through laws protecting
individual property rights. Ex: India.
Merits of democracy:
1. Need for supportive values
2. Function of free speech
Classification of political risks
Political risks
Firm specific Country Global specific

risks specific risks risks
Cultural and
Transfers risks
institutional risks

Firm specific risks Country specific risks Global specific risks
Terrorism and war

Business risks Ownership structure Antiglobalization
Foreign exchange risks HR Norms movement
Governance risks Religious heritage Environmental
Nepotism & corruption concerns
IPR Poverty
Protectionism Cyber attacks
Managing political risks
Avoiding
Lobbying Adaptation
investment
Terrorism
Threat
consultants
Legal environment
The legal system refers to the rules and laws that regulate behavior of individuals and
organization
Systems of law:
There are four basic legal systems prevailing around the world.
1. Islamic law: derived from the interpretation of the Quran and practiced in countries
where Muslims are in majority. Ex: Saudi Arabia, Pakistan, Iran.

2. Common law: derived from English law, is prevalent in countries, which were under
British influence. Ex: US, Canada, England, Australia.
3. Civil law or code law: derived from Roman law, practiced in Germany, Japan, France,
and non - Marxist and non - Islamic countries. Ex: Germany, France, Japan.
4. Marxist legal system: This has takers in communist countries. Ex: China, Vietnam,
North Korea and Cuba.
Industrial disputes resolution: Legal disputes can arise in three situations: between
governments, between a firm and a government, and between two firms.
Conciliation: also known as mediation, this is a nonbonding agreement between parties to
resolve disputes by asking a third party to mediate.
Arbitration: is the preferred method for resolving international commercial disputes. The usual
arbitration procedure is for the parties involved to select a disinterested and informed party or
parties as referee to determine the merits of the case and make a judgment that both parties agree
to honor.
Litigation: a wise course of action would be to seek a settlement other than by suing.
Cultural environment:
According to Elbert W Steward and James A Glynn “Culture consists the thought and
behavioral patterns that members of a society learn through language and other forms of
symbolic interaction – their customs, habits, beliefs and values, the common viewpoints that bind
them together as a social entity.
Scholars of culture
Trans
Learned Shared generation Patterned Symbolic Adaptive
al
Levels of culture:
1. National culture:
It is dominant culture within the political boundaries of a country.
2. Business culture:

It also provides the guides for everyday business interactions.
3. Occupational and organizational cultures:
Its sister term is corporate culture refers to the philosophies, ideologies, values,
assumptions, beliefs, expectations, attitudes and norms that knit an organization together and are
shared by its employees
4. Mechanistic and organic cultures:
It exhibits the values of bureaucracy and feudalism.
5. Authoritarian and participative cultures:
Power is concentrated on the leader and obedience to orders and disciplines are
stressed. Participative cultures tend to emerge where most organizational members are
professionals or see themselves as equals.
6. Dominant and sub-cultures:
Dominant culture, normally referred to as the organizational culture reflects core
values that are shared by the majority of the employees. By contrast, sub-cultures are found in
departments, divisions and geographical areas and reflect the common problems or experiences
of employees who reside in these areas.
7. Strong, Weak and Unhealthy cultures:
A Strong culture will have a significant influence on employee behavior manifesting in reduced
turnover, lower absenteeism, increased cohesiveness, and positive attitudes.
A Weak culture is characterized by the presence of several sub-cultures, sharing of few values
and behavioral norms by employees and existence of few sacred traditions.
One Unhealthy culture is a politicized internal environment that allows influential manager to
operate autonomous “fiefdoms” and resist needed change.
Elements of culture
1. Language
2. Customs and manners
3. Attitudes
4. Aesthetics
5. Religion
6. Education
7. Supernatural beliefs

Implications for international business
Multiculturalism: Managing multiculturalism is essential for every international firm.
1. Spread cross-cultural literacy
2. Compatibility between strategy and culture
3. Culture and competitive advantage
4. Managing diversity.
Cultural predispositions
Ethnoce
ntricism
Regioc Geoce
entrici Cult ntrici
sm ure sm
Polycent
ricism
Cultural models:
Hofstede’s cultural dimensions:
Power distance
High low
Uncertainty avoidance
High low
High Collectivism Low
High Masculinity low
Trompenaars’ 7d model
 Universalism versus particularism
 Individualism versus collectivism
 Neutral versus affective
 Specific versus diffuse
 Achievement versus ascription
 Time dimension

 Internal versus external control
Multicultural management
Negotia Motivatio
n Leaders
tion hip
Multicultura
Work l communi
values management cation
HR
Teams practices
Technological environment
Management of technology involves its categorization, managing the systems that
enable the awareness, acquisition, adaptation, advancement, and abandonment.
Classification of technology:
1. State-of-the-art-technologies
2. Proprietary technologies
3. Known technologies
4. Core technologies
5. Leveraging technologies
6. Supporting technologies
7. Pacing technologies
8. Emerging technologies
9. Scouting technologies
10. Idealized unknown basic technologies.
The technology cycle:
1. Awareness phase
2. Acquisition phase
3. Adaptation phase
4. Advancement phase
5. Abandonment phase

Impact of technology:
Technology
Social Economic Plant level
implications implications changes
Social implications:
High
expectation Social
of systems
consumers
System Social
complexity changes
Economic implications:
 Increased productivity
 Need to spend on R&D
 Jobs become intellectual
 Problems of techno-structure
 Increased regulation and stiff opposition
 Rise and decline of products and organizations
 Boundaries redefined
 Training of scientists and engineers.
Plant level changes:
 Organization structure
 Resistance to change
 Fear of risk
 E-commerce
 Patenting
 Transportation

 Markets
 Technology transfers
 Production
 Others
Operational sequences for technology transfer
1. Arrangements for sales & licensing
2. Provision of know-how & technical expertise
3. Provision of detailed engineering designs & installation
4. Purchases and leases of technology elements
5. Technical cooperation agreements
Economic environment
It can help international managers, to predict how trends and events might affect performance of
foreign business.
I) Classification on the basis of income:
1. Developing countries: share a set of common and well – defined goals. Ex: India, China.
2. Developed countries: Those are highly industrialized, highly efficient. Ex: Canada,
Japan, Australia, US.
II) Countries classified by economic system:
1. Market economy: production of goods and services is not planned by individuals
2. Command economy: decisions relating to all economic activities – what to produce,
how to produce.
3. Mixed economy: it includes both. Ex: India.
III) Classification of countries by region:
1. East Asia and Pacific
2. Europe and central Asia
3. Latin America and the Caribbean
4. Middle east and North Africa
5. South Asia
6. Sub-Saharan Africa
7. High income countries
IV) Economic scenario:

1. Rates of growth
2. Inflation
3. Savings and investment
4. Fiscal stability
5. Balance of payments
6. Financial system
V) Economic policies:
1. Industrial policy
2. Monetary policy
3. Fiscal policy
4. Trade policy
Country attractiveness:
A country attractiveness assessment is based on two dimensions
 Market and industry opportunities
 Country risks (many organizations publish country assessment results based on various
economic/political/social f actors)
Market opportunities
Market opportunities assessment measures the potential demand in the country
for a firm’s products or services based on:
 Market size
 Growth
 Quality of demand.
Industry opportunities
Industry opportunities assessment determines profitability potential of a company presence in a
country given the following factors:
 Quality of industry competitive structure(Porters five-force Industry Analysis
Framework)
 Resource availability(Porters diamond framework)
Country risk:
 Political risks

 Economic risks
 Competitive risks
 Operational risks
Protectionism and Trade Liberalisation
Protectionism:
Protectionism means by which trade between countries is restricted in some way – normally
through measures to reduce the number of imports coming into a country
Main means are:
 Tariffs - A tax on a good coming into a country. increases the price of the good and
makes it less competitive
 Quotas - Physical restriction on the number of goods
coming into a country.
 Non-Tariff Barriers - Any methods not covered by a tariff, most usually:
• Rules
• Regulations
• Voluntary Export Restraints (VERs)
• Legislation
• Exacting Standards or Specifications
Trade Liberalisation
UNIT II INTERNATIONAL TRADE AND INVESTMENT

Promotion of Global Business – The Role of GATT/WTO – Multilateral Trade Negotiation and
Agreements – VIII and IX, Round Discussions and Agreements – Challenges for Global
Business – Global Trade and Investment – Theories of International Trade and Theories of
International Investment – Need for Global Competitiveness – Regional Trade Block – Types –
Advantages and Disadvantages – RTBs Across the Globe – Brief History.
CONTENTS:
o GATT and WTO
o International trade and investment theories
o RTB(Regional trade block)
WTO (World trade organization)
The WTO was established on 1st January 1995. The WTO has larger membership, the present
number of member’s stands at 151. India is one of the founder members of WTO.
Definition:
The WTO is an international organization designed by its founders to supervise and liberalize
international trade. It deals with regulation of trade between participating countries; it provides a
framework for negotiating and formalizing trade agreements and a dispute resolution process
aimed at enforcing participants
Objectives:
1. Promote trade flows by encouraging nations to adopt nondiscriminatory trade
policies.
2. The World Trade Organization (WTO) is the only global international
organization dealing with the rules of trade between nations.
3. The goal is to help producers of goods and services, exporters, and importers
conduct and grow their business.
4. To improve the welfare of the peoples of the member countries.
5. Handling trade disputes and monitoring national trade policies
6. Technical assistance and training for developing countries and cooperation with
other international organizations.
7. To ensure optimum utilization of world resources.

8. To protect environment.
Boxes of WTO
Green box: Not trade distorting
Blue box: Minimally distorting because production is controlled
Amber box: Trade distorting, subsidies tied to either price or production
Red Box: Subsidies that must be stopped (empty box)
WTO: Basic Principles
o Trade without discrimination
o Predictable and growing access to market
o Undistorted, fair competition
o Transparency
o Overseeing national trade policy
o Cooperation with IMF and World Bank
o Expanding trade and production, sustainable development and protection of the
environment
o Helping and developing transition economics
o WTO in global economic policy making
o Taking information
o Giving information to public
o Reducing obstacles which facilitates economic growth
o Prohibits quantitative restrictions(QRs) on the exportation and importation of
products
Organization structure of the WTO
1. Ministerial conference
2. General council,
3. Councils,
4. Committees and Management bodies

1. Ministerial conference:
It is the authority to make decisions on all matters relating to multilateral trade agreements. It is
the top decision making body of the WTO. It meets at least once in every two years. There have
been seven ministerial conferences.
I) First ministerial conference – held in Singapore 1996, primary purpose to initiate an
international effort among global trading nations.
II) Second ministerial conference - was held in Geneva in Switzerland.
III) Third ministerial conference - was held in Seattle in Washington
IV) Fourth ministerial conference - was held in Doha in Persian gulf nation of Qatar.
V) Fifth ministerial conference - was held in Cancun, Mexico.
VI) Sixth ministerial conference - held in Hong Kong.
VII) Seventh ministerial conference - held in Geneva, Switzerland
2. General council:
The general council has other forms like dispute settlement body and trade policy
reviews body.
3. Councils:
I. Council for trade in goods
II. Council for trade in services
III. Council for trade related aspects of intellectual property rights.
4. Committee and management bodies:
The general council delegates powers, responsibilities and authorities to these bodies.
I. Committee on trade and development
II. Committee on balance of balance of payments
III. Committee on budget, finance and administration.
Multilateral agreements
Multilateralism - Coordination mechanism for achieving mutually beneficial trade
outcomes (response to a coordination failure, i.e.( to successive retaliations).
GATTà WTO
World Trade Organization: Rounds
Years Name Accomplishments Countries
1947 Geneva Tariffs 23

1949 Annecy Tariffs 13
1951 Torquay Tariffs 38
1956 Geneva Tariffs 26
1960-61 Dillon Round Tariffs 26
1964-67 Kennedy Round Tariffs & AD 62
1973-79 Tokyo Round Tariffs, NTBs & “framework Agreements” 102
1986-94 Uruguay Round Marrakesh Agreement 123
WTO’s Parts
GATT: to reduce trade barriers and to create more comprehensive and enforceable
world trade rules.
GATS: General Agreement on Trade in Services (National Treatment for Service
Firms)
TRIPs: Agreement is Trade Related Aspects of Intellectual Property Rights (Enforce
Patents, Copyrights, and Trademarks)
TRIMs: Agreement on Trade Related Investment Measures, are rules that apply to the
domestic regulations a country applies to foreign investors.

WTO’s Most Basic Principles
MFN = Most Favored Nation
Each member country should treat all members as well as it treats its
“most favored nation” (i.e., the member that it treats the best)
National Treatment
Once a product or seller has entered a country, it should be treated the
same as products or sellers that originated inside that country.
GATT-WTO: Comparison
GATT WTO
 Provisional Agreement  International Organisation
à Contracting Parties à Members
 Restricted Coverage  Broad Coverage
à Goods à Goods, Services, TRIPs
Dispute Settlement Dispute Settlement strengthened
GATT was ad hoc and provisional WTO and its agreements are permanent
GATT (general agreement on tariffs and trade)

GATT is a multilateral trade agreement with overseas and it has been labeled the
locomotive that powers international conference. Created in January 1948 is intended to
achieve a broad, multilateral and free worldwide system of trading.
Basic principles of GATT:
1. Member countries will consult each other concerning trade problems.
2. It provides a framework for negotiation and embodies results of negotiations in a
legal environment.
3. Trade should conduct on a non-discriminatory basis.
Objectives of GATT:
1. To provide equal opportunities to all countries in international market for trading
purpose.
2. To increase the effective demand.
3. To provide amicable solution to the disputes related to international trade.
4. To ensure a better living standards in the world as a whole.
Four Terms from Trade Law
Non-discrimination
o Reciprocity
o Market access
o Fair competition
Trade Agreements

Unilateral Trade Agreement:
A trade agreement joins two or more states in a joint commitment to expand their trade.
Normally, this includes domestic structural reforms such as lowering tariffs and reducing
bureaucratic regulations.
Bilateral Trade Agreement
Bilateral Trade Agreements are between on two nations at a time. They are fairly easy to
negotiate, and give those two nations favored trading status between each other.
Multilateral Trade Agreement:

Multilateral Trade Agreement is between many nations at one time. For this reason, they are very
complicated to negotiate, but are very powerful once all parties sign the agreement. The primary
benefit of multilateral agreements is that all nations get treated equally
Example: The Doha round of trade agreements is a multilateral trade agreement between all 149
members of the World Trade Organization.
Plurilateral agreement:
It is an agreement between more than two countries, but not a great many, which would be
multilateral agreement. A plurilateral agreement implies that member countries would be given
the choice to agree to new rules on a voluntary basis.

Theories of international trade and investment:
 Classical theories
 Contemporary theories
 Firm internationalization
 FDI and Non-FDI explanations.
Classical theories of international trade and investment:
1. Mercantilism theory:
The first theory of international trade emerged in England in the mid 16 th century, its
principle assertion was that gold and silver were the mainstays of national wealth and
essential to vigorous commerce.
2. Classical theories: given by Adam smith and David Ricardo.
The theory explains the condition of international trade specialization and benefits of trade.
A) Absolute advantage theory:
It explains that a country absolute cost advantage in the production of a product on account of
greater efficiency should specialize in its production and export.
B) Comparative cost theory: looks at relative productivity differences, for a country to
specialize in the production of those goods that it produces most efficiently and to buy the goods
that it produces less efficiently from other countries, even if this means buying goods from other
countries that it could produce itself efficiently.
3) Factor proportions trade theory: Heckscher-Ohlin theory: also called the factor
endowments theory.

I) Products differ in the types and quantities of factors
(Labor, natural resources and capital)
II) Countries differ in the type and quantity of production factors that they possess.
4. Opportunity cost theory: propounded by Professor Gottfried Haberler in 1993, the basis of
international trade is the differences between nations in the opportunity costs of production of
commodities.
5. Product lifecycle theory: Raymond Vernon's states that why trade takes place, and why
investment occurs, the location of production of certain kinds of products shifts as they go
through their life cycles, which consists of four stages – introduction, growth, maturity, and
decline.
Contemporary theories: How nations enhance their competitive advantage
1. National competitive advantage theory:
2) National Industrial policy model

It designed to build new capacity and capabilities share the following:
a) Development and maintenance of strong national infrastructure in areas such as IT,
communication systems and transportation.
b) Creation of strong legal and regulatory systems to ensure that citizens are confident about the
soundness and stability of the national economy.
3. New trade theory:
The output required to realize economics of scale represent a significant portion of world
demand. As a result the organizations that enter the market first, are able to enjoy the first mover
advantages like:
a) They are able to establish themselves
b) Capture a significant portion of the world market

c) Are able to achieve competitive advantage on the basis of economics of scale and
learning effects( cost savings that accrue due to learning by doing)
Firm internalization
1) Internalization process model: (Internalization process of the firm)
a) Domestic focus: acquiring business in the home market.
b) Pre-export stage: management investigates the feasibility of undertaking the international
business.
c) Experimental involvement: in the form of basic exporting.
d) Active involvement: through systematic exploration of international options and the
commitment of top management time and resources toward achieving international success
e) Committed involvement: firm’s profit-making and value-chain activities.
2. Born global and international entrepreneurship:
The growing, intensity of international competition, advances in communication and
transportation technologies that have reduced the cost of venturing abroad, and the integration of
world economics under globalization which makes it easier for companies of all ages and sizes to
internalize.
FDI based explanations:
FDI involves the establishment of production or other facilities abroad, either through Greenfield
investment (the establishment of new facilities from the ground-up) or cross-border acquisition
(the purchase of an existing business in another nation).
1) Monopolistic advantage theory:
It is an approach in international business which explains why firms can compete in foreign
settings against indigenous competitors.
The direct investor is a monopolist; foreign direct investment took place because of the product
and factor market imperfections.
2) The Internalization Theory
One other financially based theory (portfolio theory) was put by Rugman, Agmon and Lessard.
These researchers argued that international operations allow for a diversification of risk and
therefore tend to maximize the expected return on investment.
3) The Eclectic Paradigm

The eclectic paradigm is developed by John Dunning seeks to offer a general framework for
determining the extent and pattern of both foreign-owned production undertaken by a country's
own enterprises and also that of domestic production owned by foreign enterprises. It identifies
some of the more important configurations of the ownership, location and internalization (OLI)
advantages.
Non-FDI based explanations:
1) International collaborative ventures:
A collaborative venture is a form of cooperation between two or more firms.
Horizontal collaboration: occurs between partners at the same level of the value chain.
For ex: manufacturer-to-manufacturer and supplier-to-supplier relationships.
Vertical collaboration: occurs between partners at different levels of the value chain.
For ex: the relationship between a manufacturer and distributor
2. Networks and relational assets:

Networks and relational assets represent the stock of the firm’s economically beneficial long
term relationships with other business entities such as manufacturers, distributors, suppliers,
retailers, consultants, banks, transportation suppliers, governments and any other organization
that can provide needed capabilities.
Relational assets: represent a distinct competitive advantage.
Networks: are actors (buyers and sellers) become bound to one another through ongoing
exchanges.
RTB (Regional trade blocks)

DEFINITION: A regional trade block is the result of economic integration of various trading
areas of different countries and it is also known as trade blocks, regional trade organizations, and
regional groupings. A trade block (regional trade block/regional grouping) is a type of
intergovernmental agreement, often part of a regional intergovernmental organization, where
regional barriers to trade (tariffs and non-tariff barriers) are reduced or eliminated among the
participating countries.
Characteristics:
1. It implies a reduction or elimination of barriers to trade, and

2. This trade liberalization is discriminatory, in the sense that it applies only to the member
countries of the trade block, outside countries being discriminated against in their trade
relations with trade block members.
Types of regional trade blocks:
1. Preferential trading agreement:
It is loosest form of economic integration. Under this, a group of countries have a formal
agreement to allow each other’s goods and services to be traded on preferential terms.
2. Free trade area:
It is a permanent arrangement between neighboring countries. It involves the complete removal
of tariffs on goods traded among the members of the free trade area.
3. Customs union:
Customs union removes barriers to trade in goods and services among themselves.
4. Common market:
It has no barriers to trade among members; in addition, the common market removes restrictions
on the movement of factors of production (labor, capital and technology) across borders.
5. Economic union:
This represents full integration of the economics of two or more member countries. In addition to
eliminating internal trade barriers, adopting external trade policies and abolishing restrictions on
the mobility of the factors of production among members.
6. Political union:
While some degree of political integration often accompanies economic integration, political
union implies more formal political links between countries. A limited form of political union
may exist where two or more countries share common decision-making bodies and have
common policies.
Major regional trade blocks/groups:
1. European union :( EU)
The largest and most comprehensive of the regional economic groups is the European Union. To
abolish internal tariffs in order to more closely integrate EU and hopefully allow economic co-
operation to help avoid further political conflicts. It includes European Economic Community
later it is called as European Community.
2. North American Free Trade Agreement :( NAFTA):

It came into being on January 1, 1994. The most affluent nations of the world I.e., USA and
Canada with Mexico – a developing country joined together, to eliminating all tariffs and trade
barriers among these countries.
3. South Asian Association for Regional Cooperation (SAARC): December 1985
The successful performance of this trade block is, for economic development of the member
countries and in improving the employment opportunities, incomes and living standards of the
people of the region gave impetus for the formation of SAARC.
4. SAARC Preferential Trading Arrangement (SAPTA):
The member states realizing the fact that expansion of intra-regional trade could act as a stimulus
to the development of their economics, by expanding investment and production, decided to
establish and promote regional preferential trading agreement. December 7, 1995.
5. South Asian Free Trade Area (SAFTA):
The SAFTA agreement came into force from January 1, 2006. The agreement promotes mutual
trade and economic cooperation among the contracting states, through exchange of concessions
in accordance with it. In general, the agreement requires the completion of trade liberalization
programme.
6. Association of South-East Asian Nations (ASEAN):
A group of six countries, Viz, Singapore, Brunei, Malaysia, Philippines, Thailand and Indonesia,
agreed in January 1992 to establish a Common Effective Preferential Tariffs (CEPT). It enables
the member countries to have close cohesiveness, share their economic and human resources and
synergy in the development of their agricultural sectors, industrial sectors and service sectors.
Their strength is well educated and skilled human resources. This strength enabled them to
achieve faster industrialization.
7) ASEAN Free Trade Area (AFTA):
The major objectives of the AFTA are:
a) To encourage inflow of foreign investment into this region,
b) To establish free trade area in the member countries,
c) To reduce tariff of the products produced in ASEAN countries. AFTA was formed in the
year (September 1994).
8) Mercosur:

Mercosur, the South American trading block, known as Mercosur is Spanish and Mercosur in
Portuguese includes Brazil, Argentina, Paraguay and Uruguay. Two more countries – Chile and
Bolivia – are in the process of joining the trading block. It came into force on January 1, 1995. It
has three
Objectives:
1. Establishment of a free trade zone,
2. A common external tariff (a customs union), and
3. Free movement of capital, labor, and services.
9) Asia Pacific Economic Cooperation (APEC):
It was formed in 1989 in response to the growing interdependence among the Asia-pacific
economics. APEC is a much looser economic grouping but is unique for its members, the huge
differences in their economics and stage of development, and for the juxtaposition of almost
every system along the political spectrum.
10. European Free Trade Association: (EFTA)
It was formed in 1959. The member countries of EFTA include: Austria, Norway, Portugal,
Sweden, and Switzerland. The associate members are Finland and Iceland, Great Britain and
Denmark. The EFTA council makes policy decisions of the organization.
11. Latin American Integration Association: (LAIA)
It was formed in 1960. The countries signed the LAIA agreement were Argentina, Brazil, Chile,
Mexico, Paraguay, Peru, Uruguay, Colombia, Ecuador, Venezuela, and Bolivia. The council of
ministers is assisted by a conference of contracting parties which makes discussions on issues
requiring a joint resolution of the members.
12. Economic and Social Commission for Asia and the pacific (ESCAP):
It has 48 member countries and 10 associate members. The ESCAP’s geographical covers as
follows:
i) East: Cook Islands
ii) West: Azerbaijan
iii) North: Mongolia
iv) South: Australia and New Zealand

13) Andean Pact:
It was formed in 1969 includes Bolivia, Chile, Ecuador, Colombia, and Peru. It have had to deal
with low economic growth, hyperinflation, high unemployment, political unrest and crushing
debt burdens.
14) Central American Common Market and CARRICOM:
It referred to as CARRICOM, it was established in 1973. However, it has repeatedly failed to
make any progress towards economic integration. A formal commitment to economic and
monetary union was adopted by CARRICOM’s member states in 1984, but since then little
progress has been made.
UNIT III INTERNATIONAL STRATEGIC MANAGEMENT

Strategic Compulsions – Standardization vs. Differentiation – Strategic Options – Global
Portfolio Management – Global Entry Strategy – Different Forms of International Business –
Advantages– Organizational Issues of International Business – Organizational Structures –
Controlling of International Business – Approaches to Control – Performance of Global Business
– Performance Evaluation System.
Frame work for International Strategic Management

International strategic management builds on five phases of planning and analysis that provide a
framework for deploying resources and a plan of action.
 Recognizing antecedents
 External and internal analysis
 Strategic analysis and choice
 Leveraging competitive advantage and process
 Implementation and integration
International strategic planning

International strategic planning is a process of evaluating the internal and external environment
by multinational organizations, through which they set their long-term and short-term goals and
then they implement a specific plan of action in order to achieve those objectives.
Strategic compulsions
It means that the companies face the compulsion to be global if they want to gain the global
market and more values. But in the modern context strategic management faces many
compulsions. The present and future development of the field of strategic management is likely
to be driven by compulsions like contemporary developments in social and economic theory and
recent changes in the nature of the business and economic context.
International/global strategic management
Strategic management is the process of systematically analyzing various opportunities
and threats vis-à-vis organizational strengths and weaknesses, formulating and arriving at
strategic choices through critical evaluation of alternatives and implementing them to meet the
set objectives of the organization.

Area of strategic compulsions
1. Orientation for globalization
2. Emerging E-commerce and Internet culture
3. Cut-throat competition
4. Diversification
5. Active pressure groups
6. Motive for corporate social responsibility (CSR) and ethics.
Standardization versus Differentiation
According to Levitt, represents local marketing versus global marketing and focus on the central
question of whether a standardized (global) or a differentiated (local), country-specific marketing
approach.
Perspectives on standardization versus Differentiation:
1) Regional perspective
2) Marketing process prospective
3) Marketing components/marketing mix perspective.
Factors Favoring Standardization and Differentiation
Factors favoring Factors favoring differentiation

Standardization
Economics of scale. In Local environment-induced adaptation..,

R&D, production and government and regulatory influences,
marketing. legal issues.
Global competition Local competition
Convergence of tastes Variation in consumer needs( consumer
and consumer needs are heterogeneous)
needs(consumer
preferences are
homogeneous)
Centralized management Fragmented and decentralized
of international operation. management with independent country

subsidies
A standardized concept is An adopted concept is used by competitors
used by competitors
Strategic options
Strategic options/choice involves the selection of a strategy or set of strategies that helps in
achieving organizational objectives.
1. Global strategy
2. International strategy
3. Transactional strategy
4. Multi-domestic strategy
1. Global strategy: It views the world as a single market. Tightly controls global operations
from headquarters to preserve focus on standardization.
2. International strategy: In this strategy company extends marketing, manufacturing and other
activities outside the home country.
3. Multi-domestic strategy: the international company discovers that differences in markets
around the world demand an adaptation of its marketing mix in order to succeed.
4. Transactional strategy: this is company that thinks globally and acts locally. The
transactional corporation is much more than a company with sales, investments and operations in
many countries.
Factors affecting strategic options:
1) External constraints
2) Intra-organizational forces and managerial power-relations
3) Values and preferences and managerial attitudes risk
4) Impact of past strategy
5) Time constraints in choice of strategy.
6) Information constraints
7) Competitor’s reaction
Global portfolio management
Global portfolio investment means the purchase of stocks, bonds, and money market instruments
by foreigners for the purpose of realizing a financial return which does not result in foreign

management, ownership, or control. Portfolio investment is part of the capital account on the
balance of payments statistics. An international portfolio is designed to give the investor
exposure to growth in emerging and international markets and provide diversification.
Factors affecting global portfolio investment:
1) Tax rates on interest or dividends
2) Interest rates
3) Exchange rates
Problems of global portfolio investment:
1. Unfavorable exchange rate movement
2. Frictions in international financial market
3. Manipulation of security prices
4. Unequal access to information
Global entry strategies
Level of involvement:
 Wholly-owned subsidiary
 Company acquisition
 Assembly operations
 Joint venture
 Strategic alliance
 Licensing
 Contract manufacture
 Direct marketing
 Distributors and agents
 Sales force
 Trading companies
 Export management companies
 Piggyback operations
 Domestic purchasing
 Franchising
Modes of entry: Forms of International business
I) Exporting as an entry strategy:

1) Exporting:
Exporting is the most traditional mode of entering the foreign market. Exporting is that which
allows manufacturing operations to be concentrated in a single location, which may lead to scale
economics.
a) Indirect exporting: For firms that little inclination or few resources for international
marketing, the simplest and lowest cost method of market entry is for them to have their products
sold overseas by others
b) Direct exporting:
Exporting is the most popular approach for firms as it requires fewer resources, has little effect
on existing operation and involves low investment and financial risks.
II) Manufacturing strategies without foreign direct investment:
1) Licensing:
Under a licensing agreement, a company (the licensor) grants rights to intangible property to
another company (the licensee) for a specified period; in exchange, the licensee ordinarily pays a
royalty to the licensor.
2) Franchising:
It means of marketing goods and services in which the franchiser grants the legal right to use
branding, trademarks and products and the method of operation is transferred to third party – the
franchise – in return for a franchise fee.
3) Contract manufacture:
A firm which markets and sells products into international markets might arrange for a local
manufacturer to produce the product for them under contract.
4) Turnkey projects:
It is a contract under which a firm agrees to fully design, construct and equip a
manufacturing/business/service facility and turn the project over to the purchaser when it is
ready for operation for remuneration.
5) Managements contracts:
It is an agreement between two companies, whereby one company provides managerial
assistance, technical expertise and specialized services to the second company of the argument
for a certain agreed period in return for monetary compensation
III) Manufacturing strategies with FDI:

1) Joint ventures:
It occurs when a company decides that shared ownership of a specially set up new company for
marketing and/or manufacturing is the most appropriate method of exploiting a business
opportunity.
2) Strategic alliances:
SIA is a business relationship established by two or companies to co-operate out of mutual need
and to share risk in achieving a common objective.
3) Merger:
It is a combination (other terms are amalgamation, consolidation or integration) of two or more
organizations in which one acquires the assets and liabilities of the other in exchange for shares
or cash.
4) Acquisition:
It is process of acquiring and purchasing an existing venture. It is one of the easy means of
expanding a business by entering new markets or new product areas.
5) wholly-owned subsidiary:
The common reason for operating wholly-owned subsidiary separately from the owner company
could be name value.
Often, a well-known and respected corporation is acquired by another entity that has no name
recognition in that particular market.
6) Assembly operations:
A foreign owned operation might be set up simply to assemble components which have been
manufactured in the domestic market. It has the advantage of reducing the effect of tariff barriers
which are normally lower on components than on finished goods.
Factors affecting the selection of entry mode
External factors
1) Market size
2) Market growth
3) Government regulations
4) Level of competition
5) Level of risk
Internal factors

1) Company objectives
2) Availability of company resources
3) Level of commitment
4) International experience
5) Flexibility
Organization structure and design
Organizational structure:
It is the formal arrangement of roles, responsibilities and relationships within an organization.
International companies specify the structure that groups, individuals and operational units in
ways that managers believe best support the strategy of the firm.
Organizational design:
It deals with structural aspects of organizations; it aims at analyzing roles and responsibilities so
that collective effort can be explicitly organized to achieve ends.
Designing organizational structure: It includes an analysis of the following aspects;
1) External environment
2) Overall aims and purpose of the enterprise
3) Objectives
4) Activities
5) Decisions
6) Relationships
7) Organization structure
8) Job structure
9) Organization climate
10) Management style
11) Human resource
Types of organizational structure
1) International division’s structure:
Grouping each international business activity into its own division, puts internationally
specialized personnel together to handle such diverse matters as export documentation, foreign-
exchange transactions and relations with foreign governments.
2) Functional division’s structure:

It emphasizes on specific functions such as manufacturing, marketing, finance and so on. It is
more suitable where the products and customers are few and homogeneous.
3) Product division structure:
It is more common in international business and more suitable in case of a multiple brand
system. In this case, there are different product divisions, in each division, there are sub-
divisions.
4) Geographic (Area) division structure:
In case of area structure, organization is based on the geographic areas, namely, Asia, Africa, and
Latin America and so on and the operation is divided accordingly.
5) Matrix division structure:
The global matrix structure is more complex when it combines all the three aspects – product,
area, and function.
This is found in multi-product firms where one group of products needs area structure of
organization, while the other group of products needs functional structure, and for yet another
group, product structure is found more appropriate.
6) Mixed structure:
Most firms allow the hybrid design which best suits their purpose as dictated by size, strategy,
and technology, environment and culture. This is the reason why the famous saying “structure
follows strategy has emerged. Ex: Philips and Unilever
Controlling of international business
According to Child, “Control is essentially concerned with regulating the activities within an
organization so that they are in accord with expectations established in policies, plans and
practices.
Types/Methods of control systems:
1) Personal controls: It is control by personal contact with subordinates.
2) Bureaucratic controls: The control through a system of rules and procedures that directs
the actions of sub-units.
3) Output controls: It involves setting goals for subsidiaries to achieve; expressing these
goals in terms of relatively objective criteria such as profitability, productivity, growth,
market share, and quality.

4) Cultural controls: It exists when employees “buy into” the norms and value systems of
the firm.
Approaches to control:
1) Market approach
2) Rules approach
3) Corporate culture approach
Control mechanisms:
1) Reports
2) Visits to subsidiaries
3) Management performance evaluations
4) Cost and comparisons
5) Evaluative measurements
6) Information systems
Process of performance measurement
Establish standards of performance
Measure actual performance
Analyze performance and compare it with standards
Construct and implement an action plan
Review and revise standards
Performance evaluation system
It can be defined as, “the periodic review of operations to ensure that the objectives of the
enterprise are being accomplished”.
Various performance indicators:
1) Financial measures
a) Return on investment(ROI)
b) Budget as a success indicator
2) Non-financial measures.
Types of performance evaluation system
1) Budget programming
2) Management audit
3) PERT(Program evaluation review technique)

4) Management information system
UNIT IV PRODUCTION, MARKETING, FINANCIAL AND HUMAN RESOURCE

MANAGEMENT OF GLOBAL BUSINESS
Global Production – Location – Scale of Operations – Cost of Production – Make or Buy

Decisions – Global Supply Chain Issues – Quality Considerations – Globalization of Markets,
Marketing Strategy – Challenges in Product Development, Pricing, Production and Channel
Management – Investment Decisions – Economic – Political Risk – Sources of Fund – Exchange

Rate Risk and Management – Strategic Orientation – Selection of Expatriate Managers –
Training and Development – Compensation.
Contents:
 Global production and supply chain management
 Global marketing
 International financial management
 International human resource management
Global production and supply chain management:
Global production provides an unparallel opportunity for companies to grow into new markets
while at the same time boosting their competitiveness. Companies globalize the production
facilities due to the following reasons:
1. Import restrictions
2. Raw material
3. Inputs
4. Human resource
5. Labor laws
6. Logistics management
7. Export
8. Different consumers.
Forces accelerating global production:
1) Huge factor cost differences
2) High growth in emerging markets
3) Lower transaction costs
Global production strategy:
1) When to manufacture and when to outsource?
2) What quantity is anticipated for each product?
Bond between the manufacturing strategy and the business strategy

Business strategy
Strategic resources( Skills, Assets, Proximity, Manufacturing

strategy, Unique R&D, Superior IT
Manufacturing strategy(Resources, Capacity, Suppliers,

Customer Interface)
Location decision in global production

1. Country factors
2. Technological factors
3. Product factors
Scale of operation:
This involves deciding exactly what goods and services should be produced at that location
(i.e. the variety of its output) and what quantities of those goods and services should be produced
(i.e. the volume of its output)
Cost production:
1) Labor costs
2) Capital costs and depreciation
3) Cost of materials
Make or buy decision:
This decision relates to two aspects:
1. What tasks and functions should be performed within the firm and which ones should be
source to outside suppliers?
2. What type of relationship should be developed with the supplying companies for the
activities it outsources to other firms?
Global supply chain management
According to Jones and Riley; “Supply chain management deals with the total flow of material
from supplier through end user.
Approaches to globalization:
1. Multinational firm
2. International firm
3. Global firm

4. Transnational firm
Global supply chain strategy:
1) Multi domestic supply chains
2) Multiple international supply chains
3) Global network of supply and demand
4) Flexible, interdependent, balance of locally responsive and globally efficient supply
chains
Global diversity:
1) Political
2) Cultural
3) Economic
Global environmental factors:
1. Uncertainty
2. Complexity
3. Asymmetry
Supply chain processes:
1. CRM
2. Customer service management
3. Demand management
4. Customer order fulfillment
5. Manufacturing flow management
6. Procurement management/ supplier relationship management
7. Product development and commercialization
8. Returns management
Quality characteristics:
Technical: length, frequency, diameter, viscosity etc
Psychological: sensory qualities such as taste, odor and beauty
Time based items: reliability, maintainability
Contractual: guarantee, safety
Ethical: honesty and integrity etc
Quality considerations:

1) Control by employees
2) Control by sampling
3) Control by monitoring complaints
4) Correcting deficiencies
TQM: (Total quality management)
According to ISO 8402, quality management can be defined as follows; “ all activities
of the overall management function that determine the quality policy, objectives and
responsibilities and implement them by means such as quality planning, quality control,
quality assurance and quality improvement within the quality system.
Globalization of markets
It refers to the process of integrating and merging of the distinct world markets into a
single market. It includes the identification of common norms, value, taste, preference,
convenience and slowly enables the cultural shift towards the use of a common product or
service.
Features of globalization of markets:
1. Size of the company does not matter
2. Distinctions of national markets still exist
3. Foreign markets are the markets of non-consumer goods
4. Competition among global firms
Reasons for globalization of markets:
1. Mass production
2. Risk reduction
3. Increase profits
4. Adverse business conditions of home country
5. To cater the demand of the foreign market
6. Unfulfilled needs of the customers by the domestic companies
Characteristics of global marketing:
1. Large scale operations
2. Dominance of multinationals
3) International restrictions and trading blocs
4) Sensitive character

5) Marketing research
6) Importance of advanced technology
7) Long term planning
Functions in global marketing:
1) Choosing the basic route
2) Market selection and product selection
3) Selection of distribution channels
4) Pricing
5) Marketing communications
6) Mastering the procedural complexities
7) Organizational adaptations
8) Handling business ethics
Global marketing strategies:
1. Marketing orientation
 Production orientation
 Sales orientation
 Customer orientation
 Strategic marketing orientation
 Societal marketing orientation
2. Targeting and segmenting markets

Global/International marketing orientation:
Global marketing decision
Market selection decision
Market entry decision
Marketing mix decision
Organization for global marketing

Marketing-mix decisions
Distributi Global
Product Promotion
on pricing
decision decision
decision decision
Product policy:
It can be termed as long-term planning and management of its product-mix by a marketing
company in order to achieve maximum consumer satisfaction.
Objectives:
1. Survival
2. Flexibility
3. Growth
4. Maximum resource utilization
Reasons for making product alterations:
1. Legal reasons
2. Cultural reasons
3. Economic reasons
Product mix (also called product assortment):
It is a set of all product lines and items that a particular seller offers for sale to buyers. It has four
main
Characteristics;
1. Product length
2. Product width
3. Product depth
4. Product consistency
Product development:

According to William J. Stanton, “Product development encompasses the technical activities of
product research, engineering and design
Factor contributing to product development:
1) Changing customer preferences
2) Technological changes
3) International laws and government policy
4) Product life cycle(PLC)
Challenges in product development:
1) Innovative imperative
2) New product success
3) New product failure
Pricing:
It refers to the value determination process for a good or service and encompasses the
determination of interest rates for loans, charges for rentals, fee for services and prices for goods.
Global pricing strategies:
1. Skimming strategies: refers to the firm’s desire to skim the market by selling at a
premium price.
2. Penetration pricing strategies: it uses deliberate low prices to stimulate market growth
and capture market share.
3. Differential pricing strategies: involves a firm differentiating its price across different
market segments.
4. Geographic pricing strategies: a firm may charge a premium in one market, penetration
price in another market and a discounted price in the third.
5. Product line pricing strategies: are a set of pricing strategies, which a multi-product
firm can usefully adopt.
i) Price bundling
ii) Premium pricing
iii) Image pricing
iv) Complementary pricing
v) Captive pricing strategy
vi) Loss leader strategy

vii) Two-part pricing.
Global pricing issues:
1) Government interventions
2) Greater market diversity
3) Price escalation in exporting
4) Currency value and price changes
5) Fixed versus variable pricing
Distribution:
It is the process of delivering the product to the marketing channels and consumers.
Production and channel management:
A marketing channel can be defined as a group of exchange relationships, which create customer
value in acquiring, consuming and disposing of products and services.
Channel members:
Types of intermediaries: indirect channel
a) Domestic agents:
i) Agents who look-after the interests of manufacturers:
1) Export broker
2) Manufacturer’s export agent or sales representative
3) Export management company
4) Cooperative exporter
5) Webb - Pomerene association
ii) Agents who look – after the interests of buyers:
1) Purchasing/ Buying agent
2) Country controlled buying agent
3) Resident buyer
b) Domestic merchants:
1) Export merchant
2) Export drop shipper
3) Export distributor
4) Trading companies

Types of intermediaries: direct channel
1) Foreign distributor
2) Foreign retailer
3) State controlled trading company
4) End user
Channel decisions:
1. Factors relating to product characteristics
2. Factors relating to market or consumer characteristics
3. Factors relating to company characteristics
4. Factors relating to middlemen considerations
5. Factors relating to environmental characteristics.
International financial management
International financial management is the management of a firm’s assets and liabilities
considering the global economy in which the firm operates
Scope of international financial management:
1. Foreign exchange market: it is the place where money denominated in one currency is
bought and sold with money denominated in another currency. It facilitates conversion of
currencies, provides credit for international transactions and minimizes exposure to the risks of
exchange rate fluctuations.
2. Currency convertibility: a country’s currency is said to be freely convertible when the
country’s government allows both residents and non-residents to purchase unlimited amounts of
foreign currencies with the local currency.
3. International monetary system: every country needs to have its own monetary system and
an authority to maintain order in the system. Monetary system facilitates trade and investment.
4. Balance of payments: it is a statistical statement that systematically summarizes, for a
specified period of time about the financial transactions. The transactions include exports and
imports of goods and services, income flows, capital flows and gifts.
5) International financial market: it can be compartmentalized into two segments. One is the
international money market which is represented by the flow of short-term funds. Ex:
International banks

On the other hand, the international capital market where medium and long-term funds flow.
Challenges in international financial management:
Following key categories of emerging challenges can be identified:
1) Interrelationships between relevant environmental variables and corporate responses.
2) Adapt finance function to firm’s own strategic posture
3) To take in stride past failures and mistakes.
4) To design specific solutions
5) Knowledge of macro-economic environment
6) Culture
7) Technology
Investment decisions:
A decision to invest in activities in a given country must consider economic, political, cultural
and strategic variables. This factor influences the investment decision. The political, economic,
legal and cultural environment of a country can influence the benefits, costs and risks of doing
business there and thus its attractiveness as an investment site.
There are number of factors that determine the economic attractiveness of a foreign direct
investment opportunity.
Capital budgeting:
The fundamental goal of the financial manager is to maximize shareholder’s wealth.
Shareholders wealth is maximized when the firm, out of a list of prospective investments, selects
a combination of those projects that maximize the company’s value to its shareholders.
International capital budgeting involves substantial spending(capital investment) in
projects that are located in foreign (host) countries, rather than in the home country of the MNC.
Approaches of capital budgeting:
Payback period: it is the length of time required to recover the initial cost of the project.
Net present value:
The NPV of a project is the present value of all cash inflows, including those at the end of the
project’s life, minus the present value of all cash outflows.
Internal rate of return :( IRR)
The identification of the relevant expected cash flows to be used for the analysis of the proposed
project.

Capital budgeting aspects during foreign project assessment:
1. Project versus parent cash flows:
Project (E.g. Host country) cash flows must be distinguished from Parent (E.g. Home country)
cash flows.
2. Parent cash flows tied to financing:
Parent cash flows depend, in part, on financing. Unlike the domestic situation, financing cannot
be kept separate from operating cash flows.
3) Foreign exchange forecasts needed: an explicit forecast is needed for future exchange rates.
4) Long-range inflation must be considered
5) Subsidized financing must be explicitly treated
6) Political risk must be considered.
Country risk analysis:
1) Macro risks:
2) Micro risks
Macro risks:
1. Forced disinvestment
2. Un-welcomed regulation
3. Interface with operations
4. Social strife
Micro risks:
1. Goal conflicts with economic policy
2. Economic policies and goal conflicts of the MNC’s
a) Monetary policies and goal conflicts
b) Fiscal policies and the goal conflicts
c) Trade policies and economic protectionism
d) Balance of payment problems
e) Economic development policies and goal conflicts
f) Corruption and bureaucratic delays
Techniques to assess country risk:
1) Debt related factors
2) Balance of payments

3) Economic performance
4) Political instability
5) Checklist approach
Types of country risk:
1) Political risks
2) Economic risks
3) Competitive risks
4) Operational risks
Political risk – is when international companies fear that the political climate in a foreign
country will change in such a way that their operating position will deteriorate.
Types of political risk:

1) General instability risk
2) Ownership risk
3) Operation risk
4) Transfer risk
Managing political risks:
1) Avoiding investment
2) Adaptation
3) Threat
4) Lobbying
5) Terrorism consultants
6) Invaluable status
7) Vertical integration
8) Local borrowing
9) Minimizing fixed investments
10) Political risk insurance
Economic risk:
A country’s ability or intention to meet its financial obligations determines its economic risk.
Types of economic risks:
1. Convertibility risk

2. Foreign exchange risk
3. Translation risk
Methods of analyzing economic risk:
1. Quantitative method
2. Qualitative approach
3. Checklist approach
Sources of funds:
1) Internal sources of funds:
a) Funds from the parent
 Equity contributions
 Parent/ Direct loans
 Parent guarantees
b) Funds provided by operations
c) Loans from sister subsidiaries
d) Global cash management
e) Multilateral netting
2) External sources of funds:
a) Debt financing
b) Venture capital
c) Equity financing
d) Factoring
e) Forfeiting
f) Equipment leasing
Foreign exchange risk management:
It is designed to preserve the value of currency inflows, investments and loans, while enabling
international businesses to complete abroad.
Foreign exchange (Forex) and exchange rate – it is system of trading in and converting the
currency of one country into that of another.
Foreign exchange exposure:
1) Transaction exposure
2) Translation exposure

3) Economic exposure.
International human resource management
Definition:
According to “Ivancevich and Glueck” HRM is concerned with the most effective use of people
to achieve organizational and individual goals.
It is process of sourcing, allocating, and effectively utilizing human resources in a multinational
organization.
Objectives of IHRM:
1. To reduce the risk of international human resource
2. To avoid cultural risks
3. To avoid regional disparities
4. To manage diversified human capital
5. To remain competitive throughout the world
Importance of IHRM:
1. Given globalization of economy, business is crossing country borders to become
international business, which is dynamic
2. A large proportion of workforce is located in other countries away from their homes and
home countries
3. Finding and nurturing the suitable and capable human resources in the context of high
competition at both domestic and international levels are high on the list of priorities of
the top managements
4. Quality human resources are a must for implementing global competitive strategies.
Strategic orientation of IHRM:
It can be a source of creating superior value and competitive advantages. Superior human
resources can sustain high productivity, competitive advantage and value creation for the
international company.
Barriers to effective IHRM:
1) Variation
2) Perception of HR
3) Attitude and actions of headquarters toward HR
4) Resistance to change

5) Cultural differences in learning and teaching styles.
Global challenges in IHRM:
1) Management of cultural diversity
2) Management of complexity of the workforce
3) Management of communication channels
4) Management of divergent economic systems
5) Management of legal and labor relations issues.
Expatriates:
According to Aycan and Kartungo, “Expatriates can be defined as the employees of business and
government organizations who are sent by their organization to a related unit in a country which
is different from their own, to accomplish a job or organization - related goal for a pre
-designated temporary time.
In short Expatriate may be;
1. An employee who is working and temporarily residing in a foreign country.
2. They are also called “International Assignees”
Types of expatriate assignments:
1. Short - term assignments
2. Developmental assignments
3. Strategic assignments
4. Long - term assignments
Selection of expatriate managers:
1. Identification of potential pool of candidates
2. Assessment of IQ (Intelligent Quotient) competencies of expatriate candidates
3. Cognitive IQ
4. Emotional IQ
5. Political IQ
6. Cultural IQ
7. Organizational IQ
8. Network IQ
9. Innovative IQ
10. Intuitive IQ

3) Determination of learning styles of expatriate candidates
4) Determination of thinking styles of potential expatriate candidates
5) Determination of assignment task and its environments (Internal/External)
6) Assessment of family characteristics
7) Development of repatriation program prior to expatriation
8) Selection of expatriate candidates and assignments
Factors in selection of expatriate managers:
1. Technical competence/ Ability
2. Adaptiveness
3. Leadership ability
4. Cross - cultural suitability
5. Family requirements
6. MNE requirements
7. Country/cultural requirements
8. Language
Expatriate training and development:
Human resource department prepares the whole data about their employees and their abilities to
accept the foreign environment, geographic preferences or foreign language qualifications.
1. Training aims to improve current work skills and behavior.
2. It can involve the changing skills, knowledge, attitudes or behavior
3. It may change what employees know, how they work, their attitudes toward work or their
interaction with their co-workers or supervisor.
4. It should be considered as a life-long endeavor to learn about other cultures.
Expatriate compensation:
It is the only factor which influences the success and failure of the work assigned at international
level to the expatriate.
Types of compensation plans:
1) Home based method
2) Headquarters method
3) Host-based method

Expatriate remuneration plans:
1. The policy should be consistent and fair in its treatment.
2. The policy must work to attract and retain personnel in the areas of greatest need and
opportunities.
3. The policy should serve to motivate employees.
4. It should be consistent with the overall strategy, structure, and business needs of the
multinational.
5. It must give due consideration to equity and ease of administration.
Key aspects/Elements of Expatriate compensation:
1. Basic pay
2. Benefits
i) Housing
ii) Utilities
iii) Car
iv) Helpers
v) Club subscriptions
vi) Educational benefits
3) Allowances
i) Cost of living allowance (COLA)
ii) Relocation allowance
iii) Hardship allowance
iv) Separation allowance
v) Clothing allowance
vi) Added responsibility allowance
vii) Home leave allowance
viii) Spouse assistance allowance
4) Incentives

UNIT V CONFLICT MANAGEMENT AND ETHICS IN INTERNATIONAL
BUSINESS MANAGEMENT
Disadvantages of International Business – Conflict in International Business – Sources and

Types of Conflict – Conflict Resolutions – Negotiation – The Role of International Agencies –
Ethical Issues in International Business – Ethical Decision-Making.
Contents

 Conflict in international business
 Negotiation
 International business ethics
Conflict in Organizations
Definition
– Opposition
– Incompatible behavior
– Antagonistic interaction
– Block another party from reaching her or his goals
Range of conflict
behavior
Doubt or
 Key elements
questioning
– Interdependence with another party
– Perception of incompatible goals
 Conflict events
– Disagreements
– Debates
– Disputes
– Preventing someone from reaching valued goals
Functional and Dysfunctional Conflict
Functional conflict: works toward the goals of an organization or group
Dysfunctional conflict: blocks an organization or group from reaching its goals
1. Dysfunctional high conflict: what you typically think about conflict
2. Dysfunctional low conflict: A typical view. Levels vary among groups
Functional conflict
– “Constructive Conflict”--Mary Parker Follett (1925)
– Increases information and ideas
– Encourages innovative thinking

– Unshackles different points of view
– Reduces stagnation
Dysfunctional high conflict
– Tension, anxiety, stress
– Drives out low conflict tolerant people
– Reduced trust
– Poor decisions because of withheld or distorted information
– Excessive management focus on the conflict
Dysfunctional low conflict
– Few new ideas
– Poor decisions from lack of innovation and information
– Stagnation
– Business as usual
Levels and Types of Conflict
Level of conflict Type of conflict
Organization Within and between organizations
Group Within and between groups
Individual Within and between individuals
Levels and Types of Conflict
Intra-organization conflict
– Conflict that occurs within an organization
– At interfaces of organization functions
– Can occur along the vertical and horizontal dimensions of the organization
 Vertical conflict: between managers and subordinates
 Horizontal conflict: between departments and work groups
Intra-group conflict
– Conflict among members of a group
– Early stages of group development
– Ways of doing tasks or reaching group's goals
Intergroup conflict: between two or more groups

Interpersonal conflict
– Between two or more people
– Differences in views about what should be done
– Efforts to get more resources
– Differences in orientation to work and time in different parts of an organization
Intrapersonal conflict - Occurs within an individual
 Threat to a person’s values
 Feeling of unfair treatment
 Multiple and contradictory sources of socialization
 Related to the Theory of Cognitive Dissonance and negative inequity
Inter-organization conflict
– Between two or more organizations
– Not competition
– Examples: suppliers and distributors, especially with the close links now possible
Conflict Episodes
Simple conflict episode
Latent conflict
Manifest conflict
Conflict aftermath
Conflict reduction
Latent conflict: antecedents of conflict behavior that can start conflict episode
Manifest conflict: observable conflict behavior
Conflict aftermath
– End of a conflict episode
– Often the starting point of a related episode
– Becomes the latent conflict for another episode
Conflict reduction: lower the conflict level
Latent conflict
The antecedents of conflict
Example: scarce resources

Some latent conflict in the lives of college students
– Parking spaces
– Library copying machines
– Computer laboratory
– Books in the bookstore
– School and other parts of your life
– University policies
Manifest conflict
– Observable conflict behavior
– Example: disagreement, discussion
Conflict aftermath
– Residue of a conflict episode
– Example: compromise in allocating scarce resources
– leaves both parties with less than they wanted
Perceived conflict
– Become aware that one is in conflict with another party
– Can block out some conflict
– Can perceive conflict when no latent conditions exist
– Example: misunderstanding another person’s position on an issue
Felt conflict
– Emotional part of conflict
– Personalizing the conflict
– Oral and physical hostility
– Hard to manage episodes with high felt conflict
– What people likely recall about conflict
Conflict Frames and Orientations

Conflict frame
– Relationship-Task
– Cooperate-Win
– Emotional Intellectual

Conflict frame dimensions
Relationship-Task
 Relationship: focuses on interpersonal relationships
 Task: focuses on material aspects of an episode
Emotional-Intellectual
 Emotional: focuses on feelings in the conflict episode (felt conflict)
 Intellectual: focuses on observed behavior (manifest conflict)
Cooperate-Win
 Cooperate: emphasizes the role of all parties to the conflict
 Win: wants to maximize personal gain
Conflict frames
Limited research results
 End an episode with a relationship or intellectual frame: feel good about
relationship with other party
 Cooperation-focused people end with more positive results than those
focused on winning
Conflict orientations
Dominance: wants to win; conflict is a battle
Collaborative: wants to find a solution that satisfies everyone
Compromise: splits the differences
Avoidance: backs away
Accommodative: focuses on desires of other party
Reducing Conflict
Lose-lose methods: parties to the conflict episode do not get what they want
Win-lose methods: one party a clear winner; other party a clear loser
Win-win methods: each party to the conflict episode gets what he or she wants
Summary
Lose-lose methods: compromise
Win-lose methods: dominance
Win-win methods: problem solving

International Business Negotiation
Negotiation is the action and the process of reaching an agreement by means of exchanging
ideas with the intention of dispelling conflicts and enhancing relationship to satisfy each other’s
needs.
Characteristics of negotiation:
(1) Every negotiation involves two or more parties.
(2) The objective of a negotiation must be definite.
(3) Negotiation must be conducted on an equal basis.
(4) A consensus must be built on the basis of mutual concession.
(5) Negotiation involves exchange of ideas, communication, persuasion, compromise and
suchlike (process).
The Dual Concerns Model
Business negotiation is a process of conferring in which the participants of business activities

communicate, discuss, and adjust their views, settle differences and finally reach a mutually
acceptable agreement in order to close a deal or achieve a proposed financial goal.
Characteristics of Business Negotiation:

(1) The objective of business negotiation is to obtain financial interest
(2) The core of business negotiation is price
(3). Its principle is equality and mutual benefit
(4). Items of contract should keep strictly accurate and rigorous.
Principles of business negotiation:
 Equality principle
 Cooperation principle
 Flexibility principle
 Positions-subjected-to-interests principle
 Depersonalizing principle (Separating the people from the problem)
 Using objective criterion
International Business Negotiation is the business negotiation that takes place between the
interest groups from different countries or regions.
Features of International Business Negotiation:
(1) Language barrier
(2) Cultural differences
(3) International laws and domestic laws are both in force
(4) International political factors must be taken into account
(5) The difficulty and the cost are greater than that of domestic business negotiations
Forms of International Business Negotiation:
Classification by chief negotiator
Classification by negotiation object
Classification by form
Classification by procedure
Classification by chief negotiator
(1) Government- to- government’s negotiation
(2) Government- to- Business’s negotiation
(3) Producer- to- Producer’s negotiation
(4) Producer- to- Trader’s negotiation
(5) Retailer- to -Producer’s negotiation
(6) Business- to- Business’s negotiation

(7) Business- to- Consumer’s negotiation
Classification by negotiation object
(1)Product trade negotiation
(2)Technology trade negotiation
(3) Service trade negotiation
(4) International project negotiation
Classification by form:
(1) One- to- one negotiation
(2) Team negotiation
(3) Multilateral negotiation
Classification by procedure
(1) Horizontal Negotiation
(2) Vertical Negotiation
The Basic Forms of International Business
Negotiation:
Host Court” negotiation and “Guest Court” negotiation
Oral negotiation and written negotiation
Formal and informal negotiation
“Host Court” negotiation and “Guest Court” negotiation:
(1) Host- Court negotiation
(2) Guest- Court negotiation
(3) Changing- Court negotiation
(4) Third- place negotiation
Oral negotiation and written negotiation
(1) Oral negotiation
(2) Written negotiation
Formal and Informal negotiation:
(1) Formal negotiation
(2) Informal negotiation
INTERNATIONAL NEGOTIATION:
 More complex than domestic negotiations

 Differences in national cultures and differences in political, legal, and economic systems
often separate potential business partners
STEPS IN THE INTERNATIONAL NEGOTIATION PROCESS
THE SUCCESSFUL INTERNATIONAL NEGOTIATOR: PERSONAL
CHARACTERISTICS
 Tolerance of ambiguous situations
 Flexibility and creativity
 Humor
 Stamina
 Empathy
 Curiosity
 Bilingual
BASIC NEGOTIATION STRATEGIES:

 Competitive
– The negotiation as a win-lose game
 Problem solving
– Search for possible win-win situations

Ethics in International Business
Business Ethics:
Business ethics are principles of right or wrong governing the conduct of business people.
The text says, “The accepted principles of right and wrong” But there are many differences of
opinion among highly ethical businesspeople.
Ethical Issues in International Business
 Many ethical issues and dilemmas are rooted in differences in political systems, law,
economic development, and culture. Some key ethical issues in international business …
 Employment Practices
When work conditions in a host nation are clearly inferior to those in a multinational’s
home nation, what standards should be applied? How much divergence is acceptable?
Determinants of Ethical Behavior:
 Organization culture
 Personal ethics

 Decision making processes
 Leadership
 Unrealistic / realistic performance goals
The Roots of Unethical Behavior
Ethical Decision Making

Five things that an international business and its managers can do
to make sure ethical issues are considered
– Favor hiring and promoting people with a well-grounded sense of personal
ethics
– Build an organizational culture that places a high value on ethical behavior
– Make sure that leaders within the business not only articulate the rhetoric of
ethical behavior, but also act in a manner that is consistent with that rhetoric
– Implement decision-making processes that require people to consider the
ethical dimension of business decisions
– Develop moral courage
What is culture?
“A system of values and norms that are shared among a group of people and that when taken
together constitute a design for living.”
Different components of culture:
 Values: Abstract ideas/assumptions about what a group believes to be good, right and
desirable
 Norms: social rules and guidelines that prescribe appropriate behavior in particular
situations
 Folkways: Routine conventions of everyday life.
 Little moral significance

 Generally, social conventions such as dress codes, social manners, and neighborly
behavior
 Mores: Norms central to the functioning of society and its social life
 Greater significance than folkways
 Violation can bring serious retribution, Theft, adultery, incest and cannibalism
Determinants of culture
Improving Global Business Ethics

Seven Moral Guidelines for MNCs
 Inflict no intentional or direct harm
 Produce more good than bad for the host country
 Contribute to host country’s development
 Respect the human rights of their employees
 Pay their fair share of taxes
 Respect local cultural beliefs that do not violate moral norms
 Cooperate with the government to develop and enforce background institutions
The Role of Ethics in International Business

International business ethics has a number of open questions and dilemmas. Today it is
characterized by the following elements: Every culture and nation has its own values, history,
customs and traditions, thus it has developed own ethical values and understanding of ethical
principles; There is no international ethical code of conduct, accepted and followed by all the
countries; There is a lack of governments’ initiative to create ethical cooperation framework and
thus to enhance ethical behavior in international business; It is hard to outline those ethical

values which would be understandable, acceptable and important for representatives of all the
continents simultaneously within different types of international cooperation projects.
Following approach to international business ethics: Every individual and every corporate
body must outline its ethical values; Every individual and company should ensure understanding
of ethical values and belief in their effectiveness and importance;
Employees of every organization must participate in creating a corporate code of conduct, which
in this case definitely represents corporate culture, rather than only personal views of a
company’s leader; Every individual and company must monitor compliance with the outlined
values at all times.
All the ethical values must be divided in two categories – rigid and flexible. Rigid are those
values which cannot be renounced under any circumstances (honesty, integrity, professionalism),
and flexible ones, which are those moral principles which may be interpreted in different ways in
different situations (will to understand other cultures’ values, remuneration policies).

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BA 9209 - International Business Management (IBM)

UNIT II INTERNATIONAL TRADE AND INVESTMENT

UNIT III INTERNATIONAL STRATEGIC MANAGEMENT

UNIT IV PRODUCTION, MARKETING, FINANCIAL AND HUMAN RESOURCE

UNIT V CONFLICT MANAGEMENT AND ETHICS IN INTERNATIONAL

Ponjesly college of Engineering .

International Business – Definition – Internationalizing Business – Advantages – Factors

International business - Definition:

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Firm specific Country Global specific

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Terrorism and war

Managing political risks

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High Collectivism Low

High Masculinity low

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UNIT II INTERNATIONAL TRADE AND INVESTMENT

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2) National Industrial policy model

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2. Networks and relational assets:

RTB (Regional trade blocks)

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UNIT III INTERNATIONAL STRATEGIC MANAGEMENT

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Frame work for International Strategic Management

International strategic planning

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Factors favoring Factors favoring differentiation

Economics of scale. In Local environment-induced adaptation..,

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