International Business: Institute of Management AND Information Technology

International Business
18MBA206
INSTITUTE OF
MANAGEMENT
AND
INFORMATION
TECHNOLOGY
INSITITUTE OF
MANAGEMENT
AND
INFORMATION
TECHNLOGY
INTERNATIONAL BUSINESS
Faculty-Himanshu Bhusan Mishra M.Phil,MBA

email [email protected]
SYLLABUS
International Business
4 INTERNATIONAL BUSINESS
Module 1
Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

INTERNATIONAL BUSINESS LECTURE NOTES(COMPILED)
MBA-II-SEMSTER
International Business: It is defined as the process of extending the business activities from
domestic to any foreign country with an intention of targeting international customers, It is also
defined as the conduction of business activities by any company across the nations
It can also be defined as the expansion of business functions to various countries with an objective
of fulfilling the needs and wants of international customers
1. Process of Internationalization
 Domestic company :Most international companies have their origin as domestic companies.
The orientation of a domestic company essentially is ethnocentric. A purely domestic
company operates domestically because it never considers the alternative of going
international. A domestic company may extend its products to foreign markets by exporting,
licensing and franchising
 International companies are importers and exporters, they have no investment outside of

their home country.

 Multinational companies have investment in other countries, but do not have coordinated
product offerings in each country. More focused on adapting their products and service to
each individual local market.
 Global companies have invested and are present in many countries. They market their
products through the use of the same coordinated image/brand in all markets. Generally one
corporate office that is responsible for global strategy. Emphasis on volume, cost
management and efficiency.
 Transnational companies are much more complex organizations. They have invested in
foreign operations, have a central corporate facility but give decision-making, R&D and
marketing powers to each individual foreign market.
 Multinational Corporation In a report of the International Labour Organisation (ILO), it
is observed that, "the essential of the MNC lies in the fact that its managerial headquarters
are located in one country (home country), while the enterprise carries out operations in a
number of the other countries (host countries)."
A "multinational corporation" is also referred to as an international, transactional or global

corporation. Actually, for an enlarging business firm, multinational is a beginning step, as it
gradually becomes transnational and then turns into a global corporation. For, transnational
corporation represents a stage where in, the ownership and control of the concerned organization
crosses the national boundaries.
Features of MNCs:
1. MNCs have managerial headquarters in home countries, while they carry out operations in a
number of other (host) countries.
2. A large part of capital assets of the parent company is owned by the citizens of the company's
home country.
3. The absolute majority of the members of the Board of Directors are citizens of the home country.
4. Decisions on new investment and the local objectives are taken by the parent company.
5. MNCs are predominantly large-sized and exercise a great degree of economic dominance.
6. MNCs control production activity with large foreign direct investment in more than one
developed and developing countries.
7. MNCs are not just participants in export trade without foreign investments.

Main Drivers of Globalization [International Business]
Cost driver companies consider the various lifestyle of the country before considering the price of
the product and services to rendered
Technology driver : increasing technology system, transportation, advancing in the level of world
trade system
Government driver: reducing trade tariffs and non trade tariffs, reducing the role of political
policies
Competition driver: organization becoming a global center, shift in open market system,
Privatization, Liberalization
Approaches in International Business
1. ETHNOCENTRIC ORIENTATION:
The ethnocentric orientation of a firm considers that the products, marketing strategies and
techniques applicable in the home market are equally so in the overseas market as well. In such a
firm, all foreign marketing operations are planned and carried out from home base, with little or no
difference in product formulation and specifications, pricing strategy, distribution and promotion
measures between home and overseas markets. The firm generally depends on its foreign agents
and export-import merchants for its export sales.
2. REGIOCENTRIC ORIENTATION :
In regiocentric approach, the firm accepts a regional marketing policy covering a group of countries

which have comparable market characteristics. The operational strategies are formulated on the
basis of the entire region rather than individual countries. The production and distribution facilities
are created to serve the whole region with effective economy on operation, close control and co-
ordination.
3. GEOCENTRIC ORIENTATION :
In geocentric orientation, the firms accept a world wide approach to marketing and its operations
become global. In global enterprise, the management establishes manufacturing and processing
facilities around the world in order to serve the various regional and national markets through a
complicated but well co-ordinate system of distribution network. There are similarities between
geocentric and regiocentric approaches in the international market except that the geocentric
approach calls for a much greater scale of operation.
4. POLYCENTRIC OPERATION :
When a firm adopts polycentric approach to overseas markets, it attempts to organize its
international marketing activities on a country to country basis. Each country is treated as a separate
entity and individual strategies are worked out accordingly. Local assembly or production facilities
and marketing organisations are created for serving market needs in each country. Polycentric
orientation could be most suitable for firms seriously committed to international marketing and
have its resources for investing abroad for fuller and long-term penetration into chosen markets.
Polycentric approach works better among countries which have significant economic, political and
cultural differences and performance of these tasks are free from the problems created primarily by
the environmental factors.
Theories of International Business
1. Theory of Absolute Advantage
The Scottish economist Adam Smith developed the trade theory of absolute advantage in 1776. A
country that has an absolute advantage produces greater output of a good or service than other
countries using the same amount of resources. Smith stated that tariffs and quotas should not restrict
international trade; it should be allowed to flow according to market forces. Contrary to
mercantilism Smith argued that a country should concentrate on production of goods in which it
holds an absolute advantage. No country would then need to produce all the goods it consumed. The
theory of absolute advantage destroys the mercantilistic idea that international trade is a zero-sum
game. According to the absolute advantage theory, international trade is a positive-sum game,
because there are gains for both countries to an exchange. Unlike mercantilism this theory measures

the nation's wealth by the living standards of its people and not by gold and silver.
There is a potential problem with absolute advantage. If there is one country that does not have an
absolute advantage in the production of any product, will there still be benefit to trade, and will
trade even occur? The answer may be found in the extension of absolute advantage, the theory of
comparative advantage.
2. Theory of Comparative Advantage
The most basic concept in the whole of international trade theory is the principle of comparative
advantage, first introduced by David Ricardo in 1817. It remains a major influence on much
international trade policy and is therefore important in understanding the modern global economy.
The principle of comparative advantage states that a country should specialize in producing and
exporting those products in which is has a comparative, or relative cost, advantage compared with
other countries and should import those goods in which it has a comparative disadvantage. Out of
such specialisation, it is argued, will accrue greater benefit for all.
In this theory there are several assumptions that limit the real-world application. The assumption
that countries are driven only by the maximization of production and consumption, and not by
issues out of concern for workers or consumers is a mistake.
3.Heckscher-Ohlin Theory
In the early 1900s an international trade theory called factor proportions theory emerged by two
Swedish economists, Eli Heckscher and Bertil Ohlin. This theory is also called the Heckscher-Ohlin
theory. The Heckscher-Ohlin theory stresses that countries should produce and export goods that
require resources (factors) that are abundant and import goods that require resources in short supply.
This theory differs from the theories of comparative advantage and absolute advantage since these
theory focuses on the productivity of the production process for a particular good. On the contrary,
the Heckscher-Ohlin theory states that a country should specialise production and export using the
factors that are most abundant, and thus the cheapest. Not produce, as earlier theories stated, the
goods it produces most efficiently.
The Heckscher-Ohlin theory is preferred to the Ricardo theory by many economists, because it
makes fewer simplifying assumptions. In 1953, Wassily Leontief published a study, where he tested
the validity of the Heckscher-Ohlin theory. The study showed that the U.S was more abundant in
capital compared to other countries, therefore the U.S would export capital- intensive goods and
import labour-intensive goods. Leontief found out that the U.S's export was less capital intensive

than import.
4.Product Life Cycle Theory
Raymond Vernon developed the international product life cycle theory in the 1960s. The
international product life cycle theory stresses that a company will begin to export its product and
later take on foreign direct investment as the product moves through its life cycle. Eventually a
country's export becomes its import. Although the model is developed around the U.S, it can be
generalised and applied to any of the developed and innovative markets of the world.
The product life cycle theory was developed during the 1960s and focused on the U.S since most
innovations came from that market. This was an applicable theory at that time since the U.S
dominated the world trade. Today, the U.S is no longer the only innovator of products in the world.
Today companies design new products and modify them much quicker than before. Companies are
forced to introduce the products in many different markets at the same time to gain cost benefits
before its sales declines. The theory does not explain trade patterns of today.
5.Theory of Mercantilism
According to Wild, 2000, the trade theory that states that nations should accumulate financial
wealth, usually in the form of gold, by encouraging exports and discouraging imports is called
mercantilism. According to this theory other measures of countries' well being, such as living
standards or human development, are irrelevant. Mainly Great Britain, France, the Netherlands,
Portugal and Spain used mercantilism during the 1500s to the late 1700s.
Mercantilistic countries practiced the so-called zero-sum game,[ situation in which one
participant's gains result only from another participant's equivalent losses. The net change in total
wealth among participants is zero; the wealth is just shifted from one to another.] which meant that
world wealth was limited and that countries only could increase their share at expense of their
neighbors. The economic development was prevented when the mercantilistic countries paid the
colonies little for export and charged them high price for import. The main problem with
mercantilism is that all countries engaged in export but was restricted from import, prevention from
development of international trade
INTERNATIONA BUSINESS ENVIRONMENT
FOREIGN ENVIRONMENT:
The home-based or the domestic export expansion measures are necessarily related to the

conditions prevailing in possible markets. An Exporter has to overcome various constraints and
adapt plans and operations to suit foreign environmental conditions. The main elements of foreign
environment affecting marketing activities of a firm in a foreign country consist of the following.
A) POLITICAL DIMENSION:
Nations greatly differ in their political environment. Govt. policies, regulations and control
mechanisms regarding the countries, foreign trade and commercial relations with other countries or
groups of countries. At least four factors should be considered in deciding whether to do business in
a particular country. They are
1. Attitudes towards International Buying:
Some nations are very receptive, indeed encouraging, to foreign firms, and some others are
hostile. For e.g.: Singapore, UAE and Mexico are attracting foreign investments by offering
investment incentives, removal of trade barriers, infrastructure services, etc.
2. Political Stability: A country's future and stability is another important issue. Government
changes hands sometimes violently. Even without a change, a region may decide to respond
to popular feeling. A foreign firm's property may be seized; or its currency holdings blocked;
or import quotas or new duties may be imposed. When political stability is high one may go
for direct investments. But when instability is high, firms may prefer to export rather than
involve in direct investments. This will bring in foreign exchange fast and currency
convertibility is also rapid.
3. Monetary Regulations:
Sellers want to realise profits in a currency of value to them. In best situations, the Importer
pays in the seller's currency or in hard world currencies. In the worst case they have to take
the money out of the host country in the form of relatively unmarketable products that they
can sell elsewhere only at a loss. Besides currency restrictions, a fluctuating exchange rate
also creates high risks for the exporter.
4. Government Bureaucracy:
It is the extent to which the Government in the host country runs an efficient system for
assisting foreign companies: efficient customs handling, adequate market information, etc.

The problem of foreign uncertainty is thus further complicated by a frequently imposed

"alien status", this increases the difficulty of properly assessing and forecasting the dynamic
international business. The political environment offers the best example of the alien status.
A foreign political environment can be extremely critical; shifts in Government often means
sudden changes in attitudes that can result in expropriation, expulsion, or major restrictions
in operations. The fact is that a foreign company is foreign and thus always subject to the
political whim to a greater degree than a domestic firm.
CULTURAL ENVIRONMENT:
The manner in which people consume their priority of needs and the wants they attempt to satisfy,
and the manner in which they satisfy are functions of their culture which moulds and dictates their
style of living. This culture is the sum total of knowledge, belief, art, morals, laws, customs and
other capabilities acquired by humans as members of the society. Since culture decides the style of
living, it is pertinent to study it especially in export marketing. e.g. when a promotional message is
written, symbols recognizable and meaningful to the market (the culture) must be used. When
designing a product, the style used and other related marketing activities must be culturally
acceptable.
ECONOMIC ENVIRONMENT: In considering the international market, each Exporter must

consider the importing country's economy. Two economic characteristics reflect the country's
attractiveness as an export market. They are the country's industrial structure and the country's
income distribution by employment industrialization and socio economic justices.
LEGAL ENVIRONMENT:
The legal dimension of international Business environment includes all laws and regulations
regarding product specification and standards, packaging and labeling, copyright, trademark,
patents, health and safety regulations particularly in respect of foods and drugs. There are also
controls in promotional methods, price control, trade margin, mark-up, etc., These legal aspects of
marketing abroad have several implications which an exporting firm needs to study closely.
Regional Strategy:
In international business the regional strategy is explained as business strategy directed in doing
business for a specific country, region in international business is one nation, large scale business
operators will have to design the business strategy based on each nation and which ultimately

affects the international business
Companies can source goods, technology, information, and capital from around the world, but
business activity tends to be centered in certain cities or city regions in a few parts of the world
Global strategy
Global strategy is the ability of an organization to apply a replicable and systematic methodology
to the unique challenges that are faced by the organization. A sound global strategy addresses
questions such as, how to build necessary global presence and what should be the optimal locations
for various value chain activities. Any company which implements the global strategy will have the
following aspects as its features
 Product is the same in all countries.
 Centralized control - little decision-making authority on the local level
 Effective when differences between countries are small
 Advantages: cost, coordinated activities, faster product development
MODULE-2
TRADE BARRIERS
Trade barriers may be (i) Tariff Barriers and (ii) Non Tariff Barriers or protective barriers.
i) TARIFF BARRIERS: Tariff barriers have been one of the classical methods of regulating
international trade. Tariffs may be referred to as taxes on the imports. It aims at restricting the
inward flow of
goods from other countries to protect the country's own industries by making the goods costlier in
that country. Sometimes the duty on a product becomes so steep that it is not worthwhile importing
it. In addition, the duty so imposed also provides a substantial source of revenue to the importing
country. In India, Customs duty forms a significant part of the total revenue, and therefore, is an
important element in the budget. Some countries use this method of imposing tariffs and Customs
duties to balance its balance of trade. A nation may also use this method to influence the political
and economic policies of other countries. It may impose tariffs on certain imports from a particular
country as a protest against tariffs imposed by that country on its goods.

Specific Duties, imposed on the basis of per unit of any identifiable characteristic of merchandise
such as per unit volume, weight, length, etc. The duty schedules so specified must specify the rate
of duty as well as the determining factor such as weight, number, etc. and basis of arriving at the
determining factor such as gross weight, net weight or tare weight.
Ad valorem Tariffs are based on the value of imports and are charged in the form of specified
percentage of the value of goods. The schedule should specify how the value of imported goods
would be arrived at. Most of the countries follow the practice of charging tariffs on the basis of CIF
cost or FOB cost mentioned in the invoice. As tariffs are based on the cost, sometimes unethical
practices of under invoicing are adopted whereby Customs revenue is affected. In order to eliminate
such malpractices, countries adopt a fair value (given in the schedule) or the current domestic value
of the goods as the basis of computing the duties.
NON - TARIFF MEASURES (BARRIERS)
To protect the domestic industries against unfair competition and to give them a fair chance of
survival various countries are adopting non-tariff measures. Some of these are :
Quantity Restrictions, Quotas and Licensing Procedures:-
Under quantity restriction, the maximum quantity of different commodities which would be allowed
to be imported over a period of time from various countries is fixed in advance. The quota fixed
normally depends on the relations of the two countries and the needs of the importing country. Here,
the Govt. is in a position to restrict the imports to a desired level. Quotas are very often combined
with licensing system to regulate the flow of imports over the quota period as also to allocate them
between various importers and supplying countries.
Foreign Exchange Restrictions -Exchange control measures are used widely by a number of
developing countries to regulate imports. Under this system an importer has to ensure that adequate
foreign exchange is available for imports by getting a clearance from the exchange control
authorities of the country.
Technical Regulations -
Another measure to regulate the imports is to impose certain standards of technical production,
technical specification, etc. The imported commodity has to meet these specifications. Stringent
technical regulations and standards beyond international norms, expensive testing and certification,
and complicated marking and packaging requirements.

Voluntary Export Restraint:
The agreement on 'voluntary' export restraint is imposed on the exporter under the threat of
sanctions to limit the export of certain goods in the importing country. Similarly, establishment of
minimum import prices should be strictly observed by the exporting firms in contracts with the
importers of the country that has set such prices. In case of reduction of export prices below the
minimum price level, the importing country imposes anti-dumping duty which could lead to
withdrawal from the market. Voluntary export restraints mostly affect trade in textiles, footwear,
dairy products, cars, machine tools, etc.
Local Content Requirement:-
A local content requirement is an agreement between the exporting and the importing country that
the exporting country will use some amount or, content of resources of the importing country in its
process of production. If the exporting country agrees to do that only then the importing country
will import their goods.
Embargo:- Embargo is a specific type of quota prohibiting trade. Like quotas, embargoes may be
imposed on imports, or exports of particular goods, regardless of destinations, in respect of certain
goods supplied to specific countries, or in respect of all goods shipped to certain countries.
Although the embargo is usually introduced for political purposes, the consequences, in essence,
could be economics

Difference between Tariff and Non-Tariff Barriers
Anti - Dumping
Anti dumping is a new weapon in the trade war. Anti dumping is one policy which is creating a non
tariff barrier, hindering free trade.
If a company exports a product at a price lower than the one charged in its home market, it is said to
be dumping. If the importing company succeeds, its country will levy an anti dumping duty on the
product exported by the Indian Co. to him. This adds to the landed cost of the product and reduces
the Indian exporter's competitiveness.
Trade Bloc
An agreement between states, regions, or countries, to reducebarriers to trade between the

participating regions Trading blocs are a form of economic integration, and increasingly shape the
pattern of world trade.
Economic integration is the unification of economic policies between different states through the
partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to
their integration

The degree of economic integration can be categorized into five stages:
1. Preferential trading area

2. Free trade area,
3. Customs union,
4. Common market
5. Economic union,
Stages/types / Forms/ of economic integration
Preferential Trade Area
Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to reduce
or eliminate tariff barriers on selected goods imported from other members of the area. This is often
the first small step towards the creation of a trading bloc.
Free Trade Area
Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or
eliminate barriers to trade on all goods coming from other members.
Customs Union
A customs union involves the removal of tariff barriers between members, plus the acceptance of a
common (unified) external tariff against non-members. This means that members may negotiate as
a single bloc with 3rd parties, such as with other trading blocs, or with the WTO
Common Market
A ‗common market‘ is the significant step towards full economic integration, and occurs when
member countries trade freely in all economic resources – not just tangible goods. This means that
all barriers to trade in goods, services, capital, and labour are removed.
The main advantages for members of trading blocs[this can be written for any trade bloc]
 Free trade practices

 Market access and trade creation.
 Trade creation and trade diversion

 Economies of scale
 lowering costs and lower prices for consumers.
 Jobs creation and employment opportunities
 Protection of individual interests of member countries.
NAFTA
North American Free Trade Agreement (NAFTA) established a free-trade zone in North America; it
was signed in 1992 by Canada, Mexico, and the United States and took effect on Jan. 1, 1994.
NAFTA immediately lifted tariffs on the majority of goods produced by the signatory nations. It
also calls for the gradual elimination of all trade barriers between these three countries.
Goals of the NAFTA
 to reduce barriers to trade

 to increase cooperation for improving working conditions in North America
 to create an expanded and safe market for goods and services produced in North America
 to establish clear and mutually advantageous trade rules
 to help develop and expand world trade and provide a catalyst to broader international
cooperation
NAFTA structure
Free Trade Commission: Made up of ministerial representatives from the NAFTA partners.
NAFTA Coordinators: Senior trade department officials designated by each country.
NAFTA Working Groups and Committees: Over 30 working groups and committees have been
established to facilitate trade and investment and to ensure the effective implementation and
administration of NAFTA.
NAFTA Secretariat :Made up of a ―national section‖ from each member country. Responsible for
administering the dispute settlement , Maintains a tri-national website containing up-to-date
information on past and current disputes.
Commission for LaborCooperation : Created to promote cooperation on labor matters among

NAFTA members and the effective enforcement of domestic labor law. www.naalc.org.
Commission for Environmental Cooperation :Established to further cooperation among NAFTA

partners in implementing the environmental side accord to NAFTA and to address
environmental issues of continental concern, with particular attention to the environmental
challenges and opportunities presented by continent-wide free trade.
European Union (EU)
Comprising 28 European countries and governing common economic, social, and security policies.
Originally confined to Western Europe, the EU undertook a robust expansion into central and
eastern Europe in the early 21st century. The EU was created by the Maastricht Treaty, which
entered into force on November 1, 1993.
Structure of EU
1. The EU Council sets the policies and proposes new laws. The political leadership, or
Presidency of the EU, is held by a different leader every six months.
2. The European Parliament debates and approves the laws proposed by the Council. Its
members are elected every five years.
3. The European Commission staffs and executes the laws. José Manuel Barroso is the
President who serves under 28 Commissioners.
Objectives of EU
 an area of freedom, security and justice without internal frontiers ;

 an internal market where competition is free and undistorted;
 sustainable development, based on balanced economic growth and price stability, a highly
competitive social market economy, aiming at full employment and social progress, and a
high level of protection and improvement of the quality of the environment;
 the promotion of scientific and technological advance;
 the combating of social exclusion and discrimination, and the promotion of social justice
and protection, equality between women and men, solidarity between generations and
protection of the rights of the child; the promotion of economic, social and territorial
cohesion, and solidarity among Member States.

South Asian Association for Regional Cooperation (SAARC)
South Asian nations, which was established on 8 December 1985 when the government of
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka formally adopted its charter
providing for the promotion of economic and social progress, cultural development within the South
Asia region and also for friendship and co-operation with other developing countries. It is dedicated
to economic, technological, social, and cultural development emphasizing collective self-reliance.
Afghanistan joined the organisation in 2007. Meetings of heads of state are usually scheduled
annually
Objectives of SAARC
 to promote the welfare of the people of South Asia and to improve their quality of life;
 to accelerate economic growth, social progress and cultural development in the region and to
provide all individuals the opportunity to live in dignity and to realise their full potential ;
 to promote and strengthen selective self-reliance among the countries of South Asia;
 to contribute to mutual trust, understanding and appreciation of one another's problems;
 to promote active collaboration and mutual assistance in the economic, social, cultural,
technical and scientific fields;
 to strengthen co-operation with other developing countries;
 to strengthen co-operation among themselves in international forums on matters of common

interest; and
 to co-operate with international and regional organisations with similar aims and purposes.
SAARC organizational structure:
1. SAARC Council: At the top, there is the Council represented by the heads of the government of
the member countries.
2. Council of Minister: It is to assist the council. It is represented by the foreign ministers of the
member countries.
3. Standing Committee: It is comprised by the foreign secretaries of the member government.
4. Programming Committee: It consist of the senior official of the member governments.
5. Technical Committee: It consist of the represented of the member nations.
6.Secretaria: The SAARC secretariat is located in Nepal.

ASEAN
On 8 August 1967, five leaders - the Foreign Ministers of Indonesia, Malaysia, the Philippines,
Singapore and Thailand - sat down together in the main hall of the Department of Foreign Affairs
building in Bangkok, Thailand and signed a document. By virtue of that document, the Association
of Southeast Asian Nations (ASEAN) was born.
ASEAN STRUCTURES AND MECHANISMS
 ASEAN Summit, ASEAN Coordinating Council

 ASEAN Community Councils , ASEAN Sectoral Ministerial Bodies
 Committee of Permanent Representatives , National Secretariats
 Committees Abroad , ASEAN Chair
 ASEAN Secretariat, The highest decision-making organ of ASEAN is the Meeting of the
ASEAN Heads of State
PRINCIPLES of ASEAN
 Mutual respect for the independence, sovereignty, equality, territorial integrity, and national
identity of all nations;
 The right of every State to lead its national existence free from external interference,
subversion or coercion;
 Non-interference in the internal affairs of one another;

 Settlement of differences or disputes by peaceful manner;
 Renunciation of the threat or use of force; and
 Effective cooperation among themselves
Objectives : 1.to accelerate the economic growth, social progress and cultural development in the
region through joint endeavors in the spirit of equality and partnership in order to strengthen the
foundation for a prosperous and peaceful community of Southeast Asian nations
3. to promote regional peace and stability through abiding respect for justice and the rule of
law in the relationship among countries in the region and adherence to the principles of the
United Nations
World Trade Organization (W T O) :Location: Geneva, Switzerland, Established:1 January 1995,

Created by: Uruguay Round negotiations (1986-94) , Membership: 159 countries on

2 March 2013 , Budget: 197 million Swiss francs for 2013, Secretariat staff: 640, Head: Director-
General
WTO is an organization comprising of developed, developing and least developed countries, under
the UN Umbrella, headquartered in Geneva. Its aim is to promote trade amongst member nations,
especially after globalization of trade, arrange aid technically and in other forms for growth of trade
amongst member countries, creating all possible facilitation measures. Main Functions of WTO To
facilitate the implementation, administration and further operations of the agreement establishing
the WTO.
Functions:
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for developing countries
• Cooperation with other international organizations
Organizational structure
Council for Trade in Goods : There are 11 committees under the jurisdiction of the Goods Council
each with a specific task. All members of the WTO participate in the committees. The Textiles
Monitoring Body is separate from the other committees but still under the jurisdiction of Goods
Council. The body has its own chairman and only 10 members. The body also has several groups
relating to textiles.
Council for Trade-Related Aspects of Intellectual Property Rights : Information on intellectual
property in the WTO, news and official records of the activities of the TRIPS Council, and details
of the WTO's work with other international organizations in the field.
Council for Trade in Services: The Council for Trade in Services operates under the guidance of
the General Council and is responsible for overseeing the functioning of the General Agreement on
Trade in Services (GATS). It is open to all WTO members, and can create subsidiary bodies as
required.
Trade Negotiations Committee: The Trade Negotiations Committee (TNC) is the committee that
deals with the current trade talks round. The chair is WTO's director-general. As of June 2012 the
committee was tasked with the Doha Development Round

United Nations Conference on Trade and Development (UNCTAD)
It was established in 1964 as a permanent intergovernmental body. It is the principal organ of the
United Nations General Assembly dealing with trade, investment, and development issues.
The organization's goals are to "maximize the trade, investment and development opportunities of
developing countries and assist them in their efforts to integrate into the world economy on an
equitable basis.
The primary objective of the UNCTAD is to formulate policies relating to all aspects of
development including trade, aid, transport, finance and technology. The conference ordinarily
meets once in four years. The first conference took place in Geneva in 1964, second in New Delhi
in 1968,
One of the principal achievements of UNCTAD has been to conceive and implement the
Generalized System of Preferences (GSP). Currently, UNCTAD has 194 member states and is
headquartered in Geneva, Switzerland. UNCTAD has 400 staff members It is a member of the
United Nations Development Group
Objectives and Functions: (i) To promote international trade between developed and developing
countries with a view to accelerate economic development.
(ii) To formulate principles and policies on international trade and related problems of economic
development.
(iii) To make proposals for putting its principles and policies into effect, (iv) To negotiate trade
agreements.
(iv) To review and facilitate the coordination of activities of the other U.N. institutions in the field
of international trade.
(v) To function as a centre for a harmonious trade and related documents in development policies of
governments
TRIMS and TRIPS :The WTO administers the implementation of a set of agreements, which
include the General Agreement on Tariffs and Trade, other agreements in the goods sector (e.g.,
agriculture, textiles, sanitary and psycho-sanitary measures, Trade Related Investment Measures-
TRIMs, anti-dumping, etc.), and in addition, agreements in two other areas, viz., trade in services,
and Trade Related Intellectual Property Rights (TRIPs) , TRIPs deals with the following IPRs

 Copyright and related rights;

 Patents, Trademarks, Geographical indications, including appellations of origin;
 Industrial designs, Integrated circuit layout-designs;
 Protection of undisclosed information, Control of anti-competitive practices in contractual

licenses
 Term of patents 20 years, Limited compulsory licensing, no license of right
 Almost all fields of technology patentable. Only area conclusively , excluded from patentability is
plant varieties; debate regarding some areas in agriculture and biotechnology, Very limited scope for
 governments to use patented inventions
TRIMS :Trade Related Investment Measures (TRIMs) are rules that apply to the domestic
regulations a country applies to foreign investors, often as part of an industrial policy. The
agreement was agreed upon by all members of the World Trade Organization. The agreement was
concluded in 1994 and came into force in 1995
 The Agreement on Trade-Related Investment Measures TRIMs Agreement, one of the

Multilateral Agreements on Trade in Goods, prohibits trade-related investment measures, such as
local content requirements, that are inconsistent with basic provisions of GATT 1994.
 The General Agreement on Trade in Services addresses foreign investment in services as one of
four modes of supply of services
MODULE-III
Modes of foreign Market Entry
Direct export.
The organization produces their product in their home market and then sells them to customers
overseas
Advantages

 Control over selection of foreign markets and choice of foreign representative companies
 Good information feedback from target market
 Better protection of trademarks, patents, goodwill, and other intangible property
 Potentially greater sales than with indirect exporting.
Disadvantages
 Higher start-up costs and higher risks as opposed to indirect exporting

 Greater information requirements
 Longer time-to-market as opposed to indirect exporting.[7]
Indirect export
The organizations sells their product to a third party who then sells it on within the foreign market.
Advantages
 Fast market access

 Concentration of resources for production
 Little or no financial commitment. The export partner usually covers most expenses
associated with international sales
 The management team is not distracted
 No direct handle of export processes.
Disadvantages
 Higher risk than with direct exporting

 Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting
 Inability to learn how to operate overseas
Licensing
Another less risky market entry method is licensing. Here the Licensor will grant an organization in
the foreign market a license to produce the product, use the brand name etc in return that they will
receive a royalty payment.
Advantages and reasons to use an international licensing
 Obtain extra income for technical know-how and services

 Reach new markets not accessible by export from existing facilities
 Quickly expand without much risk and large capital investment
 Pave the way for future investments in the market
Franchising
Franchising is another form of licensing. Here the organization puts together a package of the
‗successful‘ ingredients that made them a success in their home market and then franchise this

package to oversee investors. The Franchise holder may help out by providing training and
marketing the services or product. McDonalds is a popular example of a Franchising option for
expanding in international markets.
Advantages of the international franchising mode: Low political risk , Low cost, Allows
simultaneous expansion into different regions of the world ,Well selected partners bring financial
investment as well as managerial capabilities to the operation.
Disadvantages of the international franchising mode:
 Franchisees may turn into future competitors

 Demand of franchisees may be scarce when starting to franchise a company, which can lead
to making agreements with the wrong candidates
 A wrong franchisee may ruin the company‘s name and reputation in the market
Turnkey projects
A turnkey project refers to a project in which clients pay contractors to design and construct new
facilities and train personnel. A turnkey project is way for a foreign company to export its process
and technology to other countries by building a plant in that country. Industrial companies that
specialize in complex production technologies normally use turnkey projects as an entry strategy.
One of the major advantages of turnkey projects is the possibility for a company to establish a plant
and earn profits in a foreign country especially in which foreign direct investment opportunities are
limited and lack of expertise in a specific area exists.

Strategic alliance
A strategic alliance is a type of cooperative agreements between different firms, such as shared
research, formal joint ventures, or minority equity participation. The modern form of strategic
alliances is becoming increasingly popular and has three distinguishing characteristics:

Advantages
 Technology exchange
 Global competition
 Industry convergence
 Economies of scale and reduction of risk
 Alliance as an alternative to merger
Global strategic planning process involves these steps

(1) Analyzing external environment by means of SWOT, PESTLE analysis
(2) Analyzing internal environment
(3) Defining the business and its mission statements
(4) Setting corporate objectives
(5) Quantifying goals
(6) Formulating strategies
(7) Making tactical planning
Types of Strategic Alliance
There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity
strategic alliance, and global strategic alliances.
1. Joint venture is a strategic alliance in which two or more firms create a legally independent
company to share some of their resources and capabilities to develop a competitive
advantage.
2. Equity strategic alliance is an alliance in which two or more firms own different
percentages of the company they have formed by combining some of their resources and
capabilities to create a competitive advantage.
3. Non-equity strategic alliance is an alliance in which two or more firms develop a

contractual-relationship to share some of their unique resources and capabilities to create a
competitive advantage.
4. Global Strategic Alliances working partnerships between companies (often more than two)
across national boundaries and increasingly across industries, sometimes formed between
company and a foreign government, or among companies and governments.
Cost benefit analysis: Cost–benefit analysis (CBA), sometimes called benefit–cost analysis
(BCA), is a systematic process for calculating and comparing benefits and costs of a project,
decision or government policy (hereafter, "project"). CBA has two purposes, Whether you know it
as a cost-benefit analysis or a benefit-cost analysis, performing one is critical to any project. When
you perform a cost-benefit analysis, you make a comparative assessment of all the benefits you

anticipate from your project and all the costs to introduce the project, perform it, and support the
changes resulting from it.
Cost-benefit analyses help you to
 Decide whether to undertake a project or decide which of several projects to undertake.

 Frame appropriate project objectives.
 Develop appropriate before and after measures of project success.
 Prepare estimates of the resources required to perform the project work.
 To determine if it is a sound investment/decision (justification/feasibility),
 To provide a basis for comparing projects. It involves comparing the total expected cost of
each option against the total expected benefits, to see whether the benefits outweigh the
costs, and by how much
Electronic business, or e-business, is the application of information and communication

technologies ICT in support of all the activities of business. Commerce constitutes the exchange of
products and services between businesses, groups and individuals and can be seen as one of the
essential activities of any business. Electronic commerce focuses on the use of ICT to enable the
external activities and relationships of the business with individuals, groups and other businesses.
The term "e-business" was coined by IBM's marketing and Internet teams in 1996
E-business involves business processes spanning the entire value chain: electronic purchasing and
supply chain management, processing orders electronically, handling customer service, and
cooperating with business partners, E-business categories:
 business-to-business (B2B) , business-to-consumer (B2C)

 business-to-employee (B2E), business-to-government (B2G)
 government-to-business(G2B) , government-to-government (G2G)
 government-to-citizen (G2C) , consumer-to-consumer (C2C)
 consumer-to-business (C2B)

E-business models
 E-shops, E-commerce, E-procurement, E-malls

 E-collaboration, E-auctions, Virtual Communities
Benefits of e- business
 Increase revenue; Expand Client case, Reach niche market segments;
 Lower operating costs; Better customer service, Enhancing Company image.
Alternative E-Business strategies
Basically the E- Business strategies are for growing the business, improving the profits, in order to
obtain the extended objective of e-business, the alternative strategies shell be adopted which are as
follows
 E-Advertising - revenue generated from web site hits

 E-retailing -revenue derived from direct Internet sales
 E-Channel - revenue produced from maintenance of current channel integrity
 E-Affiliate - revenue made from paid marketing alliances
 E-Franchise - revenue created from authorized agents
 E-Subscription - revenue derived from payment for content access
Alternative e-business strategies
Enterprise resource planning (ERP) is business management software—usually a suite of

integrated applications—that a company uses to manage business processes, including:
 Product planning and development, Manufacturing

 Marketing and sales , Inventory management , Shipping
Electronic data interchange (EDI) is a document standard which when implemented acts as
common interface between two or more computer applications in terms of understanding the
document transmitted. It is commonly used by big companies for e-commerce purposes, such as
sending orders to warehouses or tracking their order. It is more than mere e-mail; for instance,
organizations might replace bills of lading and even cheques with appropriate EDI messages
The e CRM or electronic customer relationship management encompasses all the CRM
functions with the use of the net environment i.e., intranet, extranet and internet. Electronic CRM

concerns all forms of managing relationships with customers making use of information technology
(IT). eCRM is enterprises using IT to integrate internal organization resources and external
"marketing" strategies to understand and fulfill their customers needs
Automated online assistant is a program that uses artificial intelligence to provide customer
service or other assistance on a website. Such an assistant may basically consist of a dialog system.
Automated online assistants have the ability to provide customer service during 24 hours a day and
7 days a week,
Business relationship management is a formal approach to understanding, defining, and

supporting a broad spectrum of inter-business activities related to providing and consuming
knowledge and services via networks BRM seeks to provide a complete and holistic model of
business relationships
Customer intelligence (CI) is the process of gathering and analyzing information regarding
customers; their details and their activities, in order to build deeper and more effective customer
relationships and improve strategic decision making
Business intelligence (BI) is a set of theories, methodologies, processes, architectures, and
technologies that transform raw data into meaningful and useful information for business purposes.
BI can handle large amounts of information to help identify and develop new opportunities. Making
use of new opportunities and implementing an effective strategy can provide a competitive market
advantage and long-term stability.
Database marketing is a form of direct marketing using databases of customers or potential
customers to generate personalized communications in order to promote a product or service for
marketing purposes. The method of communication can be any addressable medium, as in direct
marketing.
Partner relationship management (PRM) is a system of methodologies, strategies, software, and
web-based capabilities that help a vendor to manage partner relationships. The general purpose of
PRM is to enable vendors to better manage their partners through the introduction of reliable
systems,
Sales intelligence (SI) refers to technologies, applications and practices for the collection,
integration, analysis, and presentation of information to help salespeople keep up to date with
clients, prospect data and drive business
Documents for International trade
Official Documents :Official documents are documents required for the purpose of official

(regulatory) authorization to export. Official documents are either submitted to the appropriate
authority for legalization or are issued by an appropriate authority. Without local authorization
(from competent Jordanian authorities), you will not be permitted to ship your goods out the
country.
 Customs or Export Declaration , An export License or Authorization

 A wharf age order (for sea freight) , A pre-shipment inspection certificate
 A certificate of origin , A health certificate
Commercial Documents :Commercial invoice , Packing list , Beneficiary certificate , Verification

documents
Transport Documents : Bill of lading, Waybill , Consignment note
Insurance Documents :Insurance certificate, and Insurance-policy
Certificate of origin :A certificate of origin is a formal / official statement issued by either a

chamber of commerce or industry.
Bill of lading :The bill of lading (B/L) is the traditional transport document for shipping goods by
ocean transport
Other documents are usually attached to the carrier's copy of the bill of lading, some of these
documents are: Copy of the commercial Invoice , Copy of the certificate of origin , Packing
list Weight list, exporting certificate.
Global E-Marketing :Global e -Marketing is the use of internet as a media to market and promote
your business globally. In today's world the most cost effective method of global business
promotion is e Marketing.
Advantages
Global Reach, Easy Marketing , economical, keep updated information, more appealing to the
customers
Challenges in E-Marketing

 Understanding customer evolution so you must Invest ahead of customer needs

 Charting changing technology hence Match technology choices to consumer tastes
 Weathering the storm that is understand the market environment and Reassure stakeholders
with clear vision, sensible business model, and profitable venture
 Integrating offline & online activities by Aligning offline & online business activities
 Identifying key levers of competitive advantage and Reallocate resources as competitive
advantage levers evolve
Global strategic planning is a process adopted by organizations that operate internationally in order
to formulate an effective global strategy. Global Strategic Planning is a process of evaluating the
internal and external environment by multinational organizations, and make decisions about how
they will achieve their long-term and short-term objectives.
global strategic planning process involves these steps:
(1) Analyzing external environment
(2) Analyzing internal environment
(3) Defining the business and its mission statements
(4) Setting corporate objectives
(5) Quantifying goals
(6) Formulating strategies
(7) Making tactical plans
Methods of taking strategy in Global strategic planning
 Top Down planning
In this the decision will be taken at the top management level and the same decision will moves on
to all the levels of authorities in the organization
 Bottom up planning
In this strategy the decision would start from the bottom or from the lower management of the
company and this will be communicated upward in the organization
 Iterative planning
Adopting either top down or bottom up method continuously until any issue in the department is
finalized or recon ciliated, this means in case there is a conflict on any issue prevailing in the
organization then until the issue is settled down the method of planning will not be changed

Implementing strategy
 Build an Organization , Marshal resources (resources used), ,,,Institute policies, Pursue best
practices and continuous improvement ,,,, Information and operating systems, Tying
rewards to strategy and goals
Intercultural communications
is a form of global communication. It is used to describe the wide range of communication
problems that naturally appear within an organization made up of individuals from different
religious, social, ethnic, and educational backgrounds. Intercultural communication is sometimes
used synonymously with cross-cultural communication. In this sense it seeks to understand how
people from different countries and cultures act, communicate and perceive the world around them.
Many people in intercultural business communication argue that culture determines how individuals
encode messages, what mediums they choose for transmitting them, and the way messages are
interpreted. As a separate notion, it studies situations where people from different cultural
backgrounds interact. Aside from language, intercultural communication focuses on social
attributes, thought patterns, and the cultures of different groups of people. It also involves
understanding the different cultures, languages and customs of people from other countries.
Intercultural communication plays a role in social sciences such as anthropology, cultural
studies, linguistics, psychology and communication studies. Intercultural communication is also
referred to as the base for international businesses. There are several cross-cultural service providers
around who can assist with the development of intercultural communication skills. Research is a
major part of the development of intercultural communication skills. Factors effecting on Inter
cultural Communications
Improving Intercultural Communication
1. Avoid using slang and idioms, choosing words that will convey only the most
specific denotative meaning;
2. listen carefully and, if in doubt, ask for confirmation of understanding (particularly
important if local accents and pronunciation are a problem)

3. Recognize that accenting and intonation can cause meaning to vary significantly; and
4. Respect the local communication formalities and styles, and watch for any changes in
body language.
5. Investigate their culture's perception of your culture by reading literature about your
culture through their eyes before entering into communication with them. This will
allow you to prepare yourself for projected views of your culture you will be bearing as
a visitor in their culture.
Overcoming Cultural Communication Barriers
In order to improve the level of cross-cultural communication in your workplace. Use these simple
concepts to dramatically boost your cross-cultural communication competency.
 Practice active listening.

 Group information in ‗bite-size‘ pieces.That is If you stop to think about it, even a single
sentence in a conversation between two fluent speakers can contain a great deal of information.
That‘s why cross-cultural communication experts recommend limiting the amount of
information you try to convey at one time. Stick to simple, direct instructions and explanations,
and try to avoid complex, multi-part sentences.
 Watch out for cultural assumptions.
 When in doubt, opt for friendly formality.
 Never conclude meaning based on your perception
 Never use body language and facial expressions without knowing the cultural meaning, etc.
Inter cultural Human resource management
The human resources management in global perspective involves many functions and the
responsibility of HR becomes more prominent in global scenario, the intercultural human resources
management that is international human resources management is supposed to perform these
activities, mentioned below.
1. Developing international market based staffing plans, Dealing with employees in different
parts of the world
2. Planning a global strategy which is acceptable implementable throughout the world
3. Developing international leadership , Merging or integrating with other companies across

borders

4. Developing multicultural teams , Creating a global vision/mission for international

integration
5. Implementing transnational management matrices , Dealing with cross-cultural conflict
6. Conducting major international negotiations , Implementing major cultural change
Useful websites for MBA students
1. http://www.valuebasedmanagement.net
2. http://www.quickmba.com
3. http://www.mbanotes.gurukpo.com
4. http://www.mbanotesworld.in
5. http://www.coolavenues.com
6. http://www.managementparadise.com
7. http://www.enotes.com/mba
8. http://www.managementstudyguide.com
9. http://www.managementheaven.com
10.http://www.universalteacherpublications.com/mba
11.http://allmbastuff.blogspot.in
12.www.mbaknol.com

INSTITUTE OF MANAGEMENT AND INFORMATION TECHNOLOGY

Constituent college of B.P.U.T.
SCB Medical Post Office ,
Cuttack(India)-753007
For Enquiry: +91-1824-300360
Faculty.: HIMANSHU BHUSAN MISHRA
Email: [email protected]

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International Business

Faculty-Himanshu Bhusan Mishra M.Phil,MBA

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

INTERNATIONAL BUSINESS LECTURE NOTES(COMPILED)

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

their home country.

A "multinational corporation" is also referred to as an international, transactional or global

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

Main Drivers of Globalization [International Business]

Approaches in International Business

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Theories of International Business

1. Theory of Absolute Advantage

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

2. Theory of Comparative Advantage

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4.Product Life Cycle Theory

INTERNATIONA BUSINESS ENVIRONMENT

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

1. Attitudes towards International Buying:

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

The problem of foreign uncertainty is thus further complicated by a frequently imposed

ECONOMIC ENVIRONMENT: In considering the international market, each Exporter must

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

affects the international business

 Effective when differences between countries are small

 Advantages: cost, coordinated activities, faster product development

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

NON - TARIFF MEASURES (BARRIERS)

Quantity Restrictions, Quotas and Licensing Procedures:-

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

Voluntary Export Restraint:

Local Content Requirement:-

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Difference between Tariff and Non-Tariff Barriers

An agreement between states, regions, or countries, to reducebarriers to trade between the

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The degree of economic integration can be categorized into five stages:

1. Preferential trading area

Stages/types / Forms/ of economic integration

Preferential Trade Area

Free Trade Area

 Free trade practices

 Trade creation and trade diversion

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]

 lowering costs and lower prices for consumers.

 Jobs creation and employment opportunities

 Protection of individual interests of member countries.

Goals of the NAFTA

 to reduce barriers to trade

 to establish clear and mutually advantageous trade rules

NAFTA Coordinators: Senior trade department officials designated by each country.

Commission for LaborCooperation : Created to promote cooperation on labor matters among

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Commission for Environmental Cooperation :Established to further cooperation among NAFTA

European Union (EU)

 an area of freedom, security and justice without internal frontiers ;

 the promotion of scientific and technological advance;

Himanshu Bhusan Mishra IMIT,CUTTACK [email protected]