St.

Mary’s University

International Business:
An overview

Nibretu Kebede (PhD)

Addis Ababa
Aug., 2023 1
 Meaning & Scope International Business
 Also referred as international trade, foreign trade,
cross-border trade and investment activity, exchange
of goods and services, resources, skills and
knowledge among individuals and organizations.
 All business transactions necessary for creating,
shipping, and selling goods and services across
national boarders.
 Includes private and government, international
marketing, sales, finance and investment, exchange,
logistics, transportation, etc.
 A voluntary exchange of goods, services, assets
between residents of two or more countries.
 Trade will only be carried if both parties of the
transaction believe that they will gain advantage
from voluntary exchange (win-win approach).

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International business consists
of transactions that are carried out
across national borders to satisfy
the objectives of individuals, and
organizations.

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 Nature of International Business
At present companies and countries are facing with:
 Large scale operation and economic integration
 Domination by developed countries and MNCs
 Income gap/difference and intense competition
 Falling barriers to cross-border trade have made selling
easier internationally
 Tastes and preferences converge onto a global norm
 All countries are offering standardized products
 Rapid technological advances and high role of science
 More and more firms are going global; separate national
markets are merging into a global marketplace.
 Causes the flow of ideas, labor, services, and capital,
technology and activities across the world.
 Permits the acquisition of a wider variety of products
and offers consumers new choices.
 Environmental deterioration, economic, political, and
social problems.
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 Evolution of International Business
 It started well before World War II with large economies.
 Today, it has become a primary course of action for even
small businesses in developing economies.
 The volume of international trade expanded
significantly.
 International business has created a network of global
links that bind countries and individuals with trade,
finance, technology, and living standards.
 The rate of globalization is accelerating. It resulted in the
formation of trading blocs.
 The economy shifted from west to east and Asia become
the center of development.
 Since the 1960’s, the importance of manufactured goods
increased and the role of primary commodities had
declined.
 The participation of countries in world trade is shifting,
manufacturing is shifting to emerging economies and
services are expanding.
 The economy converted from government driven to
market-driven, from village-based to supercity,
agricultural society to information age, labor-intensive to
high-tech industries.
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Need for or Reasons of International Business
 Causes the flow of ideas, services, and capital across
the world.
 Creates access to many markets and achieve higher
rate of profit. Yet access to the global markets does
not guarantee bigger sales since companies must
adapt their goods and services to different needs and
preferences and conform to different laws in various
countries.
 Nearness to raw materials and availability of labor at
less cost. Some countries have cheaper labor (like in
china) than others (like in USA).
 Allows a country to specialize in the manufacture
and export of products that can be produced more
efficiently and import others from other countries.
 The benefits of standardization, liberalization and
globalization, earn foreign exchange, and economies
of scale at micro level.
 Availability of technology and managerial
competency 6
 Benefits consumers such as increases the
availability of products, offers new choices that
permits the acquisition of a wider variety of
products and broader rage of prices
 Optimum utilization of resources through
reallocating them, shifts activities to a global
level and improve organizational efficiency,
spread business risks and achieve objectives, get
benefits/supports from governments, expand
production capacity and diversify products,
increased quantity and quality of goods sold
 Severe competition in home country and
increased competitive capacity at international
level.
 Creates/provides challenging employment
opportunities, political stability, increased
mutual understanding and respect among people

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Challenges of International Business
 Political instability
 Huge foreign indebtedness
 Exchange rate instability
 Entry requirements
 Tariffs, quotas, bureaucratic practices and other
trade barriers
 Technological pirating /copying the original
technology, imitating products/
 Quality maintenance of products based on quality
standards of each country
 High cost of internationalizing domestic business
 Constant returns to specialization. That is, costs
stay the same as specialization increases.

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Stages of Internationalization
Every company in International Business passes 5
stages.
1. Domestic Company: The operations, mission and
vision are limited to the national boundaries,
focuses on the domestic market opportunities,
supplies and customers.
2. International Company: Exploit opportunities
outside the domestic country. The products and
practices of domestic business are superior to
other countries and firms extend the same
domestic operation.

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3. Multi-National Company: This is when the
international company starts to respond to the
specific needs of different countries (formulate
different strategies) and operate like a domestic
market of each country concerned. This stage is
also referred as Multi-Domestic Companies.
4. Global Company: The firm produces in home
country and market it globally or produces
globally and market it domestically.
5. Transnational Company: Invest, produce, and
market across the world. It is an integrated global
enterprise that links global resources with global
market opportunities at profit.

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International Business Approaches
Concept
 Are management orientations, assumptions, or
beliefs about the nature of the world.
 Refers to the creation new products and marketing
them to customers using multifarious
techniques /various ways/ that businesses should
decide to enter and operate in global markets.
 First introduced by globalization expert Howard V.
Perlmutter in 1969, approaches determine
companies response to the global market
opportunities.
 Categorized into EPRG framework:
1) Ethnocentric
2) Polycentric
3) Regiocentric
4) Geocentric
 This framework helps to know why businesses
expand into international markets and make
strategic decisions explaining why a company
diversify into international operations. 11
1. Ethnocentric Orientation
 The target market for the exporter is own country
and excess amount is exported due to change in
customer taste and preference in the domestic
market.
 People export the same product designed for
domestic markets to foreign countries.
 It has the feeling that my country is superior to the
rest of the world.
 The company develop an attitude of national
superiority and believe products and practices
succeeded in the home country will succeed
anywhere.
 It believes that marketing practices followed in the
home country will succeed in the foreign markets.
No adaptation is required to launch a business into
another country.

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 Foreign markets are looked just as extended arms of
domestic markets. There are no changes in product
specification, price and promotion measures between
native and overseas markets.
 There is better coordination between the home and
host country and saves cost of hiring top level
management in international market from the home
country. But this approach shows cultural short-
sightedness of the organization and high failure rate
of business decisions.
2. Polycentric Orientation
 Completely opposite to ethnocentric orientation that
believes “all markets are different in nature and have
different needs”.
 Subsidiaries have complete autonomy to formulate
their own marketing and operational plans.
 Companies customize marketing mixes to meet the
taste, needs and performance requirements of
customers in the foreign market. 13
 Management in the host countries can change
the design and function of a product in response
to the needs of a specific country.
 Decentralizes decision making authority and
operations to executives in the foreign market by
appointing key personnel from home country.
 A company gives equal importance to every
country’s domestic market. Every country is
treated solely and separate strategies are carried
out.
 It lowers manpower cost as it does not require
specialized officials from home country. But it
lowers control over host country management.

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3. Regiocentric Orientation
 Countries existing in the region are similar in their
identity and strategies developed for home country
can also work well them.
 Management figures out the economic, social and
political similarities between the native and the
oversees region and satisfy similar needs of
potential customers by developing an integrated
regional marketing strategy.
 A company operating successfully in the home
market exports to other neighboring country.
 The foreign subsidiary considers the regional
environment laws, cultures, and policies in
formulating marketing strategies.
 Culturally fit as managers find it convenient to
communicate with each other and customers from
the same region have similar needs.
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4. Geocentric Orientation
 This is is a truly global orientation that considers
the whole world as a potential market.
 Management considers there are minimal
differences in terms of marketing environment
among different countries. It is a ‘world oriented or
transactional marketing view’ rather than a country
specific approach.
 Management identifies similarities and differences
between countries and create a global strategy.
 It analyzes the taste, preferences, and needs of
customers in all foreign markets and then adapts a
standardized marketing mix for all.
 Considers the entire world as a single country and
develop integrated world market strategies.
 Helps businesses to be competitive.
 But finding management that is capable of adapting
multiple styles is challenging.
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The 5P’s of International Business
 Products determined by a country’s resources
 Price/cost that varies from one country to another
(raw materials, wages and taxes)
 Preferences of customers: Some countries
specialize in certain goods/services that have
reputation in quality all over the world.
 Promotion: The role of internet, satellite
broadcasting and communication
 Proximity: Resources, markets, facilities, etc.
Benefits of Free Trade
 Allows a country to specialize in the
manufacture and export products – learning
effect.
 Leads to economies of scale (cost advantages
associated with large-scale production) and
produce goods and services more efficiently.
 A country can engage in international trade even
if it might be able to produce all products by
itself. But limits on imports beneficial to
producers. 17
Questions for Discussion
 Which orientation a) lead companies to take up a
less rigorous method for market selection? B)
restricts career mobility for both local as well as
foreign nationals, neglect headquarters of foreign
subsidiaries and bring down the chances of
achieving synergy? And c) tries to balance both
global integration and local responsiveness?
Explain how.
 How an idea, good, or service fit into the
international market? Should trade or investment
be used to enter into foreign market?
 What product adjustments are necessary to be
responsive to local conditions?
 What are the threats of global competition and
how can these threats be counteracted?

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End

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