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International Business: An Overview and Key Concepts, Study Guides, Projects, Research of International Business

The file is about the detail study of International business

Typology: Study Guides, Projects, Research

2018/2019

Uploaded on 08/09/2021

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PREFACE
ThesuccessfulcompletionofthisprojectwasauniqueexperienceformeasI
gotanopportunitytovisitmanyplacesandalsointeractwithvariouspeople.I
achievedabetterknowledgeaboutthisproject.TheexperiencewhichIgained
bydoingthisprojectwasessentialatthispointofmycareer.Thisprojectis
beingsubmittedwhich,whosedetailedanalysisoftheresearchisundertaken
byme.
Thisprojecttitled,INTERNATIONALBUSINESSisanattempttoallow the
readertounderstandtheinternationalbusiness,roleofglobalization,roleand
impactofworldtradeorganizationintheinternationalbusinessenvironment.
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PREFACE

ThesuccessfulcompletionofthisprojectwasauniqueexperienceformeasI gotanopportunitytovisitmanyplacesandalsointeractwithvariouspeople.I achievedabetterknowledgeaboutthisproject.TheexperiencewhichIgained bydoingthisprojectwasessentialatthispointofmycareer.Thisprojectis beingsubmittedwhich,whosedetailedanalysisoftheresearchisundertaken byme. Thisprojecttitled,“INTERNATIONALBUSINESS”isanattempttoallow the readertounderstandtheinternationalbusiness,roleofglobalization,roleand impactofworldtradeorganizationintheinternationalbusinessenvironment.

HIMALAYANINSTITUTEOFTECHNOLOGY

DEHRADUN

(AFFILATEDTOH.N.B.GARHWALCENTRALUNIVERSITY)

(SRINAGAR)

CERTIFICATE

This is to certify that the work contained in the dissertation report “InternationalBusiness”submittedbySagarBaloni( 17220110028 )forthe award ofthe degree ofBachelorofcommerce is a record ofbonafide researchworkcarriedoutbyhim underoursupportiveguidance. Iconsiderthatthedissertationhasreachedthestandardsandfulfillsthe requirementsofrulesandregulationsrelatedtothenatureofthedegree.The contentsembodiedindissertation reporthasnotbeensubmittedinanyother University. Date: Prof.ArchanaJasola Place: (Principal)

DECLARATION

ISAGAR BALONIROLLNO. 17220110028 ofHIMALAYAN INSTITUTE OF TECHNOLOGYherebydeclarethatIhavesuccessfullycompletedthisproject on “INTERNATIONAL BUSINESS”during academic year 2019 - 2020 .The informationistrueandoriginaltothebestofmyknowledge.

S.No TABLEOFCONTENTS

1 IntroductionofInternationalBusiness 2 InternationalBusiness:AnOverview 3 ProblemsinInternationalBusiness 4 ModesofentryintoInternationalBusiness 5 Globalization 6 MultinationalCompany(MNCs) 7 InternationalMarketingIntelligence 8 Exim Trade 9 India-ImportRequirementsandDocumentations 10 MajorproblemsfacedbyexportsectorinIndia 11 BalanceofPayment(BOP)

goodsinthelocalmarket.Thenthesurplusgoodsareexported.

2 .Integration ofeconomies :Internationalbusiness integrates

(combines)theeconomiesofmanycountries.Thisisbecauseituses finance from one country, labour from another country, and infrastructure from anothercountry.Itdesigns the productin one country,producesitspartsinmanydifferentcountriesandassembles theproductinanothercountry.Itsellstheproductinmanycountries,i.e. intheinternationalmarket.

3 .DominatedbydevelopedcountriesandMNCs:International

businessisdominatedbydevelopedcountriesandtheirmultinational corporations(MNCs).Atpresent,MNCsfrom USA,EuropeandJapan dominate(fullycontrol)foreigntrade.Thisisbecausetheyhavelarge financialandotherresources.Theyalsohavethebesttechnologyand researchanddevelopment(R&D).Theyhavehighlyskilledemployees andmanagersbecausetheygiveveryhighsalariesandotherbenefits. Therefore,theyproducegoodqualitygoodsandservicesatlowprices. Thishelpsthem tocaptureanddominatetheworldmarket.

4 .Benefitstoparticipatingcountries:Internationalbusinessgives

benefitsto allparticipating countries.However,thedeveloped(rich) countriesgetthemaximum benefits.Thedeveloping(poor)countries alsogetbenefits.Theygetforeigncapitalandtechnology.Theygetrapid industrialdevelopment.Theygetmoreemploymentopportunities.All this results in economic development of the developing countries.Therefore,developing countries open up theireconomies throughliberaleconomicpolicies.

5 .Keencompetition:Internationalbusinesshastofacekeen(too

much)competitionintheworldmarket.Thecompetitionisbetween unequalpartnersi.e.developedanddevelopingcountries.Inthiskeen competition,developedcountriesandtheirMNCsareinafavorable positionbecausetheyproducesuperiorqualitygoodsandservicesat verylow prices.Developedcountriesalsohavemanycontactsinthe world market.So,developing countriesfind itverydifficultto face competitionfrom developedcountries.

6 .Specialroleofscienceandtechnology:Internationalbusiness

gives a lotofimportance to science and technology.Science and Technology(S&T)helpthebusinesstohavelarge-scaleproduction. Developedcountriesusehightechnologies.Therefore,theydominate globalbusiness.Internationalbusinesshelpsthem totransfersuchtop high-endtechnologiestothedevelopingcountries.

7 .Internationalrestrictions :Internationalbusiness faces many

restrictionsontheinflowandoutflowofcapital,technologyandgoods. Manygovernmentsdonotallow internationalbusinessestoentertheir countries.Theyhavemanytradeblocks,tariffbarriers,foreignexchange restrictions,etc.Allthisisharmfultointernationalbusiness.

8 .Sensitivenature:Theinternationalbusinessisverysensitivein

nature.Anychanges in the economic policies,technology,political environment,etc.has a huge impacton it.Therefore,international businessmustconduct marketingresearchtofindoutandstudythesechanges.Theymust adjusttheirbusinessactivitiesandadaptaccordinglytosurvivechanges.

NatureofInternationalBusiness

1 .AccurateInformation 2 .Informationnotonlyaccuratebutshouldbetimely 3 .Thesizeoftheinternationalbusinessshouldbelarge 4 .Marketsegmentationbasedongeographicsegmentation 5 .Internationalmarketshavemorepotentialthandomesticmarkets

ScopeofInternationalBusiness

1 .InternationalMarketing

2 .InternationalFinanceandInvestments 3 .GlobalHR 4 .ForeignExchange

NeedforInternationalBusiness

1 .Toachievehigherrateofprofits 2 .Expanding the production capacity beyond the demand ofthe domesticcountry 3 .Severecompetitioninthehomecountry 4 .Limitedhomemarket 5 .Politicalconditions 6 .Availabilityoftechnologyandmanagerialcompetence

Formsofinternationalbusiness

Exporting

Exportingmeansproducing/procuringinthehomemarketandsellingin the foreign market. Exporting is not an activity just for large multinationalenterprises;smallfirmscanalsomakemoneybyexporting. In recentdays,exporting has become easierthough itremains a

challengeformanyfirms.

Licensing

A licensingisanagreementwherebyalicensorgrantstherightsto intangibleproperty(patents,intentions,formulas,processes,designs, copyrightsandtrademarks)toanotherentity (licensee)foraspecified periodandinreturnthelicensorreceivesaroyalty/feefrom thelicensee.

Franchising

Franchisingisbasicallyospecializedform oflicensinginwhichthe franchisernotonlysellsintangiblepropertytothefranchiseebutalso insiststhatthefranchiseeagreestoabidebystrictrulesastohow it doesbusiness.

Jointventure

Ajointventureentailsestablishingafirm thatisjointlyownedbytwoor

moreindependentfirms.

ManagementContracts

A firm in one countryagrees to operate facilities orprovide other managementservicestoafirm inanothercountryforanagreedupon fees.

Turnkeyprojects

Inaturnkeyproject,thecontractoragreestohandleeverydetailsofthe projectforaforeignclient,includingthetrainingofoperatingpersonnel. Atcompletingofthecontracttheforeignclienthandlesthe‘key’ofa plantthatisreadyforfulloperation

Strategicinternationalalliances

Astrategicinternationalallianceisabusinessrelationshipestablished bytwoormorecompaniestocooperateoutofmutualneedandtoshare riskinachievingacommonobjective.

Directforeigninvestment

Directforeigninvestmentisanotherimportantform ofinternational business.Companiesmaymanufacturelocallytocapitalizeonlowcost labor,to avoid high import taxes,to reduce the high cost of transportationtomarket,togainaccesstoraw materialsorgaining

marketentry.

TheoriesofInternationalBusiness

1 .Mercantilism

  • 1630 ,ThomasMun:“…toincreaseourwealth…sellmoretostrangers yearlythanweconsumeoftheirsinvalue”

2 .AbsoluteAdvantage

  • 1776 ,Adam Smith.A countryhas an absolute advantage in the productionofaproductwhenitismoreefficientthananyothercountry inproducingit.
  • Iftwocountriesspecializeinproductionofdifferentproducts(inwhich each has an absolute advantage)and trade with each other,both countries willhave more ofboth products available to them for consumption.

3 .ComparativeAdvantage

  • 1817 ,DavidRicardo-Evenifonecountryhasanabsoluteadvantagein producingtwoproductsoveranothercountry,tradingwiththatother countrywillstillyieldmoreoutputforbothcountriesthanifthemore efficientproducerdideverythingforthemselves.
  • Thecountrywiththeabsoluteadvantageinproducingbothproducts wouldstillproducebothproducts,butlessoftheonetheywouldtrade for,allowing

productaswell,thuscausingU.S.companiestosetupproductionin thosecountriesaswell,andlimitingexportsfrom theU.S.Then,itall happens again,butthis timeproduction comes online in developed nations.Ultimately,theU.S.becomesanimporteroftheproductthat wasinitiallyintroducedwithinitsborders.

  • Weakness– Notallnew productsarecreatedintheUnitedStates. Manycomefrom othercountriesfirst,suchasvideogameconsoles from Japan,new wirelessphonesfrom Europe,etc.Severalnewproductsareintroduced inseveraldevelopedcountriessimultaneously.

6 .NewTradeTheory

  • 1970 ′s– Viatheachievementofeconomiesofscale,tradecan increasethevarietyofgoodsavailabletoconsumersanddecreasethe averagecostofthosegoods.Further,theabilitytocaptureeconomiesof scalebeforeanyoneelseisanimportantfirst-moveradvantage.
  • Nationsmaybenefitfrom trade even when theydo notdifferin resourceendowmentsortechnology
  • Example– Iftwonationsbothwantsportscarsandminivans,but neithercanproducethem atalowenoughpricewithintheirownnational markets,tradecanalloweachtofocusononeproduct,allowingforthe achievementofeconomiesofscalethatwillincreasethevarietyof productsinbothcountriesatlowenoughprices
  • Example–Airbusspent$ 14 billiontodevelopanewsuper-jumbojet. Demandisestimatedat 400 - 600 unitsoverthenext 20 years,andAirbus willneedtosellatleast 250 ofthem tobecomeprofitableinthislineof business.Boeingestimatesthedemandtobemuchlower,andhas chosennottocompete.Airbuswillhavethefirstmoveradvantagein thismarket,andmayneverseecompetitioninthismarketsegment.
  • NewtradetheoryisnotatoddswithComparativeAdvantage,sinceit identifiesfirstmoveradvantageasanimportantsourceofcomparative advantage
  • Debate–shouldgovernmentprovidesubsidiesthatspawnindustries suchthatcompaniescangainfirstmoveradvantages?Laterchapter (andblogpost)coversthis.

7 .NationalCompetitiveAdvantage–Porter’sDiamond

  • 1990 ,MichaelPorter–seekstoanswerthequestionofwhyanation achievesinternationalsuccessinaparticularindustry.Basedonfour attributes: Factorendowments Basicfactors–naturalresources,climate,location,demographics Advancedfactors–communicationinfrastructure,sophisticated andskilledlabor,researchfacilities,andtechnologicalknow-how Advanced factors are a product of investment by individuals, companies,andgovernments Porterargues thatadvanced factors are the mostsignificantfor competitiveadvantage  Demandconditions–ifcustomersathomearesophisticatedand demanding,companies willhave to produce innovative,high qualityproductsearly,whichleadstocompetitiveadvantage  Relating and supporting industries – Ifsuppliers orrelated industries exist in the home country that are themselves internationally competitive, this can result in competitive advantageinthenewindustry.  Firm strategy,structure,andrivalry. Differentnationsarecharacterizedbydifferentmanagementideologies, whichcaneitherhelporhurtthem inbuildingcompetitiveadvantage.If thereisastrongdomesticrivalry,ithelpstocreateimprovedefficiency, makingthosefirmsbetterinternationalcompetitors.

considering such factors firm can rank countries in terms oftheir

attractivenessandlong-runprofit.

Timingofentry

Itisimportanttoconsiderthetimingofentry.Entryisearlywhenan internationalbusinessentersaforeignmarketbeforeotherforeignfirms. And late when itenters after other internationalbusinesses.The advantageiswhenfirmsentersearlyintheforeignmarketcommonly knownasfirst-moveradvantages

Firstmoveradvantage

1 .it’stheabilitytopreventrivalsandcapturedemandbyestablishinga strongbrandname. 2 .Abilitytobuildsalesvolumeinthatcountry.sothattheycandrive them outofmarket. 3 .Abilitytocreatecustomerrelationship

Disadvantage

1 .Firm hastodevoteeffort,timeandexpensetolearningtherulesofthe country. 2 .Riskishigh forbusinessfailure(probabilityincreasesifbusiness entersanationalmarketafterseveralotherfirmstheycanlearnfrom otherearlyfirmsmistakes)

Modesofentry:--

1 .Exporting 2 .Licensing 3 .Franchising 4 .TurnkeyProject 5 .Mergers&Acquisitions 6 .JointVenture 7 .Acquisitions&Mergers

8 .WhollyOwnedSubsidiary

1 .Exporting

Itmeansthesaleabroadofanitem produced,storedorprocessedinthe supplyingfirm’shomecountry.Itisaconvenientmethodtoincreasethe sales.Passiveexportingoccurswhenafirm receivescanvassedthem. Activeexportingconverselyresultsfrom astrategicdecisiontoestablish propersystemsfororganizingtheexportfunctionsandforprocuring foreignsales.

AdvantagesofExporting

Needforlimitedfinance

Ifthecompanyselectsacompanyinthehostcountrytodistributethe company can enterinternationalmarketwith no orless financial resourcesbutthisamountwouldbequitelesscomparedtothatwould benecessary

underothermodes.

Lessrisks

Exporting involveslessriskasthecompanyunderstand theculture ,customerandthemarketofthehostcountrygradually.Laterafter understandingthehostcountrythecompanycanenteronafullscale.

Motivationforexporting

Motivation for exporting are proactive and reactive. Proactive motivationsareopportunitiesavailableinthehostcountry.Reactive motivatorsarethoseeffortstakenbythecompanytoexporttheproduct toaforeigncountryduetothedeclineindemandforitsproductinthe

homecountry.

2 .Licensing

Inthismodeofentry,thedomesticmanufacturerleasestherighttouse itsintellectualproperty(i.e.)technology,copyrights,brandnameetcto amanufacturerinaforeigncountryforafee.Herethemanufacturerin thedomesticcountryiscalledlicensorandthemanufacturerinthe foreigniscalledlicensee.Thecostofenteringmarketthroughthismode

1 .Lowinvestmentandlowrisk 2 .Franchisorcan gettheinformation regarding themarketculture, customsandenvironmentofthehostcountry. 3 .Franchisorlearnsmorefrom theexperienceofthefranchisees. 4 .FranchiseegetthebenefitsofR&Dwithlowcost. 5 .Franchiseeescapesfrom theriskofproductfailure.

Disadvantages:

1 .Itmaybemorecomplicatingthandomesticfranchising. 2 .Itisdifficulttocontroltheinternationalfranchisee. 3 .Itreducethemarketopportunitiesforboth 4 .Boththepartieshavetheresponsibilitiestomaintainproductquality andproductpromotion. 5 .Thereisaproblem ofleakageoftradesecrets.

4 .TurnkeyProject

Aturnkeyprojectisacontractunderwhichafirm agreestofullydesign constructandequipamanufacturing/business/servicesfacilityandturn theprojectovertothepurchasewhenitisreadyforoperationfora remunerationlikeafixedpriceandpaymentoncostplusbasis.This form ofpricingallowsthecompanytoshifttheriskofinflationenhanced coststothepurchaser. Eg:nuclear powerplants,airports,oilrefinery,nationalhighways,railwaylineetc. Hencetheyaremultiyearproject.

5 .Mergers&Acquisitions

Adomesticcompanyselectsaforeigncompanyandmergeritselfwith foreigncompanyinordertoenterinternationalbusiness.Alternatively thedomesticcompanymaypurchasetheforeigncompanyandacquires itownershipandcontrol.Itprovidesimmediateaccesstointernational manufacturingfacilitiesandmarketingnetwork.

Advantages

1 .Thecompanyimmediatelygetstheownershipandcontroloverthe acquired firm’s factories,employee,technology ,brand name and distributionnetworks.

2 .Thecompanycanformulateinternationalstrategyandgeneratemore revenues. 3 .Iftheindustryalreadyreachedthestageofoptimum capacitylevelor overcapacitylevelin thehostcountry.Thisstrategyhelpsthehost country.

Disadvantages:

1 .Acquiringafirm inaforeigncountryisacomplextaskinvolving bankers,lawyerregulation,mergersandacquisitionspecialistsfrom the twocountries. 2 .Thisstrategyaddsnocapacitytotheindustry. 3 .Sometimeshostcountriesimposedrestrictionsonacquisitionoflocal companiesbytheforeigncompanies. 4 .Labourproblem ofthehostcountry’scompaniesarealsotransferred totheacquiredcompany.

6 .JointVenture

Twoormorefirm jointogethertocreateanew businessentitythatis legally separate and distinctfrom its parents.Itinvolves shared ownership.Various environmentalfactors like social,technological economicandpoliticalencouragetheformationofjointventures.It provides strength in terms ofrequired capital.Latesttechnology requiredhumantalentetc.andenablethecompaniestosharetheriskin theforeignmarkets.Thisactimprovesthelocalimageinthehost countryandalsosatisfiesthegovernmentaljointventure.

Advantages

1 .Jointventureprovidelargecapitalfundssuitableformajorprojects. 2 .Itspreadtheriskbetweenoramongpartners. 3 .Itprovideskillsliketechnicalskills,technology,humanskills,expertise ,marketingskills. 4 .Itmakeslargeprojectsandturnkeyprojectsfeasibleandpossible. 5 .Itsynergyduetocombinedeffortsofvariedparties.

Disadvantages:

1 .Conflictmayarise 2 .Partnerdelaythedecisionmakingoncethedisputearises.Then