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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
