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UNIT 1

1.Steps needed to upgrade a domestic company to international company.


Stages of international business.internationalization process ?
A firm which is entirely domestic in its activities normally passes through different
stages of internationalisation before it becomes truly global.

1. DOMESTIC COMPANY:
The operation, mission and vision of the firm is limited to the national political
boundaries. These companies focus its view on the domestic market opportunities
domestic suppliers, domestic financial companies, domestic customers etc. It never
thinks of growing globally. If it grows, beyond it present capacity the company
selects the diversification strategy of entering into new domestic markets, new
products, technology etc. It does not select the strategy of expansion into the
international markets.

2. INTERNATIONAL COMPANY:
Some of the domestic companies which grow beyond their production / marketing
capacities think of internalizing their operations. Those companies who decide to
exploit the opportunity outside the domestic country. The focus of these
companies is domestic but extends the wings to the foreign countries.
These companies extend the domestic product, domestic price, promotion and other
business practices to the foreign markets.

3. MULTINATIONAL COMPANY:
It formulates different strategies for different markets thus the MNC operate
its offices, branches, subsidiaries in other country like domestic company. They
formulate distinct polices and strategies suitable to that country. Thus they operate
like concerned in each of their markets.

4. GLOBAL COMPANY:
A global company is the one which has either global marketing strategy or a global
sourcing strategy. Global company either produces in home country or in a
single country and focuses on marketing these products globally or
produces globally or focuses on marketing these products domestically.

5. TRANSNATIONAL COMPANY:
It produces, markets, invests and operate, across the world. It is an
integrated global enterprises which links global resources with global markets at
profit. There is no pure transnational companies satisfy many of the characteristics
of a global corporation.
The transnational companies should have the following characteristics:

Geocentric Orientation: This Company adopts global strategy but allows value
addition to the customer of a domestic country.
Scanning or information acquisition: These companies scan the environmental
information regarding economic environment, political environment, social and
cultural environment and technological environment.
Vision & Aspirations: The vision & aspiration of transnational companies are
global markets, global customers and grow ahead of global companies.
Geographic scope: They analyze the global opportunities regarding the
availability of resources customers, market, technology, research and development
etc. Similarly they also analyze the global challenge and threats like competition
from the other global companies, local companies etc.
Operating Style:The transnational companies globalize the function like R & D,
Product development, placing key human resources procurement of high valued
material etc.
Adaptation:These companies adapt their products, marketing strategies and other
functional strategies to the environment factors of the market concerned.
HRM Policy:This Company is not restricted by national political or legal constraints.
It selects the best human resources and develops them regardless of nationality,
ethnic group etc. But the international company reserves the top and key positions
for national.
Purchasing:It procures worlds class material from the best source across the
globe.

2.nature (character,feature),adv and disadv of intl. business?


The nature and characteristics or features of international business are:-

1. LARGE SCALE OPERATIONS:


In international business, all the operations are conducted on a very huge scale.
Production and marketing activities are conducted on a large scale. It first sells its
goods in the local market. Then the surplus goods are exported.

2. INTEGRATION OF ECONOMIES:
International business integrates (combines) the economies of many countries. This
is because it uses finance from one country, labour from another country, and
infrastructure from another country. It designs the product in one country, produces
its parts in many different countries and assembles the product in another country.
It sells the product in many countries, i.e. in the international market

3. DOMINATED BY DEVELOPED COUNTRIES AND MNCS:


International business is dominated by developed countries and their multinational
corporations (MNCs). At present, MNCs from USA, Europe and Japan dominate (fully
control) foreign trade. This is because they have large financial and other resources.
They also have the best technology and research and development (R & D). They
have highly skilled employees and managers because they give very high salaries
and other benefits. Therefore, they produce good quality goods and services at low
prices. This helps them to capture and dominate the world market.

4. BENEFITS TO PARTICIPATING COUNTRIES:


International business gives benefits to all participating countries. However, the
developed (rich) countries get the maximum benefits. The developing (poor)
countries also get benefits. They get foreign capital and technology. They get rapid
industrial development. They get more employment opportunities. All this results in
economic development of the developing countries. Therefore, developing countries
open up their economies through liberal economic policies.

5. KEEN COMPETITION:
International business has to face keen (too much) competition in the world market.
The competition is between unequal partners i.e. developed and developing
countries. In this keen competition, developed countries and their MNCs are in a
favourable position because they produce superior quality goods and services at
very low prices. Developed countries also have many contacts in the world market.
So, developing countries find it very difficult to face competition from developed
countries.

6. SPECIAL ROLE OF SCIENCE AND TECHNOLOGY:


International business gives a lot of importance to science and technology. Science
and Technology (S & T) help the business to have large-scale production. Developed
countries use high technologies. Therefore, they dominate global business.
International business helps them to transfer such top high-end technologies to the
developing countries.

7. INTERNATIONAL RESTRICTIONS:
International business faces many restrictions on the inflow and outflow of capital,
technology and goods. Many governments do not allow international businesses to
enter their countries. They have many trade blocks, tariff barriers, foreign exchange
restrictions, etc. All this is harmful to international business.

8. SENSITIVE NATURE:
The international business is very sensitive in nature. Any changes in the economic
policies, technology, political environment, etc. has a huge impact on it. Therefore,
international business must conduct marketing research to find out and study these

changes. They must adjust their business activities and adapt accordingly to survive
changes

HIGH LIVING STANDARD


Comparative cost theory indicates that the countries which have the advantages of
raw materials human resources and climatic conditions in producing particular
goods can produce the products at low cost and also of high quality. Customer in
various countries can buy more products with the same money. In turn it can also
enhance the living standard of the people through enhanced purchasing power and
by consulting high quality.

INCREASED SOCIO- ECONOMIC WELFARE


International business enhances consumption level and economic welfare of the
people of the trading countries.

WIDER MARKET
International business widens the market and increases the market size. Therefore
the companies need not depend on the demand for the product in a single country
or customers tastes and preferences of a single country.

REDUCED EFFECTS OF BUSINESS CYCLES


The stages of business cycle vary from country to country. Therefore the companies
shift from the country experiencing a recession to the country experiencing a boom
conditions. Thus international business firms can escape from the recessionary
conditions.

REDUCED RISKS
Both commercial and political risks are reduced for the companies engaged in
international business due to spread in different countries. Multinationals which
were operating in erstwhile USSR were affected only partly due to their safer
operations in other countries.

LARGER SCALE ECONOMICS


Multinational companies due to the wider and larger markets produce larger
quantities. Invariably it provides the benefits of large-scale economics like reduced
cost of production availability of expertise quality etc.

POTENTIAL UNTAPPED MARKETS


International business provides the chance of exploring and exploiting the potential
markets which are untapped. These markets provide the opportunity of selling the
product at higher price than in domestic markets.

PROVIDES

THE

OPPORTUNITY

&

CHALLENGES

TO

DOMESTIC

BUSINESS
International business firms provide the opportunities to the domestic companies.
These opportunities include technology, management expertise, market
intelligence, product developments etc.

DIVISION OF LABOUR AND SPECIALIZATION


International business of labour, enhancement of productivity posing challenges
development to meet them innovation and creations to meet the competition lead
to overall economic growth of the world nations.

OPTIMUM & PROPER UTILIZATION WORLD RESOURCES


International business provides for flow of raw materials from the countries where
they are in excess supply to those countries which are in short or need most.

CULTURAL TRANSFORMATION
International business benefits are not purely economic or commercial they are
even social and cultural.

KNITTING THE WORLD INTO A CLOSELY INTERACTIVE TRADITIONAL


VILLAGE
International business ultimately knits the global economics, societies and countries
into a closely interactive and traditional village where one is for all and all are for
one.

Problems of International Business


POLITICAL FACTORS
Political instability is the major factor that discourages the spread of international
business.

HUGE FOREIGN INDEBTNESS


The developing countries with less purchasing power are lured into debt trap due to
the operations of MNCs in these countries.

EXCHANGE INSTABILITY

Currencies of countries are depreciated due to imbalances in the balance of


payment political instability and foreign indebt ness. This in turn leads to instability
in the exchange rates of domestic currencies in terms of foreign currencies.

ENTRY REQUIREMENTS
Domestic governments impose entry requirements to multinationals. Example, Joint
venture, % of FDI, tariff, quota, trade barriers etc.

CORRUPTION
Corruption has become an international phenomenon. The higher rate bribes and
kickbacks discourage the foreign investor to expand their operations.

BUREAUCRATIC PRACTICES OF GOVERNMENT


Bureaucratic attitudes and practices of government delay sanctions, granting
permission and licenses to foreign companies.

TECHNOLOGY PIRATING
Copying the original technology producing imitative products other areas of
business operations were common in Japan during 1950s and 1960s in Korea, India
etc. This practices invariably alarms the foreign companies against expansion.

HIGH COST
Internationalizing the domestic business involves market survey product
improvement quality up gradation. Managerial efficiency and the like. These
activities need larger investment and involve higher cost and risk. Hence mostof the
business houses refrain themselves from internalizing their business.

National gains from International Trade


AVAILABILITY OF VARIETY OF GOODS
Often it is either impossible or not economically feasible to produce certain goods
within a country even though the demand for them may be great. Importation
results in availability at a lower cost which in turn present the possibility of more
widespread consumption.

ENHANCES THE STANDARD OF LIVING


It provides new consumption experiences plus the possibility of buying products
that more closely meet the requirements of varying life style. International track
opens the world market to producers of these goods thereby allowing more efficient
and profited production with only local sales.

TO GET NON AVAILABLE NATURAL RESOURCES

The significance of imports is obvious where the country lacks a strong resources
base but similar conditions exist even in more endowed nations. The production of
many items in India for example depends on the importation of critical raw material
and energy supplies.

QUANTITY GOODS AVAILABLE WILL INCREASES;


A nation by concentrating production on the items having the greatest comparative
advantage and trade a portion of this output for goods that have comparative
disadvantages at home. The importation of goods that are produced more efficiently
abroad results in a greater variety and quantity of goods on the local market than if
resources were applied to the production of where applied to the production of
goods where the country does not have a comparative advantage.

WIDER MARKET AVAILABILITY LEAD FOR LOW COST PRODUCTION.


The international trade led to the expansion of plant size. If such expansion in trade
leads to scale economics there is a good possibility that the benefits of lower cost
will be available to either or both the domestic and foreign consumers. The
presence and the degree of domestic competition will be available to either or both
the domestic and foreign consumers. The presence and the degree of domestic
competition will determine whether and how much of the savings will be passed on
to consumer. This lower cost may further broaden the domestic market and make
luxury products available to lower income segments.

TRANSFER OF TECHNOLOGY;
Even when the foreign market is serviced by producing abroad there are
advantages for domestic consumers and producers. Since both from the transfer of
products and technology among countries.

PROVIDES THE MEANS OF EXPORTS:


While imports sometimes are viewed as competing with domestic products it must
be recognized that imports of goods services and capital are necessary to provide
foreigners with the means of payments for domestically produced exports without
imports a country merely sends away it resources and products without receiving
usual products in return.

3. cultural environment of intl.business?


The elements of culture
The major elements of culture are material culture, language, aesthetics, education, religion,
attitudes and values and social organisation.
Material culture

Material culture refers to tools, artifacts and technology. Before marketing in a foreign culture it
is important to assess the material culture like transportation, power, communications and so
on. Input-output tables may be useful in assessing this. All aspects of marketing are affected by
material culture like sources of power for products, media availability and distribution. For
example, refrigerated transport does not exist in many African countries. Material culture
introductions into a country may bring about cultural changes which may or may not be
desirable. (see case)
Case 3.2 Canned Drinks In Zimbabwe
Until the early 1990s, Zimbabwe did not allow both alcoholic and non alcoholic beverages to be packed in
cans. There were both economic and environmental reasons for this. Economically, Zimbabwe did not
have the production facility for canning. Environ mentally, Zimbabwe had seen the litter in Botswana,
caused by discarded empty cans. By putting a deposit on glass containers they ensured the empties
were returned to the retailer, thus avoiding a litter problem.
However, with the advent of trade liberalisation under the Structural Reform Program, the Government of
Zimbabwe decided to allow the import of some 4 million cans as an experiment, after which it would
assess the environmental impact. The result was a huge influx of canned alcoholic and other beverages
not just from nearby Botswana and South Africa but from Australia, USA and Europe

Language
Language reflects the nature and values of society. There may be many sub-cultural languages
like dialects which may have to be accounted for. Some countries have two or three languages.
In Zimbabwe there are three languages - English, Shona and Ndebele with numerous dialects.
In Nigeria, some linguistic groups have engaged in hostile activities. Language can cause
communication problems - especially in the use of media or written material. It is best to learn
the language or engage someone who understands it well.
Aesthetics
Aesthetics refer to the ideas in a culture concerning beauty and good taste as expressed in the
arts -music, art, drama and dancing and the particular appreciation of colour and form. African
music is different in form to Western music. Aesthetic differences affect design, colours,
packaging, brand names and media messages. For example, unless explained, the brand name
FAVCO would mean nothing to Western importers, in Zimbabwe most people would instantly
recognise FAVCO as the brand of horticultural produce.
Education
Education refers to the transmission of skills, ideas and attitudes as well as training in particular
disciplines. Education can transmit cultural ideas or be used for change, for example the local
university can build up an economy's performance.

The UN agency UNESCO gathers data on education information. For example it shows in
Ethiopia only 12% of the viable age group enrol at secondary school, but the figure is 97% in the
USA.
Education levels, or lack of it, affect marketers in a number of ways:
advertising programmes and labelling
girls and women excluded from formal education (literacy rates)
conducting market research
complex products with instructions
relations with distributors and,
support sources - finance, advancing agencies etc.
Religion
Religion provides the best insight into a society's behaviour and helps answer the question why
people behave rather than how they behave.
A survey in the early 1980s revealed the following religious groupings (see table 3.1)3.
Table 3.1 Religious groupings
Groups

Million

Animism

300

Buddhism

280

Christianity

1500

Hinduism

600

Islam

800

Shinto

120

Religion can affect marketing in a number of ways:


religious holidays - Ramadan cannot get access to consumers as shops are closed.
consumption patterns - fish for Catholics on Friday
economic role of women - Islam
caste systems - difficulty in getting to different costs for segmentation/niche marketing
joint and extended families - Hinduism and organizational structures;
institution of the church - Iran and its effect on advertising, "Western" images

market segments - Maylasia - Malay, Chinese and Indian cultures making market
segmentation
ensitivity is needed to be alert to religious differences.
Attitudes and values
Values often have a religious foundation, and attitudes relate to economic activities. It is
essential to ascertain attitudes towards marketing activities which lead to wealth or material
gain, for example, in Buddhist society these may not be relevant.
Also "change" may not be needed, or even wanted, and it may be better to relate products to
traditional values rather than just new ones. Many African societies are risk averse, therefore,
entrepreneurialism may not always be relevant. Attitudes are always precursors of human
behaviour and so it is essential that research is done carefully on these.
Social organisation
Refers to the way people relate to each other, for example, extended families, units, kinship. In
some countries kinship may be a tribe and so segmentation may have to be based on this.
Other forms of groups may be religious or political, age, caste and so on. All these groups may
affect the marketer in his planning.

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