Module 1

Introduction
https://www.youtube.com/watch?v=29govBe3Hxw
Globalisation
• The worldwide movement toward economic, financial, trade,
and communications integration.

• Globalization implies the opening of local and nationalistic

perspectives to a broader outlook of an interconnected and
interdependent world with free transfer of capital, goods, and
services across national frontiers

• Therefore globalisation refers to the integration of world

economies through the reduction of barriers to the movement
of trade, capital, technology and people.
What is International
business?
• International business consists of all commercial transactions-
including sales, investments and transportation that takes
place between two or more countries.

• Private companies undertake such transactions for profit

• Government may undertake them for profit or political

reasons.
Importance of the study of
International Business
The International Business standards focuses on the following:
• raising awareness of the interrelatedness of one country's
political policies and economic practices on another;
• learning to improve international business relations through
appropriate communication strategies;
• understanding the global business environment—that is, the
interconnectedness of cultural, political, legal, economic, and
ethical systems;
• exploring basic concepts underlying international
finance, management, marketing, and trade relations; and
• identifying forms of business ownership and international
business opportunities
Forces Driving Globalisation

• Increase in and expansion of technology

• Liberalization of cross- border trade and resource movements

• Development of services that support international business

• Growing consumer pressures

• Increased global competition

• Changing political situations

• Expanded cross national cooperation

Criticisms of Globalisation
• Limitations on growth
• Global Economic Crisis
• Power of transnational corporations
• Sovereignty
• Environmental Impacts
• Growing inequality
• Question of cultural homogeneity
Why international business
differs from domestic business?
• The reasons for this can be divided in to
1. Physical and Social Factors
2. Competitive Factors
Physical and Social Factors

• All sorts of physical and social factors can affect the ways in
which companies produce and markets products, staff
operations and even maintain accounts.
1. Geographical Influneces
2. Political policies
3. Legal policies
4. Behavioural Factors
5. Economic forces
The competitive Factors
• The companies operate more easily in a country with similar
physical conditions. In addition to this , every global company
has to operate within key competitive factors such as
1. Competitive Strategy for products
2. Company Resources and Experience
3. Competitors faced in each Market
Cultural Environment
• Business involves people. Every business employs, sells to,
buys from and is owned and regulated by people. Therefore
every business has to function with in the cultural
environment.
1. Cultural diversity
2. Cultural collision
3. Sensitivity and Adjustment
Behavioural Practices Affecting
Business
Issues in social Stratification
1. Ascribed and acquired membership
2. Performance Orientation
3. Open and closed societies
4. Gender based groups
5. Age- based groups
6. Family based groups
7. occupation
Behavioural Practices Affecting
Business
Work Motivation
• Materialism and motivation
• The productivity and leisure Trade – off
• Expectation of success and reward
• Hierarchies of needs
Behavioural Practices Affecting
Business
Relationship Preferences
• Power distance
• Individualism VS Collectivism
• Situational Differences

Risk Taking Behaviour

• Uncertainty Avoidance
• Trust
• Future orientation
Information Task Processing
• Perception of cues
• Obtaining information
• Information processing
• Monochronic vs polychronic
Communication
• Spoken and written language
• Silent language
• Distance
• Body language
Dealing with cultural
Differences
• `the extent to which a culture is willing to accept the
introduction of anything foreign
• Whether key cultural differences are small or great
• The ability of individuals to adjust to what they find in foreign
cultures
• The general management orientation of the company doing
business in foreign culture
Company and Management
orientations
• Polycentrism : a polycentric organisation or individual tends to
believe business units in different countries should act like
local companies.

• Ethnocentrism: it reflects the conviction that one’s own

culture is superior to that of other countries. It were a
company believes that what works at home will work abroad.

• Geocentrism: this approach requires companies to balance

informed knowledge of their own organizational cultures with
both home and host country needs, capabilities and
constraints.
Strategies for instituting
change
• Respect the value systems
• Cost – benefit analysis of change
• Resistance to too much change
• Participation
• Reward sharing
• Opinion Leadership
• Right timing
• Learning Abroad
THE POLITICAL AND LEGAL
ENVIRONMENTS FACING BUSINESS
Overview of Political Legal
Environment
• Basic Political Systems
• • The Legal Environment
• • Impact of the political system on management decisions
• Basic Political Ideologies Political ideology—a body of
constructs, theories, and aims that constitute a socio-political
program

• • Ultimate test of any political system is its ability to hold a

society together despite pressures from different ideologies,
and
• • It’s ability to meet its objectives
• • Ideologies help bring countries together/keep them apart
• • In Terms of Business Companies must understand the
potential sources of political tension and instability
The political spectrum
The Political Spectrum
• Democracy—involves wide participation by citizens in the
decision-making process

• Democratic governments differ

• • Presidential versus parliamentary
• • Number of important political parties
• • Amount of citizen participation in decision making
• • Fragility and stability of new democracies Democracy (not
surprisingly) is believed in democracies to be the best form of
government
The Political Spectrum
• Totalitarianism (Absolutist) —a single party, individual, or
group of individuals monopolizes political power
• • Opposition is effectively not permitted
• • Totalitarianism takes several forms
• • Theocratic—religious leaders are political leaders
• • Secular—government often imposes order through military
power
• • Authoritarianism—desires to control the people
• • Communism—political and economic systems are virtually
inseparable
Impact of the Political System
on Management Decisions
• Political Risk—caused by political instability
• • Can be assessed
• • Evaluate political risk prior to market entry
• • Can be monitored for change
• • Can be managed
• • To an extent by
• • Form of market entry, and
• • Form of ownership Causes of political risk
• • Change in political leadership
• • Civil disorder
• • External relation
Impact of the Political System
on Management Decisions
• Political Risk—caused by political instability
• • Promotes fear that operating position will deteriorate
• • Tends to be higher in totalitarian regimes (according to your
text)

• Causes of political risk

• • Change in the opinions of political leadership
• • Civil disorder stemming from economic conditions, human
rights violations, or group animosity
• • External relations—animosity between host country and
foreign investor’s country
Types of political risk
• • Micro—political actions are aimed at specific foreign
investments
• • Macro—political actions affect a broad spectrum of foreign
investors
Kinds of Legal Systems
Common law—based on tradition, precedent, custom, and
usage
• • Laws are subject to Interpretation by the courts
• • Past decisions affect current decisions
Civil law—codified legal system
• • Based on a detailed set of laws that make up a code
• • Rules for business transaction included
• • Based on how the law is applied to the facts
Theocratic law—based on religious precepts
• • e.g., Islamic law – has remained frozen – moral rather than
commercial law – intended to govern all aspects of life
Consumer safeguards—differ in different legal systems
• • Deal with product liability issue
Formulating and Implementing
Political Strategies
Establishing a political strategy in the host country
• Identify the issue
• Define the political aspect of the issue
• Assess the potential political action of other companies and
special interest groups
• Identify important institutions and key people
• Formulate strategies
• Determine the impact of implementation
• Select the most appropriate strategy and implement
Implementing a strategy
— Lobbyists can influence government decision makers Key
partners can help, too
In Business Disagreements
• • Negotiate – These are your partners
• • Arbitrate – It is private and heard by an expert
• • Litigate --This is public, heard by a court, and very costly
The Legal Environment
• Jurisdiction is a major concept in international business
• • In domestic business there is an ultimate persuasive
authority – This is not the case internationally
• • Contracts often specify where disagreements will be heard
Legal Issues in International
Business
• National laws May affect both domestic and foreign
companies operating within the country’s borders
• – health and safety standards
• – employment practices
• – antitrust prohibitions
• – contractual relationships
• – environmental practices
• – patents and trademarks
• May govern cross-border activities
– investment of capital
– payment of dividends to foreign investors
– customs and duties on imports
ECONOMIC ENVIRONMENT
Elements of the Economic
Environment
• Gross National Income
• Gross National Income(GNI) measures the income generated
both by total domestic companies as well as this international
production activities of National Companies.
• Gross domestic Product( GDP): GNI is the broadest measure of
economic activity foe a country. An essential part of GNI is gross
Domestic product which is “ the total value of all good and
services produced within a nation’s border over one year no
matter whether domestic or foreign owned companies make the
product “.
• Per capita Income: Per capita income or average
income measures the average income earned per-person in a
given area (city, region, country, etc.) in a specified year. It is
calculated by dividing the area's total income by its total
population

• Growth Rate of Gross National income: the GNI growth rate

indicates a country’s economic potential- if GNI grows at
higher rate than population, then standard of living is said to
be rising. The GNI growth rate indicates likely business
opportunities.
• Purchasing Power Parity(PPP): Managers adjust the per capita
income for a particular country in terms of its local PPP. PPP, is
the number of units of a country’s currency required to buy
the same amounts of goods and services in the domestic
market that one unit of income would buy in other country.
• Degree of human development: managers can complement
economic indicators by also analysing the economic
environment in terms of the overall quality of life in a country:
measuring how ell a country does in terms of social liberties ,
life expectancy, and literacy rates. Companies can use Human
development Index(HDI) a measure by UN.
• Green Net National Product: this measure takes in to account
the depleting and degrading natural resources of a country.
• Gross national happiness: it measures the promotion of
equitable and sustainable socio economic development,
preservation and promotion of cultural values, conservation of
natural environment and good governance.
Features of an Economy
1. Inflation: A general , sustained rise in prices measured
against a standard level of purchasing power is called
inflation. Managers watch inflation given its influence on
many parts of the economic environment such as interest
rates, exchange rates, the cost of living, general economic
confidence, and stability of the current political system.

• Inflation and cost of living

• Implications of chronic inflation
• Price indexes and problems in measuring inflation
• 2. Unemployment: the unemployment rate is the number of
unemployed workers who are seeking employment for pay
divided by the total civilian labour force.

• the working age population

• Labour regulations
• Problems in measuring unemployment

3. Internal debt and external debt:

A country’s debt has two parts. Internal debt results when the
government spends more than it collects in revenues. The
resulting pressure to revise government policies, in the face of
growing internal debt can result economic uncertainties for
investors and companies.

External debt results when a government borrows money from

foreign countries
4. Income Distribution:
• Gini coefficient: this measure assesses the degree of
inequality in the distribution of family income in a country.
The more nearly equal a country’s income distribution, the
lower its gini coefficient.
• Income distribution among wealthy nations
• Urban vs rural distribution

5. Poverty: Poverty has many dimensions. In general terms, its

is a condition in which a person or community is deprived of , or
lacks the essential for, a minimum standards of well being and
life . Poverty affects economic environment, as in case of
extreme poverty , market systems may not exist, lack of
infrastructure, criminal behaviour and ineffective economic
policies.
5. Labour Costs
Companies continually scrutinize where it makes the most sense
to locate particular activities where there is lower production
costs.

6. Productivity:
Companies refine their interpretation of labour costs by
considering productivity specifically, the amount of output
created per unit input used. In terms of labour, productivity is
the quantity produced per person
Productivity worldwide has benefitted from a powerful
combination of technological progress, an open global trading
system, cross- country c.apital flows and strong financial systems
• 7. Balance of Payments :
A country’s balance of payments, officially known as the
Statement of international transactions, is the statement of
balance of country’s trade and financial transactions as
conducted by individuals, businesses and government agencies
located in the nation with the rest of the world over a specific
period.

Managers use BOP to assess a country’s economic stability. By

measuring a country’s transactions with rest of the world, the
BOP estimates a country’s financial stability in the world
market.