❖ INTERNATIONAL BUSINESS.

1. International business includes any type of business activity that crosses national borders.
2. International business is defined as organization that buys and/or sells goods and services across two or more
National boundaries, even if management is located in a single country.
3. Inter. business is equated only with those big enterprises, which have operating units outside their own country.
According to Robock and Simmonds, “International business is defined as a field of management training (that) deals
with the special features of business activities that cross national boundaries”
International business = Business transactions crossing national borders at any stage of the transaction All
commercial transactions related to sales,

❖ IMPORTANCE OF INTERNATIONAL BUSINESS.

: The following points highlight the three importance of International business. The importance are:
1. National Economy, 2. Importance to Exporting Firm, 3. Importance from Other Points of View.
1. National Economy: A). It is important to meet imports of industrial needs.
B). Debt Servicing: This means to grant loan for and for their industrial development.
C). For rapid economic growth. D). For profitable use of natural resources.
E). To face competition successfully-better quality goods production having lower or moderate prices. To improve the
image of the producer as well as of the country in the minds of foreign customers.
F). Increase in employment opportunities. G).To increase national income. 8. Increase in standard of living of the people.
2. Importance to Exporting Firm: Business and industrial firms/exporting firms are also benefitted from the international
business-
(a) Insufficiency of Domestic Demand: If the domestic demand for the product is not sufficient to consume the
production, the firm may take a decision to enter the foreign market. In this way he can equalize the production &
demand.
(b) To Utilise Installed Capacity: If the installed capacity of the firm is much more than the level of demand of the
product in the domestic market, it can enter the international market and utilise its un-utilised installed capacity. In this
way it can export the surplus production.
(c) Legal Restrictions: Sometimes the Government of a country imposes certain restrictions on the growth and
expansion of certain firms or on the production and distribution of certain commodities in the domestic market in order
to achieve certain social objectives.
(d) Relative Profitability: The export business is more attractive for its higher rate of profitability. The higher profitability
rate also gives extra strength to the firm.
(e) Less Business Risk: A diversified export business helps the exporting firm in mitigating the risk of sharp fluctuations in
the business activity of the firm.
(f) Increased Productivity: Due to certain social and technological developments the industrial production has increased
to a great extent. The production will be higher at cheaper rate. The surplus production can be exported.
(g) Social Responsibility: In order to meet the social responsibility some business firms take the decision to contribute to
the National Exchequer by exporting their products.
(h) Technological Improvements: Technological improvements also attract the business firm to enter foreign markets. It
(i) Product Obsolescence: If a product becomes obsolete in domestic market it may be in demand in International
markets. The firm has to make a survey for Introducing the product in those markets.
3. Importance from Other Points of View: The importance of export business can also be viewed from some other angle:
(i) International Collaboration: Developed countries fix their import quotas for different countries and for different
commodities. A county can export various commodities to these developed countries to the extent of its quota.
(ii) International Business Brings Various Countries Closer: Better business relations are established among the
countries. Government and non-government business commissions or business representatives visit other countries
from time to time. The local representatives and other related persons came into contact with foreign representatives
and come to know their habits and customs.
(iii) Helps in Maintaining Good Political Relations: The economic relations between two countries help each other to
improve their political relations. Various countries having different political ideologies import or export their products. To
conclude it is now undisputable that export business contributes to the national economy, national exchequer, individual
exporting firms and maintains international, economic cultural and political relations among various countries.
❖ NATURE OF INTERNATIONAL BUSINESS:
1. Include Commercial Activities:-International business involves companies trading goods and services across different
countries. This includes the exchange of goods, services, & resources between entities situated in different countries.
2. Prone to Political Risk:- Due to its global nature, international business is often susceptible to political risks, such as
changes in government policies, trade regulations, or geopolitical tensions.
3. Proactive or Reactive:- Companies can either actively seek global opportunities (proactive) or adapt to market
changes as they occur (reactive).
4. Different for Domestic Business:- I business differs markedly from domestic operations. The presence of diverse
cultures, legal frameworks, & economic conditions in various countries necessitates a nuanced & adaptive approach.
5. Large scale Operations:-Many international businesses operate on a large scale, requiring substantial resources,
strategic planning, and logistical prowess.
6. Amalgamation of Economies:- It’s a mix of economies, as companies interact with and influence the economic
systems of multiple countries.

❖ SCOPE OF INTERNATIONAL BUSINESS

1. Foreign Investment: Involves investing capital in businesses outside one’s home country, fostering economic ties and
potentially gaining financial returns.
2. Export and Import Merchandise: Involves trading goods across borders, facilitating global exchange and contributing
to economic interdependence.
3. Licensing and Franchise: Enables companies to expand internationally by granting rights to use intellectual property
or business models, fostering global brand presence.
4. Service Export and Import: Extends international business beyond goods, encompassing services like technology,
consulting, or tourism, promoting cross-border collaborations.
5. Growth Opportunities: International business provides avenues for expansion, tapping into diverse markets and
diversifying revenue streams.
6. Benefit of Currency Exchange: Currency exchange allows businesses to navigate fluctuating exchange rates,
managing financial risk in international transactions.
7. Limitations of Domestic Market: International business mitigates reliance on a single domestic market, reducing
vulnerability to economic downturns or market saturation.

❖ MODES OF ENTRY INTO A INTERNATIONAL BUSINESS with EXAMPLE

1. Direct & Indirect exporting:- Direct Exporting: Selling goods directly to a foreign market without intermediaries. An
Indian textile manufacturer exporting its products directly to retailers in the United States through its distribution
network. Indirect Exporting: Using intermediaries, like agents or export trading companies, to sell products in the
international market.
2. Licensing:-Allowing a foreign entity to use intellectual property, such as patents or trademarks, in exchange for fees
or royalties. An Indian pharmaceutical company licensing its formula for a generic medication to a Brazilian
pharmaceutical firm for production and sale in Brazil.
3. Franchising:-Granting the right to another party to operate a business using your brand, products, and business
model. An Indian fast-food chain franchising its brand and business model to entrepreneurs in the Middle East,
allowing them to operate their own outlets.
4. Control Manufacturing:-Outsourcing the production of goods to a foreign manufacturer, often involving the use of
the company’s intellectual property.
5. Joint Venture :-Establishing a new entity by combining resources and expertise with a foreign partner, sharing
ownership and control. An Indian IT services company forming a joint venture with a Japanese firm to provide IT
solutions in the Japanese market, combining local expertise with global technology capabilities.
6. Managerial & acquisition:-Acquiring or merging with a foreign company to expand market presence, gain access to
resources, or achieve synergies. An Indian automotive company acquiring a European electric vehicle technology
firm to enhance its capabilities and enter the growing electric vehicle market.
❖ ISSUES IN FOREIGN INVESTMENTS
1. POLITICAL & LEGAL DIFFERENCES The political & legal environment of foreign markets is different from That of the
domestic. The complexity generally increases as the number of countries in which a company Does business
increases. For example, the political and legal environment is not exactly the same in All the states of India.
2. CULTURAL DIFFERENCES The cultural differences is one of the most difficult problems in international Marketing.
Many domestic markets, however, are also not free from cultural diversity.
3. ECONOMIC DIFFERENCES The economic environment may vary from country to country.
4. DIFFERENCES IN THE CURRENCY UNIT The currency unit varies from nation to nation. This may sometimes Cause
problems of currency convertibility, besides the problems of exchange rate fluctuations. The Monetary system and
regulations may also vary.
5. DIFFERENCES IN THE LANGUAGE An international marketer often encounters problems arising out of the Differences
in the language. Even when the same language is used in different countries, the same words of Terms may have
different meanings. For example: the multiplicity of languages in India.
6. DIFFERENCES IN THE MARKETING INFRASTRUCTURE The availability and nature of the marketing facilities Available
in different countries may vary widely. For example, an advertising medium very effective in one market may not be
available or may be underdeveloped in another market.
7. TRADE RESTRICTIONS A trade restriction, particularly import controls, is a very important problem, which an
international marketer faces.
8. HIGH COSTS OF DISTANCE When the markets are far removed by distance, the transport cost becomes high and the
time required for affecting the delivery tends to become longer. Distance tends to increase certain other costs also.

❖ TYPES OF FOREIGN INVESTMENT. Foreign investment is of following two types:

1. Foreign Direct Investment (FDI): Foreign direct investment (FDI) refers to acquiring the ownership in a business
enterprise in one country into a company operating in another country. This investment may take in several ways like
purchasing or constructing an a new plant abroad or by enhancing its infrastructure by adding machineries, factories
etc. The company making direct investments have a significant degree of power and control over the working of the
company in which investments are made.
2. Foreign Indirect/Institutional Investment (FII)/ Portfolio Investment: In foreign institutional investment the investor
does not have lasting interest and control over the enterprise. This form of investment is short-term in nature and is
easy to operate. These types of investments involve buying debt (bonds) or equity instruments (stocks) of a foreign
organisation.
SIA-Secretariat for Industrial Approvals, FIPB-Foreign Investment Promotion Board, RBI Reserve Bank of India NRI-
Non-Resident Indian, GDR-Global Depository Receipts, FII-Foreign Institutional Investors.

❖ CONCEPT OF BALANCE OF PAYMENTS ACCOUNT: The Balance of Payments or BoP is a statement or record of all
monetary and economic transactions made between a country and the rest of the world within a defined period
(every quarter or year). These records include transactions made by individuals, companies and the government.
Keeping a record of these transactions helps the country to monitor the flow of money and develop policies that
would help in building a strong economy. In a perfect scenario, the Balance of Payments (BoP) should be zero. That
is, the money coming in and the money going out should balance out.
❖ COMPONENTS OF BOP: The accounting contents or components of balance of payments are:
1. Current Account: Generally current account is sub-divided into three types, i) Merchandise: the merchandise trade
balance. ii) Invisibles: the services balance and iii) Unilateral Transfers: the balance on unilateral transferee.
2. Capital Account: The capital account refers to a record of the complete national currency value related with
monetary dealing for a given time period, between the citizens of the country and those outside. Investments.
Loans and other monetary resources as well as the associated responsibilities are part of it. I) Direct Investment:
ii) Portfolio Investment: iii) Capital Flows:
3. Official Reserve Account: Official reserves refer to governmental resources. It stands for buying and selling Through
the centrally recognised bank (for example, India’s central bank is ‘The Reserve Bank of India, RBI).
4. Other items in Balance Payment:
❖ ECONOMIC ENVIRONMENT
Economic conditions, economic policies and the economic system are the important external factors that constitute The
economic environment of a business. The economic conditions of a country-for example, the nature of the economy, the
stage of development of the Economy, economic resources, and the level of income, the distribution of income and
assets, etc.- are among the Very important determinants of business strategies.
In a developing country, the low income may be the reason for the very low demand for a product. The sale of a Product
for which the demand is income-elastic naturally increases with an increase in income. But a firm is unable To increase
the purchasing power of the people to generate a higher demand for its product. Hence, it may have to Reduce the price
of the product to increase the sales.
According to the industrial policy of the Government of India until July 1991, the development of 17 of the most
important industries was reserved for the state. In the development of another 12 major industries, the state was to play
a dominant role. In the remaining industries, co-operative enterprises, joint sector enterprises and small scale units were
to get preferential treatment over large entrepreneurs in the private sector. The government policy, thus limited the
scope of private business. However, the new policy ushered in since July 1991 has wide opened many of the industries
for the private sector.
The scope of international business depends, to a large extent, on the economic system. At one end, there are the free
market economies or capitalist economies, and at the other end are the centrally planned economies or communist
countries. In between these two are the mixed economies. Within the mixed economic system itself, there are wide
variations.
The freedom of private enterprise is the greatest in the free market economy, which is characterized by the following
assumptions:
(i) The factors of production (labour, land, capital) are privately owned, and production occurs at the initiative of the
private enterprise.
(ii) Income is received in monetary form by the sale of services of the factors of production and from the profits of the
private enterprise.
(iii) Members of the free market economy have freedom of choice in so far as consumption, occupation, savings and
investment are concerned.
(iv) The free market economy is not planned controlled or regulated by the government. The government satisfies
community or collective wants, but does not compete with private firms, nor does it tell the people where to work or
what to produce.

❖ FRAMEWORK FOR ANALYZING INTERNATIONAL BUSINESS ENVIRONMENT

1) PEST Analysis: PEST analysis stands for “Political, Economic, Social, and Technological analysis” and describes a
framework Of macro-environmental factors used in the environmental scanning component of strategic
management. Some analysts added Legal and rearranged the mnemonic to SLEPT; inserting Environmental factors
Expanded it to PESTEL or PESTLE, which is popular in the UK.The model has recently been further extended To
STEEPLE and STEEPLED, adding education and demographic factors.
2) PESTEL: It involves the collection & portrayal of information about internal & external factors which have or may an
impact on business. PESTEL analysis is the simple & the effective tool that is used in situation Analysis to identify the
key external (the macro environment level) forces that affect the organization. These Forces can create both
opportunities & threats for an organization. PESTEL model is PEST including legal, Environmental, ethical &
demographic forces.
3) SWOT: SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities,
And Threats involved in a project or in a business venture. A firm should not necessarily pursue the more lucrative
opportunities. Rather, it may have a better chance at Developing a competitive advantage by identifying a fit
between the firm’s strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order
to prepare itself to pursue a Compelling opportunity.1.Strengths, 2. Weaknesses, 3. Opportunities, 4. Threats.
4) PORTER’S FIVE FORCES MODEL: Porter’s five forces model is an analysis tool that uses 5 forces to determine the
profitability of an industry & shape a Firm’s competitive strategy. It is a framework that classifies & analyzes the most
important forces affecting the Intensity of competition in an industry & its profitability level. 5 forces model was
created by the Michael Porter in 1979 to understand how 5 key competitive forces are affecting the industry. The 5
forces identified are:
❖ WORLD TRADE ORGANISATION (WTO)
The WTO was established on January 1, 1995. It is the embodiment of the Uruguay Round results and the successor to
GATT. 76 Governments became members of WTO on its first day. It has now 146 members, India being one of the
founder members. It has a legal status and enjoys privileges and immunities on the same footing as the IMF and the
World Bank. It is composed of the Ministerial Conference and the General Council. The Ministerial Conference (MC) is
the highest body. It is composed of the representatives of all the Members. The Ministerial Conference is the executive
of the WTO and responsible for carrying out the functions of the WTO. The MC meets at least once every two years.
Director-General heads the secretariat of WTO. He is responsible for preparing budgets and financial statements of the
WTO. WTO has now become the third pillar of United Nations Organization (UNO) after World Bank and International
Monetary Fund.
❖ Role of WTO in developing countries
1) Market Access: The WTO facilitates increased market access for developing countries, enabling them to expand their
exports and participate more actively in the global economy.
2) Rules-Based System: By establishing a rules-based system, the WTO provides developing nations with a predictable
and stable environment for international trade, fostering economic growth and investment.
3) Technical Assistance: Developing countries receive technical assistance and capacity-building support from the WTO,
helping them navigate complex trade negotiations and comply with international trade rules.
4) Dispute Resolution: The WTO’s dispute settlement mechanism allows developing countries to address trade-related
issues with other member nations, preventing unfair trade practices and ensuring a level playing field.
5) Special and Differential Treatment: Recognizing the developmental challenges faced by these nations, the WTO
offers special and differential treatment provisions, granting flexibility in meeting trade commitments.
6) Institutional Support: The WTO serves as an institutional framework that assists developing countries in
understanding and shaping the global trade agenda, empowering them to engage in negotiations effectively.
7) Reduction of Tariffs and Barriers: WTO agreements aim to reduce tariffs and non-tariff barriers, fostering a more
open and inclusive global trading system that benefits developing countries seeking to export their goods & services.
8) Balancing Economic Interests: While the WTO has positive impacts, it is not without criticism. Striking a balance
between promoting fair trade and addressing the specific needs of developing economies remains an ongoing
challenge for the organization
❖ OBJECTIVES OF WTO:
1. Its relation in the field of trade and economic endeavour shall be conducted with a view to raising standards of
living, ensuring full employment and large and steadily growing volume of real income and effective demand, and
expanding the production and trade in goods and services.
2. To allow for the optimal use of the world’s resources in accordance with the objective of sustainable development,
seeking both (a) to protect and preserve the environment, and (b) to enhance the means for doing so in a manner
consistent with respective needs and concerns at different levels of economic development.
3. To make positive efforts designed to ensure that developing countries especially the least developed among them,
secure a share in the growth in international commensurate with the needs of their economic development.
4. To achieve these objectives by entering into reciprocal and mutually advantageous arrangements directed towards
substantial reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in
international trade relations.
5. To develop an integrated, more viable and durable multilateral trading system encompassing the GATT, the results of
Past trade liberalization efforts, and all the results of the Uruguay Round of multilateral trade negotiations.
6. To ensure linkages between trade policies, environment policies and sustainable development..

❖ IMF: most important outcome of the Bretton Woods conference was the formation of International Monetary Fund.
It started functioning in March 1947 with the membership of 30 countries. Presently, it has more than 185 members.
The main of formation of IMF are the member countries followed a set of agreed rules of conduct in international trade
and finance and of providing borrowing facilities for the member countries to tide over their BOP difficulties.
After the crises of 1971, the Board of Governors of the IMF recognised the necessity of investigating the possible
measures for improvement in the international monetary system. A committee of 20 members was formed in 1972.
Three basic weaknesses of the Bretton Woods system, identified by the committee included shortage of international
liquidity, confidence and adjustment. In 1976, some amendments to the articles of agreements of the IMF have been
formed.
❖ FUNCTIONS OF IMF:
1) It regulates economic and financial developments and policies of the member countries globally and gives Policy
advices to them.
2) It lends money to member countries to deal with their balance of payment problems.
3) It supports for the adjustment and reform policies not just provide temporary finance.
4) It provides technical assistance and training to the governments and central banks of member countries in it Area of
expertise.
5) It conducts research, statistics, forecasts, and analysis based on tracking of global, regional, and individual Economies
and markets.

❖ WORLD BANK
The World Bank was created in 1945 to help countries, especially those with economic challenges, fund important
projects like dams, roads, and communication systems. These projects benefit nations in various ways, not just
economically, but also politically and socially. The World Bank provides loans with favorable terms to governments for
medium to long-term periods. This funding opens up opportunities for private businesses to supply goods and services
for these projects. While initially focused on infrastructure, the World Bank now also supports countries facing balance
of payments issues through quick loans, linked to adopting growth-friendly economic policies. The bank is funded by
member countries and raises additional funds by issuing bonds to private sources.

❖ FUNCTIONS OF THE WORLD BANK:

1. To assist in the reconstruction and development of the territories of its members by facilitating the investment Of
capital for productive purposes.
2. To promote private foreign investment by means of guarantee of participation in loans and other investments made
by private investors and, when private capital is not available on reasonable terms, to make loans for Productive
Purposes out of its own resources or from funds borrowed by it.
3. To promote the long term balanced growth of international trade and the maintenance of equilibrium in balance of
payments by encouraging international investment for the development of the productive resources of members.
4. To arrange loans made or guaranteed by it in relation to international loans through other channels so that more
useful and urgent projects, large and small alike, will be dealt first. It appears that the World Bank was created to
promote and not to replace private foreign investment. In this respect the Bank considers its role to be a marginal
One, to supplement and assist private foreign investment in the member countries.

❖ WHAT ARE THE VARIOUS TYPE OF TRADE AGREEMENT? DISCUSS IN DETAIL .

1. Bilateral Trade Agreements: Involving two countries, these agreements focus on reducing trade barriers, promoting
cooperation, and addressing specific economic issues.
2. Multilateral Trade Agreements: Involving multiple countries, these agreements aim to establish common rules for
international trade, often negotiated through organizations like the World Trade Organization (WTO).
3. Regional Trade Agreements (RTAs): Limited to specific geographic regions, RTAs seek to deepen economic
integration among member countries.
4. Free Trade Agreements (FTAs): FTAs eliminate or reduce tariffs and trade barriers between participating countries,
fostering smoother trade and increased market access.
5. Customs Union: This agreement goes beyond FTAs by establishing a common external tariff, creating a more unified
approach to trade with non-member countries.
6. Common Market: Going further than a customs union, a common market allows for the free movement of goods,
services, capital, and labour among member countries.
7. Economic Partnership Agreement (EPA): EPAs focus on trade and development cooperation, often between
developed and developing countries.
8. Trade Facilitation Agreement: Concentrating on simplifying customs procedures, this agreement aims to reduce
trade barriers and streamline international trade processes.
❖ UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (UNCTAD ) :
The International trade is considered to be the engine of economic growth. There has been continuous and rapid growth
in world trade due to liberalization of tariffs, quotas and other restrictions. The share of manufacturers in world trade has
increased from about 50 per cent to 70 per cent over the last few decades. The developed countries dominate the world
trade though the share of developing countries has increased over the years. World trade in services has been increasing
fast. World trade has become increasingly multilateral due to the efforts of various international trading blocks, which
exercise a significant influence on world trade.
The United Nations Conference on Trade and Development (UNCTAD) was established by U.N. General Assembly in 1964
in order to provide a forum where the developing countries could discuss the problems relating to their economic
development. It was set up essentially because it was felt that the then existing institutions like IMF and GATT were not
properly organized to handle the peculiar problems related to the developing countries. These institutions favored the
developed countries and failed to tackle the special trade and development problems of less developed countries. With
more than 170 members, UNCTAD presently is the only body where developed as well as erstwhile centrally planned
countries are its members.

❖ Tariff and non-tariff barriers There are 3 types of tariff barriers:

1) Import tariff: It is the custom duty imposed by the importing country. It is imposed to raise revenue and protect
domestic industries.
2) Export tariff: It is the custom duty imposed on goods by the exporting country on its export. Here, agricultural
products are taxed.
3) Transit tariff: It is imposed on the commodities which are originating in our country. Due to transit tariff cost of
products and reduction in the amount of commodities are traded.
Non-tariff barrier: It is a way used to restrict the trade using trade barriers in a form other than a tariff. They are nothing
but the government regulations, policy, procedures etc. to restrict the international trade.
There are 3 types of non-tariff barriers:
1) Quotas: It is the numerical limit on importing or exporting goods over specific time period. If the importer or
exporters cross the designated limit then he/she has to pay penalty.
2) Voluntary export resistant: Here, exporting/importing countries fixes the quota for goods that can be
exported/imported to designated country.
3) Subsidies: It is the payment made by the government towards domestic producer in order to complete foreign
transactions (export/import). It helps the local firm to reduce the costs and gain control over the market.