INTERNATIONAL BUSINESS

What is International Business?

•The exchange of Goods & Services, Resources,
Knowledge, & Skills, among individuals &
businesses in two or more countries.
•Transaction that are carried out across national
borders to satisfy the objectives of individuals
and organization
•All Commercial transactions that take place
between two or more countries.
 Features of International Business
• Large scale operations
• Integration of economies
• Dominated by developed countries and MNCs
• Benefits to participating countries
• Keen competition
• Transfer of technology
• Flow of foreign capital
• Home country and host country regulations.
•Special role of science and technology
•International restrictions & Trade barriers
•Exchange of currencies
•Greater risk
•Different business environment in countries
(economic conditions, Language, culture,
laws etc.)
•Sensitive nature
 Scope of International Business
• International business is much broader than
international trade.
• It includes not only the export and import of
goods and services but also a wide variety of
other business strategies.
• Major forms of business operations that
constitute international business are discussed in
next slides.
 Scope of International Business … Continuing…

• Merchandise export & • Sub-contracting

import • Counter Trade
• Service exports & Imports • Global outsourcing
• Licensing & Franchising • Turnkey project
• Foreign Investment (FDI, FPI, • Contract Manufacturing
Greenfield, Brownfield)
• Management Contracts
• Joint ventures
 Approaches to IB
(Management Orientation of International Business)

•Ethnocentric orientation E
•Polycentric Orientation P
•Regiocentric Orientation R
G
•Geocentric Orientation Framework
 Ethnocentric approach (Home country Orientation)
• Under this approach, target market is own country.
• Overseas operations are secondary only.
• Company does not differentiate between domestic and foreign markets.
Same product in the domestic market is exported.
• Some companies use this strategy for disposing their surplus production.
• They do not adapt their products to the needs and wants of people in
foreign countries.
• It is based on the belief that what is successful at home will be equally
successful elsewhere.
• Best suitable for initial stage of internationalization or for small companies
with less investment.
 Polycentric approach
(Host country Orientation)
• Headquarters is situated in home country. All the policies are based on
home country
• Foreign subsidiary companies are established to work independently.
• It is based on the belief that every country is different. Each market is
considered unique in terms of its market environment.
• Product, price, promotion etc., are in accordance with the needs of the
foreign market.
• Employees may be hired from both home and host country.
• Generally used by MNCs.
 Regiocentric approach(Regional Orientation)
• Under this approach, the company operating successfully in a foreign
country thinks of exporting their products or expanding their business to
other neighboring countries of the host country.
• MNC divide its operations into geographical regions. A regiocentric
company views different regions are different markets. Separate strategies
for regions.
• Firm follows a regional marketing policy covering a group of countries
which have similar market characteristics.
• At this stage, the concerned subsidiary considers the regional environment
( such as laws, culture, policies etc.) for formulating the policies &
strategies.
• Employees may be hired from within the region.
 Geocentric approach (Global Orientation)
• In geocentric approach, the company views the entire world as a single
market.
• A geocentric company uses a standardized marketing mix all over the
globe.
• The company adopts global planning and global marketing.
• The basic assumption of this approach is that ‘all human beings are alike’.
• They enjoy the benefit of economies of scale and lower cost.
• However, the standardisation may be not be successful in some countries
with different and unique characteristics.
• Practiced by Big multinationals.
Theories of International Trade
❑Mercantilist Views on Trade

❑Absolute Advantage Theory

❑Comparative advantage Theory

❑Modern Theory of International Trade

 Mercantilist Views on Trade
• Collection of economic thought in Europe during 1500 to 1750
• Developed by Merchants, bankers, philosophers
• National wealth is reflected in holdings of precious metals
such as gold and silver.
• More gold, more powerful the country
• Export more, as it leads to inflow of gold
• Restrict import as it leads to outflow of gold
• Thus the way for a nation to become rich is to export more
than it is imported.
• A surplus in trade balance will result in an inflow of precious
metals.
 Mercantilist Views on Trade
•Trade is a “Zero- Sum Game”. If one party
(importer) loses , the other party (exporter) gains.
•According to mercantilist view, mutually beneficial
trade is impossible.
•The goal of a nation is the accumulation of precious
metals by exporting the largest possible quantity of
its products and limiting the quantity of imports.
•Calls for ‘economic nationalism’ – Government has
to control economy, otherwise people will import.
 Absolute Advantage Theory-Adam Smith

❖The concept of absolute advantage is generally attributed to Adam

Smith for his publication ’The Wealth of Nations’ (1776)
❖This theory refuted mercantilist views on trade.
❖Absolute advantage is a scenario where a business or a country is able
to produce efficiently (a higher quality product at better rates) than its
competitors.
• Example: Party A can produce 5 machine per hour with 3 employees.
Party B can produce 10 machine per hour with 3 employees. Assuming
that the employees of both parties are paid equally, Party B has an
absolute advantage over Party A in producing widgets per hour.
 Absolute Advantage Theory-Adam Smith
• A country should concentrate on production & export of those
goods in which it holds an absolute advantage (ability to produce
more number of goods or services than competitors with same
resources)
• This type of concentration & specialization leads to increased
world production.
• Benefits of increased world production reaches all countries.
• The export of one nation is another nation’s import
• All nations would gain simultaneously if they practiced free trade
and specialized in accordance with their absolute advantage.
 Absolute Advantage Theory-Adam Smith
• According to this theory, trade is not a zero-sum game.
• Mutually beneficial trade is possible based on ‘absolute
advantage’
• Trade is a “positive-sum game” (There are gain for both
countries)
• All participating countries gain from trade
• Advocated ‘laissez-faire’ (absence of government control –
no tariffs and non-tariff barriers) that promote free trade
without trade barriers.
 Comparative Advantage Theory-David Ricardo
• Still unchallenged law in Economics
• First proposed by David Ricardo
• Tried to explore unanswered question in Absolute
Advantage Theory.
• If there is one country that does not have any absolute
advantage in production of any product, will trade occur?
• In this case, there is no scope for mutually beneficial
trade as per absolute advantage theory.
• But, Comparative advantage theory states that even if
one nation has no absolute advantage on any commodity,
there is still scope for mutually beneficial trade.
 Comparative Advantage- David Ricardo
• Comparative advantage refers to the ability of a country to
produce particular goods or services as a lower
opportunity cost as compared to others.
• A country should specialise in producing and exporting
those products in which it has a relative cost advantage
compared with other countries.
• The nation should specialise in the production and export
of the commodity in which its absolute disadvantage is
smaller.
• Export the commodity in which its absolute
disadvantage is smaller
• Import the commodity in which its absolute
disadvantage is greater
Commodity Absolute
Disadvantage
Export Smaller
Import Greater
As per AA theory, Country B cannot specialise and export both goods.
As per CA theory, County B can specialise and export goods Y

Absolute Absolute
Advantage Advantage

Goods X Goods Y
(Units) (units)

Country A 6000 7200

Country B 4000 6000

Absolute Absolute
Disadvantage Disadvantage
Modern Theories of International Trade:
• Developed by Eli Heckscher and Bertil Ohlin at the Stockholm School
of Economics
• According to this theory ‘each country should specialise in the
production and export of those goods whose production requires a
relatively large amount of the factor with which the country is well
endowed’
• A nation will export the commodity whose production requires
abundant and cheap factor available in the county and import the
commodity whose production require scarce and expensive factor
of the country.
Heckscher Ohlin Model
• Countries differ with respect to the availability of the
factors production – material & labour
• Abundance of factor makes it cheap (less expensive).
Producers prefers less expensive factor.
• Capital abundant country (where cost of capital is low) will
tend to specialise in capital intensive goods
• Labour abundant country (where labour cost is low) will
tend to specialise in labour intensive goods
 Leontief Paradox
• The first serious attempt to test HO model was made by Prof. Wassily
Leontief.
• According to the HO theory, it is expected that US (abundantly
endowed with capital) will export capital intensive goods and import
labour intensive goods.
• But, he reached a paradoxical conclusion that the US—the most
capital abundant country in the world—exported labour-intensive
commodities and imported capital- intensive commodities.
• So, "A capital-abundant country may export the labour intensive
goods, while the labor-abundant country export the capital-intensive
goods."
 Product Life cycle theory
• An economic theory that was developed by Raymond Vernon in
response to the failure of the Heckscher-Ohlin model
• According to this theory, the location of production of certain
manufactured products shifts as they go through their product life
cycle.
• The theory states that early in a product's life-cycle (Introduction) all
the parts and labor associated with that product come from the
original country of invention.
• After the product becomes adopted and used in the world markets,
production gradually moves away from the point of origin. In this
case, the production may shift into developing economies.
• In some situations, the product may be imported by its original
country of invention.
 Technological Gap Model

• This model was sketched by Michael V Posner

1961
• It is also called “imitation lag hypothesis”
• It assumes that the same technology is not always
available in all countries.
• Introduction of new and innovative products give
the innovating firm and the country a temporary
monopoly in the world market.
 Technological Gap Model

• There is a ‘delay in the transmission of technology’ from

one country to another (imitation lag). Therefore, the
technology gives a comparative advantage to the
country of invention.
• Central point of importance is that trade focuses on new
products, technology and innovation.
• A country can become a continually successful exporter
by focusing on continuous innovation and technological
development.
 New Trade Theory
• New Trade Theory (NTT) is an economic theory developed by
Paul Krugman in the 1970s.
• This theory focusses on the ability of a firm and nation to gain
economies of scale (unit cost reduction large scale production).
• The ability of a firms to gain economies of scale can have
important implications in international trade.
• Firms which enjoy economies of scale can increase their trade
and create barriers of entry to other firms.
• Countries that had an early entrant to such an industry have first
mover advantage and can create barriers to new entry.
 Protectionism Vs Free Trade
• Protectionism is restrictions in trade with other nations
in order to protect domestic firms
• It is implemented mainly through tariff and non-tariff
barriers. It is also done through subsidies, incentives, tax
benefits, reservations etc., to domestic industries
• Free trade is the international trade without any barriers
such as tariff and non-tariff barriers.
• It is the process of making international trade free from
restrictions. It is the process of globalisation and
liberalisation of international trade.
 Arguments for free trade
• Increases size of economy
• Increased economic growth
• Countries can specialise in goods in which they have an economic advantage.
• Good for consumers – reduce price, quality (increase the quality of life of
people)
• Benefits of increased competition (efficiency, more productivity, better
services, wide choice, low price etc.)
• Remove red tapism
• Availability of Latest technology
• Flow of foreign capital
• FDI creates more jobs
 Arguments for Protectionism
• Protection to domestic industries, particularly to infant industries
• Protect strategic industries in the national interest
• Preservation of jobs
• Protection of environment through control
• Helpful to safeguard essential goods
• Protecting from low cost labour
• Prevent dumping
• Raise government revenue through tariffs
• Country can enforce product and environmental standards
 Arguments against Free trade
• Threat to domestic industries, particularly to infant industries.
• Monopoly of MNC and repatriation of their profit
• Increased job outsourcing leads to unemployment in some
areas.
• Poor working conditions and low wages.
• Harmful to the environment (Exploitation of resources without
control)
• Cultural issues
• Leads to Dumping
 Arguments against Protectionism
• Lower quality & high price of products
• Few choices to consumers
• Lack of competitiveness to domestic industries (Less
competition, Less efficiency - Domestic firms would become
inefficient)
• Lack of new technology
• Negative effect on employment (loss of jobs from MNCs and
export oriented business)
• Low economic growth
• Chance of creating red tapism
 International Trade Barriers
• A trade barrier is a regulation or government policy that
restrict international trade.
• It is like a wall in the boundary of a country that affect
trade between other countries.
• They are the hindrances that restrict the free flow of
goods, services, labour, technology, capital etc., among
countries
• It consist of tariff (Taxes and duties) and non-tariff
barriers
 Tariff Barriers (import Restraints)
• Tariffs in International trade refers to duties or
taxes imposed on internationally traded goods
when they cross national borders.
• Tariffs include import duty (duty levied on goods
imported) and export duty (duty levied on goods
exported), but it is often used to denote import
duties.
• Example. Customs duty imposed on imported
goods.
 Tariff Barriers (import Restraints)
• Tariff rates are generally high in developing countries
• With the recent economic liberalisation across the world, many
countries have reduced tariff rates.
• The effect of a tariff is to raise the price of imported goods. It
makes imported goods more expensive so that people might
purchase low cost domestic goods.
• The main purpose of tariffs is to protect the domestic industries.
• The importer may be forced to import less because the tariff
barriers cannot be afforded or it may needed to charge more for
the goods imported.
 Types of Tariffs
• Tariffs are of the following types
- Specific Tariffs – Fixed rate of tariff for each unit (value
of goods not considered for tax)
- Ad Valorem Tariffs – Tariff levied as a proportion of the
value of the imported goods
- Compound Tariffs – A combination of specific and ad
valorem tariffs. It is the fixed tariff + an amount based
on the value.
- Import and Export tariffs – Import tariff is the tax
imposed on goods imported and the export tariff is the
tax on exported goods.
 Non-Tariff Barriers
• These are the international trade barriers other than
taxes and duties.
• Nontariff barriers include import ban, quotas,licensing,
VER, local content requirements, embargoes(prohibition
of ships from sailing), administrative policies etc.
• These are frequently used by large and developed
economies.
• The export growth of many developing countries have
been seriously affected by NTB
 Types of NTBs
1. Quotas
• Quotas are the maximum limit of exports and
imports expressed in terms of quantities.
• Quota is a direct restriction on the quantity of
goods imported or exported.
• It is the traditional means of restricting export and
import.
• There are export quotas and import quotas.
• The export quota may be imposed if the Government
feels that the export in excess of the quota will affect the
interest of the domestic consumers.
• Import Quota (Quantitative Restrictions) restricts the
quantity of imports
• It is imposed to protect the interest of the domestic
producers including SSI or to conserve foreign exchange
resources.
• Example: Quota restrictions imposed by developed
countries under Multi-fibre Arrangement (MFA) to
restrict textile exports from developing countries.
 Types of Quota
• Tariff Quota : Imports of commodity up to a specified limit are allowed duty
free or at low rate of tariff. Imports in excess of this limit is subject to high
rate of tariff.
• Unilateral Quota: A country unilaterally (without consulting other
countries) fixes quotas
• Bilateral Quota: Quota fixed after consultation with other countries of
export or import.
• Global Quota: Restrict the quantity of all imports, regardless of origin
• Allocated/Selective/Discriminatory quota: Different quota for different
countries.
• Mixed quota: combination of various quotas.
 2. Import Licensing (License Quotas)
• Quota restrictions are generally administered by means
of licensing.
• The perspective importers are required to obtain a
license from the authorities.
• The terms of license is used as a device for controlling
the quantity of imports.
• Exports of certain products may also be regulated by
means of licensing.
 3. Voluntary Export Restraints
• It is the opposite form of import quotas
• The exporting country voluntarily restrains (hold back)
the export of specified products
• Such restrictions are imposed mostly on the request of
the importing country.
• For example, Japanese automobile exporters adopted
VER in 1981 due to the request of the US Government.
• It provide protection to the domestic firms from foreign
competitors
 4. Local Content Requirements
• It prescribe the fixed percentage of product content
to be manufactured domestically.
• It may be a fixed percentage of components used
for the products or a fixed percentage of the value
of the product.
• It is adopted to establish a good manufacturing base
in their country and thereby to ensure employment
generation and the utilisation of local resources.
 5. Administrative Policies
• These are the formal and informal policies of the
Govt of various countries to restrict import and to
boost export.
• It includes safeguard actions (to protect domestic
industries), health standards, product standards,
environment standards etc.
• Japan mostly uses administrative policies rather
than tariffs and quotas.
 6. Other NTBs
a) Customs Procedures – strict procedure to get customs clearance.
b) Consular formalities (certification of export documents by the
respective consulate of the importing country)
c) Government Procurement – ‘Buy from national’ policy
d) Subsidies (cash grants, low interest loans, tax holidays, supply of inputs
at lower prices) for domestic industries/goods.
e) State Trading: Government enterprises selling products at lower prices
without taking much profit.
f) Monetary Control – Through monetary policies of the Government.
g) Environmental Protection laws
h) Embargoes (Prohibition of ships from sailing)
i) Foreign Exchange regulations etc.
 Balance of Trade & Balance of Payment
•Balance of Trade is a narrow term
•Balance of trade is the merchandise balance
•It is the difference between mercantile exports
and imports.
•It takes into account the export and import of
visible items only. It does not takes into
account the services.
•It does not record capital transactions also.
 Positive and Negative Balance of Trade
• When the exports are greater than imports, the balance of
trade is positive or favourable (Trade surplus)
• When the imports are greater than exports, the balance of
trade is negative or unfavourable (Trade deficit)
• The data on import and export of the Indian economy is
published by the Ministry of Commerce on a monthly
basis.
• India is basically a trade deficit country. India has
been recording sustained trade deficits since 1980
mainly due to the strong imports growth.
 Balance of Payment
Balance of payment is a wider term which takes into
account all international monetary transactions.
Transactions included in Balance of payment consist of
imports and exports of merchandise goods, services,
capital transactions and unilateral transfers.
Balance of Payment can be defined as ‘Statistical
record of all international economic transactions of the
residents of a country with rest of the world during a
year’
 Transactions included in BOP
•Economic transaction:- Exchange of goods,
services or assets for which payment is
required
•Export and import of goods and services
•Inflow and outflow of capital/assets
•Unilateral transfers for which no payment
is made.
• Example: Foreign aid, Drought relief.
 Features of Balance of Payment
➢ Systematic record of the receipts and payments of a
country with other countries.
➢It relates to a period of time(generally an year)
➢It include visible (merchandise), invisible (services) and
capital transactions.
➢Double entry system of book keeping is used to record
receipts and payments.
➢Reveals borrowing and lending of the country
➢Reveals foreign exchange position of the country
➢It is the basis for export import policy
➢Balance of trade is an important element of BOP.
 System of Recording BOP
• Double entry system of book keeping is used to record receipts and
payments in BoP.
• BoP is always in balance because Double entry book keeping system
• Each transaction has a credit and equal debit side
• Receipts are recorded in the credit side and payments on the debit side.
• The difference between debit and credit side of the Balance of Payment
account is marked with surplus (debit side) or deficit (credit side).
• When the receipts are greater than payments, BoP is said to be in
surplus. When the payments are greater than receipts, the BoP is said to
be in deficit.
• When receipts are equal to payments, BoP is in equilibrium.
 Components of Balance of Payment Account

[Link] Account
[Link] Account
[Link] Payments Accounts
[Link] Settlement Account
 Current Account
•It records export and import of goods and
services
•Current account includes visible exports
and imports and invisible items like
receipt and payments for various services
like banking, insurance, transportation,
tourism etc.
•Current account contains debits and
credits
•Credits of current account include
merchandise export and invisible export
•Debits of current account include
merchandise imports and invisible
imports
 Balance of Payment in Indian Current Account

•India has been a current account deficit country

since first five year plan (1951) except for four
years.
•India enjoyed surplus in current account of
balance of payment from 2001-02 to 2004-05
due to increase in net invisibles.
 Capital Account
•It records the movement of financial
capital in and out of the country
•It includes FDI, FII, Investment of indian
companies abroad etc.
•Capital outflow from the home country to
a foreign country is treated as debit item.
•Inflow of capital from a foreign
country to the home country is
treated as credit item.
•Capital account is divided into
three parts, private capital,
banking capital and official capital
 Capital Account

•Private capital include FDI, FPI, Long term

loans, Foreign currency deposits etc.
•Banking capital covers movements in the
external financial assets and liabilities of
commercial and co-operative banks
authorized to deal in foreign exchange.
•Official capital covers RBI
holdings in foreign currency,
Special Drawing Rights (SDR) held
by the Govt. etc
•India is a capital deficit country
on its balance of payment.
Unilateral Transfers Account
• It accounts one way movement of money, goods or
properties as gifts
• These includes Govt grants, remittances of NRIs,
disaster relief funds etc.
• It also contain debits and creidts. Credits are the
payments received from abroad and debits are the
payments to abroad.
Official Settlement Account

•It represent the official sales of foreign

currencies and other reserves to foreign
countries or official purchase of foreign
currencies or other reserves from foreign
countries.
•Credits of this account are the
money received from the sale of
foreign currency and reserves and
the debits of this account include
official purchase of foreign
currencies.
 Balance of payment disequilibrium
•BOP always in balance (since it follow
double entry book-keeping)
•BOP deficit and surplus indicate
imbalance in BOP. This imbalance is
called BOPD
•A country’s BOP is said to be in disequilibrium
when its international receipts (credits) is not
equal to its international payments(debits)
•BOP disequalibrium may be a surplus or deficit
in BOP.
•But, a significant deficit in current account is
generally referred to as BOP disequilibrium.
 Disequilibrium of Deficit

Disequilibrium of Deficit arises when our

receipts from the foreigners fall below our
payment to foreigners.
It arises when the effective demand for foreign
exchange of the country exceeds its supply at
a given rate of exchange.
This is called an 'unfavourable balance'.
 Disequilibrium of Surplus

•Disequilibrium of Surplus arises when the

receipts of the country exceed its payments.
•Such a situation arises when the effective
demand for foreign exchange is less than its
supply.
•Such a surplus disequilibrium is termed as
'favourable balance'.
 Types of Disequallibrium
1. Cyclical Disequilibrium:
• It occurs on account of trade cycles.
• Trade cycle refers to fluctuations in economic activities
• Depending upon the different phases of trade cycles like
prosperity and depression, demand and other forces vary,
causing changes in the terms of trade as well as growth of
trade.
• Accordingly, a surplus or deficit will result in the balance
of payments.
2. Structural Disequilibrium:
• It emerges on account of structural changes
occurring in some sectors of the economy at home or
abroad which may alter the demand or supply
relations of exports or imports or both.
• Suppose the foreign demand for India’s jute products
declines because of some substitutes, then the
resources employed by India in the production of
jute goods will have to be shifted to some other
commodities of export.
3. Short-run Disequilibrium:
• A short-run disequilibrium in a country’s balance of
payments will be a temporary one, ‘lasting for a short
period, which may occur once in a while.
• When a country borrows or lends internationally, it will
have short-run disequilibrium in its balance of payments,
as these loans are usually for a short period.
• Even if they are for a long duration, they are repayable
later on; hence the position will be automatically
corrected and poses no serious problem.
4. Long-run Disequilibrium:
•The long-term disequilibrium thus refers to
a deep- rooted and persistent deficit or
surplus in the balance of payments of a
country.
•It is secular disequilibrium emerging on
account of the chronologically accumulated
short-term disequilibrium, deficits or
surpluses.
• In short, true disequilibrium is a long-term
phenomenon.
• It is caused by persistent deep-rooted dynamic
changes which slowly take place in the
economy over a long period of time.
• It is caused by changes in dynamic
forces/factors such as capital formation,
population growth, territorial expansion,
technological advancement, innovations, etc.
Causes of Balance of payment disequallibrium
1. Economic factors:
(a) Imbalance between exports and imports. (It is the main cause of
disequilibrium in BOR),
(b) Large scale development expenditure which causes large imports,
(c) High domestic prices which lead to imports,
(d) Cyclical fluctuations (like recession or depression) in general
business activity,
(e) New sources of supply and new substitutes.
(ii) Political Factors:
• Experience shows that political instability and disturbances
cause large capital outflows and hinder Inflows of foreign
capital.
• Example: War, Change in diplomatic policy
(iii) Social Factors:
• (a) Changes in fashions, tastes and preferences of the people
bring disequilibrium in BOP by influencing imports and exports;
• (b) High population growth in poor countries adversely affects
their BOP because it increases the needs of the countries for
imports and decreases their capacity to export.
 Measures to correct disequilibrium
(i) Export promotion:
• Exports should be encouraged by granting various bounties to
manufacturers and exporters. At the same time, imports should be
discouraged by undertaking import substitution and imposing reasonable
tariffs.
(ii) Discourage Import - by promoting domestic substitutes
(iii) Impose trade barriers – tariff and non-tariff barriers on imports
(iv) Reducing inflation:
• Inflation (continuous rise in prices) discourages exports and encourages
imports. Therefore, government should check inflation and lower the prices
in the country.
(v) Exchange control:
• Government should control foreign exchange by ordering all
exporters to surrender their foreign exchange to the central
bank and then ration out among licensed importers.
(vi) Devaluation of domestic currency:
• It means fall in the external (exchange) value of domestic
currency in terms of a unit of foreign exchange which makes
domestic goods cheaper for the foreigners.
• Devaluation is done by a government order when a country has
adopted a fixed exchange rate system.
• Care should be taken that devaluation should not cause rise in
internal price level.
 Stages of Internationalisation
• Domestic (Domestic Company)
• Exporting (International Company)
• Subsidiaries or joint ventures in host countries
• Multinational operations (MNC)
• Global and transnational operations (Trans-national
corporations)
Domestic Company
• A company whose operations are limited within the boundaries
of the home country
International company
• A company who sells its products in foreign countries.
• Engaged in exporting and importing
Multinational Company
• Company which is having operations and trading in two or more
countries
• Headquarters in one country and operations in many countries.
Global company
• Company which is having operations and trading in
many countries.
• Same marketing mix elements across countries with
slight variations.
• Global orientation and global marketing strategies
Transnational company
• A company with decentralised global operating units
in many countries
Reasons for internationalisation (Why do go
companies International?)
Reasons for Globalisation of Companies

Push factors Pull Factors

• Domestic constraints (Limited • Profit advantage
population, low birth rate, Poor • Growth and development
technological base)
• Difficulty to get licence/clearance. • Policies of Govt.
• Competition • Liberalisation and Globalisation
• Higher cost of production • Availability of cheap raw-
material/labour
• Saturation in PLC • Availability of technology
• Excess production • Untapped markets
• Political instability
Factors restricting internationalisation of business
• Company factors – Low capacity, lack of finance, lack of professionalism in
mgt, low risk taking capacity, low technological capability, lack of
innovation, lack of international knowledge and international relations
etc.
• Tariff restrictions
• Non-tariff barriers
• Exchange control (importer is not allowed to get the necessary foreign
exchange)
• Legal system of home and host countries
• Unfavourable Monetary policies
• Less mobility of factors of production
• Unfavourable market characteristics
 Largest Companies in the World
by Market Capitalisation (as on 31st March 2022)
Rank Name of Company Country Sector Market cap
1 Apple USA IT $2.6 trillion
3 Microsoft USA IT $ 2.1 trillion
2 Saudi Aramco Saudi Arabia Energy $2.4 trillion
5 Amazon USA E-Commerce $1.5 trillion
4 Alphabet (Google) USA IT $1.7 trillion
6 Facebook USA IT - SM $942.77 billion
7 Tencent China IT $742.36 billion
7 Berkshire Hathaway USA Finance 732 billion
6 Tesla USA Energy (EV) $865 billion
10 Alibaba China E-Commerce $577.36 billion
 Largest Companies in India
by Market Capitalisation (5th July 2021)
Rank Name of Company Sector Market cap (in crores)
1 Reliance Industries Multiple (Energy, telecom, retail etc.) 1,385,632

2 TCS IT 1,228,658

3 HDFC Bank Finance 826,244

4 Infosys IT 672,897

5 Hindustan Unilever (HUL) Consumer goods 587,021

6 HDFC NBFC – Housing Finance 450,499

7 ICICI Bank Finance 448,500

8 SBI Finance 386,167

9 Bajaj Finance Finance 366,493

10 Kotak Mahindra Finance 343,320

 Foreign Trade Policy of India (EXIM Policy)
• Foreign Trade Policy (FTP) is the prime policy that lays down
simple and transparent procedures which are easy to comply
with and administer for efficient management of foreign trade
in India.
• The Policy aims at enhancing the country’s trade for economic
growth and employment generation.
• Foreign trade in India is promoted and facilitated by
the Directorate General of Foreign Trade (DGFT), under
the Ministry of Commerce and Industry (MoCI).
 Foreign Trade Policy of India (EXIM Policy)
• Exim Policy or Foreign Trade Policy is a set of guidelines
and instructions established by the DGFT in matters
related to the import and export of goods in India.
• It is regulated by the Foreign Trade Development and
Regulation Act, 1992 which replaced imports and Exports
(Control) Act 1947.
• The main objective of the Foreign Trade (Development
and Regulation) Act is to provide the development and
regulation of foreign trade by facilitating imports into,
and augmenting exports from India.
 Export Import Policy
• Export Import Policy or better known as Exim Policy is a set of
guidelines and instructions related to the import and export of
goods.
• Indian EXIM policy contains various policy related decisions taken by
the government in the sphere of Foreign Trade, i.e., with respect to
imports and exports from the country and more especially
export promotion measures, policies and procedures related
thereto.
• EXIM policy 1992-97 is the first EXIM policy after the initiation of
economic liberalization.
• Foreign trade policy is formulated for a period of 5 years and will be
renewed on the 31st march of every year.
 Objectives of Exim Policy
• To accelerate the economy from low level of economic activities
to high level of economic activities
• To stimulate sustained economic growth
• To enhance the technological strength and efficiency of Indian
agriculture, industry and services.
• To improve the competitiveness of Indian industries.
• To generate new employment opportunities.
• Encourage the attainment of internationally accepted standards
of quality.
• To provide quality consumer products at reasonable prices.
 New Foreign Trade Policy 2015-20
• Foreign Trade Policy (FTP) 2015-20 was unveiled by Ms Nirmala Sitharaman,
Minister of State for Commerce & Industry (Independent Charge),
Government of India on April 1, 2015. The Government extended FTP 2015-
2020 due to spread of COVID- 19 Pandemic up to 31st March 2022.
• FTP 2015-20 provides a framework for increasing exports of goods and
services as well as generation of employment and increasing value addition
in the country, in line with the ‘Make in India’ programme.
• Aims to increase exports to $900 billion in 2019-20 from $466 billion in 2013-
14
• The Policy aims to enable India to respond to the challenges of the external
environment.
• FTP aims to align with 'Make in India', 'Digital India' and 'Skills
India' initiatives.
 Features of New Foreign Trade Policy 2015-20
• FTP 2015-20 introduces two new schemes, namely
‘Merchandise Exports from India Scheme (MEIS)’ for export of
specified goods to specified markets and ‘Services Exports
from India Scheme (SEIS)’ for increasing exports of notified
services.
• Rewards are given by way of Duty Credit Scrips which
provides tax incentives on exports, which can be used by
exporters to set off their import duties
• Duty credit scrip’s made freely transferable and usable
for payments of custom duty and service tax.
• E-Commerce of handicrafts, handlooms, books etc., eligible
for benefits of MEIS.
 Features of New Foreign Trade Policy 2015-20
• FTP benefits from both MEIS & SEIS will be extended to units
located in SEZs
• Agriculture and village industry products to be supported
across the globe at rates of 3% and 5% under MEIS.
• Firms that export goods through courier or foreign post office
using e-commerce of FOB (Freight on Board) value up to Rs.
25,000 per consignment will be entitled for rewards under
MEIS.
• Hotel and restaurants would get rewards scrips under SEIS at
the rate of 3 per cent and other specified services at the rate
of 5 per cent.
 Features of New Foreign Trade Policy 2015-20
• Measures have been adopted to nudge procurement of capital
goods from indigenous manufacturers under the EPCG scheme
by reducing specific export obligation to 75per cent of the
normal export obligation.
• Measures have been taken to give a boost to exports of defense
and hi-tech items.
• Served From India Scheme (SFIS) will be replaced with Service
Export from India Scheme (SEIS).
• Branding campaigns planned to promote exports in sectors
where India has traditional Strength.
 Features of New Foreign Trade Policy 2015-20
• Nirayath Bandhu scheme (introduced in 2011)
revamped to train new entreprenuers through
orientation programmes, conselling, mentoring
sessions etc.
• Reduction in mandatory documents required for
export and import.
• A new institution - Centre for Research in
International Trade - is being established to
strengthen India's research capabilities in the area
of international trade.
New Foreign Trade Policy 2021-26
• The meeting of the committee of the Ministry of Commerce &
Industry was held on 12th January, 2021 on the subject of ‘New
Foreign Trade Policy’ for the tenure of 2021 – 2026.
Aim of the policy
• Boost the export of goods and services
• Helps the districts to reach its potential as an export hub
• Develop trade infrastructure
• Regular meetings with chamber of commerce, industry
associations, export promotion council etc.
Key proposals/Expectations in New Foreign
trade policy 2021-26
• WTO compliant tax incentives on export products
• Develop the trade infrastructure – to promote export trade
• Easy access to credits for MSME. Formal Institutions are not
inclined to grant loans to MSMEs
• Focus on more exports and less subsidies
• Skill development programmes
• Upgradation of technology
• Digitalisation
 EXIM Bank of India
• Export Import Bank of India
• Public sector bank wholly owned by the Govt of India
• Created by the Export Import Bank of India Act of 1981
• Commenced business operations from March 1982
• Apex institution that promotes international trade
• Head office Mumbai and network of 13 offices in India and
abroad
 EXIM Bank of India
Objectives
•Financing, facilitating and promoting India’s
foreign trade
•Creating export capability by arranging
competitive financing at various stages of
export cycle
•Developing a commercially viable relationship
with a target set of externally oriented units
 EXIM Bank of India
Business Profile
•Provides export credit on deferred payment
terms on exports of Indian machinery,
manufactured goods and services
•Lines of credit extended to overseas entities
•Provides project finance and trade finance
 EXIM Bank of India
Business Profile
• Provides information and advisory services to Indian
companies aimed at globalisation of Indian business
• Provides financial assistance to Indian companies
foe export capability creation focusing on EOUs,
software services etc
• Gives fee-based services to identify new business
opportunities, source trade and investment related
information
 EXIM Bank of India
Business Profile
•Help Indian companies in search for overseas
partners, identification of technology suppliers,
development of joint ventures in India and
abroad
•Support Indian exporters to participate in
projects funded by multilateral funding agencies.