International Business
Gaurav Dawar
Introduction
International business is a term used to collectively
describe all commercial transactions that take place between two or more regions, countries and nations beyond their political boundary. It refers to all those business activities which involve cross border transactions of goods, services, resources between two or more nations.
Operations -
Objectives: sales expansion, resource acquisition, risk minimizati on. MeansModes: importing and exporting, tourism and transportation, licen sing and franchising, turnkey operations, management contracts, direct investment and portfolio investments. Functions: marketing, global manufacturing and supply chain management, accounting, finance, human resources Overlaying alternatives: choice of countries, organization and control mechanisms
Regional developments helping internationalization
NAFTA (North American free trade agreement) 2. EU (European Union) 3. WTO (World Trade Organisation) 4. ASEAN (Association of South east Asian Nations)
1.
Routes of Globalization
Export & Import 2. Tourism & Transportation 3. Use of assets 4. Performance of services
1.
5.
1.
Direct Investment
Joint Venture 2. Wholly owned subsidiary
6.
Portfolio Investment
Criticism for MNCs
1.
2.
3. 4. 5. 6. 7.
Challenges to national state sovereignty Inequities Interference with economic objectives Social disruption Environmental degradation Imperialism MNC and technology
Internationalisation
internationalization has been viewed as a
process of increasing involvement of enterprises in international markets
Today more and more firms operate
internationally and in some cases even globally. In almost all major economies of the world, the emphasis of most theories tends to be on how businesses should internationalize rather than on why they should do so.
Regional Developments helping Internationalization
The emergence of NAFTA (North American free trade
agreement, comprising US, Mexico and canada, created a huge market in north America EU (European Union consist of 25 nations and all these countries have removed barriers and adopted a single currency i.e. Euro. GATT (General agreement on Tariff and trade) are stimulating increase in world trade, and would reduce taridd by 38% and under new agreement GATT has been replaced by WTO. Collectively 148 countries have joined. ASEAN (Association of South east Asian nations) made up of Indonesia, Malaysia, Singapore, Philippines, Brunei, Thailand etc.
Process of deciding to go International
1.
2. 3. 4. 5. 6.
Assess the prevailing conditions in market (i.e. competition, trade policy and regulatory environment) Selection of the country Identifying the opportunities Locating the resources Ascertaining the risk Proceed to planning
Need for Internationalisation
Main reason for internationalization is stated as
the need of companies to be able to stay competitive. Increase Customer base Offset seasonal fluctuations in local market Offset increasing cost of doing business Establish the brand in international market Spreading business risk Accessing new technology
Figure 1: Internationalisation and the network model (Johanson & Mattsson 1988
Foreign Trade policies
Outward oriented Policy it provides incentives
for production for domestic market and exports. The level of protection is less. Inward oriented policy High level of protection, and bias of industrial trade and policy in favor of domestic protection. Also refer to as import substitution policy.
Trade Theories
Mercantalism
Theory of Absolute Advantage
Theory of comparative Advantage Factor Endowment Theory Product Life cycle theory New Trade Theory
Barriers
Tariff
Barriers
Non-Tariff Quota
Export Tariff
Import Tariff
Transit Tariff
Subsidies
Others Local content Requiremen t
Product Testing & Standard
Embargoe s
Administrativ e Delays
Currency control
Protectionism
National Security Retaliation Protecting jobs
Political argument
Protecting Human Rights
Protectionism
Infant Industry argument Strategic trade policy
Economic Argument
Financing techniques in Foreign Trade
Cash in advance
Factoring
Forfeiting Bankers acceptance Short term credit Long term credit EXIM Bank Bills of lading
Letter of Credit
A letter from a bank guaranteeing that a buyer's
payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. 1. It eliminates the credit risk 2. It reduces the danger that payment will be delayed 3. Letter of credit reduces uncertainty 4. Letter of credit can also guard against pre shipment risk
Forfeiting
In forfeiting, a bank advances cash to an exporter
against invoices or promissory notes guaranteed by the importer's bank. The amount advanced is always 'without recourse' to the exporter, and is less than the invoice or note amount as it is discounted by the bank. The discount rates depends on the terms of the invoice/note and the level of the associated risk.
Bill of lading
A legal document between the shipper of a particular good and the carrier detailing the type, quantity and destination of the good being carried. The bill of lading also serves as a receipt of shipment when the good is delivered to the predetermined destination. This document must accompany the shipped goods, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper and receiver.