About the Tutorial

[Pages:16]International Business Management

About the Tutorial

International Business is a subject that teaches how to nurture a local business and make it global. It explains the business practices and strategies required to succeed in international markets. In this tutorial, it has been our endeavor to cover the multidimensional aspects of International Business in an easy-to-understand manner.

Audience

This tutorial is specially designed for the students of Management, Commerce, Human Resources, Marketing, and Business Law.

Prerequisites

To understand this tutorial, it is advisable to have a foundation level knowledge of business and management studies. However, general students who wish to get a brief overview International business may find it quite useful.

Copyright & Disclaimer

? Copyright 2019 by Tutorials Point (I) Pvt. Ltd. All the content and graphics published in this e-book are the property of Tutorials Point (I) Pvt. Ltd. The user of this e-book is prohibited to reuse, retain, copy, distribute or republish any contents or a part of contents of this e-book in any manner without written consent of the publisher. We strive to update the contents of our website and tutorials as timely and as precisely as possible, however, the contents may contain inaccuracies or errors. Tutorials Point (I) Pvt. Ltd. provides no guarantee regarding the accuracy, timeliness or completeness of our website or its contents including this tutorial. If you discover any errors on our website or in this tutorial, please notify us at contact@

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International Business Management

Table of Contents

About the Tutorial ......................................................................................................................................i Audience ....................................................................................................................................................i Prerequisites ..............................................................................................................................................i Copyright & Disclaimer ...............................................................................................................................i Table of Contents ...................................................................................................................................... ii

PART 1: THE INTERNATIONAL BUSINESS ECOSPHERE............................................................... 1

1. IB ? Introduction .......................................................................................................................................2 A Global Village .........................................................................................................................................2 What is International Business? .................................................................................................................2 Internationalization of Business .................................................................................................................3 Advantages of Internationalization ............................................................................................................3 Globalization .............................................................................................................................................4 Factors Causing Globalization of Businesses...............................................................................................4

2. IB ? Country Attractiveness.......................................................................................................................6 Adapting to Changing Needs......................................................................................................................6 Country Attractiveness ..............................................................................................................................7 Business Environments..............................................................................................................................7

3. IB ? Protectionism...................................................................................................................................10

4. Liberalization ..........................................................................................................................................12 Liberalization Vs Deregulation .................................................................................................................12 Arguments, Counterarguments, and Discussions......................................................................................12 Liberalization, Privatization, and Globalization ......................................................................................... 13 Revolutionary Economic Trends...............................................................................................................13

PART 2: INTERNATIONAL TRADE ........................................................................................... 14

5. General Agreements on Tariffs and Trade...............................................................................................15 General Agreements on Tariffs and Trade ................................................................................................ 15 GATT ? Major Principles...........................................................................................................................15 Role of GATT in Promoting International Trade ........................................................................................ 15

6. World Trade Organization.......................................................................................................................17 Reasons behind the Formation of WTO....................................................................................................17 Role of WTO in Promoting International Trade.........................................................................................18 Role of Developing Countries...................................................................................................................19

7. Global Trade ? Major Challenges ............................................................................................................20

8. IB ? Modern Theories..............................................................................................................................22 The Heckscher and Ohlin Model ..............................................................................................................22 The Samuelson and Jones Model .............................................................................................................22 The Krugman and Obsfeld Model.............................................................................................................23 The Michael Porter Model .......................................................................................................................23

9. Global Competetiveness .........................................................................................................................24

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Factors Affecting Global Competitiveness ................................................................................................ 24

10. Regional Trading Blocs ............................................................................................................................25 What are Regional Trading Blocs? ............................................................................................................25 Regional Trading Blocs ? Advantages .......................................................................................................25 Regional Trading Blocs ? Disadvantages ................................................................................................... 26

11. Major Trade Blocs ...................................................................................................................................27 ASEAN .....................................................................................................................................................27 EU ........................................................................................................................................................... 27 MERCOSUR.............................................................................................................................................. 27 NAFTA .....................................................................................................................................................28

PART 3: STRATEGIC APPROACHES ......................................................................................... 29

12. Strategic Compulsions.............................................................................................................................30 Areas of Strategic Compulsions................................................................................................................30 Standardization Vs Differentiation ...........................................................................................................31 Strategic Options.....................................................................................................................................31 Factors that Affect Strategic Options........................................................................................................32

13. Global Portfolio Management.................................................................................................................34 Factors Affecting Global Portfolio Investment .......................................................................................... 34 Modes of Global Portfolio Management .................................................................................................. 35 Drawbacks of Global Portfolio Management ............................................................................................ 36

14. IB ? Modes of Entry.................................................................................................................................37 Exporting................................................................................................................................................. 37 Licensing .................................................................................................................................................37 Franchising ..............................................................................................................................................38 Turnkey Project .......................................................................................................................................38 Mergers & Acquisitions............................................................................................................................38 Joint Venture...........................................................................................................................................38 Wholly Owned Subsidiary ........................................................................................................................ 39

15. IB ? Organizational Structures.................................................................................................................40 Centralization vs. Decentralization...........................................................................................................40 Use of Subsidiary Board of Directors ........................................................................................................40 Organizational Structures ........................................................................................................................ 40 Mixed Matrix...........................................................................................................................................46

16. IB ? Control Mechanisms ........................................................................................................................48 Objectives of Control ............................................................................................................................... 48 Types of Control Mechanisms..................................................................................................................48 Approaches to Control Mechanisms.........................................................................................................49 Constraints of Control Approaches...........................................................................................................50

17. IB ? Performance Issues ..........................................................................................................................52 Effective Performance Measurement System...........................................................................................53 Performance Evaluation System...............................................................................................................53 Financial and Non-Financial Measures of Evaluation ................................................................................54 Types of Performance Evaluation Systems ............................................................................................... 54

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UNIT 4: BUSINESS OPERATIONS ............................................................................................ 55

18. IB ? Production Issues .............................................................................................................................56 Factors that Affect Production .................................................................................................................56 Facility or Location................................................................................................................................... 56 Scale of Operations.................................................................................................................................. 57 Cost of Production...................................................................................................................................57 Make-or-Buy Decisions ............................................................................................................................ 57

19. IB ? Supply Chain Issues ..........................................................................................................................59 Globalization and its Effect on Supply Chain.............................................................................................59

20. Global Marketing Mix .............................................................................................................................60 Global Marketing Mix: Consumer Products .............................................................................................. 60 Global Marketing Mix: Price.....................................................................................................................61 Global Marketing Mix: Promotion............................................................................................................62 Global Marketing Mix: Distribution ..........................................................................................................64 Application of 4 P's .................................................................................................................................. 65

21. IB ? Financial Aspects..............................................................................................................................67 Foreign Investment by International Companies ......................................................................................67 International Investment Outcomes.........................................................................................................68 Factors for Investment Decisions .............................................................................................................68 Funding the International Business ..........................................................................................................69 Sources of Funds .....................................................................................................................................69 Foreign Exchange Risks ............................................................................................................................ 69 Hedging Forex Risks ? Internal Techniques...............................................................................................70 Hedging Forex Risks ? External Techniques .............................................................................................. 70

22. IB ? HRM Issues.......................................................................................................................................72 Recruitment and Selection.......................................................................................................................72 Development & Training..........................................................................................................................72 Performance Evaluation .......................................................................................................................... 73 Management of Expatriates.....................................................................................................................73

PART 5: MISCELLANEOUS ..................................................................................................... 75

23. IB ? Adverse Effects.................................................................................................................................76

24. IB ? Conflict Management.......................................................................................................................78 Types of Conflicts .................................................................................................................................... 78 Factors Causing Conflicts ......................................................................................................................... 79 Conflict Management .............................................................................................................................. 79 Five A's Technique...................................................................................................................................81

25. IB ? Negotiations.....................................................................................................................................83 Role of International Agencies in Negotiations ......................................................................................... 84

26. IB ? Ethical Issues....................................................................................................................................86 Employment Practices and Ethics.............................................................................................................86 Human Rights..........................................................................................................................................86 Environmental Pollution .......................................................................................................................... 86 Corruption............................................................................................................................................... 87 iv

International Business Management Moral Obligations....................................................................................................................................87

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Part 1: The International Business Ecosphere

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1. IB ? INTRODUCTION

A Global Village

The world is fast becoming a global village where there are no boundaries to stop free trade and communication. Keeping pace with it, the way we do business has changed in an unprecedented manner. The competition, in the global marketplace, is at its peak where all companies want to sell their goods to everyone, everywhere on the globe.

Figure: A Global Village without Boundaries For example, the faucet we see in our bathroom may be from Italy. The towels we use may be a Brazilian product. The automobile we drive may be a Japanese or German brand. The air conditioners we use may be from France. It is almost impossible to stay isolated and be self-sufficient in this day and age. That is why multinational companies are a reality.

What is International Business?

Any business that involves operations in more than one country can be called an international business. International business is related to the trade and investment operations done by entities across national borders.

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