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Semester 4: B.B.A., INTERNATIONAL BUSINESS
International Business: Introduction, Difference between international and national business, stages of internationalization, international orientations, Globalization Concept, driving and restraining forces of globalization
International Business
Introduction
International business refers to the trade of goods, services, technology, and capital across national borders. It encompasses a wide range of business activities that involve the exchange of products and services between different countries, influenced by international trade agreements, economic policies, and cultural differences.
Difference between International and National Business
National business operates within a single country and is governed by local regulations, market conditions, and domestic policies. In contrast, international business functions across multiple countries, dealing with different currencies, laws, cultural norms, and market dynamics. The complexity of international business requires firms to navigate various factors that do not typically affect national businesses.
Stages of Internationalization
The stages of internationalization typically include the following: 1. Domestic stage - firms operate solely in their home market. 2. Export stage - firms begin exporting goods to overseas markets. 3. International stage - firms engage in direct foreign investment, establishing operations in other countries. 4. Global stage - firms view the world as a single market and operate in multiple countries leveraging global efficiencies.
International Orientations
International orientations refer to a company's approach to operating in international markets. Key orientations include: 1. Ethnocentric - a home country-centered approach that prioritizes domestic strategies. 2. Polycentric - multinational approach that adapts strategies to each country. 3. Regiocentric - regional approach that focuses on specific geographic areas. 4. Geocentric - a global strategy that seeks to integrate a global viewpoint into business operations.
Globalization Concept
Globalization refers to the increasing interconnectedness and interdependence of economies, cultures, and populations across the globe, facilitated by trade, investment, technology, and communication. It has significant implications for international business, presenting both opportunities and challenges for organizations.
Driving Forces of Globalization
Key driving forces of globalization include: 1. Technological advancements that lower communication and transportation costs. 2. Trade liberalization and reduction of tariffs which encourage international trade. 3. Market expansion opportunities as businesses seek new customers. 4. Increased competition that pressures firms to operate globally.
Restraining Forces of Globalization
Restraining forces that may hinder globalization include: 1. Trade barriers such as tariffs, quotas, and regulations that restrict international trade. 2. Nationalism and protectionism that prioritize domestic over foreign manufacturing and trade. 3. Cultural differences that create challenges for communicating and connecting with international consumers. 4. Political instability in various regions that may deter foreign investment and trade.
International Trade theories: Introduction, Why do nations trade, Theories of International trade (Mercantilism, Absolute advantage, Comparative advantage, Heckscher-Ohlin, Product life cycle theory, Porter's diamond model)
International Trade Theories
International trade theories explain the reasons behind trade between nations. Understanding these theories helps comprehend the dynamics of the global market and economic interactions.
Nations engage in trade to benefit from comparative advantages, access resources, expand markets, and achieve economic growth. Trade allows countries to specialize and improves overall efficiency.
Mercantilism emphasizes the importance of accumulating wealth through trade. It advocates for a positive balance of trade where nations export more than they import, using government intervention to achieve economic dominance.
The absolute advantage theory suggests that a country should produce goods that it can create more efficiently than others. This concept, introduced by Adam Smith, emphasizes the benefits of specialization.
Proposed by David Ricardo, the concept of comparative advantage states that nations should produce goods in which they have a lower opportunity cost. This theory supports the idea that every country can benefit from trade.
The Heckscher-Ohlin theory argues that countries will export goods that utilize their abundant factors of production and import goods that require factors that are scarce. This theory focuses on resource endowments.
This theory posits that products go through different stages in their life cycle, influencing trade patterns. Initially, new products are exported by innovating countries but may find production moved to developing nations as products mature.
Developed by Michael Porter, this model identifies four factors that determine national competitive advantage: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry.
International Business Environment: Introduction, Economic, Demographic and Socio-cultural environment, Political, Legal, Natural and Technological environment
International Business Environment
Introduction
The international business environment refers to the combination of external factors that affect a business's ability to operate across borders. It includes various influences such as cultural, economic, political, and legal conditions. Understanding this environment is essential for making informed business decisions and strategies.
Economic Environment
The economic environment encompasses the economic conditions of various countries or regions which affect international business. Key elements include economic growth rates, inflation, exchange rates, and overall economic stability. Companies must analyze these conditions to assess market potential and risks.
Demographic Environment
Demographics refer to the statistical data of populations, including age, gender, income levels, and education. This environment helps businesses understand their target markets, consumer behavior, and workforce availability in different countries. Analyzing demographic trends can inform product development and marketing strategies.
Socio-Cultural Environment
The socio-cultural environment includes the values, beliefs, customs, and attitudes of individuals in different societies. Understanding cultural differences is crucial for global business communication, negotiation, and marketing. Companies must adapt their strategies to align with local cultures to succeed in international markets.
Political Environment
The political environment involves the governmental policies, political stability, and regulations of countries. Political factors can affect operations, trade policies, and relations between countries. Businesses must keep abreast of political changes to navigate risks and leverage opportunities.
Legal Environment
The legal environment refers to the laws and regulations that govern business practices in different countries. This includes trade laws, labor laws, intellectual property rights, and environmental regulations. Companies must comply with local laws to avoid legal repercussions and to maintain a good reputation.
Natural Environment
The natural environment includes the ecological and environmental factors affecting business operations. Factors such as climate, natural resources, and environmental sustainability are increasingly important. Businesses are expected to adopt sustainable practices and consider environmental impacts in their operations.
Technological Environment
The technological environment encompasses innovation, research and development, and the overall technological landscape. Advances in technology affect how businesses operate, communicate, and deliver products. Companies must leverage technology to improve efficiency and remain competitive in the global market.
International Monetary System: The pre-Bretton woods period, The Bretton woods system, Collapse of Bretton woods system, Exchange rate meaning and types, International banking, Bank for international settlements (BIS), Euro currency market
International Monetary System
Pre-Bretton Woods Period
The pre-Bretton Woods period was characterized by a gold standard and competitive devaluations. Major economies operated under a system of fixed exchange rates supported by gold reserves. This period saw economic instability due to wars and the Great Depression, leading to trade barriers and currency fluctuations.
Bretton Woods System
The Bretton Woods system was established in 1944 with the aim to create a stable international monetary framework. It fixed exchange rates and made the US dollar the primary currency convertible to gold. The International Monetary Fund (IMF) and World Bank were created to oversee this system and provide financial support.
Collapse of Bretton Woods System
The collapse of the Bretton Woods system occurred in the early 1970s, primarily due to inflation, trade deficits, and the inability of the US to maintain its gold reserves. In 1971, President Nixon suspended the dollar's convertibility to gold, leading to a transition to a system of floating exchange rates.
Exchange Rate Meaning and Types
Exchange rates refer to the value of one currency in relation to another. Types include fixed, floating, pegged, and managed floating exchange rates. Fixed exchange rates are set by authorities, while floating rates are determined by market forces. Pegged rates are fixed to another currency or basket of currencies.
International Banking
International banking involves financial transactions between different countries. It includes services like foreign exchange, international loans, and trade finance. Banks facilitate cross-border transactions and play a crucial role in managing risks associated with currency fluctuations.
Bank for International Settlements (BIS)
The Bank for International Settlements is an international financial institution founded in 1930 to foster international monetary and financial cooperation. It serves as a bank for central banks and facilitates cooperation among monetary authorities. BIS provides banking services and conducts research on global economic issues.
Euro Currency Market
The Euro currency market involves the trading of currencies outside their home country and is primarily denominated in US dollars or euros. It allows for greater flexibility in international transactions and provides liquidity. Eurocurrency deposits are held in banks outside of the regulation of the home country.
General Agreement on Tariff and Trade (GATT), World trade organization (WTO), International Monetary Fund (IMF), Asian Development Bank, UNCTAD
General Agreement on Tariff and Trade (GATT), World Trade Organization (WTO), International Monetary Fund (IMF), Asian Development Bank, UNCTAD
General Agreement on Tariff and Trade (GATT)
GATT was established in 1947 to create a multilateral framework for trade. It aimed to reduce tariffs and other trade barriers, promoting free trade among member nations. GATT provided a platform for negotiations and dispute resolution.
World Trade Organization (WTO)
WTO was created in 1995, succeeding GATT. It expanded the scope of trade agreements to include services and intellectual property. WTO ensures that trade flows as smoothly, predictably, and freely as possible, resolving disputes between member states.
International Monetary Fund (IMF)
IMF was established in 1944 primarily to ensure global monetary cooperation and financial stability. It provides financial support and advice to member countries facing economic difficulties, helping to stabilize exchange rates and restore financial stability.
Asian Development Bank (ADB)
ADB was established in 1966 to promote social and economic development in Asia. It provides loans, technical assistance, and grants for various projects, aiming to reduce poverty and improve living standards across the region.
UNCTAD
United Nations Conference on Trade and Development (UNCTAD) was established in 1964 to promote the integration of developing countries into the global economy. It addresses trade, investment, and development issues, focusing on policies that enhance development prospects.
