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Introduction to International Business

Welcome everyone to the course of International Business. The purpose of starting this
course is to equip the students of various fields such as management, commerce and
students in the international business and trade. And also those students who are
appearing exam such as in India for example, the UGC-NET and others where, this is an
integral part of their curricula.
So, I have made this course title International Business for their benefit. So, what exactly
is this course? and what we are going to do? In a nutshell if I tell you we will be covering
the different aspects of international business. So, I have broken this entire syllabus into
12 chapters or 12 units and today we will be starting with the first one, with the
‘Introduction’.
(Refer Slide Time: 00:16)
So, I will be covering things like international trade, the institutions, and the different
rules and regulations. So, and many other things, like for example, the international
financial environment, foreign trade promotion measures and organizations in India,
regional economic cooperation, European Union etc., FDI and the policies, related
policies, multinationals in international business and their role. Then contemporary
development issues in international business right! and; obviously, the theoretical
foundations in the international trade. So, these are some of the units which we will be
covering. Let us begin this course and I hope you have a nice time and a learning time
right!
So, what is international business all about? So, international business how do you
understand? So, business we understand as a simple commercial activity which is done
for a with a profitable or profit motive right! So, the same thing when it is done in the
domestic we say domestic trade or domestic business and when it goes across
boundaries, across nations we say it is international business right! So, let us take a
definition, one or two definitions.
(Refer Slide Time: 02:32)
So, what international business says is that it can be defined as the expansion of business
functions from domestic to any foreign country with an objective of fulfilling the needs
and wants of international customers.
So, with time what has happened, the boundaries the world boundaries have become very
thin right! and as G.E’s (General Electric) Jack Welch had said it is a boundary less
organization and the (you know) the world has today hardly any boundaries. So, the
boundaries are getting thinner and thinner with time with the opening up. (you know)
rules with new rules and regulations and more liberalization so, higher liberalization so it
is happening.
And on the other side the customers, the international customers, their needs and wants
are also increasing day by day. So, to fulfill such needs the expansion of business
functions has become an integral part. So, it says the exchange of goods and services,
resources, knowledge and skills among individuals and businesses in two or more
countries is what defines the international business as right!
There is one more definition by the International Business Journal and it says that
international business is a commercial enterprise that performs economical activity
beyond the bounds of its location and has branches in two or more foreign countries and
makes use of economic, cultural, political, legal and other differences between the
countries.
So, it is very clear and (you know) it is very easy to understand, but the complications of
conducting the international business are very very high, although the definition is very
simple that when economic activity happens between two or more countries right! we
say it is an international business, but the complications are large, why the complications
are large? Because you see the culture of the countries might be different. The political
situations of the countries might be different right! and the relationships bilateral
relationships might not be good or may be very good. So, it depends right! And the
knowhow and the infrastructural developments in across the countries might also be very
different.
So, all these things makes international business slightly complicated and it is not that
easy it is bound by numerous rules and regulations, laws and which and (you know) as I
said cultural aspects which might be extremely different from one place to the other. And
there are several cases which I can sight and I will be sighting during the course (you
know) entire course where I will be explaining that how there have been (you know)
successful cases where two companies in different countries have worked together and
done well. And there also have been cases where there have been huge mismanagement
and failure of two companies and the reason might have been very very small which
looks innocuous and harmless that becomes a major factor for the disturbance and the
failure of the (you know) entire business activity.
(Refer Slide Time: 05:19)
So, how evolution happened, how international business started? The first thing that
comes to my mind is the East India Company when they came to India they came with
some business (you know) activity they came up with some business mindset. And that
was the first time when somebody international was actually doing business in India they
started business doing business in India, otherwise we used to do trade with Sumatra,
Ceylon (Sri lanka) and all, but that was a different kind, but here somebody first came to
India and started wanted to establish their foothold in India.
Then there was after that we found there were two major wars right! the World War 1
and the World War 2. So, it was a time when (you know) things were things got slowed
down very seriously right! because the world was not very keen on doing trade and
business at that time because of its own difficulties that every country was suffering from
some or the other problems right!
In between there were large number of changes that happened also, there was industrial
revolution (you know), there was (you know) new technologies that were emerging. And
the world was finding that things were becoming smoother to do a trade with a place
which was quite far of and it seemed difficult to do trade with them earlier right!
Then the third point which I have thought I thought would be important to discuss is the
famous Noble laureate Milton Friedman’s contribution very first time he talked about the
neoliberalization, neoliberal globalization and he is talked about opening (of markets).
He was one of the few economists who was slightly against the thoughts(views) of
Keyne’s philosophies right! So, Milton Friedman spoke about how globalization could
impact the entire (you know) business cycle right!
Another important point which I have mentioned as glocal you can see. So, glocal what
is glocal I mean globalization and localization. So, when international business is done in
a localized manner right! so that is what we say glocal right!
That means, what for example, when let’s say a simple understanding when McDonalds
came to India they became they started behaving in a local manner right! they wanted to
cater to the local taste and demand right! And thus they did quite well right! whereas,
some companies they could not understand this local effect and because of they failed in
their initial days for example, Siemens, for example, Kellogg’s right! there are certain
many more examples.
So, international business grew because of some of these reasons that company’s
understood that it was very very important to be more local and try to address the local
problems right! Although they were global in nature they were globalized in nature, but
still they were addressing the local problems, if this would not have been possible then it
would have been very very difficult for these companies to be successful in a particular
country right! and especially country with a huge diversity of culture and tradition like
India.
Then the rise of emerging markets like BRICS for example, Brazil, Russia, India, China
and South Africa right! So, this emerging markets why these are called emerging
markets, because these markets today have the potential to cater to the world right! and
they have immense potential in terms of consumer population size and resources and
everything.
So, all these things all these factors together helped in the development of the
international business. So, as we understood that international business is nothing, but a
business which happens between two or more countries and what happens in between
that is what we will learn in this entire course.
(Refer Slide Time: 09:07)
So, the what are the factors, why there was a rapid growth of international business right!
what happened, how, what led to the growth of international business. So, the first thing
that I have sighted is increase in an expansion of technology.
So, as I said the first time we talked about technology was the steam engine, then there
was industrial revolution (you know) all these things came up, but with computers,
internet and (you know) networking and all facilities technology became one of the
major factors which helped the smooth flow of business.
So, suppose giving an order has become very simple today because of the internet right!
or shipping a particular product has become simpler because of the container facilities
right!
So, the container looks very simple thing to you may be as a student, but container was
one of the most important discoveries or the developments which revolutionized the
entire (you know) international business right! So, container has always been taken as a
very important breakthrough in international business, because that helped carrying
things very smoothly and very easily.
And today we are talking about (you know) large database techniques for example, we
are using data (you know) artificial intelligence(AI), machine learning(ML) and these
things are helping us to understand the customer trends, their mindset, their behavior
very in a much effective manner in comparison to the earlier days when we had no iota
of knowledge how to tackle or how to conduct ourselves in a particular country and in
particular place right!
The second important thing that I have mentioned is liberalization of cross - border
trade and resource movements. So, liberalization earlier days what was happening every
country was like a small (you know) kingdom right! So, they were behaving like small
kingdoms and there was hardly very less movement across them right! but when the
world trade things like (you know) organizations like WTO and all came up. So, the
pressure for liberalization and opening of the boundaries became severe and all countries
who are members of such unions or such committees or such (you know) bodies they
were supposed to open up their boundaries and allow free trade right! and free or open
trade right!
So, what happens is that as a result one country finds a market in another country right!
and today if I want some raw material I can take it from some other place which I do not
have at the moment.
So, all these things were possible only because of the concept of liberalization,
liberalization it says you become more liberal right! you open up you open up your
boundaries you open up and have your free policies. So, that everybody can come and
you can also go there and the trade becomes more faster and simpler right! and resource
movements are much easier right!
The third thing that I have said is the development of services that support international
business. So, now, countries have realized nations have realized that today if you do not
provide good support in terms of services like (you know) infrastructure, logistics and
other things then no international business partner would like to come to your country
and set up their infrastructure or their plant or production.
So, in order to invite people, you need to have to have a good amount of infrastructure
and other services right! which are very critical for the smooth functioning of the
business right! So, nations have realized and they have taken care of it. For example, you
see what happened in China. China took great advantage of there by leveraging these
infrastructural facilities.
They provided the world class facilities, infrastructural facilities and they opened up their
policies and as a result what has happened today is that today China has become one of
the largest and the most powerful economic nations right! in terms of economy they are
moving toward becoming even a superpower right!
Growing consumer pressures so, today the consumer is no more somebody that you can
make them whom you can satisfy with very little. So, today a consumer wants to get
address of particular brand which is maybe not available in India.
So, at earlier it was not available, but today he can get it, if he wants it that it is made in
suppose Spain or it is made in Germany he can get it if you want a tool and (you know)
and any tool, industrial tool or something you can get it right! the consumer can demand
he can get it.
If a particular (you know) any particular thing you want it in terms of cosmetic, in terms
of daily goods, in terms of industrial goods you talk about anything that you want right!
today you can get it because the consumer has this facility, because today the world is
more connected right! it is more we are more (you know) the boundaries are very thin as
I said right!
And because of all this there has been a growing consumer pressure. So, the consumer
feels I can get anything that I want. So, if he has the purchasing power he can demand
any product that he likes and he can get it may be suppose for example, you see today
Amazon for example, and ecommerce site helps you to get anything that you want and
they can collect it even they can (you know) give you grasses and even (you know) what
not so everything.
So, you can get a particular kind of product which is not available in India or any other
country. So, people it is actually making them connected right! across the globe. Fifth
point which I have mentioned is the increased global competition, why international
business? Is it only consumer pressure is it only the facilities? No there has been a global
competition.
Now, companies are finding the heat feeling the heat, they are finding it very tough to
stay in their own home market and then grow, because if you do not grow then there is a
time maybe after sometime even the companies might not exist.
And if you can look at the last Fortune-500 (list of companies) story the top 20 - 30
companies have been rapidly changing. So, the companies which were there in the 1930s
and 40s were not existing in the 1960s and 70s and the ones which were the top 20
companies in the 60 - 70s today are may be are not there and many of them are not there.
So, as a (you know) increased global competition has happened it has led to marketers to
look into and companies to look into new pastures, to new places where they can (you
know) go and set up their business right! So, this increased global competition and
saturation in the home market is one of the very important reasons is the key reason why
companies want to go abroad and that has helped in the flourishing of the international
business ok.
Another thing which I have mentioned is the change in political situations. So, political
situations are always very dynamic very very dynamic. So, what was once for example,
there was a time when I remember for the first time IBM came to India and Coca Cola
came to India, they were not given a very welcome ceremony and they had to in fact,
leave India right! they had to leave India it was a George Fernandez time and they Coco
Cola had to go back, IBM had to back.
So, the problem is they in fact go back means in the sense they did not find it suitable
they it was very hard for them very difficult for them to exist in the within the Indian
laws and regulations right! So, but political situations are changing right! The companies
are finding it the countries are more welcoming they are encouraging the foreign firms to
invest in their country.
So, the political (you know) harmony is also existing today. So, the companies the
countries are willing to invite the foreign companies and let them set up their plants and
locations. So, that their people would get engaged get more employment and their
country’s economy would grow right!
Expanded cross-national cooperation, this is a very connecting situation connecting point
right! So, cross national cooperation, but there are still some issues like for example,
(you know) there is a difficulty in relations in between some countries which we are;
which we are aware of.
So, those relationships can be very difficult to handle, but still if we these are quite rare
now a days because otherwise it is slowly in terms of economy, the political situation is
also getting easier because of the economic requirement right!
Had there been no economic requirement the urgency of the economy requirement may
be the political situations would have been much worse because countries today have
realized that just holding their political tensions and because of that hurting their
economy can be disastrous for their people for their (you know) for the citizens. So, they
are leaving aside their political differences and things and they are moving towards the
economic integration.
And the last point which I have said is the stagnation, the home markets have stagnated
the home markets they are not finding any new customers how would they find because
they have already worked so for so long and new customers are difficult to find right! so;
obviously, these companies now today are looking for new places where they have not
explored.
So, they want to come to a large country like India, China for example, Bangladesh
where countries like which have a large population base and they have a very untapped
(you know) large potential right! so, there is an untapped market. So, these are some of
the reasons which are contributing to the rapid growth of the international business.
(Refer Slide Time: 19:14)
Let us look at this interesting diagram right! So, this is a case where it says where the
parts of an iPhone 6 come from, now look at it. So, how the world has integrated this is
just a simple example this example you can take it to other products also for example, a
simple computer, a car manufacturer where different parts of the car or different parts of
the computer are coming from different places.
So, let us see similarly this example now this is an iPhone now where you see the storage
(you know) comes from Toshiba right! the camera comes from the Japan Sony right! the
display part comes from Asahi, the RAM comes from Korea Samsung provides it, the
processor is coming from again Korea and Taiwan two different companies Samsung
and TSMC, rare minerals which are required for the phone for the manufacturing of the
phone they come from California and China.
So, for example, for the multiple parts like colors for screen, phone circuitry, speakers,
vibration unit so, whatever the minerals you require the (you know) raw materials they
are coming from California and China. The chassis, the body is coming from China
right! So, the radio frequency receiver is coming from Qualcomm China right! the WiFi
module is coming from China Universal Scientific Industrial right! the batteries coming
from again China. So, you can see here LTE Modem is coming from China.
So, although there are large number of countries, but you can one thing for from through
a visibility also you can observation you can see that China has been really making it
good right! has been making and it is not only for an iPhone 6 or something.
If you look at most of the mobile phones also that are there in for example, in India they
are mostly Chinese even US a country like US is worried today that most of the defense
equipments some of the many of the equipments right! and are having this there (you
know) if a defensive equipment has got 100 components, many of these components are
coming from China. So, you can understand that how much hold this country (China)
today having in terms of its capacity to supply right!
So, this is an example to tell you what international business is all about. So,
international business is because of international business today such kind of products to
develop such products and sell it internationally has been possible, because you are
getting parts from different different places and you cannot claim that it is from only one
nation or one country.
(Refer Slide Time: 21:50)
So, when we talk about international business we will talk about international external
trade. So, what is this external trade basically when you talk about business. So, the first
thing is export. So, it refers to the selling of goods or services to the foreign countries.
So, you are exporting something your major revenue that you generate any country
generates is through the exports right!
So, the exports of a nation is very very important is very vital because if you are exports
is not up to the mark it is not you are not doing good in exports then maybe you cannot
earn revenue right!
The second is the import, which refers to the buying of goods or services from other
countries so; that means, foreign countries. So, I want to make a part for example, today
India is even thinking of Make in India and (you know) to develop or (you know)
national protection right!
So, in such a condition many of the parts as I showed might not be (you know) there or
might not be available in India. So, these parts have to be or these products have to be
imported yes, there is a problem if the product is available in India also and then you are
importing then that is a different story we will talk about later on, but then at the moment
try to understand the basic definition of import is that import means you are importing an
item when it is not available right!
The third is re–export, entrepot or re – export; it says the import of goods is not done
for consumption in the home country, but for exporting them to another country. So, it is
a simple we can understand like a trading right!
So, this type of trade occurs at duty free ports where these goods do not have additional
import or export duties right! or taxes placed upon them. The UAE, United Arab
Emirates may have engaged in re export of goods to Iran as a way for Iran to avoid US
trade sanctions against it.
So, external trade is basically is of 3 types, now it is not that simple as it looks we will go
deeper into it, but just for a beginning is an introductory class. So, just try to understand
what do we mean what are the 3 important terms export, import and then the re - export
or the entrepot right!
Some examples of international firms you can also think on your own. So, which I have
mentioned is Apple for example, Coca Cola, Hindustan Unilever Limited, Procter and
Gamble, Adidas, IBM, Sony, Microsoft, Philips etc etc. right!
So, there are so many firms and almost today these large companies are they are may be
operating in 100s of countries not 1 or 2 or 3, but some of these companies and in fact,
these companies which you can say here see here in the list they operate in more than
(you know) around 100 countries almost right!
(Refer Slide Time: 24:40)
This is a small quiz for you right! So, what I am leaving you with today is this look at
these logos and try to recognize this brands, they are all international brands right! They
are these companies are working in several countries as I said, try to recognize some of
them and this is take it as a (you know) take a pause and take as a homework and try to
find out what these companies are and where do they come from and where do they
operate what are their products and services do they provide etc. right!
(Refer Slide Time: 25:17)
So, in the next session we will start from here. So, the importance of international
business and we will move from there right!
So, thank you very much I hope you had a good session and we will meet in the next
session.
Thank you.