1 – International Business: An Overview

Introduction:

The rapid and continuous rise of international business has been one of the most spectacular and significant global phenomena over the last two decades. Markets for most goods, many services, and, notably, financial instruments of all kinds have become genuinely global. Since 1950, international product commerce has grown by more than 6% per year, more than 50% faster than output growth. The most significant development in globalization has occurred in financial markets. Every day, billions of dollars are traded on the global forex markets, with more than 90 percent representing financial transactions unrelated to trade or investment. Much of this activity takes place in so-called Euromarkets, which are markets that exist outside of the country where currency is used.

This extensive increase in market interpenetration makes it increasingly difficult for any country to avoid significant foreign economic repercussions. Massive capital flows, in particular, can drive exchange rates away from levels that appropriately represent competitive relationships between nations if national economic policies or performances differ in the short run. The fast spread of new technologies has accelerated the rate governments must adapt to external events. Smaller, more open countries gave up the pretence of domestic policy sovereignty long ago. However, the global economy is now significantly impacting even the biggest and most apparent self-contained economies, like the United States. International integration in commerce, investment, and factor flows, as well as technology and communication, has linked economies.

So, why are these changes occurring, and what exactly are they? In practice, identifying the former is more accessible than interpreting the latter. The reason for this is that, over the last few decades, the creation of corporate empires in the global economy based on current scientific and technological breakthroughs has resulted in the globalization of production. In recent years, due to international production, cooperation among global producing units, and large-scale capital exports, “the export of production” or “production abroad” has gained prominence in the global economy instead of commodity exports. Global firms regard the entire world as their production location and market, and they relocate production factors to wherever they may be optimally integrated. They take full advantage of the change that has resulted in instant worldwide connection and near-instant transformation. Their ownership is international, as is their management. Their freely mobile management, technology, and capital, the modern agents for accelerated economic expansion, transcend national boundaries. They are domestic in every way and foreign in none—actual global corporate citizens. Greater interconnectedness among nations has already diminished the world’s people’s economic insularity as well as their social and political insularity.

Any form of economic activity that transcends national borders is considered international business. Although there are several definitions of global business in the business literature, there is no single or universally agreed definition. At one end of the definitional spectrum, international business is a company that buys and sells goods and services across two or more national borders, even if the management is based in a single country. On the other end of the scale, international business is only associated with large corporations with operating divisions outside their home country. In the middle are institutional arrangements that provide for some administrative direction of overseas economic activity but do not control ownership of the enterprise doing the activity.

Joint ventures with locally held businesses or with foreign governments are two examples.

With many types of comparative business studies and knowledge of many aspects of foreign business operations, international business has become massive in scale. It has come to exercise a significant influence over political, economic, and social issues in its traditional form of international trade and finance and its newest form of multinational business operations. The terms overseas operations and comparative business are sometimes used interchangeably to refer to global business. Domestic operations within a foreign country are referred to as foreign business. Comparative business focuses on similarities and differences among countries and business systems, as fields of inquiry do not have the specific challenges that develop when business activities cross national boundaries as their main point of interest.

For example, the critical issue of potential conflicts between nation-states and multinational corporations, which receives significant attention in international business, is unlikely to be concentrated or peripheral in foreign operations and comparative business.

1.1 International Business Evolution

Business has been conducted beyond national lines since time immemorial. However, until recently, the company’s operations were restricted to international trading. Following World War II, national enterprises were unforeseenly developed into worldwide or multinational corporations. The post-1990s period has given additional impetus to international trade.

The term “international business” did not exist until two decades ago. It evolved from the term “international marketing,” which evolved from the term “export marketing.”

International Marketing to International Trade: Initially, producers sent their products to neighbouring countries before expanding their exports to distant countries. With time, the companies extended their business beyond trading.

During the early 1900s, India exported raw cotton, jute, and iron ore. During the 1960s, the country’s enormous industrialization enabled us to export jute products, cotton garments, and steel.

During the 1980s, India established markets for its products and exported them. Export marketing initiatives involve creating demand for Indian items such as textiles, electronics, leather goods, tea, coffee, and so on, preparing for adequate distribution channels, appealing packaging, product development, and pricing. This is true for India and nearly all developed and developing economies.

Before the 1980s, multinational corporations made items in their home nations and distributed them in numerous foreign countries. They began locating their plants and other industrial facilities in foreign/host countries. Later, they began manufacturing in one foreign country and marketing in others.

For example, Unilever formed a subsidiary firm in India, Hindustan Lever Limited (HLL), which manufactures products in India and markets them in Bangladesh, Sri Lanka, and Nepal, among other places. Thus, the scope of international trade is broadened to include global marketing, and global marketing is broadened to include global business.

International business history begins with the evolution of human civilization. The primary cause of the first phase of global commerce and globalization was the integration and growth of economies and societies.

Timeline

Year	Event Description
19th Century	Broader notion of economic and social integration
1870	The first phase of globalization
1919	World War I: End of the First Phase of Globalization, Industrial Revolution in the UK, Germany, and the US; Sharp expansion in commerce with colonial empires’ import and exports
1913	GDP 22.1
After 1913	Increased Trade Barriers to Protect Domestic Production
1930’s	Declined Trade Ratio, GDP 9.1
After 1930s	Nations needed international cooperation in global trade and balance of payments.
1944	Establishment of IMF (International Monetary Fund) and IBRD (International Bank for Reconstruction and Development)
1947	GATT (General Agreement on Tariffs and Trade) established
1980s	Attempts to transform GATT into the WTO
1995	The World Trade Organization (WTO) took over from GATT on January 1
1990-2000	The term “International Business” (I.B.) emerged from international marketing

The evolution of the word “International Business” can be divided into two stages.

1. International Marketing to International Trade
2. From International Marketing to International Business: Rapid Internationalization and Globalization After 1990

Today: Interpreting the PESTIN variables of the international trade environment.

1.2 Globalization Drivers

We’ve discussed the nature of international business and the safeguards that multinational corporations should take when operating in other countries. The question “Why do a country’s business firms go to other countries?” may have crossed your mind. As a result, before going, below is the answer to this question:

To Achieve a Higher Profit Rate: As we have discussed in many courses and subjects such as Management Principles and Practice, Managerial Economics, and Financial Management because the primary goal of business is to make a profit, businesses look for overseas markets that promise a better rate of profit. In 1994, for example, Hewlett-Packard generated 85.4 percent of their revenues from global markets instead of local ones. In 1994, Apple earned $390 million in net profit from overseas markets but only $310 million from its domestic market.

Extending Production Capacity Beyond Domestic Need: Some domestic enterprises have developed their production capacity beyond the demand for the product in their home countries. In such circumstances, these corporations are forced to sell their excess production to developed countries outside the United States. Toyota, for example, is a good example.

Severe Competition in the Home Country: Since the 1960s, countries that have shifted toward market economies have faced stiff competition from other commercial firms in their home countries. Weak enterprises that could not compete with solid companies in their home nation began to enter developing-country marketplaces.

Limited Home Market: When the size of the home market is limited, either due to a smaller population, people’s lower spending power, or both, corporations internationalize their operations.

Example: Because of the lower size of the home market, most Japanese automobile and electronic manufacturers expanded into the United States, Europe, and even Africa. ITC entered the European market as a result of Indians’ lesser purchasing power for high-quality cigarettes. The six million people who make up Switzerland’s small population are also the driving force behind Ciba’s decision to expand its operations internationally. This corporation was compelled to focus on the worldwide market and set up manufacturing facilities in other nations.

Political Stability vs. Political Instability: What Is the Difference? Political stability does not just indicate the continuation of the same party in power; it also implies the continuation of the government’s policies for an extended period. The United States is regarded as a politically stable country. Similarly, the United Kingdom, France, Germany, Italy, and Japan are politically stable countries. Most African countries, as well as several Asian countries such as Malaysia, Indonesia, Pakistan, and India, are politically unstable. Businesses relocate their activities from politically unstable to politically stable countries.

Availability of Sophisticated Technology and Management Competence: In some nations, the availability of advanced technology and managerial competence is a luring factor for business organizations to relocate from their native country. Because of these factors, developed countries attract companies from the developing world. In recent years, American firms have relied on Japanese firms for technology and management experience.

There are several types of globalization drivers.

1. Market Forces:

• Convergence of per capita income among industrialized nations
• Convergence of lifestyles and tastes
• Organizations beginning to act as global consumers
• Increased travel creates global consumers
• Growth of global and regional channels
• Establishment of global brands
• Push to develop global advertising

2. Cost Drivers:

• Continued push for economies of scale
• Accelerating technical innovation
• Transportation advancements
• Emergence of newly industrialized countries with production capability and low labour costs
• Increasing cost of product creation relative to market life

3. Government Motivators:

• Tariff barriers are reduced.
• Non-tariff obstacles are reduced;
• Blocs are formed, and
• Governments’ roles as producers and consumers are reduced
• Privatization in previously state-dominated economies
• Eastern Europe’s transition to open market economies from closed communist systems

4. Competitive Drivers:

• Continuing increases in global Trade
• Increased foreign acquisitions of corporations
• Rise of new competitors’ intent to become global competitors
• growth of global networks makes countries interdependent in specific industries
• More companies are becoming globally centred rather than nationally centred
• Increased formation of global strategic alliances

5. Other drivers include:

The information and communication revolution,

• The globalization of financial markets and global trade is on the rise, and foreign acquisitions of corporations are increasing. New competitors are emerging to become global players. The growth of global networks has made countries interdependent in specific industries. More companies are becoming globally focused instead of focusing on their national markets. Additionally, there has been an increase in the formation of global strategic alliances.
• Advancements in business travel.

1.3 International Business Influences

Because most countries are not as lucky as India in terms of market size, resources, and prospects, they must trade with others to exist; Hong Kong has historically demonstrated this concept effectively, as the British colony would not have lasted without proper food and water from China. Europe has had a similar experience because most European countries are small. European firms would not have the economies of scale to compete with U.S. firms without overseas markets. Nestle notes in one of its advertisements that its home nation, Switzerland, lacks natural resources, requiring it to rely on trade and embrace a geocentric viewpoint. When survival is in danger, international competitiveness may not be an option. However, enterprises with significant prior market share and foreign experience could successfully expand.

Overseas Market Development

Developing countries are wonderful marketplaces despite economic and marketing challenges. Latin America and Asia/Pacific are experiencing the fastest economic growth, according to a report the United States Trade Representative submitted to the US Congress. American markets cannot ignore the enormous potential of international markets. The global market is more than four times greater than the market in the United States. Japan is a larger market than India for Amway Corp., a privately held U.S. cosmetics, soaps, and vitamins manufacturer.

Profit and Sales

Foreign markets account for a higher portion of the total business of many companies that have wisely nurtured markets abroad. Many significant U.S. corporations have prospered as a result of their overseas clientele. For example, IBM and Compaq sell more computers abroad than at home. According to the U.S. Department of Commerce, between 1982 and 1991, international profits of American enterprises increased at a compound annual rate of 10%, about twice as fast as domestic profits of the same companies.

Diversification

Climate and cyclical factors like the recession impact the demand for most goods. The unintended result of these variables is sales fluctuation, which is usually significant enough to necessitate employee layoffs. Consider international markets as a solution for variable demand to diversify a company’s risk. Cold weather, for example, may reduce soft drink intake. However, not all countries experience winter simultaneously; some are relatively warm all year. Bird, USA, Inc., a Nebraska manufacturer of go-carts and tiny automobiles for promotional purposes, discovered that global sales had enabled the company to produce year-round. It may be winter in Nebraska, but it is summer in the southern hemisphere—there is demand someplace, and that stabilizes the business.

Inflation and Price Stabilization

The advantages of exporting are self-evident. Imports can also be highly advantageous to a country because they serve as a reserve capacity for the domestic economy. Without imports, domestic firms have little incentive to lower their prices. Due to a lack of imported product alternatives, customers are forced to pay more, resulting in inflation and disproportionate profits for domestic enterprises. This development frequently serves as a precursor to workers’ desire for increased salaries, worsening inflation.

Import bans on Japanese autos implemented in the 1980s rescued 46200 US manufacturing jobs, but for $160,000 per job per year. This expense resulted from adding $400 to the price of domestic vehicles and $1,000 to the cost of Japanese imports. This boon to Detroit resulted in record-breaking earnings for U.S. automakers. Trade restrictions reduce price competitiveness in the short run and negatively impact demand in the long term.

Employment

Trade restrictions, such as high tariffs imposed by the 1930s Smoot-Hawley Act, which forced average tariff rates across the board to rise beyond 60%, contributed significantly to the Great Depression and had the potential to inflict widespread unemployment once more. Unrestricted trade, on the other hand, increases global GDP and employment in all countries. Importing goods and having foreign ownership can both help a country. According to the Institute for International Economics, a private, non-profit research organization, the increase in foreign ownership has not resulted in job losses for Americans, and foreign enterprises have paid their American workers the same as domestic firms.

Living Conditions

Trade allows countries and their citizens to live a more excellent quality of life than would otherwise be attainable. Without commerce, product scarcity forces individuals to pay more for less, and staples like coffee and bananas may become unavailable suddenly. Most countries’ lives would be much more difficult without the several strategic metals that must be imported. Trade also allows sectors to specialize and access raw resources while encouraging rivalry and efficiency. The spread of innovations across national boundaries is a beneficial by-product of international trade. An absence of such exchange would stifle the flow of new ideas.

Rapid internationalization and globalization were characteristics of the 1990s and the new millennium. During this transition period, the entire world moved at a breakneck rate. Today’s international traders can better assess and interpret worldwide social, technological, economic, political, and natural environmental variables.

Conducting and maintaining international company activities is critical due to political, social, cultural, and economic differences between countries.

Because of their superior purchasing power, most African consumers prefer high-quality, high-priced products.

As a result, businesspeople worldwide should create and export less expensive products to most African countries and vice versa to most European and North American countries. Palmolive soaps are exported and marketed in developing nations such as Ethiopia, Pakistan, Kenya, India, and Cambodia.

International corporations require precise information to make sound decisions. Europe was the most profitable market for leather goods, notably shoes. Based on accurate facts, Bata may decide to enter several European countries.

International corporations require accurate and timely information. Based on this knowledge, Coca-Cola could enter the European market first, while Pepsi came later.

Another example is the timely entry of Indian software companies, which also resulted in a prompt decision in Europe.

International business must be significant to impact foreign economies. The majority of multinational corporations are enormous. In reality, the capital of some MNCs exceeds our yearly budget and the GDPs of some African countries.

The majority of international corporations separate their markets based on geographic market segmentation. Daewoo divides its market into North America, Europe, Africa, the Indian Subcontinent, and the Pacific.

International markets have more significant potential than domestic markets. This is because worldwide marketplaces are diverse in terms of customer tastes, preferences, purchasing power, population size, etc.

For example, IBM’s sales are higher in other nations than in the United States. Similarly, Coca-Cola, Procter & Gamble, and Satyam Computers have higher sales overseas than in their native countries.

1.4 Internationalization Stages

A company’s internationalization process is a complex one. The experts highlighted numerous tactics that are commonly used in the internationalization process. An enterprise’s level of globalization determines the best strategic attractiveness available to them. Although there are differences in how international operations evolve, several broad patterns have emerged. The majority of these tendencies are associated with risk-aversion behaviours. In other words, most businesses consider foreign operations to be riskier than domestic operations since they must operate in conditions that are unfamiliar to them. As a result, they initially pursue foreign activities reluctantly and employ risk-mitigation strategies. However, when they learn more about overseas operations and succeed, they progress to more extensive foreign commitments that appear less dangerous.

Expansion Patterns

The greater a company’s foreign engagement, the further it goes out from the centre on any axis. Conversely, a corporation does not necessarily move at the same rate along each axis. Slow movement along one axis may free up resources that allow for rapid growth along another.

For example, suppose a corporation lacks the initial capacity to own facilities entirely in numerous foreign nations. In that case, it may limit its foreign capital commitment by moving slowly along axis C to move quickly along axis D (to multiple foreign countries) or vice versa.

1. Passive to Active Expansion: Path A: The thrust of strategic concentration is depicted in Figure 1 on axis A. Most new businesses are founded in response to recognized domestic requirements, and they typically consider solely local options until a foreign opportunity is provided to them. Companies, for example, frequently receive unsolicited export rejections because someone has already seen or heard of their items. Often, these businesses have no idea how their items became well-known in other countries. However, at this point, they must decide whether to export. Many people choose not to do so because they are afraid of being paid or unfamiliar with the mechanics of overseas trading. Those who execute unsolicited export orders and then discover that opportunities exist elsewhere are more likely to seek out new markets to sell their goods in the future. Even major corporations can go from a passive to an active role in certain parts of their operations. For example, even though a group of Japanese businessmen presented Tokyo Disneyland, the success of that endeavour prompted Disney to seek a European location or another park.
2. External to Internal Operations Handling: Path B: Using intermediaries to handle foreign operations is expected during the early stages of international expansion because it reduces the risk of committing one’s resources to international endeavours and relies on another company that knows how to operate in foreign environments. However, if the company expands successfully, it will usually be more willing to handle operations with its workforce. This is because it has learned more about foreign operations, sees them as less risky than they were at the outset, and recognizes that the volume of business justifies the development of internal capabilities through the hiring of additional trained personnel for purposes such as maintaining a department to carry out foreign sales or purchases. Figure 1.1 depicts this progression on axis B.

Figure 1.1: The Usual Patterns of Internationalization

3. Deepening Commitment Mode, Path C: According to Axis C in Figure 1.1, importing or exporting is typically a company’s first overseas activity. Importing or exporting needs a minor commitment and poses the slightest danger to the company’s resources, such as capital, staff, equipment, and production facilities, at an early stage of foreign activity. A corporation, for example, may engage in exporting by leveraging excess production capacity to make extra goods, which would then be exported. This would reduce the need to invest further resources in additional production facilities, such as plants and machines. Furthermore, the company’s involvement in merely importing and exporting limits the functions it is responsible for abroad. It does not, for example, have to manage a foreign workforce. Companies frequently transition into foreign manufacturing after successfully developing exports to that market. Initially, foreign manufacturing is likely to reduce the usage of one’s resources by licensing, sharing ownership in the foreign facility, or restricting manufacturing quantity, such as just packing or assembling output abroad. Foreign production usually necessitates a more outstanding worldwide commitment of a company’s resources than exporting versus importing. The increased commitment is primarily due to the need for the corporation to send qualified technicians to the foreign country to create and administer the new activities.
4. Furthermore, it must manage multifunctional activities in other countries, such as sales and production. Companies are more likely to make a more significant commitment later on through foreign direct investments that include more than just packaging and assembly. These operations require the most significant capital input, staff, and technology. When a corporation embraces alternative modes of worldwide operation, it often does not discard its early modes of international operation, such as importing and exporting. Instead, it typically expands its trade to other markets or complements them with new forms of economic activity.
5. Geographic Diversification: Path D: When a company first expands worldwide, it has only one or a few overseas sites. Axis D in Figure l.1 demonstrates that the number of countries they operate grows over time. The first limited geographic expansion corresponds to the minimal initial commitment of resources abroad. It also reduces the number of foreign surroundings the organization must be familiar with. Companies initially gravitate toward places that are geographically close and believed to be comparable. There is also a feeling of less risk due to familiarity with nearby locations and environmental similarity due to common languages and degrees of economic development. Companies later relocate to more distant countries, especially those deemed to have less similar settings in the home country.
6. Expansion Leapfrogging: Path E: The patterns that most organizations have followed in their worldwide expansion are not always optimal for their long-term performance. For example, admission into a nearby country, such as a move by a U.S. corporation into Canada, may postpone entry into faster-growing areas, such as Southeast Asia. However, there is evidence that many new businesses are beginning with a worldwide focus.

Typically, the steps of internationalization are as follows:

1. Stage 1: Domestic Business: National political boundaries restrict the domestic company’s operations, mission, and vision. These firms concentrate their efforts on domestic market prospects, suppliers, financing institutions, clients, etc. They study the country’s national environment and develop plans to capitalize on the opportunities it presents.
2. Stage 2: International Company: These firms choose to establish a branch in a foreign market and expand domestic activities into foreign markets. These businesses continue to be ethnocentric or focused on their nation. Most worldwide companies’ internalization efforts begin with this stage of two processes. Many organizations choose this method owing to limited resources and also to gradually learn from the foreign market before becoming a worldwide corporation with less risk.
3. Stage 3: Multinational Firm: This stage of multinational companies, also known as multi-domestic companies, develops various strategies for different markets, resulting in a shift in orientation from ethnocentric to polycentric. Under polycentric orientation, an MNC’s offices, branches, and subsidiaries function as a domestic corporation in each nation, with separate policies and strategies tailored to that country.
4. Stage 4: Global Firm: A global company is one that either manufactures in its home nation or a single country and concentrates on marketing its products globally and domestically.
5. Stage 5: Transnational Corporation: A transnational company manufactures, markets, invests and operates globally. It is a profit-driven, integrated global organization that connects worldwide resources with an international market. There is no such thing as a pure multinational firm.

Characteristics of a Multinational Corporation

This organization thinks globally but acts locally. It has a worldwide strategy while providing value to domestic customers. A transnational company’s assets are distributed globally, independently, and specialized. A multinational corporation’s R&D facilities are scattered throughout multiple nations.

Scanning or Information Acquisition: These businesses scan the environment for economic, political, social, cultural, and technological information. These companies collect and monitor data across geographical and national boundaries.

The company’s vision and aspirations are global, with global markets, customers, and a desire to outperform other global/transnational companies.

Geographical scope: They examine worldwide potential regarding resources, customers, markets, technology, research and development, and so on. The scope of exploring possibilities and threats and developing strategies is not confined to specific countries.

Adaptation: Global and transnational corporations adapt their products, marketing methods, and other functional strategies to the market’s environmental factors. Mercedes-Benz, for example, is a super luxury car in North America, a luxury car in Germany, and a regular cab in Europe.

Extension: When some products are promoted in different nations, they do not require any changes. Their market is merely an extension. For example, multinational corporations develop their global brand by introducing a new product to a new market. Rothmans Cigarettes expanded into numerous European and African countries.

HRM policy: It picks and develops the most significant human resources, independent of nationality or ethnic group.

Purchasing: A multinational corporation obtains top-class materials from the best sources worldwide.

1.5 The Distinctions Between Domestic and International Business

The distinction between domestic and overseas trade and their unique issues involves the exchange of things between people, yet there are significant variations between domestic and international trade. The changes and complications that result are as follows:

1. Distance: Generally, the distance involved in exporting commodities in external trade is more significant than in internal trade.
2. Language distinctions: There are variances between the languages of the world’s nations. Overseas traders must use extreme caution when creating publicity materials in the languages of the trading country.
3. Cultural differences: A manufacturer should be well-versed in the market for his products. Extensive study is carried out, particularly for exporting goods.
4. Technical distinction: There is slight variation in the technical specifications of items and their requirements in the national market.
5. Tariff barriers: There are no customs charges, exchange restrictions, set quotas, or other tariff barriers in domestic commerce.
6. Documentation: Little paperwork is involved in the exchange of commodities in-home commerce.
7. Payments: In internal trade, items are traded in the country’s currency unit. Regarding overseas trade, currencies and their values range significantly worldwide.
8. Transport and insurance costs: Domestic trade has lower transportation and insurance costs. Exports, on the other hand, face expensive transportation costs and cumbersome insurance.

1.6 Approaches to International Business

In reality, we have evolved into a global village with a global economy in which the effects of foreign markets and competition harm no organization. Indeed, an increasing number of businesses are reorganizing themselves for worldwide competitiveness and exploring new ways to exploit markets worldwide. One of the most common mistakes managers make is failing to take a global perspective. Thus, we begin by laying the groundwork for our discussion by introducing and outlining the fundamentals of international business.

An international business is predominantly headquartered in one country but obtains a significant portion of its resources or revenues (or both) from other countries. This description applies to Sears, which has most of its stores in the United States.

For example, the retailer earns around 90% of its earnings from its operations in the United States, with the remaining 10% coming from Sears locations in Canada. At the same time, many things it offers, such as tools and apparel, are created in other countries. Then, it is evident that we live in a genuinely global economy. Almost all businesses nowadays must be concerned with the competitive situations they encounter in countries far from home and how enterprises from faraway regions compete in their own countries.

Douglas Wind and David Perlmutter supported four international business techniques. They are as follows:

Ethnocentric Approach: When excess production exceeds demand for a product due to competition or a shift in customer preferences, the corporation is forced to export excess production to foreign countries. Under this strategy, the corporation exports the same product created for the home market to the overseas market. Thus, maintaining a home-based approach to international commerce is considered an ethnocentric strategy.

Polycentric Approach: The corporation forms a foreign subsidiary, decentralizes all operations, and delegates decision-making and policy-making authority to its executives. The subsidiary’s executives develop policies and plans and design products depending on the host country’s environment and the tastes of the local client. As a result, this method focuses primarily on the host country’s conditions in policy formulation, strategy execution, and operations.

Regio-centric Approach: When developing policies and strategies, the foreign subsidiary considers the regional environment. It markets the same product produced using a polycentric strategy in other nations throughout the area but with distinct marketing methods.

Geocentric Method: In this approach, the company treats the entire world like a single country. It hires people from all around the world and has many subsidiaries. Each subsidiary operates as an independent and autonomous corporation in terms of policy, strategy, product design, human resource policies, operations, etc.

1.7 Benefits of International Business

1. Increasing profit rates by:

• Increasing production capacity beyond local demand
• Severe competition in the home nation
• Limited home market

2. Political stability vs. political instability:

• Availability of technology and competent human resources;
• High transportation costs;
• Proximity to raw materials;
• Availability of quality human resources at low cost;
• Liberalization and globalization

3. To gain a larger market share:

• To attain a faster pace of economic development
• Tariffs and import quotas

4. High living standards:

• Increased socioeconomic welfare;
• A broader market;
• Reduced effects of business cycles and
• Reduced hazards Large-scale economic systems

5. Potential untapped markets:

• Provides an opportunity for and a challenge to domestic business;
• Division of labour and specialization;
• Global economic growth;
• Optimal and proper utilization of global resources;
• Cultural transformation and
• Knitting the world into a closely interactive traditional village.