INTERNATIONAL BUSINESS DYNAMICS
Module 1 : Introduction
In recent years, international business has acquired additional importance for host countries in particular and world economies in general as a result of developments in the following areas:
Technology Diffusion
Technological developments are transmitted to every corner of the earth through the practice of international business. This transmission is not only in the form of products and services used every day, but also in the form of modern management, production, marketing, and logistics systems employed by domestic as well as international firms. And thanks to the dramatic developments in communication and information technology, the benefits of such transmissions are shared worldwide.
Stimulation to Competition
Except in the case of entry through acquisition, the arrival of an international firm in the host country, either in partnership with a local firm or on its own, may stimulate domestic competition and lead to increased entrepreneurial challenges, especially in the developing countries. International firms with superior worldwide experience, knowledge, technology, and other relevant resources have the ability to offer goods and services often at lower prices and higher quality.
Higher Standard of Living
Availability of a wide range of goods of international quality at competitive prices has brought many so called “luxury” products within the reach of common man, especially in developing countries. Thanks to international business, the standard of living in many developing countries has increased significantly.
Impetus for Standardization
Standardization refers to the adoption of norms and practices generally acceptable in world markets. In some cases, one standard product may be sold throughout the world using similar selling techniques. Common standards enable easier and more effective
comparisons to be made by consumers and other interested parties, e.g., health and safety authorities. The product standardization has become an easier option due to diminishing differences in consumer tastes, preferences, and interests. This is due to advances in technology, telecommunication, transport, and advertising.
Adapting to International Environment
A business firm operates within its internal and external environment. The internal environment is one over which the firm has considerable control: the firm determines its own internal environmental factors by specifying its corporate mission, organizational
structure, recruitment policy, and its relationship with suppliers, etc. The external environment is one over which the firm has little or no control. Whatever little control the firm may have is usually the consequence of its market power or collective action by a representative body, such as the Confederation of British Industries (CBI) in Britain or the Confederation of Indian Industries (CII) in India. The firm must, therefore, conform to its external environmental factors, whether they be national, international, or global, or suffer the consequences of its failure to do so. For example, changes in health and safety regulations, trade policies, and the legal environment are unavoidable. Nike, one of the world’s biggest manufacturers of sports and leisure wear, was forced into cancelling its licensing agreement with one of its Asian licensees suspected of employing child labour (Harrison, et al., 2000 p.9).
With the increasing internationalization of business activities, the methods of dealing with internal and external environmental factors tend to become more standardized. The main reason for this development is that domestic firms aspiring to expand internationally often emulate existing international firms in adapting to environmental changes. In other words, international business acts as an instrument for domestic firms to adopt more effective business policies and techniques as a preparation for going international. For example, many US and European firms have adopted Japanese management techniques, such as quality circles, the just-in-time system (JIT), and total
quality management (TQM) in order to remain competitive in their own domestic markets in general and in international market in particular.
Encouragement to Global Business and Economic Reforms
Governments play an important role in the development and promotion of international business activities. They provide a great variety of financial and non-financial incentives to attract FDI into their countries, often in competition with their neighbours. The increasing scale of liberalization of trade and investment, deregulation of domestic industries, and privatization of state-owned enterprises have the attraction of foreign business as one of its primary objectives. These measures have created immense international business opportunities. The major impact of international business in this context has been the encouragement to governments to open up their borders to international trade and investment, standardize their systems and procedures, adopt internationally acceptable values and attitudes, particularly with respect to human rights and child labour, and encourage the development of democratic institutions.
Economic Cooperation and Integration
One of the most fundamental impacts of the process of internationalization since the end of World War II has been the progressive ending of the isolation of national economies. Gradually more and more barriers to international trade and investment are being replaced with measures designed to enhance cooperation and coordination among nation states. The need to cooperate and coordinate over wider geographical areas has led to the formation of regional groupings in the form of free trade areas resulting in rapid increase in the growth of international business activities.
Domestic Vs International Business
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