MODULE 1: INTRODUCTION
Evolution, Drivers and Challenges of IB as compared to Domestic Business, National and organizational competitive advantage over the world, Active players in multinational business. The International environment of IB – Political, Legal, Technological, Cultural, Demographic and Economic environment. Cross-cultural management, levels of culture, models to aid international managers
International business as a discipline is of a recent origin. It is hard to imagine a world without international business. Virtually every nation, howsoever small it may be, has firms involved in various types of international business activities. It is through these activities that nations enjoy the benefits of international business by trading in a variety of goods and services produced around the world and made available locally. International business, conventionally called as international trade, has been known to exist ever since man learned to live in an organized manner. India, for instance, is well known for spices. Egyptians had a significant foreign trade.
The fundamental basis of international trade lies in the fact that countries are endowed by nature with different resources. These differences arise from geographical, physical or climatic features. Some countries have a monopoly of certain crops, for example, Bengal (India) and have high jute production, and Punjab (Pakistan) produces best quality of basmati rice. International business is thus inevitable when there are marked differences in the countries regarding material, natural vegetation, climate, soils and other physical and geographical conditions. It is also affected by several other factors besides natural and geographical factors, such as stage of economic development, accumulation of capital by a nation and its foreign investments, technological progress, trade and financial regulations, political affiliations, education and special skills of the population (for example, software skills of India), and so on.
EVOLOUTION OF INTERNATIONAL BUSINESS
Though international business, as a discipline, as stated earlier, is of a recent origin, international trade is claimed to be as old as the history of mankind itself (Monye, 1993). Even at the most tribal level, communities found it in their interest to trade, albeit in a very primitive manner and involving the exchange of simple objects mostly for immediate consumption (Harrison, Dalkiran, and Elsey, 2000, 3-4). Historically trade was in the form of barter and was undertaken both for social as well as economic reasons.
Even though modern trade is conducted in far more advanced forms and for more complex reasons than ever before, the basic human need for trade remains the same. However, unlike ancient times during which trade was devised and undertaken by communities for the benefit of communities themselves, over 90 per cent of modern trade is undertaken by private firms in pursuit of their own aims and objectives (Harrison et al., 2000, 4).
The growth of modern trade coincided, to a large extent, with the emergence of the modern nation state and with the consequent formation of national borders. The clear recognition and appreciation of the mutual benefits of free trade (trade without barriers and based on the principle of comparative advantage) provided sufficient incentives for nation states to seek greater opportunities in each others’ domestic markets and thus to increase the volume of trade among themselves. Such mutual benefits have been largely responsible for the growth of alliances and regional integration around the world, as evidenced by the establishment of a considerable number of trading areas, such as the European Union (EU) and North American Free Trade Agreement (NAFTA). Over the years, nations have been promoting trade and international business activities by attempting to create suitable business and investment environments within their borders, not only out of political and strategic necessity but also out of a desire to attract business and foreign investment, often in competition with other nations. For example, the recent spate of liberalization, deregulation, and privatization programmes by governments around the world, in particular by those of the former Soviet republics and Eastern Europe, has given special impetus to the growth of foreign direct investment (FDI).
Many countries around the world have witnessed substantial growth in the economy in the past two decades. There has been faster growth in the international transactions especially in the form of FDIs (prathi, 2011). Not only has the total stock of capital grown rapidly, but more significantly, there has been growth in the number of subsidiaries of Multi National Companies (MNCs). There has also been growth in the number of countries in which specific firms were active.
As both, international trade and investment grew rapidly, international competition became more intense, and many national industries became global industries. Similarity of markets in different countries and intense global competition drove international competitors to coordinate their marketing and competitive strategies between countries more actively. The relevant scope of strategy thus shifted from discrete national markets to global markets. The coordination of worldwide competitive actions among the various subsidiaries of MNCs became more important.
The removal of trade barriers, especially in the last decade of the previous millennium and the growing similarity of the national markets created the potential for globalization of markets and competition. The development of global networks brought about by MNCs and alliances between independent firms on the one hand and the technology of cheap, effective transportation and global communication networks on the other hand provided the practical means necessary for the integration of supply. These conditions were necessary, though not sufficient. Intense competition in most industries was the driving force necessary for integration and globalization.
Globalization is a process by which a business looks at the world market as one single market without the barriers of social, cultural, economic, political or commercial factors which separate different country markets. For example, India and USA can be different in terms of economic factors such as the per capita income and purchasing power of the consumers, the stage of economic development etc. Since these barriers are less effective in a global scenario, it leads to the increased movement of goods and services across boundaries, namely, trade and investment, often of people through migration.