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Mahtab Alam

INTERNATIONAL BUSINESS

Dr. MAHTAB ALAM

Assistant Professor
Management Department
Slides Prepared by: Dr. Mahtab Alam BBA-PROGRAM OUTCOME (POs)
On the successful completion of this program the students will
be able to:
1. Demonstrate an understanding of management concepts, theories, models and key
businessterms.
2. Communicate effectively with various stakeholders of business
3. Apply Information Technology applications for managing the business effectively
4. Provide optimum solutions to problems in the field of Business Management
5. Make sound business decisions.
6. Identify entrepreneurial opportunities and leverage the knowledge in starting and
managinga business enterprise.
7. Collaborate with others in the organizational context, manage resources and lead them
in thepursuit of organizational goals
8. Investigate the multidimensional business problems using research-based knowledge,
methods and in turn, make data driven decisions
9. Understand the contemporary issues and changes in the macro environment that may
have animpact on the business
10. Identify the need for and engage in lifelong learning in the field of business
management
11. Develop effective and diverse teams
12. Create sustainable and ethical business policies
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INTERNATIONAL BUSINESS
COURSE OUTCOME (COs)
After completing the course successfully, the learner will be able to

1. To enable the students to take decisions related to global issues and policies.
2. To be able to Interpret Foreign trade policy and avail incentives offered under
various schemes.
3. To recall the role and functions of Global Institutions IMF, WTO, and World
Bank.
4. To comprehend the exchange rates practically and its implications on trade.
Slides Prepared by: Dr. Mahtab Alam
International Business-Syllabus (2022)

S. No Unit wise Overview Sessions

Unit 1
1. (Introduction of 09
International Business)
Unit II
2. (Globalization & International Trade 10
Theories)
Unit III
3. 08
(Foreign Exchange Market)
Unit IV
4. 09
(International Financial Management)
Unit V
5. 09
(Regional Economics Grouping)
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UNIT-1
Unit Sub Unit

Definition of International Business, Nature and

Unit I
Scope of International, Stages of
Introduction Internationalization, Differences between
of Domestic and International Business. Exporting,
International Importing, and Countertrade Settlement through
Business NOSTRO and VOSTRO Accounts, Advantages
and Disadvantages
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What is Business?
Introduction: The term Business has been
taken from the English word Busyness.

 Busy + ness means “state of being busy”.

 Meaning: Business is an economic

activity that involves the exchange,
purchase, sale, or production of goods and
services with a motive to earn profits and
satisfy the needs of customers.
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Economic & Non-Economic Activity

Economic Activity: An economic activity is a human activity of providing,

making, buying, or selling commodities or services to earn profit.

• Business: – This economic activity provides goods and services to satisfy human needs
daily to earn profits.
• Profession: – It can also be defined as an occupation or a professional job that offers
specialized services in return for professional charges.
• Employment: – This activity is based on a contract between the company and the
employee. Here, the employee performs duties for the company, and is paid (with wages or
a salary) in return.
Slides Prepared by: Dr. Mahtab Alam A non-economic activity is a human activity
Non-Economic Activity:
performed to provide services to others without any
consideration of financial gains. The aim of non-economic
activities is personal satisfaction and happiness.

Free time activities for self-satisfaction such as Painting and playing. Religious
activities, family commitment activities, social welfare activities
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Definition of Business?
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Features of Business?
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Region/Area
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Domestic Business
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International Business-Meaning
Slides Prepared by: Dr. Mahtab Alam International Business- Definition
•Daniels; Rodebaugh and Sullivan –
International business is all commercial
transactions – private and governmental
between two or more countries.

•Taggart and McDermott – International

business can be defined as those business
activities that involve the crossing of national
boundaries.

•Hill (2005) – International business is any firm

that engages in international trade or
investment.
Slides Prepared by: Dr. Mahtab Alam HOME COUNTRY & HOST COUNTRY
In the context of International Business, the terms home country
and host country are described:

 Home Country: The home country is the country where a

business is originated/Registered/Headquartered.
Example: If Tata Motors is headquartered in India, then India is its home
country.

 Host Country: The host country is a foreign country where a

business operates or invests, such as setting up a branch, subsidiary,
or joint venture.
Example: When Tata Motors opens a manufacturing facility in the UK,
the UK is the host country.
Key Differences
Aspect Home Country Host Country
Location Origin of the business Destination for operations
Branches, subsidiaries, or
Operations Headquarters and strategy
investments
Reflects the company’s native Requires adaptation to
Cultural Influence
culture local culture
Contributes to the home
Economic Impact Impacts the host economy
economy
 Historical Evolution of International Business
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 Historical Evolution of International Business
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 Historical Evolution of International Business
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Historical evolution detailed content can be obtained from this link

[Link]
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Features/Nature of International
Business
1. Cross-Border Transactions: International business involves trade and
investment activities that cross national boundaries, involving multiple
countries.

2. Diverse Markets: It operates in different countries, each with its own unique
consumer preferences, cultural norms, and business practices.

3. Cultural Diversity: Understanding and managing cultural differences is

crucial, as international business deals with varying languages, traditions, and
customs.

4. Legal and Political Environment: Businesses must navigate different

regulatory frameworks, legal systems, and political conditions in each country.

5. Global Competition: Firms face competition not only from local companies
in foreign markets but also from other global players.

6. Complex Supply Chains: International businesses often manage intricate

supply chains involving sourcing, production, and distribution across multiple
countries.
Slides Prepared by: Dr. Mahtab Alam 7. Currency Fluctuations: The exchange rates between different
currencies impact pricing, costs, and profitability.

8. Technology Transfer: Sharing and transferring technology between

countries is a common feature of international business, often aiding
innovation.

9. Foreign Investments: International businesses frequently invest in

physical assets, infrastructure & Shares in other countries.

10. Economic Integration: The growth of international business is

supported by regional and global economic agreements like NAFTA, EU,
and WTO.

11. Risk and Uncertainty: Operating in foreign markets entails risks such
as political instability, economic fluctuations, and cultural
misunderstandings.

12. Scale of Operations: International businesses often operate on a larger

scale than domestic firms to achieve economies of scale and efficiency.

13. Adherence to International Standards: Businesses need to comply

with global standards in quality, safety, and environmental management.
Slides Prepared by: Dr. Mahtab Alam Difference Between Domestic
Business and International Business
Slides Prepared by: Dr. Mahtab Alam Importance of International Business
Slides Prepared by: Dr. Mahtab Alam Disadvantages of International Business
Slides Prepared by: Dr. Mahtab Alam Scope of International Business

1. Export
2. Import
3. Entrepot/Re-Export
4. Multinational Corporations (MNCs)
5. Market Development
6. Franchising
7. Outsourcing
8. Foreign Investment (FDIs & FIIs)
9. Global Strategic Alliance
10. Technological Advancement
11. Economic Development
Slides Prepared by: Dr. Mahtab Alam Challenges of International Business
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Modes of Entry - International Business
Internationalization of Business is necessary for expansion and growth.
Firms can rank countries in terms of :
Attractiveness
Profitability
Easiness of entry
Competitiveness
Entry timings.
All firms should consider the points mentioned above at the time of entry
through any mode as it directly impacts the entry planning and execution
of internationalization.
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 Direct Export
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Indirect Export
KVIC products, such as Khadi fabrics, are exported to foreign markets through
agencies like the Export Promotion Council for Handicrafts (EPCH). These
intermediaries connect Indian manufacturers with international buyers.
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In 2018, Starbucks entered into a global licensing deal with Nestlé. Under this
agreement
 Nestlé acquired the rights to sell, distribute, and market Starbucks’ packaged
coffee and tea products globally (except for Starbucks stores).
 Starbucks received a licensing fee of $7.15 billion upfront and continues to earn
royalties from the sales of these products.
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Slides Prepared by: Dr. Mahtab Alam Stages of Internationalization
Internationalization is a process through which a company expands its
operations beyond its domestic market and engages in business activities
on a global scale.
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Reasons for Internationalization
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Stages of Internationalization
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Stages of Internationalization
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Stages of Internationalization
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Stages of Internationalization
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Stages of Internationalization
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Stages of Internationalization
 Difference between Stages of Internationalization
Slides Prepared by: Dr. Mahtab Alam Basis Domestic International Multi-Domestic Global Transnational
Engages in business Adapts products and Standardizes
Operates within a Combines global efficiency
Definition across national strategies to each local products/services for
single country. with local responsiveness.
borders. market. global markets.
Operates in one or Focuses on individual Operates uniformly Integrated and
Scope of Limited to the
more foreign foreign markets across multiple interconnected operations
Operations home country.
markets. separately. countries. worldwide.
Expanding market
Strategic Serving the Localization to meet Standardization for Balancing global integration
presence
Focus domestic market. specific country needs. economies of scale. and local adaptation.
internationally.

Centralized, with Centralized decision- Combination of centralized

Decision- Centralized within Decentralized to adapt
some input from making at and decentralized decision-
Making the home country. to local preferences.
foreign markets. headquarters. making.

Designed for Uniform products Hybrid approach: some

Product/ Minor adaptations Customized for each
domestic for global standardization, some
Service for foreign markets. local market.
consumers. consumers. customization.
Geocentric
Ethnocentric Geocentric & Regiocentric:
Ethnocentric Polycentric & Treats the world as a
Explores (Hybrid):
Approach Focuses on the Treats each country as single market.
international Simultaneous global
home market. a separate market. Standardized
opportunities. integration and local focus.
practices
Focuses on Optimized resource use
Resource Limited use of Uses local resources Centralized resource
domestic across global and local
Management foreign resources. in each country. allocation.
resources. levels.

Moderate costs due High costs due to High cost efficiency

Cost Relatively low Moderate costs, balancing
to export/import customization and through
Efficiency operational costs. customization and scale.
activities. decentralization. standardization.
Indian Railways Patanjali Tata Motors Harley Davidson Nestle
Example
(Indian) (Indian) (Indian) (USA) (German)
Slides Prepared by: Dr. Mahtab Alam Approaches of International Business
Slides Prepared by: Dr. Mahtab Alam Approaches of International Business
Slides Prepared by: Dr. Mahtab Alam Approaches of International Business
Slides Prepared by: Dr. Mahtab Alam Approaches of International Business
Slides Prepared by: Dr. Mahtab Alam Approaches of International Business
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Slides Prepared by: Dr. Mahtab Alam Exporting-Meaning & Definition
Export is one of the main components of
International business and involves the
movement of goods and services across
nations and the exchange of foreign
currencies between the dealing parties.

-Definition
Slides Prepared by: Dr. Mahtab Alam Features of Exporting

1. Globalization Business Strategy.

2. Systematic Procedure.
3. Transaction between 2 or more countries
4. Sending Goods/Services to host countries
5. Receiving Global Currency in the home country
6. International Risk management
7. Legal documentations obligation
8. Cross-Cultural exchange
9. Support in making favorable BOP.
10. Global Brand and image.
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Types of Exporting
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Advantages of Exporting
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Disadvantages of Exporting
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Slides Prepared by: Dr. Mahtab Alam Importing-Meaning & Definition

-Definition
Slides Prepared by: Dr. Mahtab Alam Features of Importing

1. Domestic Industrialization.
2. To meet domestic demand.
3. Systematic Procedure.
4. Transaction between 2 or more countries
5. Receiving Goods/Services to home country
6. Sending Global Currency to the host country
7. International Risk management
8. Legal documentations obligation
9. Cross-Cultural exchange
10. To overcome natural calamities & emergency
Slides Prepared by: Dr. Mahtab Alam Advantages of Importing

1. Reduce domestic dependency.

2. Access to cheaper raw materials.
3. Access to high-quality goods.
4. Advantages of Technology Transfer.
5. Extend Sales Potential in the domestic market.
6. Global Brand and Image.
7. Support in natural calamities and emergencies.
8. Increase in Living standards.
Slides Prepared by: Dr. Mahtab Alam Disadvantages of Importing

1. Excessive Competition in the domestic market.

2. Exchange Risk.
3. More imports can make BOP unfavorable.
4. Cultural exploitation.
5. Risk of trade with an enemy country.
6. Risk of inferior or damaged goods
7. High Cargo & Insurance cost.
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Countertrade-Meaning
Slides Prepared by: Dr. Mahtab Alam Countertrade-Definition

“Countertrade refers to a range of barter-like

agreements used in international trade, where goods
and services are exchanged for other goods and
services without the use of money.”
----P. Buckley and M. Casson----

“Countertrade is a form of trade in which part or all

of the payment for goods or services is made in the
form of other goods or services rather than cash.”
----Michael R. Czinkota and Ilkka A. Ronkainen----
Slides Prepared by: Dr. Mahtab Alam Types of Countertrade Transaction
1. Barter: Barter is one of the oldest forms of trade,
wherein the transaction is contained in a single contract
and there is no exchange of money between the parties
in a transaction. Sometimes a small amount is paid to
cover special costs, or a down payment is made as a
guarantee
Slides Prepared by: Dr. Mahtab Alam 2. Counter Purchase: The counter purchase involves
an importer obtaining goods and services from an exporter with an
assurance that the exporter will purchase other specific goods or services
from the importer.
Under this arrangement, the exporting country under a primary sales
contract sells goods, technology, or services to the importing country, and
agrees as part of a secondary sales contract, to purchase from the importing
country within a specified period, which is normally 1-5 years, a specific value
of goods.
 3. Offset: In an offset agreement, importers require the contractors to
Slides Prepared by: Dr. Mahtab Alam purchase a predetermined level of components from subcontractors located
within the importing country.
This type of countertrade is an offset agreement, also known as industrial
compensation or industrial cooperation. They are often observed in deals
involving aircraft and military equipment. The agreements usually portray an
exporter manufacturer agreeing to the importer’s terms like marketing their
products, final assembly of exported items in the importer’s country, and
buying other goods and services from the importer’s country.
Slides Prepared by: Dr. Mahtab Alam 4. Buyback (Compensation): Buyback or
Compensation is a countertrade mechanism where the supplier
of plant/equipment to a project/company in another country
assures buyback of certain quantities of products made with that
plant/equipment.
Slides Prepared by: Dr. Mahtab Alam 5. Switch Trading: Switch trading involves a
minimum of three parties. It enables one party to sell its obligation or
assurance to another party to a third party. For example, country X
exports its product to country Y. Country Y will ship other products to
another country Z, known as switch trader. Country Z, in turn, provides or
exports the product needed by country A.
Slides Prepared by: Dr. Mahtab Alam 6. Clearing Arrangements: Clearing agreements
are entered when two nations encounter a coincidence of needs. They must
determine the type and quantity of goods that they wish to obtain from each
other and establish an exchange ratio to be used over the specified life of the
contract. The Agreed volume of goods are imported and exported by the
countries over a specific time period without the payment of foreign currencies.
If a country does not purchase enough goods to balance its accounts within the
set time limitation, it receives clearing credits. Although stated in terms of
currency, clearing credits cannot be redeemed for currency.
Slides Prepared by: Dr. Mahtab Alam 7. Debt-for-Goods: Debt-for-goods is a
countertrade transaction whereby a debtor country
offers its goods or services to avail funding or to cover
full or partial repayment of an outstanding debt. Under
this, the countertrade route can be utilized for
repayments of funded facilities extended to overseas
entities
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Advantages of Counter-Trade
Slides Prepared by: Dr. Mahtab Alam Disadvantages of Counter-Trade

1. Acceptance of goods rather than hard

currency.
2. Exchange of unusable or poor-quality
goods.
3. Expenses for maintaining the counter
trade department.
4. Complexity of transactions
5. Risk of Foreign relations on trade
Slides Prepared by: Dr. Mahtab Alam Counter-Trade Settlement through
Nostro & Vostro Account
Slides Prepared by: Dr. Mahtab Alam Meaning of Nostro A/C,Vostro A/C &
Loro A/c
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Slides Prepared by: Dr. Mahtab Alam Factors Affecting Operations of
Nostro & Vostro Account
1. Exchange Rates: Exchange rate fluctuations can directly affect the
balance in both types of accounts, especially when they involve cross-border
transactions in different currencies.

2. Interest Rates: Interest rates in the currency held in a nostro or vostro

account can affect the returns on funds kept in these accounts, influencing
decisions about the volume and duration of deposits.

3. Banking Regulations: Different countries have specific banking

regulations that impact the operation of nostro and vostro accounts. For
example, limits on foreign currency transactions, capital controls, or restrictions
on the movement of money can affect how these accounts are used.

4. Counterparty Risk: The financial stability of the banks involved in the

nostro or vostro arrangement affects the safety and liquidity of funds. If one of
the banks faces a crisis, it may result in issues for both accounts.
Slides Prepared by: Dr. Mahtab Alam 5. Transaction Costs and Fees: The cost of transferring funds, maintaining
accounts, and processing payments can differ based on the arrangement
between the two banks, influencing the cost-effectiveness of using these
accounts.

6. Political Stability and Economic Environment: Political or economic

instability in either the country of the nostro or vostro account can affect the
ability to conduct international transactions smoothly and impact the value
of funds in these accounts.

7. Payment Systems: The efficiency and security of the international

payment systems used (such as SWIFT or local equivalents) affect the speed
and cost of transferring money through these accounts.

8. International Trade Flows: The volume and frequency of international

trade between the two countries can influence the usage of these accounts.
A higher volume of trade leads to more transactions, which increases the need
for nostro and vostro accounts.

9. Liquidity Needs: The liquidity needs of the entities using the accounts
(banks or corporations) can affect how much money is held in each account
and for how long.
Slides Prepared by: Dr. Mahtab Alam Nostro & Vostro Account

Advantages:
 Global Trade Promotion.
 Global Banking Transaction.
 Correspondent Banking Relationship.
 Foreign market reach for business.
 High Liquidity
 Reduce the risk of Currency Fluctuation.
 Facilitator in Domestic Country.
Slides Prepared by: Dr. Mahtab Alam Nostro & Vostro Account

Disadvantages:
 Transaction Cost.
 Complexity.
 Dependent on Foreign Country
Relationship.
 Risk of Cyber Crime
 Mismatch of Local time Zones for
Transactions
 Difference Between Nostro & Vostro Account
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Basis NOSTRO A/C VOSTRO A/C

Currency A NOSTRO account opened in A VOSTRO account opened in

Foreign Currency in Foreign Bank Domestic Currency in Domestic
Bank
Ownership Owned and maintained by the Owned and maintained by the
foreign bank domestic bank
Transaction Foreign Transactions in Foreign Foreign transactions in Domestic
Countries for domestic players Country for Global players
Purpose To facilitate Global Trade for To facilitate Global Trade for
Domestic Players in Foreign Global Players in Domestic
Countries Country
Presence Access Global Banking Service Providing Local Banking Service
without establishing overseas without inviting Branch in
Branch. Domestic market.
Example NOSTRO Account of UCO VOSTRO Account of Sberbank
Bank and IndusInd Bank of and VTB Bank of Sussia in
India in Russia India
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