Class:- [Link].

III Year Subject: - International Business

SYLLABUS
B. Com - III Year
Subject – International Business
UNIT NO. TOPICS

Introduction to International Business: Concept, Need, and Importance of International

Business. Globalization and it's importance in world economy international business vs.

1 domestic business, Complexities of international business. Modes of entry into international

business. International Business Environment: National and foreign environments and their
components economic, cultural political and legal environments.
Theories of international trade- Absolute advantage theory, Comparative advantage
theory, Factor proportion theory and Leontief paradox, Product life cycle theory, National
2
competitive advantage theory. Tariff and Non-Tariff Barriers. Balance of payment account
and its components.
International Financial Environment: Foreign exchange market, Spot market, spot rate
quotations, bid-ask spreads, trading in spot markets, cross exchange rates, forward
markets, forward rate, long and short forward positions, forwards premium and discount.
Arbitrage, Hedging and Speculation Types of exchange rate systems- fixed and floating, soft
3
peg, crawling peg, free float, managed flot. Foreign exchange risk and exposure.
Exchange rate Determinations: Types of Exchange rates, factors affecting exchange rate
relative inflation rates, interest rates, relative interest rates, relative income levels,
government controls and expectations.
Foreign Trade Promotion measures and Organization in India. Special economic zones
(SEZ) and export-oriented units (with 100% export-oriented units) foreign investment-
concept, type and flow, Foreign investment in Indian perspective. Financing of foreign trade
4
and payment terms sources of trade finance (Banks, factoring forfeiting Banker's
Acceptance and Corporate Guarantee) and forms of payment (Cash in advance, Letter of
Credit. Documentary Collection. Open Account).
Regional Economic Integration: Forms of regional integration: Integration efforts

5 amongst countries in Europe, North America and Asia . EU, NAFTA, SAARC and ASEAN.
International Economic Organisations: WTO, UNCTAD, World Bank and IMF.

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Unit I

Introduction to International business

Concept Need and Importance of International business

• Refers to the business activities or transactions carried out beyond the national borders of a
country. It is a much wider term comprising of all the commercial transactions taking place
between two countries. International business can occur in different modes which can be
exporting, licensing, contract, manufacturing, foreign assembly foreign production, joint
venturing, and [Link] nature and extent of economic interdependence among countries.
⚫ Countries depend on each other for a variety of economic transactions that is transactions
and goods and services and capital being a part of world economy.

⚫ No Country can live in economic isolation or referred to keep out of a global economy no
country is self-sufficient in regard to its requirement nor can it consume all that it
produces.

⚫ In other words, interdependence of countries is reflected in the whole range of

international transactions.

⚫ Therefore, international business is a combination of all commercial transactions

either private or government between two or more countries it is the exchange of
capital goods and services across the international borders or territories.

⚫ These transactions are conducted at the global level & across national borders.
International businesses are very large in size as they are performed at a global level.

⚫ Their scales of operation are vast in size. International businesses provide employment to
a large number of peoples. It is served as an important source for earning foreign
exchange for the country. All payments in these businesses are done in foreign currencies
of different countries.

⚫ These businesses help in improving the standard of living of people in different

countries by supplying high-quality goods.

⚫ International businesses provide employment to a large number of peoples. It is served as

an important source for earning foreign exchange for the country. All payments in these
businesses are done in foreign currencies of different countries.

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⚫ It is of three types:

⚫ Export Trade –It is selling of goods and services to foreign countries.

⚫ Import Trade – It is buying goods and services from other countries.

⚫ Entreport Trade – It is import of goods and services for re-export to other countries.

Definition of Domestic Business

The business transaction that occurs within the geographical limits of the country is
known as domestic business. It is a business entity whose commercial activities are
performed within a nation. Alternately known as internal business or sometimes as home
trade.

The producer and customers of the firm both reside in the country. In a domestic trade,
the buyer and seller belong to the same country and so the trade agreement is based on
the practices, laws and customs that are followed in the country.

There are many privileges which a domestic business enjoys like low transaction
cost, less period between production and sale of goods, low transportation cost,
encourages small-scale enterprises, etc.

Definition of International Business

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International Business is one whose manufacturing and trade occur beyond the borders
of the home country. All the economic activities indulged in cross- border transactions
comes under international or external business. It includes all the commercial activities
like sales, investment, logistics, etc., in which two or more countries are involved.

The company conducting international business is known as a multinational or

transnational company. These companies enjoy a large customer base from different
countries, and it does not have to depend on a single country for [Link], the
international business expands the trade and investment amongst countries.

Differences Between Domestic and International business are classified as under:

Domestic Business is defined as the business whose economic transaction is conducted

within the geographical limits of the country. International Business refers to a business
which is not restricted to a single country, i.e. a business which is engaged in the economic
transaction with several countries in the world.

• The area of operation of the domestic business is limited, which is the home country. On the other
hand, the area of operation of an international business is vast, i.e. it serves many countries at the
same time.
⚫ The quality standards of products and services provided by a domestic business is
relatively low. Conversely, the quality standards of international business are very high
which are set according to global standards.

⚫ Domestic business deals in the currency of the country in which it operates. On the
contrary, the international business deals in the multiple currencies.

⚫ Domestic Business requires comparatively less capital investment as compared to

international business.

⚫ Domestic Business has few restrictions, as it is subject to rules, law taxation of a single
country. As against this, international business is subject to rules, law taxation, tariff and
quotas of many countries and therefore, it has to face many restrictions which are
barriers in the international business.

⚫ The nature of customers of a domestic business is more or less same. Unlike, international
business wherein the nature of customers of every country it serves is different.

⚫ Business Research can be conducted easily, in domestic business. As against this, in

the case of international research, it is difficult to conduct business research as it is
expensive and research reliability varies from country to country.

⚫ In domestic business, factors of production are mobile whereas, in international

business, the mobility of factors of production are restricted.
International Business – Meaning and Definitions

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International business refers to those business activities that take place beyond the
geographical limits of a country. “International business consists of transactions that
are devised and carried out across national borders to satisfy the objectives of the
individuals, companies and organisations. These transactions take on various
forms which are often interrelated.” – Michael R. Czinkota

“International business involves commercial activities that cross national frontiers” –

Roger Bennett

⚫ Thus, it involves not only the international movement of goods and services, but also of
capital, personnel, technology and intellectual property like patents, trademarks,
knowhow and copyrights [Link] is a business which takes place outside the boundaries of a
country, i.e., between two [Link] includes the international movements of goods
and services, capital, personnel, technology and intellectual property rights like
patents, trademarks and [Link] refers to the purchase and sale of goods and services
beyond the geographical limits of a country.

Features of International Business:

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⚫ Large scale operations: In international business, all the operations are conducted on
a very huge scale. Production and marketing activities are conducted on a large scale. It
first sells its goods in the local market. Then the surplus goods are exported.

⚫ Integration of economies : International business integrates (combines) the economies

of many countries. This is because it uses finance from one country, labour from
another country, and infrastructure from another country. It designs the product in one
country, produces its parts in many different countries and assembles the product in
another country. It sells the product in many countries, i.e. in the international market.

⚫ Dominated by developed countries and MNCs : International business is dominated by

developed countries and their multinational corporations (MNCs). They also have the
best technology and research and development (R & D). They have highly skilled
employees and managers because they give very high salaries and other benefits.
Therefore, they produce good quality goods and services at low prices. This helps them to
capture and dominate the world market.

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⚫ Benefits to participating countries : International business gives benefits to all

participating countries. However, the developed countries get the maximum benefits. The
developing countries also get benefits. They get foreign capital and technology. They get
rapid industrial development. They get more employment opportunities. All this results
in economic development of the developing countries. Therefore, developing countries
open up their economies through liberal economic policies.

⚫ Keen competition : International business has to face keen competition in the world
market. The competition is between unequal partners i.e. developed and developing
countries. In this keen competition, developed countries and their MNCs are in a
favourable position because they produce superior quality goods and services at very low
prices. Developed countries also have many contacts in the world market. So, developing
countries find it very difficult to face competition from developed countries.

⚫ Special role of science and technology : International business gives a lot of importance
to science and technology. Science and Technology (S & T) help the business to have
large-scale production. Developed countries use high technologies. Therefore, they
dominate global business. International business helps them to transfer such top high-
end technologies to the developing countries.

⚫ International restrictions : International business faces many restrictions on the inflow

and outflow of capital, technology and goods. Many governments do not allow
international businesses to enter their countries. They have many trade blocks, tariff
barriers, foreign exchange restrictions, etc. All this is harmful to international
business.

⚫ Sensitive nature : The international business is very sensitive in nature. Any changes in
the economic policies, technology, political environment, etc. has a huge impact on it.
Therefore, international business must conduct marketing research to find out and study
these changes. They must adjust their business activities and adapt accordingly to survive
changes.

Importance of International Business

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⚫ Earn foreign exchange: International business exports its goods and services all over the
world. This helps to earn valuable foreign exchange. This foreign exchange is used to pay
for imports. Foreign exchange helps to make the business more profitable and to
strengthen the economy of its country.

⚫ Optimum utilisation of resources: International business makes optimum utilisation

of resources. This is because it produces goods on a very large scale for the international
market. International business utilises resources from all over the world. It uses the
finance and technology of rich countries and the raw materials and labour of the poor
countries.

⚫ Earn foreign exchange: International business exports its goods and services all over the
world. This helps to earn valuable foreign exchange. This foreign exchange is used to pay
for imports. Foreign exchange helps to make the business more profitable and to
strengthen the economy of its country.

⚫ Optimum utilisation of resources: International business makes optimum utilisation

of resources. This is because it produces goods on a very large scale for the international
market. International business utilises resources from all over the world. It uses the
finance and technology of rich countries and the raw materials and labour of the poor
countries.

⚫ Improve organisation's efficiency: International business has very high

⚫ organisation efficiency. This is because without efficiency, they will not be able to face the
competition in the international market. So, they use all the modern management
techniques to improve their efficiency. They hire the

⚫ most qualified and experienced employees and managers. These people are trained
regularly. They are highly motivated with very high salaries and other benefits such as
international transfers, promotions, etc. All this results in high organisational
efficiency, i.e. low costs and high returns.

⚫ Get benefits from Government: International business brings a lot of foreign exchange
for the country. Therefore, it gets many benefits, facilities and concessions from the
government. It gets many financial and tax benefits from the government.

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⚫ Expand and diversify: International business can expand and diversify its activities. This
is because it earns very high profits. It also gets financial help from the government.

⚫ Increase competitive capacity: International business produces high-quality goods

at low cost. It spends a lot of money on advertising all over the world. It uses superior
technology, management techniques, marketing techniques, [Link] this makes it more
competitive. So, it can fight competition from foreign companies.
Economies Of Scale:

These business are able to enjoy economies of scale due to their large scale production.
International businesses produce large amount of goods for selling in different
countries. With the increase in amount of production, per unit cost of producing goods
goes down which helps them in earning large profits.

Cost Advantage: International business takes cost advantage over its competitors by
producing goods in one country and exporting them in another country. They carry on
their production in a country where factors of production are easily and cheaply available.
This helps in minimizing the cost of product and earn huge profits by selling them at
better prices in other countries.

Provide Employment Opportunities: International business employs large number of

people for carrying out its operations across the globe. They perform large scale
operations in many countries for which they require large amount of human
resource.

Scope of International Business

⚫ Foreign Investments: Foreign investment is an important part of international business.

Foreign investment contain investments of funds from the abroad in exchange for
financial return. Foreign investment is done through investment in foreign countries
through international business. Foreign investments are two types which are direct
investment and portfolio investment.

⚫ Exports And Imports Of Merchandise: Merchandise are the goods which are tangible.
(those goods which can be seen and touched.) Merchandise export means sending the
home country’s goods to other countries, which are tangible and merchandise imports
means bringing tangible goods to the home country.

⚫ Licensing And Franchising: Franchising means giving permission to the new party of the
foreign country in order to produce and sell goods under your trademarks, patents or
copyrights in exchange of some fee is also the way to enter into the international business.
Licensing system refers to the companies like Pepsi and Coca-Cola which are produced
and sold by local bottlers in foreign countries.

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⚫ Service Exports And Imports: Services exports and imports consist of the intangible
items which cannot be seen and touched. The trade between the countries of the services
is also known as invisible trade. There is a variety of services like tourism, travel,
boarding, lodging, constructing, training, educational, financial services etc. Tourism and
travel are major components of world trade in services.

⚫ Growth Opportunities: There are lots of growth opportunities for both of the countries,
developing and under-developing countries by trading with each other at a global level.
The imports and exports of the countries grow their profits and help them to grow at a
global level.

⚫ Benefiting From Currency Exchange: International business also plays an important

role while the currency exchange rate as one can take advantage of the currency
fluctuations.

⚫ Limitations Of The Domestic Market: If the domestic market of a country is small then
the international business is a good option for the growth of the business in the host
country. Depression of domestic market firms will force to explore foreign markets.
What is Globalisation

The meaning of Globalisation is usually interpreted to

indicate the integration of the economy of the nation with the world economy, it is
a multi faceted [Link] is a result of the collection of multiple strategies that are directed
at transforming the world towards greater interdependence and [Link] includes
the creation of networks and pursuits transforming social, economic and geographical
barriers. Globalisation tries to build links in such a way that the events in India can be
determined by events happening distances [Link] other words, Globalisation is the
method of interaction and union among people, corporations and governments
universally.

⚫ Accordingly, the term globalisation has four parameters:

❖ Permitting free flow of goods by removing or reducing trade
barriers between the countries,
❖ Creating environment for flow of capital between the countries,
❖ Allowing free flow in technology transfer and
❖ Creating environment for free movement of labour between the countries of
the world.

Thus taking the entire world as global village, all the four components are equally
important for attaining a smooth path for globalisation.

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Features of Globlization:

Advantages of Globalisation

⚫ Advantages of globalisation
a developing country like India:

1. Globalization helps to boost the long run average growth rate of the economy
of the country through:

⚫ (a) Improvement in the allocative efficiency of resources;

⚫ (b) Increase in labour productivity; and

⚫ (c) Reduction in capital-output ratio.

2. Globalisation paves the way for removing inefficiency in production system.
Prolonged protective scenario in the absence of globalisation makes the production

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system careless about cost effectiveness which can be attained by following the policy of
globalisation.
3. Globalisation attracts entry of foreign capital along with foreign updated technology
which improves the quality of production.
4. Globalisation usually restructure production and trade pattern favouringlabour-
intensive goods and labour-intensive techniques as well as expansion of trade in services.

Why should companies expand internationally?

⚫ A truly multinational company is one which has a globalized supply chain spread across
different parts of the world. While a global supply chain has its own vulnerabilities, which
are usually beyond the control of the company (for example: the Tsunami in Japan), there
are many reasons why a company would want to enter into international
markets.

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⚫ The primary reasons that companies opt to expand into foreign markets are to:

⚫ 1. Explore markets with better profitability: This is an obvious reason for a lot of
local companies to enter into an international markets. An international market could
have a higher purchasing power and, therefore, the same products can earn better profits
in that market. This is obviously minus the initial go-to-market cost of breaking into that
international market.

⚫ 2. Achieve economies of scale with a larger customer base: Some goods and
commodities provide the company with great economies of scale opportunities. The
effects of economies of scale can be magnified when a larger base of customers come into
the business. This is pretty relevant to tech-based companies who can be easily
classified as 'born-global' companies. This companies can offer their technology products
to a new customer, any where in the world, at no additional costs. Hence, making more
money on the buck.

⚫ 3. Reduce over dependence on any one market: Each business should be diversified
across products and also across the market segments that it targets. This protects the
business from uncertainties. This is another reason why a company should expand
internationally. Usually, it would stabilize the product portfolio as well as customer
portfolio to make the business robust against seasonality and the
uncertainties.

⚫ 5. Service customers who are abroad: There could be tech companies who already
serve customers around the world despite being centered at only their home country.
When the company has enough number of big ticket customers in some part of the world,
they can think about setting up an office there and further expand their customer base.
This is done better when the company serves the international market with personalized
and culturally relevant market.
Modes of Entry into International Business

⚫ There are various ways in which a company can enter into international business.

⚫ Exporting and Importing: Exporting refers to selling of goods and services by a firm of
home country to a firm of foreign country. For example, sale of sweets by Haldiram to
WalMart Store in [Link] refers to buying of goods and services by a firm of home
country from a firm of foreign country. For example, purchase of toys by an Indian toy
dealer from a Chinese firm.

⚫ Two Important Ways to Export and Import:

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Direct Exporting/Importing – The firm deals directly with the overseas buyers or
suppliers and carries out all formalities related to shipment and financing of goods and
services.

Indirect Exporting/Importing – The firm employs a middleman (such as export houses or

buying offices of overseas customers), who deals with the overseas buyers or suppliers
and carries out all the formalities. The firm’s participation is minimum.

⚫ Tangible vs. Intangible Exports and Imports: The exports and imports can be
of two types:

⚫ 1. Merchandise exports and imports – Merchandise means goods that are tangible, i.e.,
which can be seen and touched. The trade in merchandise is also known as ‘Visible Trade’.
Merchandise exports involves sending tangible goods abroad, while merchandise imports
means bringing tangible goods from a foreign country to the home country.

⚫ 2. Service exports and imports – It involves trade in intangibles, i.e., which cannot be
seen and touched. The trade in services is also known as ‘Invisible Trade’. It includes
trading in wide variety of services, such as tourism, entertainment, transportation,
communication, banking, etc.
Advantages of Exporting and Importing:

⚫ 1. Easy Mode – As compared to other modes of international business, it is the

easiest way to get entry into international market.

⚫ 2. Less Investment – It does not require heavy investment as needed in case of other
modes of entry. Moreover, firm is not required to invest much of its time in business
operations.

⚫ 3. Less Risk – It is less risky due to negligible or low foreign investment as compared to
other modes of entry.
Advantages of Import and Export

⚫ It is one of the simplest routes of entering into the global trade and import and export
generate huge employment opportunities.

⚫ Requires less investment in terms of time and money when

contrasted with other methods of entering into the global trade.

⚫ Is comparatively less risky when compared with different routes of entering in

international business.

⚫ As no nation can be 100% self-sufficient, import and export are very

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crucial for the functioning and growth of that nation.

⚫ Can help Countries to access the best technologies available and

best products and services in the world.

⚫ It gives better control over the trade than setting up a market and the
risk is considerably low.

Contract Manufacturing:

⚫ Contract manufacturing is a type of international business, in which a firm enters into a

contract with another firm in foreign country to manufacture certain components or
goods as per its specifications. For example, international companies such as Nike,
Reebok, Levis, etc. get their products or components produced in the developing
countries under contract manufacturing. Contract manufacturing is also known as
outsourcing.
Contract manufacturing can be done in three ways:

⚫ Production of certain components to be used in producing final products – For example,

giving contract to manufacture car accessories (like door handles, rear mirror) so that
they can be used in manufacturing the final product (i.e. car).

⚫ Assembly of components into final products – For example, assembly of

processor, mother board, hard disk, RAM, etc. into a computer.

⚫ Manufacture of the complete product – The contract may also be given to manufacture the
complete product. For example, companies like Sony, Samsung get most of the products
manufactured as per their specifications.
Advantages of Contract Manufacturing:

⚫ Contract manufacturing offers several advantages to both the international company and
local producers in the foreign countries.

⚫ 1. No need to set Production Facilities – It allows the international firms to get the goods
produced on a large-scale without requiring investment in setting up production facilities.

⚫ 2. Low Investment Risk – The investment risk is almost negligible due to no/ little
investment in the foreign countries.

⚫ 3. Lower Cost of Production – It benefits the international company to get the products
manufactured or assembled at lower costs. For example, many foreign firms get their
goods manufactured in India due to cheap labour.

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⚫ 4. Better utilisation of idle capacity – Local producers in foreign countries also gain as
contract manufacturing ensures better utilisation of their production capacity. For
example, Godrej group has been benefitted by using its excess soap manufacturing
capacity in manufacturing Dettol soap for foreign company, Reckitt and Colman.

⚫ 5. Benefits of Export Incentives – The local manufacturers can get benefits of export
incentives if the produced goods are to be delivered to a foreign country (as per
requirements of the international firm).
Licensing and Franchising:

⚫ Licensing:

⚫ Licensing is a contractual arrangement in which one firm grants access to its patents,
trade secrets or technology to another firm in a foreign country for a fee called royalty.
For example, Pepsi and Coca Cola are produced and sold all over the world by local
bottlers in foreign countries under the licensing system.

⚫ The firm that grants such permission is known as ‘Licensor’ and the other firm in the
foreign country that acquires such rights are known as ‘Licensee’. When there is
mutual exchange of knowledge, technology and/or patents between the firms, it is
known as ‘Cross-licensing’.

⚫ It may be mentioned here that it is not only technology that is licensed. For example, in
the fashion industry, designers license the use of their names.
Franchising:

⚫ Franchising is a contractual agreement which involves grant of rights by one party to

another for use of technology, trademark and patents in return of the agreed payment for
a certain period of time. The company that grants the rights (i.e. parent company) is
known as ‘Franchiser’ and the other company (which acquires the rights) is known as
‘Franchisee’.
International Business Environment

⚫ The (IBE) International Business Environment is multidimensional including the

political risks, cultural differences, exchange risks, legal & taxation issues.
Therefore, (IBE) International Business Environment comprises the political,
economic, regulatory, tax, social & cultural, legal, & technological environments.

⚫ An international business environment is the surrounding in which international

companies run their businesses.

⚫ Thus, it is mandatory for the people at the managerial level to work on the factors that
make an International Business Environment.

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⚫ International business is an exchange of goods and services that conducts its operations
across national borders, between two or more countries. International business is also
known as Globalization whereas, a Business Environment is the surrounding in which
the international companies operate.
Advantages of International Business Environment

❖ Helps in expanding the business,

❖ Exposure to more customers
❖ Helps in the proper management of the product life cycle and
❖ Helps in mutual growth
Political Environment

⚫ The political environment refers to the type of the government, the government
relationship with a business, & the political risk in the country. Doing business
internationally, therefore, implies dealing with a different type of government,
relationships, & levels of risk.

⚫ There are many different types of political systems, for example, multi-party democracies,
one party states, constitutional monarchies dictatorships (military
&Therefore, in analyzing the political-legal environment, an organization
maybroadly consider the following aspects:

⚫ The Political system of the business;

⚫ Approaches to the Government towards business i.e. Restrictive or facilitating;

⚫ Facilities & incentives offered by the Government;

⚫ Legal restrictions for instance licensing requirement, reservation to a specific sector like
the public sector, private or small-scale sector;

⚫ The Restrictions on importing technical know-how, capital goods &

⚫ raw materials;

⚫ The Restrictions on exporting products & services;

⚫ Restrictions on pricing & distribution of goods;

⚫ Procedural formalities required in setting the business

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Economic Environment

⚫ The economic environment relates to all the factors that contribute to

a country’s attractiveness for foreign businesses.

⚫ The economic environment can be very different from one nation to another. Countries
are often divided into three main categories: the more developed or industrialized, the
less developed or third world, &the newly industrializing or emerging economies.

⚫ Clearly, the level of economic activity combined with education, infrastructure, & so
on, as well as the degree of government control of the economy, affect virtually all facets
of doing business, & a firm needs to recognize this environment if it is to operate
successfully internationally. While analyzing the economic environment, the organization
intending to enter a particular business sector may consider the following aspects:

⚫ An Economic system to enter the business sector.

⚫ Stage of economic growth & the pace of growth.

⚫ Level of national & per capita income.

⚫ Incidents of taxes, both direct & indirect tax.

⚫ Infrastructure facilities available & the difficulties thereof.

⚫ Availability of raw materials & components & the cost thereof.

⚫ Sources of financial resources & their costs.

⚫ Availability of manpower-managerial, technical & workers available & their salary & wage
structures.

⚫ Within each category, there are major variations, but overall the more developed
countries are the rich countries, the less developed the poor ones, & the newly
industrializing (those moving from poorer to richer).

⚫ These distinctions are generally made on the basis of the gross domestic product per
capita (GDP/capita). Better education, infrastructure, & technology, healthcare, & so
on are also often associated with higher levels of economic development.
Technological Environment

⚫ The technological environment comprises factors related to the

materials & machines used in manufacturing goods & services.

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Class:- [Link]. III Year Subject: - International Business

⚫ Receptivity of organizations to new technology & adoption of new technology by

consumers influence decisions made in an organization.

⚫ As firms do not have any control over the external environment, their success depends
on how well they adapt to the external environment.

⚫ An important aspect of the international business environment is the level, & acceptance,
of technological innovation in different countries.

⚫ Technology often is seen as giving firms a competitive advantage; hence, firms compete
for access to the newest in technology, & international firms transfer technology to be
globally competitive.

⚫ In analyzing the technological environment, the organization may

consider the following aspects:

⚫ Level of technological development in the country as a whole & specific business sector.

⚫ The pace of technological changes & technological obsolescence.

⚫ Sources of technology.

⚫ Restrictions & facilities for technology transfer & time taken for the absorption of
technology.
Cultural Environment

⚫ The cultural environment is one of the critical components of the international business
environment This is because the cultural environment is essentially unseen; it has been
described as a shared, commonly held body of general beliefs & values that determine
what is right for one group,

⚫ National culture is described as the body of general beliefs & the values that are shared by
the nation. Beliefs & the values are generally seen as formed by factors such as the
history, language, religion, geographic location, government, & education; thus firms
begin a cultural analysis by seeking to understand these factors. The most well-known
is that developed by Hofstede in1980.

⚫ His model proposes four dimensions of cultural values including individualism,

uncertainty avoidance, power distance & masculinity.

⚫ Individualism is the degree to which a nation values & encourages individual action &
decision making.

⚫ Uncertainty avoidance is the degree to which a nation is willing to accept & deal with
uncertainty.

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Class:- [Link]. III Year Subject: - International Business

⚫ Power distance is the degree to which a national accepts & sanctions differences in
power.

⚫ Masculinity comes with the distinct gender roles, assertive, and concentrated on material
achievements and wealth-building.

⚫ This model of cultural values has been used extensively because it provides data for a
wide array of countries. Many academics & the managers found that this model helpful in
exploring management approaches that would be appropriate in different cultures.

⚫ For example, in a nation that is high on individualism one expects individual goals,
individual tasks, & individual reward systems to be effective, whereas the reverse would
be the case in a nation that is low on individualism.

⚫ While analyzing social & cultural factors, the organization may consider the following
aspects:

⚫ Approaches to society towards business in general & in specific areas;

⚫ Influence of social, cultural & religious factors on the acceptability of the product;

⚫ The lifestyle of people & the products used for them;

⚫ Level of acceptance of, or resistance to change;

⚫ Values attached to a particular product i.e. the possessive value or the functional value of
the product;

⚫ Demand for the specific products for specific occasions;

⚫ The propensity to consume & to save.

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