Module – 1
Foundations of International Business
Introduction: What is a Business?
A business can be described as an organization or enterprising entity that engages in
professional, commercial or industrial activities. There can be different types of businesses
depending on various factors. Some are for-profit, while some are non-profit. Similarly, their
ownership also makes them different from each other. For instance, there are sole
proprietorships, partnerships, corporations, and more. Business is also the efforts and
activities of a person who is producing goods or offering services with the intent to sell them
for profit. (The Economic Times)
Types of Businesses
Category Sub-Category Description Examples
Types of Sole Owned and operated by one person; Freelancers, Local
Businesses Proprietorship no legal separation between owner grocery stores
and business. Owner is liable for
taxes and legal matters.
Partnership Owned by two or more individuals Law firms, Medical
who share resources and practices
profits/losses.
Corporation A legal entity formed by Apple, Microsoft
shareholders; taxed separately; more
complex structure with stock and
regulations.
Limited Liability An LLP is a hybrid business structure Infosys Consulting
Partnership that combines the flexibility of a India LLP,
(LLP)/Private partnership with the limited liability Partnership Law
Limited Company of a company. It is a separate legal firms
entity from its partners, and each
partner's liability is limited to the
amount they contribute to the
business
Sizes of Small Business Owned by an individual or small Family restaurants,
Businesses group; limited revenue; profits are Local boutiques
modest.
Mid-sized Generates $50 million to $1 billion in Colorbar Cosmetics
Business revenue; employs 100–999 people;
better structured than small
businesses.
Large Business Revenue exceeds $1 billion; employs Amazon, Walmart
over 1,000 people; typically publicly
traded and regulated.
1. International Business: Definition and Scope
International Business refers to all commercial transactions—private or governmental—that
involve the exchange of goods, services, technology, capital, and knowledge across national
borders. It encompasses the full spectrum of cross-border business activities, including
import and export, foreign direct investment, licensing, franchising, and international
outsourcing.
At its core, international business is not just about selling products or services abroad; it also
involves understanding and acting according to the complexities of different legal systems,
cultural norms, political environments, economic conditions, and market trends across
countries.
Categories of International Business Operations:
1. Domestic Production with International Sales: Companies produce goods or
services within their home country but engage in exporting to sell them in
international markets.
2. International Production with Domestic Sales: Businesses manufacture goods in a
foreign country—often to leverage lower production costs or access resources—and
then import them for sale in the domestic market.
3. International Production and Sales: Firms operate in a truly global manner, with
production facilities and sales networks spread across multiple countries to serve both
local and international markets efficiently.
2. Globalization: Meaning, Phases and Impact on Global Business
Globalization can be defined as the opening of a wider local and nationalistic outlook of an
interdependent world global market with free transfer of capital, goods, and services across
national border frontiers. Globalization can also be defined as shrinking of globe, where the
increasing unity of the world economic order through reduction of barriers to international
trade, such as tariffs, import quotas, and export fees.
2.2. Factors aiding Globalization
Globalization is driven by a combination of economic, technological, political, and social
factors that facilitate increased interconnectedness and interdependence among countries.
These factors enable the seamless flow of goods, services, capital, information, and people
across borders.
1. Advancements in Technology: Innovations in communication, transportation, and
logistics have drastically reduced the cost and time of conducting global business.
2. Liberalization of Trade Policies: Reduction in tariffs, quotas, and trade barriers
through multilateral agreements (e.g., WTO) has made international trade more
accessible.
3. Expansion of Multinational Corporations (MNCs): The global outreach and
investment strategies of MNCs have integrated economies and supply chains
worldwide.
4. Growth of E-commerce and the Internet: Digital platforms allow businesses to
reach international markets directly and efficiently, regardless of size.
5. Development of Global Financial Systems: Integrated capital markets and financial
institutions support cross-border investment, currency exchange, and financial
transactions.
6. International Mobility of Labour and Talent: Easier migration policies and global
demand for skilled labour have facilitated the movement of people across countries.
7. Improved Infrastructure and Connectivity: Development of global transportation
networks, ports, and telecommunications has enabled better global integration.
8. Cultural Exchange and Media Influence: The spread of global media, education,
and pop culture has led to the homogenization of consumer preferences, supporting
international business.
2.3. LPG (Liberalization, Privatization, and Globalization)
Liberalization, Privatization, and Globalization (LPG) reforms were initiated in India in 1991,
aiming to liberalize the economy, privatize public sector enterprises, and integrate the
economy with the global economy. The LPG Policy of 1991 was a landmark economic
reform introduced by the Government of India under the leadership of then Finance Minister
Dr. Manmohan Singh, during the tenure of Prime Minister P.V. Narasimha Rao. It was
initiated in response to a severe economic crisis marked by low foreign reserves, high fiscal
deficit, and inflation.
1. Liberalization – Reducing government restrictions and controls on industries and trade.
2. Privatization – Disinvestment in public sector undertakings and encouraging private
sector participation. Allowed private companies to enter areas previously reserved for the
public sector. Converted government departments into companies for better efficiency, often
as a step before privatization.
3. Globalization – Integrating the Indian economy with the global economy through
increased foreign trade and investment.
Significance:
• It transformed India's economy from a closed and heavily regulated system to a market-
driven economy.
• It marked the beginning of modern economic growth in India, improving industrial
performance and international trade.
• It attracted foreign direct investment (FDI) and helped India become part of the global
economic system.
Advantages Disadvantages
1. Boosted economic growth and GDP 1. Increased income inequality between rich and
poor
2. Improved efficiency and 2. Job losses due to privatization of public sector
competitiveness units
3. Greater access to global markets and 3. Dependence on foreign investment and global
capital market risks
2.3. Phases of Globalisation and Impact on International Business
Time
Phase Key Characteristics Impact on International Business
Period
• Trade via Silk Road, spice ❖ Limited but foundational trade
routes across civilizations
1. Proto- Pre-19th • Early empires and maritime ❖ Early exchange of goods, ideas,
Globalization Century exploration and currency
• Cultural and religious ❖ Introduction of merchant
exchanges capitalism
❖ Rapid expansion of export-
oriented industries
• Industrial Revolution
19th ❖ Emergence of multinational
2. Industrial • Colonial expansion
Century – enterprises (e.g., British East India
Globalization
1914 • Invention of railways, Co.)
steamships, and telegraph ❖ Global flow of raw materials and
labour
❖ World War I and II ❖ Sharp decline in international trade
❖ Great Depression and investment
3. De-globalization ❖ Rise in nationalism and ❖ Restrictions on foreign exchange
1914–1945
(Interwar Period) protectionism and capital flows
❖ Collapse of trade and ❖ Disruption of global supply chains
financial systems and loss of trust
❖ Stable currency exchange systems
❖ Formation of IMF, World aided trade
4. Post-War Bank, GATT ❖ Growth of cross-border
Globalization ❖ Emergence of the U.S. as investments
1945–1980s
(Regulated economic leader ❖ Establishment of global
Globalization) ❖ Beginning of multinational institutions for trade regulation
corporations ❖ Industrial relocation and
outsourcing began
❖ Trade liberalization, ❖ Explosive growth in MNCs and
financial deregulation foreign direct investment
❖ WTO replaced GATT in ❖ Outsourcing and offshoring
5. Hyper 1995- Digital revolution became standard business practices
1980s–2008
Globalization (email, web) ❖ Rapid market access and consumer
❖ Rise of emerging markets base expansion
(e.g., China, India) ❖ Competitive advantage driven by
❖ Supply chain integration cost and scale
❖ Post-2008 financial crisis
❖ Increase in digital and remote
awareness
business models
❖ Rise of AI, big data,
❖ E-commerce and digital services
blockchain
6. Digital and gained dominance
2008– ❖ Geopolitical shifts (US-
Strategic ❖ Rise of regional trade agreements
Present China trade tensions)
Globalization and nearshoring
❖ Sustainability, climate
❖ ESG (Environmental, Social,
concerns
Governance) impacting investment
❖ COVID-19 and supply
decisions
chain rethinking
2.4. Standardization vs Adaptation
Standardization
Standardization refers to the use of an undifferentiated marketing mix (4 Ps: Product, Price,
Place, Promotion) across all international markets. Companies replicate the same strategy
globally without major modifications.
What is a Marketing Mix?
The 4Ps of marketing provide a comprehensive view of a business's market position and potential
profitability, which are critical in guiding investment decisions, risk assessments, and revenue
projections.
Typical profile of firms using this Standardization:
• First-time exporters
• Cost-conscious firms seeking economies of scale
• Global brands aiming for consistent image and control
What does not usually change?
Standardization Area Examples of Standardized Elements
Product Design Shape, size, color of products - Core features remain consistent
Packaging Branding, logos, and fonts - Packaging materials and colors
(e.g., Coca-Cola bottles worldwide)
Advertising & Branding Global slogans and jingles (e.g., “I’m lovin’ it”) - Consistent
brand campaigns and imagery
Customer Experience Store layout and ambiance - Staff uniforms and service style
(e.g., Starbucks, McDonald's)
Technology Platforms Identical app/website design
Production Processes Standard machines and tools - Common quality control and
safety protocols
Corporate Policies Uniform ethics code - HR policies, onboarding, and training
systems
Factors that favour Standardization
Factor Explanation
Global Consumer Homogenization of consumer preferences allows the same
Markets product to be marketed across multiple countries.
Mass production and standardized marketing reduce per-unit
Economies of Scale
cost, improving efficiency and profitability.
• Cost reduction through scale enables competitive pricing
Transferable Competitive • Quicker response times across markets
Advantages • Consistent global brand image.
• Easier control and coordination of marketing strategies.
Adaptation
Adaptation refers to the practice of tailoring the Marketing Mix to suit the specific needs,
preferences, cultural values, and legal requirements of each country or regional market.
Unlike standardization, which focuses on uniformity, adaptation emphasizes local
responsiveness, ensuring that business activities align with the expectations of target
consumers in each distinct market.
Key Features of the Adaptation Strategy:
• Each market has a customized marketing mix.
• Business activities are designed to meet local needs.
• Emphasis on cultural sensitivity, customer satisfaction, and regulatory compliance.
• Offers flexibility, allowing companies to remain relevant in diverse market conditions.
Factors that favour Adaptation
Factor Description
Variations in cultural norms, tastes, habits, language, and
Differences in Consumer
purchasing behaviours across regions require customized
Preferences
offerings.
Local Competitive Differing market structures, pricing strategies, and levels of
Conditions competition demand strategic differentiation.
Legal and Regulatory National laws regarding product labelling, content, advertising, or
Differences safety may necessitate significant modifications.
Markets requiring personalized or service-intensive products (e.g.,
High Degree of Service
hospitality, healthcare) need localized approaches to deliver value
in Offerings
effectively.
Category Examples of Adapted Elements
Product Features Changing ingredients, sizes, or designs to suit local tastes
Packaging Local languages, regulatory labels, and cultural symbols
Pricing Strategy Adjusted pricing to reflect local income levels, taxes, and
purchasing power
Advertising & Language translation, cultural references, and localized themes
Messaging in ads
Promotions & Offers Local holidays, festivals, or customs reflected in sales and
campaigns (e.g., Diwali offers)
Legal & Regulatory Product or process changes to comply with local laws (e.g., data
Compliance privacy laws, food safety rules)
Examples
Brand Standardized Element Adapted Element
Coca-Cola Core product and logo are Flavours (e.g., green tea Coke in Japan), bottle
standardized globally. sizes, and advertising adapted regionally.
Nike Global branding and slogan Product designs and endorsements vary by
(“Just Do It”). country to reflect local sports and icons.
Starbucks Store layout and coffee Menu includes local favourites (e.g., Masala
preparation are standardized. Chai in India, Red Bean Frappuccino in China).
2.5. Stages of Internationalization
The journey of a company’s expansion into international markets can be delineated through
five distinct stages of internationalization. This progression encapsulates the evolution from a
domestically focused entity to a globally integrated enterprise, each stage marked by a
significant shift in strategy, operations, and market focus.
Stage 1: Domestic Stage
In the domestic stage, companies focus solely on their local market. They are mainly
concerned with creating a stable customer base, establishing their brand, and building a
profitable business model. In this stage, companies should assess their readiness and
capability to enter foreign markets.
Stage 2: Pre-Export Stage
In the pre-export stage, companies are starting to explore potential foreign markets. This
stage involves gathering market intelligence, evaluating the competition, and identifying
opportunities. The pre-export stage is also an ideal time to evaluate the company’s resources
and assess whether it is capable of entering a foreign market.
Stage 3: Export Stage
In the export stage, companies start selling their products or services in foreign markets. This
stage involves finding customers, setting up distribution channels, and adapting to foreign
cultures and regulations. It is essential to have a clear understanding of the target market’s
needs, preferences, and behaviours.
Stage 4: Establishment of Foreign Sales Subsidiary
In this stage, companies establish a foreign subsidiary to manage their operations in foreign
markets. This subsidiary helps companies better understand and serve their customers in the
foreign market. It also helps companies overcome various challenges such as cultural
differences, legal regulations, and language barriers.
Stage 5: Establishment of Foreign Production
In the establishment of foreign production stage, companies establish production facilities in
foreign markets to manufacture their products. This stage requires significant investments in
infrastructure, technology, and human resources. Companies should also consider the various
challenges involved in foreign production, such as cultural differences, legal regulations, and
supply chain management.
Stage 6: Multinational Stage
In the multinational stage, companies have established a significant presence in multiple
foreign markets. At this stage, companies have a diverse portfolio of products, services, and
operations worldwide. Companies must maintain a strong brand image and reputation while
adapting to different cultural and regulatory environments.
