I. INTRODUCTION TO INTERNATIONAL BUSINESS : MEANING AND CONCEPT

International business includes all business transactions involving two or more countries.

These business relationships may be between private individuals, companies, groups of

companies, non-profit organizations or government agencies. In some ways, international

business is an extension of domestic business, but it is different for two reasons. The first

reason is that international business objectives are likely to be different from domestic

business objectives; the second and more significant is that the environmental conditions

in which international business is conducted are usually of greater complexity than is the

case with domestic business.

International business can be defined as set of those business activities that involves the

crossing of national boundaries. The set of activities includes: -

Import and export of commodities and manufactured goods

Investment of capital in manufacturing, extractive, agricultural,

transportation and communication assets

Supervision of employees in different countries

Investment in international services like banking, advertising, tourism,

retailing and construction

Transactions involving copyrights, patents, trademarks and process

technology.

International business covers all business transactions involving two or more countries.

EVOLUTION OF INTERNATIONAL BUSINESS

The post 1990s period has given greater fillip to international business. In fact, the term

international business was not in existence before two decades. The term international business

has emerged from the term international marketing, which in turn, emerged from the term

‘export marketing’.

International Trade to International Marketing: Originally, the producers used to export

their products to the nearby countries and gradually extended the exports to far-off countries.

Gradually, the companies extended the operations beyond trade. For example, India used to

export raw cotton, raw jute and iron ore during the early 1900s. The massive industrialization

in the country enabled us to export jute products, cotton garments and steel during 1960s.

India, during 1980s could create markets for its products, in addition to mere exporting. The

export marketing efforts include creation of demand for Indian products like textiles,

electronics, leather products, tea, coffee etc., arranging for appropriate distribution channels,

attractive package, product development, pricing etc. This process is true not only with India,

but also with almost all developed and developing economies.

International Marketing to International Business: The multinational companies which

were producing the products in their home countries and Marketing them in various foreign

countries before 1980s, started locating their plants and other manufacturing facilities in

foreign/host countries. Later, they started producing in one foreign country and marketing in

other foreign countries. For example, Unilever established its subsidiary company in India,

i.e., Hindustan Lever Limited (HLL). HLL produces its products in India and markets them

in Bangladesh, Sri Lanka, Nepal etc. Thus, the scope of the international trade is expanded

into international marketing and international marketing is expanded into international

business.

NATURE OF INTERNATIONAL BUSINESS : book

Wider Scope : Foreign trade refers to the flow of goods across national political borders.

Therefore, it refers to exporting and importing by international marketing companies plus

creation of demand, promotion, pricing etc. As stated earlier, international business is

much broader in scope. It involves international marketing, international investments,

management of foreign exchange, procuring international finance from IMF, IBRD, IFC,

IDA etc., management of international human resources, management of cultural

diversity, international marketing, management of international production and logistics,

international strategic management and the like. Thus, international business is broader in

scope and covers all aspects of the system.

Inter-country Comparative Study : International business studies the business

opportunities, threats, consumers’ preferences, behavior, cultures of the societies,

employees, business environmental factors, manufacturing locations, management styles,

inputs and human resource management practices in various countries. International

business seeks to identify, classify and interpret the similarities and dissimilarities among

the systems used to anticipate demand and market products’. The system presents inter-

country comparison and intercontinental comparison/comparative analysis helps the

management to evaluate the markets, finances, human resources, consumers etc. of

various countries. The comparative study also helps the management to evaluate the

market potentials of various countries

II. CONCEPT AND DEFINITION OF INTERNATIONAL MANAGEMENT

- The study of international management is gaining importance as firms expand their

operations to various countries. International management deals with the processes of

planning, organizing, staffing, leading and controlling organizations engaged in

international business. Companies go international for various reasons: gain access to

new markets, to increase profits, or to acquire products for the home market. These are

called aggressive reasons for going international.

- International Management and International Business are two separate concepts. While

IB is transactions devised and carried out across international borders to satisfy

corporations and individuals, IM deals with managing such transactions within a

boundary set by corporate strategy.

- The maintenance and development of an organization's production or market interests

across national borders with either local or expatriate staff

- The process of running a multinational business made up of formerly independent

organizations

- The body of skills, knowledge, and understanding required to manage cross-cultural

operations

- Took and Beeman define international management as the determination and completion

of actions and transactions conducted in and/or with foreign countries in support of

organization policy. Czinkotra and Grosse and Kojawa define international business as

transactions devised and carried out across international borders to satisfy corporations

and individuals. International management by these definitions is viewed as a subset of

international business. The focus of international business is on international transactions,

whereas international management deals with managing such transactions with in the

boundary set by corporate strategy. Thus, when a company decides to enter a foreign

market, that decision incorporates planning to establish the ways by which business

functions-marketing, accounting, human resource management, and so on-are to be

managed in that distinct location. Managing the various functions and coordinating them

with the parent’s company’s overall strategy is the task of international management.

INTERNATIOANL BUSINESS APPROACHES : ERPG

Douglas Wind and Pelmutter advocated four approaches of international business. They are:

1. Ethnocentric Approach

The domestic companies normally formulate their strategies, their product design and

their operations towards the national markets, customers and competitors. But, the

excessive production more than the demand for the product, either due to competition or

due to changes in customer preferences push the company to export the excessive

production to foreign countries. The domestic company continues the exports to the

foreign countries and views the foreign markets as an extension to the domestic markets

just like a new region. The executives at the head office of the company make the

decisions relating to exports and, the marketing personnel of the domestic company

monitor the export operations with the help of an export department. The company

exports the same product designed for domestic markets to foreign countries under this

approach. Thus, maintenance of domestic approach towards international business is

called ethnocentric approach.

This approach is suitable to the companies during the early days of internationalization and also

to the smaller companies.

2. Polycentric Approach

The domestic companies, which are exporting to foreign countries using the ethnocentric

approach, find at the latter stage that the foreign markets need an altogether different

approach. Then, the company establishes a foreign subsidiary company and decentralists

all the operations and delegates decision making and policy-making authority to its

executives. In fact, the company appoints executives and personnel including a chief

executive who reports directly to the Managing Director of the company. Company

Managing Director

ManagerR& D

Manager Finance

Manager Production

Manager Human

Resources

ManagerMarketing

Assistant Manager

North India

Assistant Manager

South India

AssistantManagerExports

appoints the key personnel from the home country and the people of the host country fill

all other vacancies.

3. Regiocentric Approach

The company after operating successfully in a foreign country, thinks of exporting to the

neighboring countries of the host country. At this stage, the foreign subsidiary considers

the regions environment (for example, Asian environment like laws, culture, policies etc.)

for formulating policies and strategies. However, it markets more or less the same

product designed under polycentric approach in other countries of the region, but with

different market strategies.

4. Geocentric approach

Under this approach, the entire world is just like a single country for the company. They

select the employees from the entire globe and operate with a number of subsidiaries. The

head quarter coordinates the activities of the subsidiaries. Each subsidiary functions like an

independent and autonomous company in formulating policies, strategies, product design,

human resource policies, operations etc.

Managing Director

CEO- Foreign Subsidiary

Manager R&D

Manager Finance

Manager Production

Manager Marketing

Manager HRM

Managing Director

CEO- Foreign Subsidiary-South Africa

MarketingLesotho

MarketingKenya

MarketingNambia

Manager R&D

Manager Finance

Manager Production

Manager Marketing

Manager HRM

Convergence in:>Tastes and Preferences>Organization Design>Financial System

Complementary Development>NIC Purchasing Power>Developing Countries’ Ability to Purchase Good Quality Products

Removal of Trade Barriers Resulting in

Meeting Global Consumer DemandsLower PriceBetter Value

Sustainable Competitive Advantage

III. REASONS FOR GOING INTERNATIONAL

The primary reason for going international is –there is money to be made by going abroad.

U.S. giants like Mc Donald’s have made massive penetration into foreign markets. With the

recent advent of technological innovation and the emergence of the newly industrialized

countries (NICs), a convergence has occurred among nation in terms of rates and

preferences, financial systems, and organization design.. Their thinking revolves around the

following issues: -

1. Where the value-adding activities should be performed?

2. Where are the most cost-effective markets for new capital and labor?

3. Can products be designed in one market and then be sold in other countries without

adding further costs?

Reasons for Going International

Managing DirectorHeadquarters India

Subsidiary India Subsidiary Namibia

Subsidiary Kenya Subsidiary Lesotho

Subsidiary South Africa

I. To Achieve Higher Rate of Profits : As we have discussed in various courses/subjects

like Principles and Practice of Management, Managerial Economics and Financial

Management that the basic objective of the business firms is to earn profits. When the

domestic markets do not promise a higher rate of profits, business firms search for

foreign markets, which promise for higher rate of profits.

II. Expanding the Production Capacities beyond the Demand of the Domestic Country:

Some of the domestic companies expanded their production capacities more than the

demand for the product in the domestic countries. These companies, in such cases, are

forced to sell their excess production in foreign developed countries.

III. Growth Opportunities: An important reason for going international is to take

advantage of the opportunities in other countries. MNCs are getting increasingly

interested in a number of developing countries as the income and population are rapidly

rising in these countries. Foreign markets both developed and developing countries

provide enormous growth opportunities for the developing country firms too.

IV. Government Policies and Regulations: Government policies and regulations may also

motivate internationalization. There are both positive and negative factors, which could

cause internationalization. Many governments give a number of incentives and other

positive support to domestic companies to export and invest in foreign countries.

Similarly, several countries give a lot of importance to import development and foreign

investment

V. Monopoly Power: in some cases, international business is a corollary of the monopoly

power, which a firm enjoys internationally. Monopoly power may arise from such factors

as monopolization of certain resources, patent rights, technological advantage, product

differentiation etc. Such monopoly power need not necessarily be an absolute one but

even a dominant position may facilitate internationalization. Similarly, exclusive market

information (which includes knowledge about foreign customers, market places, or

market situations not widely shared by other firms) is another proactive stimulus.

VI. Severe Competition in the Home Country : The countries oriented towards market

economies since 1960s had severe competition from other business firms in the home

countries. The weak companies, which could not meet the competition of the strong

companies in the domestic country, started entering the markets of the developing

countries. Moreover a protected market does not normally motivate companies to seek

business outside the home market. For example Indian economy was a highly protected

market before liberalization in 1991. Not only the domestic producers were protected

from foreign competition but also domestic competition was restricted by several policy

induced entry barriers, operated by such measures as industrial licensing etc. After

liberalization, competition increased from foreign as well as domestic firms. Many Indian

companies are now systematically planning to go international in a big way.

VII. Limited Home Market : When the size of the home market is limited either due to the

smaller size of the population or due to lower purchasing power of the people or both, the

companies internationalize their operations. For example, most of the Japanese

automobile and electronic firms entered US, Europe and even African markets due to the

smaller size of the home market. ITC entered the European market due to the lower

purchasing power of the Indians with regard to high quality cigarettes. Similarly, the

mere six million population of Switzerland is the reason for Ciba Geigy to

internationalize its operations. In fact, this company was forced to concentrate on global

market and establish manufacturing facilities in foreign countries.

VIII. Political Stability vs. Political Instability : Political stability does not simply mean that

continuation of the same party in power, but it does mean the continuation of the same

policies of the Government for a quite longer period. It is viewed that USA is a politically

stable country. Similarly, UK, France, Germany, Italy and Japan are also politically

stable countries. Most of the African countries and some of the Asian countries like

Malaysia, Indonesia, Pakistan and India are politically instable countries. Business firms

prefer to enter the politically stable countries and are restrained from locating their

business operations in politically instable countries. In fact, business firms shift their

operations from politically instable countries into politically stable countries.

IX. Availability of Technology and Managerial Competence: Availability of advanced

technology and managerial competence in some countries act as pulling factors for

business firms from the home country. The developed countries due to these reasons

attract companies from the developing world. In fact, American companies, in recent

years, depend on Japanese companies for technology and management expertise.

X. High Cost of Transportation : Initially companies enter foreign countries through their

marketing operations. At this stage, the companies realize the challenge from the

domestic companies. Added to this, the home companies enjoy higher profit margins

whereas the foreign firms suffer from lower profit margins. The major factor for this

situation is the cost of transportation of the products. Under such conditions, the foreign

companies are inclined to increase their profit margin by locating -their manufacturing

facilities in foreign countries where there is enough demand either in one country or in a

group of neighboring countries.

XI. Nearness to Raw Materials : The source of highly qualitative raw materials and bulk

raw materials is a major factor for attracting the companies from various foreign

countries. Most of the US based and European based companies located their

manufacturing facilities in Saudi Arabia, Bahrain, Qatar, Oman, Iran and other Middle

East countries due to the availability of petroleum. These companies, thus, reduced the

cost of transportation.

XII. Availability of Quality Human Resources at Less Cost : This is a major factor, in

recent times, for software, high technology and telecommunication companies to locate

their operations in India. India is a major source for high quality and low cost human

resources unlike USA, developed European countries and Japan. Importing human

resources from India by these firms is costly rather than locating their operations in India.

Hence these companies started their operations in India and other similar countries.

XIII. To Avoid Tariffs and Import Quotas : It was quite common before globalization that

governments imposed tariffs or duty on imports to protect the domestic company.

Sometimes Government also fixes import quotas in order to reduce the competition to the

domestic companies from the competent foreign companies. These practices are

prevalent not only in developing countries but also in advanced countries. For example,

Japanese companies are competent competitors to the US companies.

REASONS PART II

IV. INTERNATIONAL ENTRY MODES

Companies deciding to enter the foreign markets, face the dilemma while deciding the

method of entry into a given overseas location. Analyzing the following decision factors can

reduce this dilemma: -

1. Ownership Advantages: Ownership advantages are those designed by a company by

owning resources. These benefits provide competitive advantage to the company over its

competitors. Toronto-based Inco. Ltd., of rich, nickel-bearing ores allowed the company , to

dominate the production of both primary nickel and nickel-based metal alloys.' Similarly ,, Tata

Iron and Steel Company (TISCO) Ltd., owned its iron ore mines and coal mines. This ownership

grants the advantage of low cost producer to the company.

2. Location Advantages

Certain location factors grant benefit to the company when the manufacturing facilities are

located in the host country rather than in the home country. These location factors include:

Customer Needs, Preferences and Tastes

Logistic Requirements

Cheap Land Acquisition Cost

Cheap Labor

Political Stability

Low Cost Raw Materials

Climatic Conditions.

If the company has location advantages, it enters foreign markets through direct investment. If

the location of manufacturing facilities in home country is advantageous in the host country, the

company enters foreign markets through exporting.

3. Internationalization Advantages

Internationalization advantages are those benefits that a company gets by manufacturing goods

or rendering services in the host country by itself rather than through contract arrangements with

the companies in the host country.

Sometimes the cost of negotiating, monitoring and enforcing an agreement with the host

country's company would be difficult and costly. In such cases the company enters the

international markets through direct investment. Otherwise, if the company thinks that the

transaction costs are low, and the local companies in the host country can produce efficiently

without jeopardising the interest, the company can enter the foreign markets through contract

manufacturing, franchising or licensing.

Toyota enters foreign markets through direct investment and joint-ventures us the local

companies in foreign countries cannot produce as efficiently as Toyota.

Companies with low cash reserves normally prefer licensing mode rather than foreign direct

investment (FDI)• Merck entered Israel by issuing license to Teva Pharmaceutical an Israel

company in order to save the expenses of establishing in Israel. /n contrast, cash rich firms may

prefer FDI. Firms also enter through FDI in order to take the advantage of economies of scale,

and synergies between their domestic and international operations.

However, the software companies prefer licensing and franchising mode as they have to respond

quickly to the market needs. For example Microsoft and Compaq. Thus, different firms select

different modes based on the nature of the industry.

The entry mode employed should be consistent with the firm's objectives and the choice

will often involve a trade-off among objectives.

The factors which influence the choice of entry mode are:

o Legal considerations

o The nature of the competition

o Political factors

o Economic risk

o The nature of the assets to be employed

o The firm's experience.

Firms may use different entry modes in different countries and for different products. As

diversity increases, the task of coordinating the foreign operations becomes more

complex.

Firms usually want complete ownership of foreign operations to guarantee control and

prevent loss of profit. However, host countries usually want a share of the action and the

resources that the MNE will bring into the host country.

Joint ventures are often motivated by the complementary resources firms have at their

disposal, and just as often by governmental preferences.

Turnkey projects usually require high level negotiation skills to deal with host country

government officials.

Management contracts are a means of securing income with little capital outlay. They are

usually used for expropriated properties in LDCs, for new operations, and for facilities

with operating problems. Management contracts involve the sale of technical or

managerial expertise, and one of the responsibilities of the hired manager is to train local

nationals so they will be able to run the business when the contact expires.

Contracting foreign business does not negate management's responsibility to ensure that

company resources are being optimally employed. This involves constantly assessing the

work of the outsiders such as contract managers and evaluating new options for their

employment.

MODES OF ENTRY

I. EXPORTING

Exporting is the simplest and widely used mode of entering foreign markets. It is the

marketing and selling of domestically produced goods in another country. It is a

traditional and well established method of reaching foreign markets. Since it does not

require that the goods be produced in the target country, no investment in foreign

facilities is required. Most of the costs associated with exporting take form of marketing

expenses.

The advantages of exporting include:

a. Need for Limited Finance : If the company selects a company in the host

country to distribute, the company can enter international market with no or less

financial resources. Alternatively, if the company chooses to distribute on its own,

it needs to invest financial resources, but this amount would be quite less

compared to that would be necessary under other modes.

b. Less Risk: Exporting involves less risk as the company understands the culture,

customer and the market of the host country gradually. The company can enter the

host country on a lull scale, if the product is accepted by the host country's

market. British company selected this mode to export jams to Japan.

c. Motivation for Exporting: Motivations for exporting are proactive and reactive.

Proactive motivations are opportunities available in the host country. San

Antonio's Pace, Inc., producing Tex-Mex food products exported its products to

Mexico as Mexicans relished the taste of its products. Reactive motivations are

those efforts taken by the company to export the product to a foreign country due

to the decline in demand for its product in the home country. Toto Ltd., of Japan

started exporting its products, i.e., Porcelain bathroom fixtures to China when the

Japanese economy started slowing down in 1990s.

FORMS OF EXPORTING

Forms of exporting include: -

1. Indirect Exporting: Indirect exporting is exporting the products either in their

original form or in the modified form to a foreign country through another domestic

company. Various publishers ill India including Himalaya Publishing House, sell

their products, i.e., books to UBS publishers of India, which in turn exports these

books to various foreign countries.

2. Direct Exporting: Direct exporting is selling the products in a foreign country

directly through its distribution arrangements or through a host country's company.

Baskin Robbins initially exported its ice-cream to Russia in 1990 and later opened 74

outlets with Russian partners. Finally in 1995 it established its ice cream plant in

Moscow."

3. Intracorporate Transfers: Intracorporate transfers are selling of products by a

company to its affiliated company in host country (another country). Selling of

products by Hindustan Lever in India to Unilever in USA. This transaction is treated

as exports in India and imports in USA.

FACTORS TO BE CONSIDERED: The company, while exporting, should consider the

following factors:

Government policies like export policies, import policies, export financing, foreign

exchange etc.

Marketing factors like image, distribution networks, responsiveness to the customer,

customer awareness and customer preferences.

Logistical consideration: These factors include physical distribution costs, warehousing

costs, packaging, transporting, inventory carrying costs.

Distribution Issues: These include own distribution networks, networks of host county's

companies. Japanese companies like Sony, Minolta and Hitachi rely On the distribution

networks Of' their subsidiaries in the host country.

Export Intermediaries: Export intermediaries perform a variety of functions and enable tile

small companies to export their goods to foreign countries. Their functions include: handling

transportation, documentation, taking ownership of foreign-bound goods, assuming total

responsibility for exporting and financing. Types of export intermediaries include:

Export management companies act as export department of the exporting firm (its client).

These companies act as commission agents for exports or they take tittle to the goods.

Cooperative Society: The domestic companies desire to export the goods form a co-

operative society, which undertakes the exporting operations of its members.

International Trading Company: This company is engaged in directly exporting and

importing. It buys the goods from the domestic companies and exports. Therefore, the

companies can export their goods by selling them to the international trading company.

Manufacturers' Agents: They work on a commission basis. They solicit domestic orders

for foreign manufacturers.

Manufacturers' Export Agents: These agents also work on a commission basis. They sell

the domestic manufacturers' products in the foreign markets and act as their foreign sales

department.

Export and Import Brokers: The brokers bridge the gap between exporters and importers

and bring these two parties together.

Freight Forwarders: Freight forwarders help the domestic manufacturers in exporting

their goods by performing various functions like physical transportation of goods,

arranging customs documents and arranging transportation services.

II. LICENSING

In this mode of entry, the domestic manufacturer leases the right to use its intellectual

property, i.e., technology, work methods, patents, copy rights, brand names, trademarks

etc. to a manufacturer in a foreign country for a fee." Here the manufacturer in the

domestic country is called 'licensor' and the manufacturer in the foreign country is called

`licensee.'

Licensing is a popular method of entering foreign markets. The cost of entering foreign

markets through this mode is less costly. The domestic company need not invest any

capital as it has already developed intellectual property. As such, the domestic company

earns revenue without additional investment. Hence, most of the companies prefer this

mode of foreign entry.

The domestic company can choose any international location and enjoy the advantages

without -incurring any obligations and responsibilities of ownership, managerial,

investment etc. Kirin Brewery - Japan's largest beer producer entered Canada by granting

license to Molson and British market by granting license to Charles Wells Brewery.

BASIC ISSUES IN INTERNATIONAL LICENSING:

Companies should consider various factors in deciding negotiations. Each international

licensing is unique and has to be decided separately. However, there are certain common

factors which affect most of the international licenses. They are: -

o Boundaries of the Agreements: The companies should clearly define the boundaries

of agreements. They determine which rights and privileges are being conveyed in the

agreement. Pepsi-Cola granted license to Heineken of Netherlands with exclusive

rights of producing and selling Pepsi-Cola in Netherlands. Under this agreement the

boundaries are (i) Heineken should not export Pepsi-Cola to any other country, (ii)

Pepsi supplies concentrated cola syrupand Heineken adds carbonated water to

produce beverage and (iii) Pepsi can grnatclicence , to other companies in

Netherlands to produce other products of' Pepsi like Potatochips.

o Determination of Royalty : The most important factor in deciding the license is the

amount of royalty. It is needless to mention that the licensor expects high rate of

royalty while licensee would be unwilling to par much royalty. However, both the

parties negotiate for a fair royalty for both the sides in order to implement the contract

more

o Determining; Rights, Privileges and Constraints : Another important factor, in

granting license is determining clearly and specifically the rights, privileges and

constraints. For example, if the Indian licensee of Aiwa TV uses interior input in

order to reduce price, boost up sales and profit, the image of the Japanese licensor

would be damaged.

o Dispute Settlement Mechanism : The licensee and licensor should clearly mention the

mechanism to settle the disputes as disputes are hound to crop up. This is because,

settlement of disputes in courts is costly, time consuming and hinders business

interests.

o Agreement Duration: The two parties of the agreement specify the duration of the

agreement. Licensing cannot he a short-term strategy. Hence, the duration of the

licensing should not be of the short-term. It would always be appropriate to have long

duration of the licensing. Tokyo Disneyland demanded on a 100-year licensing

agreement With The Walt Disney Company.

ADVANTAGES AND DISADVANTAGES OF LICENSING

Advantages

Licensing mode carries relatively low investment on the part of licensor

Licensing mode carries low financial risk to the licensor.

Licensor can investigate the foreign market without much efforts on his part.

Licensee gets the benefits with less investment on research and development.

Licensee escapes himself from the risk of product failure. For example, Nintendo

game designers have the relatively safety of knowing millions of game system units.

Disadvantages

Licensing agreements reduce the market opportunities for both the licensor and

licensee.

Pepsi-cola cannot enter Netherlands and Heineken cannot sell Coca-cola.

Both the parties have the responsibilities to maintain the product quality and

promoting the product. Therefore, one party can affect the other through their

improper acts.

Costly and tedious litigation may crop up and hurt both the parties and the market.

There is scope for misunderstanding between the parties despite the effectiveness of

the agreement. The best example is Oleg Cassini and Jovan.

There is a problem of leakage of the trade secrets of the licensor.

The licensee may develop his reputation.

The licensee may sell the product outside the agreed territory and after the expiry of

the contract.

III. FRANCHISING

Franchising is a form of licensing. The franchisor can exercise more control over the

franchised compared to that in licensing. International franchising is growing at a fast

rate. Under franchising, an independent organization called the franchisee operates the

business under the name of another company called the franchisor. Under this agreement

the franchisee pays fee to t e franchisor. The franchisor provides the following services to

the franchisee:

Trade marks

Operating systems

Product reputations

Continuous support systems like advertising, employee training, reservation services,

and quality assurance programmes etc.

BASIC ISSUES IN FRANCHISING

The franchisor has been successful in his home country. McDonnell was successful in

USA due to the popular menu and fast and efficient services.

The factors for the success of the McDonald are later transferred to other countries.

The franchiser may have the experience in franchising in the home country before

going for international franchising.

Foreign investors should come forward for introducing the product on franchising

basis.

FRANCHISING AGREEMENTS: The franchising agreement should contain

important items as follows: -

Franchisee has to pay a fixed amount and royalty based on the sales to the franchisor.

Franchisee should agree to adhere to follow the franchisor's requirements like

appearance, financial reporting, operating procedures, customer service etc."

Franchisor helps the franchisee in establishing the manufacturing facilities, services

facilities. provides expertise, advertising, corporate image etc.

Franchisor allows the franchisee some degree of flexibility in order to meet the local

taste-, and preferences. McDonald restaurants in Germany sell beer also and

McDonald restaurants in France sell wine also.

ADVANTAGES AND DISADVANTAGES OF FRANCHISING

ADVANTAGES For franchisors

1. Expansion: Franchising is one of the only means available to access investment capital

without the need to give up control in the process. After their brand and formula are

carefully designed and properly executed, franchisors are able to expand rapidly across

countries and continents using the capital and resources of their franchisees, and can earn

profits commensurate with their contribution to those societies. Additionally, the

franchisor may choose to leverage the franchisee to build a distribution network.

2. Legal considerations: The franchisor is relieved of many of the mundane duties necessary

to start a new outlet, such as obtaining the necessary licenses and permits. In some

jurisdictions, certain permits (especially liquor licenses) are more easily obtained by

locally based, owner-operator type applicants while companies based outside the

jurisdiction (and especially if they originate in another country) find it difficult if not

impossible to get such licenses issued to them directly. For this reason, hotel and

restaurant chains that sell liquor often have no viable option but to franchise if they wish

to expand to another state or province.

3. Operational considerations: Franchisees are said to have a greater incentive than direct

employees to operate their businesses successfully because they have a direct stake in the

operation. The need of franchisors to closely scrutinize the day to day operations of

franchisees (compared to directly-owned outlets) is greatly reduced.

For franchisees

1. Quick start: As practiced in retailing, franchising offers franchisees the advantage of

starting up a new business quickly based on a proven trademark and formula of doing

business, as opposed to having to build a new business and brand from scratch (often in

the face of aggressive competition from franchise operators). A well run franchise would

offer a turnkey business: from site selection to lease negotiation, training, mentoring and

ongoing support as well as statutory requirements and troubleshooting.

2. Expansion: With the help of the expertise provided by the franchisers the franchisees are

able to take their franchise business to that level which they wouldn't have had been able

to without the expert guidance of their franchisors.

3. Training: Franchisors often offer franchisees significant training, which is not available

for free to individuals starting their own business. Although training is not free for

franchisees, it is both supported through the traditional franchise fee that the franchisor

collects and tailored to the business that is being started.

DISADVANTAGES f or Franchisors

1. Limited pool of viable franchisees: In any city or region there will be only a limited pool

of people who have both the resources and the desire to set up a franchise in a certain

industry, compared to the pool of individuals who would be able to competently manage

a directly-owned outlet.

2. Control: Successful franchising necessitates a much more careful vetting process when

evaluating the limited number of potential franchisees than would be required to hire a

direct employee. An incompetent manager of a directly-owned outlet can easily be

replaced, while regardless of the local laws and agreements in place removing an

incompetent franchisee is much more difficult. Incompetent franchisees can easily

damage the public's goodwill towards the franchisor's brand by providing inferior goods

and services. If a franchisee is cited for legal violations, she will probably face the legal

consequences alone but the franchisor's reputation could still be damaged.

For franchisees

1. Control: For franchisees, the main disadvantage of franchising is a loss of control. While

they gain the use of a system, trademarks, assistance, training, marketing, the franchisee

is required to follow the system and get approval for changes from the franchisor. For

these reasons, franchisees and entrepreneurs are very different. The United States Office

of Advocacy of the SBA indicates that a franchisee "is merely a temporary business

investment where he may be one of several investors during the lifetime of the franchise.

In other words, he is "renting or leasing" the opportunity, not "buying a business for the

purpose of true ownership." Additionally, a franchise purchase consists of both intrinsic

value and time value. A franchise is a wasting asset due to the finite term, unless the

franchisor chooses to contractually obligate itself it is under no obligation to renew the

franchise.

2. Price: Starting and operating a franchise business carries expenses. In choosing to adopt

the standards set by the franchisor, the franchisee often has no further choice as to

signage, shop fitting, uniforms etc. The franchisee may not be allowed to source less

expensive alternatives. Added to that is the franchise fee and ongoing royalties and

advertising contributions. The contract may also bind the franchisee to such alterations as

demanded by the franchisor from time to time. (As required to be disclosed in the state

disclosure document and the franchise agreement under the FTC Franchise Rule)

3. Conflicts: The franchisor/franchisee relationship can easily cause conflict if either side is

incompetent (or acting in bad faith). An incompetent franchisor can destroy its

franchisees by failing to promote the brand properly or by squeezing them too

aggressively for profits. Franchise agreements are unilateral contracts or contracts of

adhesion wherein the contract terms generally are advantageous to the franchisor when

there is conflict in the relationship.

OTHER ADVANTAGES

Franchisor can enter global markets with low investment and low risks.

Franchisor can get the information regarding the markets, culture, customs and

environment of the host country.

Franchisor learns more lessons from the experiences of the franchisees. McDonald

benefited from the world wide learning phenomenon. McDonald is convinced to open

a restaurant in inner-city office building in Japan. This location has become a more

successful one. Based on this lesson, McDonald opened its restaurants in downtown

locations in various countries.

Franchisee can early start a business with low risk as he selects an established and

proven product and operating system,

Franchise gets the benefits of R & D with low cost.

Franchisee escapes form the risk of product failure.

OTHER DISADVANTAGES

International franchising may be more complicated than domestic franchising.

McDonald taught the Russian farmers the methods of growing potatoes to meet its

standards.

It is difficult to control the international franchisee. As one of the French investor did

not maintain the stores as per the standards, McDonald did revoke the franchise.

Franchising agents reduce the market opportunities for both the franchisor and

franchisee.

Both the parties have the responsibilities to maintain product quality and product

promotion.

There is scope for misunderstanding between the parties.

There is a problem of leakage of trade secrets.

IV. SPECIAL MODES

Some companies cannot make long-term investments or long-term contracts to enter

markets. Therefore, they may use specialized strategies. These specialized strategies

include: -

a. Contract Manufacturing

Some companies outsource their part of or entire production and concentrate on

marketing operations. This practice is called the contract manufacturing or

outsourcing.

Nike has contracted with a number of factories in south-east Asia to produce its

athletic footware and it concentrates on marketing. Bata also contracted with a

number of cobblers in India to produce its footware and concentrate on

marketing. Mega Toys - a Los Angeles based company contracts with Chinese

plants to produce Toys and Mega Toys concentrates on marketing.

Advantages

International business can focus on the part of the value chain where it has

distinctive -competence.

It 'reduces the cost of production as the host country's companies with their

relative cost advantage produce at low cost.

Small and medium industrial units in the host country can also develop as most of

the production activities take in these units.

The international company gets the location advantages, generated by the host

country's production.

Disadvantages Host country's companies may take up the marketing activities also, hindering the

interest of the international company.

Host county's companies may not strictly adhere to the production design, quality

standards etc. These factors result in quality problems, design problem and other

surprises.

The poor working countries in the host country's companies affect the company's,

image. For example, Nike has suffered a string of blows to its public image,

because of reports of unsafe and harsh working conditions in Vietnamese

factories churning our Nike footware.

b. Management Contracts

The companies with low level technology and managerial expertise may seek tile assistance of a

foreign company. Then the foreign company may agree to provide technical assistance and

managerial expertise. This agreement between these two companies is called the management

contract.

A management contract is an agreement between two companies whereby one company provides

managerial assistance, technical expertise and specialized services to the second company of the

argument for a certain agreed period in return for monetary compensation. Monetary

Compensation may be in the form of a flat fee or Percentage over sales or Performance bonus

based on profitability, sales growth, production or quality measures.

Management contracts are mostly due to governmental inventions. The Government of the

Kingdom of Saudi Arabia nationalized Armco and requested the former owners to manage the

company. Exxon and other former owners of Armco accepted the offer. Delta, Air France and

KLM often provide technical and managerial assistance to the small airlines companies owned

by the Governments.

Advantages

Foreign company earns additional income without any additional investment, risks and

obligations.

Hilton Hotels provided these seivices to other hotels without additional

investment and earned additional income..

This arrangement and additional income allows the company to enhance its

image in the investors and mobilise the funds for expansion.

Management contract helps the companies to enter other business areas in the

host country.

The companies can act as dealer for the business of, the host country’s

business in the home country.

Disadvantages Sometimes the companies allow the companies in the host country even to

use their trademarks and brand name. The host country's companies spoil the

brand name, if they do not keep up the quality of the product service.

The host country’s companies may leak the secrets of technology

c. Turnkey Project

A turnkey project is a contract under which a firm agrees to fully design,

construct and equip a manufacturing/business/service facility and turn the project

over to the purchaser when it is ready for operation for remuneration. The forms

of remuneration include: -

A fixed price (firm plans to implement the project below this price)

Payment on cost plus basis (i.e., total cost incurred plus profit)

International turnkey projects include nuclear power plants, air ports, oil refinery,

national highways, railway lines etc. Hence, they are large and multiyear

projects. International companies involved in such projects include: Bechtel,

Brown and Root, Hyundai Group, Friedrich Krupp, etc.

The companies normally approach the host country's Governments or

International Finance, Corporation, Export-Import Bank of USA and the like for

financial assistance as the turnkey projects require huge finances.

The recent approach of turnkey projects is Build, Operate and Transfer (B-O-T).

The company builds the manufacturing/services facility, operates it for some

time and then transfers it to the host country's Government. In this approach, the

contractor will not be paid the remuneration.

V. FOREIGN DIRECT INVESTMENT WITHOUT ALLIANCES (Greenfields

strategy)

Some companies, enter the foreign markets through exporting, licensing, franchising

etc., get the knowledge and awareness of the foreign markets, culture of the country,

customers' preferences, political situation of the country etc., and then establish

manufacturing facilities by ownership in the foreign countries. Baskin-Robbins in Russia

followed this strategy. In contrast, some other companies enter the foreign market

through ownership and control of assets in host countries.

Companies which enter the international markets through foreign direct investment (FDI)

invest their money, establish manufacturing and marketing, facilities through ownership

and control.

Foreign firm needs to control the operations when -

It has foreign firm's need to control the operations when it has subsidiaries to

achieve strategic synergies.

The technology, manufacturing expertise, intellectual property rights have

potentialities and their full utilization needs planned exploitation.

ADVANTAGES

Mostly, the customers of the host country prefer to the products produced in their

country like -'Be American, Buy American, 'Be Indian. Buy Indian.'. In such cases FDI

helps the company to gain market through this mode rather than other modes.

Purchase managers of most of the companies prefer to buy local production in order to

ensure certainty of supply, faster services, quality dependability and better

communication with the supplier.

The company can produce based on the local environment and changing preferences of

the cutomers.

Disadvantages

o FDI exposes the company (to a fullest extent) tothe host country's politicaL and

economic risks.

o FDI also exposes the company to the exchange rate fluctuations.

o Some countries discourage the entry of foreign companies through FDI in order to

protect the domestic industry.

o Changing Government policies of the host country may create uncertainties to the

company.

o Host country Governments, sometimes, ban the acquisition of local companies by

foreign companies, impose restrictions on repatriation of dividends and capital. India

has allowed IOO% convertibility.

THE GREENFIELD STRATEGY

The term Greenfield refers to starting with a virgin green site and then building is,

Greenfield strategy is starting of the operations of a company from scratch in a foreign

market. The company conducts the market survey, selects the location, buys or leases

land, creates facilities, erects the machinery, remits or transfers the human resources and

starts the operations and marketing activities. This strategy is followed by Fuji in locating

its manufacturing, facilities in South Carolina, by Mercedes-Benz in locating automobile

assembly plant in Alabama and by Nissan in locating its factory in Sunderland, England."

Disney management faced the problems in building Disneyland in Paris. These problems

include:

Problems in dealing with French construction contractors.

Communication difficulties with painters.

Local contractors demanded $150 million extra at the time of opening, and threatened

the opening.

Local employees resisted the firm's attempt to impose its US work values.

ADVANTAGES The company selects the best location from all viewpoints.

The company can avail the incentives, rebates and concessions offered by the host

governments including local governments.

The company can have latest models of the buildings, machinery and equipment

technology.

The company can, also have its own policies and styles of human resources

management.

The company can have its gestation period to understand and adjust to the new

culture of the host country. Thus it can avoid the cultural shock.

DISADVANTAGES

This strategy results in a longer gestation period as the successful implementation

takes time and patience.

Some companies may not get the land in the location of its choice.

The company has to follow the rules and regulations imposed by the host country's

Government in case of construction of the factory buildings.

Host country's Government may impose conditions that the company should recruit

local people and train them, if necessary, to meet the company’s requirement.

VI. FOREIGN DIRECT INVESTMENT WITH STRATEGIC ALLIANCES

Innovations, creations, productivity, growth, expansions and diversifications, in the

recent years, are mostly accomplished by the strategic alliances adopted by various

companies like mergers, acquisitions and joint-ventures.

Strategic alliance is a co-operative and collaborative approach to achieve the larger goals.

Strategic alliance takes different forms like licensing, franchising, contract

manufacturing, joint ventures etc. Alliance is a strategy to explore a new market which

the companies individually cannot do. For example, Xerox of USA and Fuji of Japan

collaborated to explore new markets in Europe and Pacific Rim.

Two companies join hands in order to align their distinctive and different strengths.

Dunlop and Pirelli - the two tyre making corporations -joined together in order to

synergize the strength of marketing capabilities of Dunlop and R&D capabilities of

Pirelli.

Why Consider Strategic Alliances?

  Multiply market entry alternatives and available resources for expansion into choice

international markets.  Consider possibility of replicating IJV's in different market areas. 

  Access dominant or leading foreign technology through local manufacture in the target

market.  Domestic markets may also be served trough reverse licensing from the IJV. 

  Access lucrative but otherwise closed or resistant markets through the efforts of a

foreign partner to maximize value of established relationships.  Develop customer service

channels what would be unfeasible otherwise. 

  Gain cost advantages through scale and locational economies (factor costs). 

  Employ key managers experienced in cultural norms and business practices of overseas

target markets. 

  Realize political or legal advantages via relationship with a partner enjoying regional or

national recognition.

  Exploit multiple synergies in production, marketing, and finance. 

  Limit exposure of own corporate assets to those actually contributed to the joint

venture.

MODES OF FOREIGN ENTRY THROUGH ALLIANCES: -

a. Mergers and Acquisitions

Domestic companies enter international business though mergers and

acquisitions. A domestic company selects a foreign company and merges itself

with the foreign company in order to enter international business. Alternatively,

the domestic company may purchase the foreign company and acquires its

ownership and control.

Domestic business selects this mode of entering international business as it

provides immediate access to international manufacturing facilities and marketing ,

network. Otherwise, the domestic company faces serious problems in gaining

access to international markets. For example. ('()C Cola entered Indian market

instantly 11V acquiring the Pane and its bottling units. In addition, the domestic

company through this strategy of mergers and acquisition may also get access to

new technology or a patent right. 1

Though mergers and acquisitions provide easy and instant entry to global

business, it would be very difficult to appraise the cases of acquisitions and

mergers. Some times it Would he cheaper to a domestic company to have a green

field strategy than by acquisitions. Sometimes mergers and acquisitions also result

in purchasing the problems of a fore

Advantages and Disadvantages of Aquisition strategy

Advantages

The company immediately gets the ownership and control over the acquired

firm's factories, employees, technology, brand names and distribution networks.

The company can formulate international strategy and generate more revenues.

If the industry already reached the stage of optimum capacity level or

overcapacity level in the host country. This strategy helps the economy of the

host country.

Disadvantages

Acquiring a firm in a foreign country is a complex task involving bankers,

lawyers, regulations, mergers and acquisition specialists from the two

distribution networks.

This strategy adds no capacity to the industry.

Sometimes host countries imposed restrictions on acquisition of local

companies by the foreign companies.

Labour problems of the host country's company are also transferred to the

acquired company.

Companies adopt this strategy just as a means of entering foreign markets. Procter

and Gamble entered Mexican tissue products in 1997 by purchasing Loreto Y.

Pena Pobre's manufacturing and marketing systems.

b. Joint Ventures

Two or more firms join together to create a new business entity that is legally

separate and distinct from its parents. Joint ventures are established as

corporations and owned by the funding partners in the predetermined proportions.

American Motor Corporation entered into ajoint venture with Beijing Automotive

Works called Beijing Jeep to enter Chinese market by producing jeeps and other

vehicles. Joint ventures involve shared ownership. Joint Ventures are common in

international business. Various environmental factors like social, technological,

economic and political encourage the formation of Joint ventures. Joint ventures

provide required strengths in terms of required capital, latest technology required

human talent etc. and enable the companies to share the risks in the foreign

markets.

Joint ventures involve the local companies. This act improves the local image in

the host country and also satisfies the governmental requirements regarding joint

ventures. In fact, support of the host country's Government is essential for the

success of the joint venture.

Massey-Ferguson entered into a 51% joint venture in Turkey to produce Tractors.

It planned to produce 50,000 engines per year and called the Government to

provide facilities for an additional production of 30,000 tractors a year. Massey-

Ferguson failed to understand economic, political and Governmental factors in the

country. The company needed Government support for its successful operation.

The venture is terminated as the Government of Turkey did not provide he

support to the company.

ADVANTAGES

Joint ventures provide large capital funds. Joint ventures are suitable for major

projects.

Joint venture spread the risk between or among, partners.

Different parties to the joint venture bring different kinds of skills like technical

skills, technology, human skills, expertise, marketing skills or marketing

networks.

Joint ventures make large projects and turn key projects feasible and possible.

Joint ventures provide synergy due to combined efforts of varied parties.

DISADVANTAGES

Joint ventures are also potential for conflicts. They result in disputes between

or among parties due to varied interests. For example, the interest of a host

country's company in developing countries would be to get the technology

from its partner while the interest of a partner of an advanced county would be

to get the marketing expertise from the host country's company.

The partners delay tile decision-making once the dispute arises. Then the

operations become unresponsive and inefficient.

Decision-making is normally slowed down in joint ventures due to the

involvement of a number of parties.

Scope for collapse of a joint venture is more due to entry of competitors,

changes in the business environment in the two countries, changes in the

partners' strengths etc.

Life cycle of a joint venture is hindered by many causes of collapse.

LIFE CYCLE OF A JOINT VENTURE

The first stage of the life cycle of a joint venture begins with exploratory stage.

During this stage the prospective partners start making:

Alliances

Project Collaborations

Feasibility Studies

After making alliances, the growth phase of the joint venture takes place. If the

interests of the parties vary at this stage, they will lead to collapse of the joint

venture in this phase itself. If the partners work together, this phase leads to

stability of the joint ventures. Even in the stability stage, the joint venture may

collapse. If not, the changed interests of the parties force them to renegotiate

regarding their interests and shares. If the renegotiation is not successful, the joint

venture may collapse. The reasons for collapse include:

Entry of new competitors

Changes in Business Environment

Changes in partners' strengths

Today's partners may become tomorrow's competitors,

Changes in partners' interests.

STAGES OF INTERNATIONALIZATION ( STRATEGY )

The internationalization process generally includes five stages, viz., domestic

company, international Company, multinational company, global company and transnational

company. Now, we will study stage of internationalization in detail.

Stage 1: Domestic Company

Domestic company limits its operations, mission and vision to the national political boundaries.

These companies focus its view on the domestic market opportunities, domestic suppliers,

domestic financial companies, domestic customers etc. These companies analyze the national

environment of the country, formulate the strategies to exploit the opportunities offered by the

environment. The domestic Companies’ unconscious motto is that, “if it’s not happening in the

home country, it is not happening”. The domestic company never thinks of growing globally. If

it grows, beyond its present capacity, the company selects the diversification strategy of entering

into new domestic markets, new products, technology etc. The domestic company does not select

the strategy of expansion/penetrating into the international markets.

Stage 2: International Company

Some of the domestic companies, which grow beyond their production and/or domestic

marketing capacities, think of internationalizing their operations. Those companies who decide

to exploit the opportunities outside the domestic country are the stage two companies. These

companies remain ethnocentric or domestic country oriented. These companies believe that the

practices adopted in domestic business, the people and products of domestic business are

superior to those of other countries. The focus of these companies is domestic but extends the

wings to the foreign countries. Markets and extend the same domestic operations into foreign

markets. In other words, these companies extend the domestic product, domestic price,

promotion and other business practices to the foreign markets. The international company holds

the marketing mix constant and extends the operations to new countries. Thus the international

company extends the domestic country marketing mix and business model and practices to

foreign countries.

Stage: 3 Multinational Company

Sooner or later, the international companies learn that the extension strategy (i.e., extending the

domestic product, price and promotion to foreign markets) will not work.

This statue of multinational company is also referred to as multi-domestic. Multi-domestic

company formulates different strategies for different markets; thus, the orientation shifts from

ethnocentric to polycentric. Under polycentric orientation the offices /branches/subsidiaries of a

multinational company work like domestic company in each country where they operate with

distinct policies and strategies suitable to that country concerned. Thus they operate like a

domestic company of the country concerned in each of their markets.

Stage 4: Global Company

A global company is the one, which has either global marketing strategy or a global strategy.

Global company either produces in home country or in a single country and focuses on

marketing these products globally, or produces the products globally and focuses on marketing

these products domestically. .

Stage 5:Transnational Company

Transnational company produces, markets, invests and operates across the world. It is an

integrated global enterprise, which links global resources with global markets at profit. There is

no pure transnational corporation. However, most of the transnational companies satisfy many of

the characteristics of a global corporation.

Characteristics of a Transnational Company

(i)Geocentric Orientation: A transnational company is geocentric in its orientation. This

company thinks globally and acts locally. This company adopts global strategy but allows value

addition to the customer of a domestic country. This company allows adaptation to add value to

its global offer. The assets of a transnational company are distributed throughout the world,

independent and specialized. The R & D facilities of a transnational company are spread in many

countries, but specialized in each Country based on the local needs and integrated in world R &

D project. Similarly, the production facilities are spread but specialized and integrated

(ii) Scanning or information Acquisition: Transnational companies collect the data and

information worldwide. These companies scan the environmental information regarding

economic environment, political environment, social and cultural environment and technological

environment. These companies collect and scan the information regardless geographical and

national boundaries.

(iii) Vision and Aspirations: The vision and aspiration of transnational companies are global,

global markets, global customers and grow ahead of other global/transnational companies.

(iv)Geographic Scope: The transnational companies scan the global data and information. By

doing so, they analyze the global opportunities regarding the availability of resources, customers,

markets, technology, research and development etc. Similarly, they also analyze the global

challenge and threats like competition from the other global companies, local companies of host

countries, political uncertainties and the like. They formulate global strategy. Thus the

geographic scope of a transnational company is not limited to certain countries in analyzing

opportunities, threats and formulating strategies.

(v) Operating Style: Key operations of a transnational are globalize. The transnational

companies globalize the functions like R & D, product development, placing key human

resources, Procurement of high valued material etc. For example, the R &D activity of Proctor &

Gamble, and key human resource activity of Colgate are the joint and shared activity of the units

of these companies in various countries.

(vi) Adaptation: Global and transnational companies adapt their products, marketing strategic

and other functional strategies to the environmental factors of the market concerned, For

example, Mercedes Benz is a super luxury car in North America, luxury automobile in Germany,

standard taxi in Europe.

(vii) Extensions: Some products do not require any change when they are marketed in other

countries. Their market is just extension. For example, Casio calculators of Japan.

(viii) Creation through Extension: Transnational companies create the global brand through

extending the product to the new market. Rothmans Cigarette extended its product to many

European countries and African countries and created it as global and national basis.

(ix) Human Resource Management Policy: The transnational company’s human resource policy

is not restricted by national political or legal constraints. It selects the best human resources and

develops them regardless of nationality, ethnic group etc. But the international company reserves

the top and key positions for nationals.

(x) Purchasing: Transnational Company procures world-class material from the best source

across the globe.

BASIC MODELS FOR ORG DESIGN IN CONTEXT OF GLOBAL DIMENSIONS

(BOOK)

ENTRY BARRIERS (BOOK)

GLOBAL COMPETITIVENESS OF INDIAN ORG ?

THE ENVIRONMENT OF IB

The international business environment can be defined as the environment in different sovereign countries, with factors exogenous to the home environment of the organization, influencing decision-making on resource use and capabilities.

The political environment in a country influences the legislation and government rules and regulations under which a foreign firm operates.

The technological environment comprises factors related to the materials and machines used in manufacturing goods and services.

Economic factors exert huge impacts on firms working in an international business environment. The economic environment relates to all the factors that contribute to a country's attractiveness for foreign businesses, such as monetary systems, inflation, and interest   rates .