Page 9 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes l z 1947: Establishment of GATT (General Agreement on Trade and Tariffs)

l z 1980s: efforts to convert GATT into WTO
l z 1st Jan 1995: GATT was replaced by WTO (World Trade Organization)
l z Trade Liberalization
l z 1990 – 2000: The Term IB (International Business) has emerged from the term International
Marketing.

There are two Phases of the evolution of the term International Business
1. International Trade to International Marketing
2. International Marketing to International Business

l z After 1990: Rapid Internationalization ad globalization
Today: Interpreting the PESTIN factors of International Trade environment more clearly.

Did u know? After 1930’s, the world felt the need for international cooperation in global
trade, so for this reason IMF and IBRO were established.

1.2 Drivers of Globalization

We have discussed the nature of international business and the precautions that the multinational
companies should take while operating in foreign countries. The basic question of “why do the
businesses firms of a country go to other countries?” might have been in your minds. Therefore,
the answer to this question, before proceeding further:
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, business firms search for foreign
markets which promise for higher rate of profits. For example, Hewlett Packard earned 85.4% of
its profits from the foreign markets compared to that of domestic markets in 1994. Apple earned
US$390 million as net profit from the foreign markets and only US $310 millions as net profit
from its domestic market in 1994.
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. Toyota of Japan is an example.
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.
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.

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.

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