International business is the outgrowth of domestic business. Most of the multinational enterprises (MNEs) started their operations in the domestic market. Yet, it is a fact that international business differs from domestic business in many ways (see Table 1.1). Domestic business occurs within the boundaries of a single nation, whereas international business transactions cross national borders.
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Due to the cross over, the firm has to deal with the forces of three types of environments, viz., domestic, foreign, and international. Cultural, political, legal, trade and technological environments overseas are likely to be different. Not only different! But also varying from country to country and region to region within one country.
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Renault’s “people’s car the Logan, was a hit in Eastern Europe and other parts of the world, but it failed in India, where this larger vehicle that lacked ‘luxury features met with little demand except as a taxicab. One size fits all is not practical at the product level. These differences call for different business models and different strategies for different markets.
Differences are there not only in substance but also procedural. Differences in terms of geography make international business riskier to domestic business. Risks also arise due to different market characteristics. Negotiations have to be diplomatic in the sense that these do not lead to loss of face.
Table 1.1: Difference between Domestic and International Business from Indian Perspective
FactorDomestic BusinessInternational Business
Area of OperationOnly IndiaWhole World
SovereigntiesNot many restrictionsMany restrictions (Tariff, Non-Tariff, Exchange Controls, Local Taxes, etc.)
Economic Conditions (Currencies, inflation, interest rates, accounting practices)Relatively uniformWidely varying among nations and among regions within nations
Money & Exchange RatesIndian Rupee (in case of Indian domestic trade)Different for different countries and transactions*. Different exchange rates and governmental restrictions®.
CultureRelatively UniformQuite divergent among the nations and within the nations®
Law & RegulationFairly Uniform & Only domesticCode Vs Civil Vs Theocratic Vs Socialistic Vs WTO, National Vs International Vs Supranational
Mobility of Factors of ProductionFreeRestricted
PoliticsStable and relatively unimportantOften volatile and of decisive importance
LaborSkilled labor is usually availableOften scarce and requires training/ relearning
State InterventionReasonably predictableMay be extensive and subject to rapid change
Negotiation/Communication
(spoken/written/official
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language)Mostly Hindi or EnglishMay be required to make use of local language
Risk (variation in inflation, currency, taxation & interest rates)Comparatively less riskyOften more risky due to government controls and both developed and financial markets
ContractsOnce signed are bindingMay be voided and renegotiated if one party gets dissatisfied
ControlThough a problem, but centralised control will doA real problem, must maintain a fine balance between centralisation and decentralisation
Market CharacteristicMostly UniformDifferent between nations and within national market
Business Values and AttitudesHomogeneousHeterogeneous
EnvironmentsOnly domestic environmentDomestic, foreign, and International
Level of development & stage of business cycleSame throughout the domestic marketEach country may be at different level of development and different stage of business cycle
Coca Cola received payments in multiple currencies and needed to convert and protect its interests. @In Myanmar official exchange rate for a US $ is equal to 6 Kyats whereas market rate for imports is more than 1000 Kyats. $Each party has to adjust its behavior to meet the expectations of the other.
A number of considerations that collectively differentiate international business have been termed by Keith Head as six forms of separation. These are Political Separation (sovereignty, regional integration and increasing number of nations from 74 in 1950 to 220 today), Physical Separation (physical barriers and distances), Relational Separation (absence of past interactions and causing reluctance to engage in future transactions), Environmental Separation (temperature, rainfall, altitude, latitude, water availability, soil types, and mineral resources), Developmental Separation (levels of economic development), and Cultural Separation.
