UGC NET MBA Unit-9

International Business, Global Institutions & Information Technology in Management

1. INTERNATIONAL BUSINESS: OVERVIEW

A. Meaning

International Business (IB) refers to commercial transactions (trade, investment, logistics, finance, and services)across national borders, carried out to satisfy individuals and organizations globally.

B. Nature and Scope

Cross-border transactions involving multiple currencies.
Different political, legal, cultural, and economic environments.
Management of operations, subsidiaries, and supply chains worldwide.
Integration of production and marketing on a global scale.

C. Difference Between Domestic and International Business

Aspect	Domestic	International
Environment	Single country	Multinational
Currency	Single	Multiple
Market	Homogeneous	Diverse
Risks	Limited	High (exchange, political)
Decision-making	Simple	Complex

D. Globalization

Globalization is the process of increasing interdependence and integration of world economies through trade, investment, and technology.

Drivers:

Liberalization of trade policies
Technological progress
Transportation and communication advancements
Deregulation and foreign investment inflows

Implications for Management:

Cross-cultural leadership
Global supply chain management
International human resource policies
Managing exchange rate risk

2. THEORIES OF INTERNATIONAL TRADE

A. Classical Theories

Mercantilism (16th–18th Century)
- Wealth = Gold & Silver reserves.
- Advocated export surplus and import restriction.
- Criticism: Ignores mutual benefits of trade.

Absolute Advantage (Adam Smith, 1776)
- A country should specialize where it is more efficient.
- Example: India → textiles; USA → machinery.

Comparative Advantage (David Ricardo, 1817)
- Trade benefits both nations even if one is more efficient in all goods.
- Specialization based on relative efficiency (opportunity cost).

$Comparative Advantage = Lower Opportunity Cost of Production$

B. Modern Theories

Heckscher–Ohlin (Factor Proportion) Theory
- Trade is based on factor endowments (land, labor, capital).
- A country exports goods that use its abundant factors intensively.
- Criticism: Ignores technology and economies of scale.

Leontief Paradox
- Empirical test of H–O theory found the U.S. exported labor-intensive goods despite being capital-rich.

Product Life Cycle Theory (Vernon)
- Trade pattern evolves through product innovation and diffusion.
- Stages:
  1. New Product (developed in advanced countries)
  2. Maturing Product (demand grows, export rises)
  3. Standardized Product (production shifts to developing countries).

Porter’s Diamond Model (National Competitive Advantage)
Four determinants of competitiveness:
- Factor conditions (resources)
- Demand conditions
- Related and supporting industries
- Firm strategy, structure, rivalry

3. BALANCE OF PAYMENTS (BoP)

Definition:
A systematic record of all economic transactions between residents of a country and the rest of the world during a specific period.

Structure of BoP

Account	Items
Current Account	Goods, services, income, transfers
Capital Account	Investments, loans, banking capital
Official Reserves Account	Foreign exchange and gold reserves

BoP Surplus: Inflows > Outflows → appreciation of currency.
BoP Deficit: Outflows > Inflows → depreciation or borrowing.

Causes of Deficit:

High imports, low exports
Capital flight
Rising external debt

Correction Measures:

Export promotion, import control
Currency depreciation
Attracting FDI

4. FOREIGN DIRECT INVESTMENT (FDI)

A. Definition

FDI is long-term investment by a foreign entity in the management and control of a business enterprise in another country.

B. Forms of FDI

Greenfield Investment: Establishing new facilities abroad.
Mergers & Acquisitions: Acquiring existing foreign firms.
Joint Ventures: Shared ownership with local partners.

C. Benefits of FDI

Brings capital and technology.
Enhances employment and productivity.
Improves export competitiveness.
Strengthens infrastructure and managerial skills.

D. Costs / Risks

Profit repatriation
Market dominance by MNCs
Cultural and environmental concerns
Policy dependency

E. Determinants of FDI

Market size and potential
Political stability
Infrastructure quality
Exchange rate stability
Incentives and tax policies

5. MULTILATERAL REGULATION OF TRADE AND INVESTMENT: WTO

A. Evolution

GATT (1947–1994): General Agreement on Tariffs and Trade – promoted trade liberalization.
WTO (1995–present): Replaced GATT; covers goods, services, and intellectual property (TRIPS).

B. Objectives of WTO

Promote free and fair international trade.
Settle trade disputes.
Reduce tariff and non-tariff barriers.
Provide transparency and predictability in trade policies.

C. Key Agreements

GATS: General Agreement on Trade in Services.
TRIPS: Trade-Related Aspects of Intellectual Property Rights.
TRIMS: Trade-Related Investment Measures.
AoA: Agreement on Agriculture.

D. WTO and Developing Countries

Benefits: Market access, dispute resolution, FDI inflows.
Challenges: Loss of policy space, competition pressure, IP restrictions.

6. INTERNATIONAL TRADE PROCEDURES & DOCUMENTATION

A. Key Export Procedure

Receipt of inquiry and quotation.
Export order and letter of credit (L/C).
Production/procurement.
Quality inspection and customs clearance.
Shipment and documentation.
Payment realization.

B. Important Documents

Document	Purpose
Invoice	Details of goods and prices
Packing List	Package contents
Bill of Lading	Transport document & title of goods
Certificate of Origin	Country of manufacture
Insurance Certificate	Covers transit risk
Letter of Credit	Bank guarantee of payment

C. EXIM Policy (India)

EXIM Policy = Export-Import Policy, announced every 5 years by DGFT under the Foreign Trade (Development & Regulation) Act, 1992.

Objectives:

Promote exports and reduce trade deficit
Enhance competitiveness
Simplify procedures

Key Schemes:

Advance Authorization Scheme
EPCG (Export Promotion Capital Goods)
SEZ (Special Economic Zones)
Duty Drawback Scheme

7. INTERNATIONAL FINANCIAL INSTITUTIONS (IFIs)

A. International Monetary Fund (IMF)

Founded: 1945 at Bretton Woods Conference.
Headquarters: Washington D.C.
Members: 190+

Objectives:

Promote exchange rate stability
Facilitate balanced growth of trade
Provide short-term financial assistance
Reduce global imbalances

Key Instruments:

SDR (Special Drawing Rights)
Quota-based lending (conditional assistance)
Surveillance and technical advice

B. World Bank Group (IBRD + IDA)

IBRD: Provides long-term loans for development.
IDA: Provides concessional loans and grants for poorest countries.

Functions:

Financing infrastructure, education, and health projects
Promoting poverty reduction
Supporting policy reforms

C. Other Institutions

IFC: Private sector investment.
MIGA: Investment guarantees.
ADB: Regional development financing (Asia-Pacific).

8. INFORMATION TECHNOLOGY IN MANAGEMENT

A. Use of Computers in Management

Computers facilitate:

Decision support and analytics
Process automation
Enterprise communication
Financial management (ERP, MIS)

B. Management Information System (MIS)

Definition:
A structured system that collects, processes, and presents data for managerial decision-making.

Components:

Input (data capture)
Processing (computations, comparisons)
Output (reports, dashboards)
Feedback

Benefits:

Timely and accurate information
Better planning and control
Enhanced productivity

C. Decision Support System (DSS)

Definition:
A computer-based system that supports semi-structured and non-programmed decisions.

Features:

Interactive, model-driven
Uses “what-if” analysis and simulations
Integrates data with expert judgment

Examples: Financial planning, resource allocation, pricing simulations.

9. ARTIFICIAL INTELLIGENCE (AI) AND BIG DATA

A. Artificial Intelligence (AI)

AI is the simulation of human intelligence in machines designed to think, learn, and act like humans.

Applications in Management:

Marketing: Predictive analytics, customer segmentation.
HR: AI-based recruitment and appraisal.
Operations: Predictive maintenance, robotic process automation.
Finance: Fraud detection, algorithmic trading.

B. Big Data

Refers to large, complex, high-velocity data that cannot be processed using traditional tools.

Characteristics (5 Vs):

Volume
Velocity
Variety
Veracity
Value

Applications:

Consumer behaviour analysis
Real-time decision-making
Market trend prediction

10. DATA WAREHOUSING, DATA MINING & KNOWLEDGE MANAGEMENT

A. Data Warehousing

A central repository integrating data from multiple sources for analysis and reporting.
Features: Subject-oriented, integrated, time-variant, non-volatile.
Tools: OLAP (Online Analytical Processing), ETL processes.

B. Data Mining

Process of discovering patterns, correlations, and insights from large data sets using statistical and AI techniques.

Techniques:

Classification (e.g., customer segmentation)
Clustering (grouping similar entities)
Association (market basket analysis)
Prediction (forecasting trends)

C. Knowledge Management (KM)

Systematic process of creating, storing, sharing, and utilizing organizational knowledge.

KM Tools:

Intranets
Expert systems
Document management systems