flowchart TB F[Factor Conditions] --- D[Demand Conditions] R[Related & Supporting Industries] --- S[Firm Strategy / Rivalry] F & D & R & S -.-> N[National Competitive<br/>Advantage] G[Government] -. shapes .- N CH[Chance] -. shapes .- N style N fill:#FCE4EC,stroke:#AD1457
80 International Business
80.1 What is International Business?
International Business (IB) is the performance of business activities — production, distribution, sale, exchange — across national borders. It includes export-import trade, foreign direct investment, licensing, joint ventures, and multinational operations. The Indian standard text by P. Subba Rao defines IB as “transactions of business activities of two or more nations” (subbaRao2020?).
Charles Hill’s standard global text frames IB as “any firm that engages in international trade or investment” (hill2021?).
TipThree Working Definitions
| Source | Definition | What it foregrounds |
|---|---|---|
| Charles Hill | “Any firm that engages in international trade or investment.” | Trade + investment |
| Cherunilam | “All those business activities which involve cross-border transactions of goods, services, resources between two or more nations.” | Cross-border |
| P. Subba Rao | “Business activities that take place across national frontiers.” | Borders |
80.2 Domestic vs International Business
TipDomestic vs International Business
| Feature | Domestic | International |
|---|---|---|
| Currency | One | Multiple |
| Language and culture | Single | Multiple |
| Regulation | Single legal regime | Multiple |
| Logistics | Domestic | Cross-border, customs |
| Risk | Low to moderate | Political, currency, country |
| Customers / suppliers | Local | Worldwide |
80.3 Theories of International Trade
TipClassical and Modern Trade Theories
| Theory | Author | Idea |
|---|---|---|
| Mercantilism | 16th–18th c. | Accumulate gold and silver; export > import |
| Absolute Advantage | Adam Smith (1776) | Specialise where you produce more efficiently |
| Comparative Advantage | David Ricardo (1817) | Specialise where opportunity cost is lower |
| Factor Endowments / H-O Theorem | Heckscher & Ohlin (1933) | Export goods that use abundant factors |
| Leontief Paradox | Wassily Leontief (1953) | US exported labour-intensive goods despite being capital-rich |
| Product Life-Cycle Theory | Raymond Vernon (1966) | Production location shifts with the product life-cycle |
| New Trade Theory | Paul Krugman (1979) | Economies of scale + first-mover advantage |
| Porter’s Diamond | Michael Porter (1990) | National competitive advantage |
80.3.1 Porter’s Diamond — National Competitive Advantage
Michael Porter’s The Competitive Advantage of Nations (1990) identifies four determinants of national competitive advantage (porter1990?):
TipPorter’s Diamond — Four Determinants
| Determinant | What it captures |
|---|---|
| Factor conditions | Skilled labour, infrastructure, R&D |
| Demand conditions | Sophisticated home demand |
| Related and supporting industries | Cluster effects |
| Firm strategy, structure and rivalry | Domestic competitive intensity |
80.4 Modes of Entering International Business
(Already met in topic 35 / 68.) Five entry modes — exporting → licensing → JV → strategic alliance → wholly-owned subsidiary — increase commitment, control and risk.
80.5 The Multinational Enterprise (MNE)
A Multinational Enterprise is a firm that owns or controls value-adding activities in more than one country. Three classifications:
TipThree Classifications of MNEs
| Basis | Categories |
|---|---|
| Strategy | Multinational · Global · International · Transnational (Bartlett & Ghoshal) |
| Orientation | EPRG (Perlmutter) — Ethnocentric / Polycentric / Regiocentric / Geocentric |
| Origin | Home-country MNE · Emerging-market MNE (e.g., Indian MNCs) |
80.5.1 Bartlett and Ghoshal’s MNE Typology
TipBartlett & Ghoshal’s Four MNE Strategies
| Strategy | Standardisation | Local responsiveness | Example |
|---|---|---|---|
| International | Low | Low | Many MNEs in early days |
| Global | High | Low | Boeing, Caterpillar |
| Multinational | Low | High | Unilever (historically) |
| Transnational | High | High | Modern best-in-class MNEs |
80.6 Drivers of Globalisation
TipFive Drivers of Globalisation
| Driver | What it captures |
|---|---|
| Lower trade barriers | WTO, FTAs |
| Lower transport and communication costs | Containerisation, internet |
| Information technology | Real-time integration |
| Capital mobility | Global financial markets |
| Convergent consumer tastes | Levitt’s globalisation thesis |
80.7 India and International Business
TipMajor Milestones in India’s International Business
| Year | Milestone |
|---|---|
| 1991 | Liberalisation reforms — opening up FDI, dismantling licence raj |
| 1995 | India joins WTO (founder member) |
| 1999 | FEMA replaces FERA |
| 2014 | Make in India launched |
| 2017 | GST implemented (single market) |
| 2020 | PLI schemes for sectors |
| 2022 | National Logistics Policy |
| 2023 | New Foreign Trade Policy (no end-date) |
India is a key emerging-market FDI destination and increasingly an outward FDI source — Tata, Mahindra, TCS, Reliance and others have global operations.
80.8 Practice Questions
Q 01
Smith
Easy
The theory of "absolute advantage" was proposed by:
View solution
Correct Option: A
Adam Smith's Wealth of Nations (1776) — absolute advantage. Ricardo extended it with comparative advantage.
Q 02
Ricardo
Medium
"Comparative advantage" — based on opportunity cost — is associated with:
View solution
Correct Option: B
David Ricardo (1817) — comparative advantage based on opportunity cost.
Q 03
H-O
Medium
The Heckscher-Ohlin theorem says countries should:
View solution
Correct Option: A
H-O — countries export goods that intensively use their abundant factors and import goods that intensively use scarce factors.
Q 04
Vernon
Medium
Raymond Vernon's "Product Life-Cycle Theory" of international trade argues that:
View solution
Correct Option: A
Vernon (1966) — new products start in advanced economies, then production moves to other developed economies as the product matures, and to developing economies as it standardises.
Q 05
Diamond
Medium
In Porter's Diamond, the four determinants of national competitive advantage do NOT include:
View solution
Correct Option: C
Four determinants: Factor conditions, Demand conditions, Related & Supporting Industries, Firm Strategy/Rivalry. Government and Chance influence but are not core.
Q 06
Bartlett-Ghoshal
Medium
A "transnational" strategy in Bartlett & Ghoshal's typology features:
View solution
Correct Option: A
Transnational = both high — global efficiency and local responsiveness. Most demanding strategy.
Q 07
Leontief
Medium
The "Leontief paradox" referred to:
View solution
Correct Option: A
Wassily Leontief (1953) — US exports were more labour-intensive than its imports despite the US being capital-rich. Contradicted H-O.
Q 08
Liberalisation
Easy
India's economic liberalisation reforms — opening up to foreign trade and investment — were launched in:
View solution
Correct Option: B
1991 liberalisation — Manmohan Singh as Finance Minister; opened FDI, dismantled licence-raj.
ImportantQuick recall
- IB = business across borders. Adds currency, language, regulation, logistics, risk complications.
- Trade theories: Mercantilism → Smith (absolute advantage) → Ricardo (comparative advantage) → Heckscher-Ohlin → Leontief paradox → Vernon (PLC) → Krugman (new trade) → Porter (diamond).
- Porter’s Diamond: Factor · Demand · Related/Supporting · Firm Strategy/Rivalry. Plus Government and Chance.
- Modes of entry: Exporting → Licensing → JV → Alliance → WOS.
- Bartlett & Ghoshal’s four MNE strategies: International · Global · Multinational · Transnational.
- Five drivers of globalisation: barriers, transport/communication, IT, capital mobility, taste convergence.
- India: 1991 reforms, WTO 1995, FEMA 1999, Make in India 2014, GST 2017, PLI 2020+, NLP 2022, FTP 2023.