81  International Business

81.1 Concept

International Business (IB) = all commercial transactions — private and governmental — that take place between two or more countries. Charles W.L. Hill (International Business: Competing in the Global Marketplace), John D. Daniels & Lee H. Radebaugh, Michael R. Czinkota are the leading textbook authors.

81.2 Why Companies Internationalise

Recap (Topic 68): markets · profit · diversification · capacity · survival · innovation · tax · follow-customer · resources · globalisation pressures.

81.3 Modes of International Business

TipIB modes (recap)
Mode Commitment
Export (Direct/Indirect) Low
Licensing Low
Franchising Medium
Contract Manufacturing Medium
Turnkey Project Medium
Joint Venture High
Strategic Alliance Variable
Wholly-Owned Subsidiary (Greenfield / Brownfield) Highest
M&A Highest

81.4 International Trade Theories

TipTrade theories
Theory Author Key Idea
Mercantilism 16th-17th c. Trade surplus, hoard gold
Absolute Advantage Adam Smith (1776) Produce what you can make most efficiently
Comparative Advantage David Ricardo (1817) Opportunity cost; mutual gains
Factor Endowments Heckscher-Ohlin (1933) Export factor-abundant goods
Leontief Paradox Wassily Leontief (1953) US exported labour-intensive, contradicted H-O
Product Life Cycle Raymond Vernon (1966) New-mature-standardised stages
New Trade Theory Paul Krugman (1979) Nobel 2008 Economies of scale, network effects
National Competitive Advantage / Diamond Michael Porter (1990) Factor, demand, related, strategy + chance + government
Linder’s Income-Demand Staffan Linder (1961) Trade among similar-income countries
Gravity Model Tinbergen (1962) Trade ∝ size, inverse distance

81.5 FDI Theories (Recap, see Topic 81)

  • Dunning’s OLI / Eclectic Paradigm — Ownership, Location, Internalisation.
  • Vernon’s PLC.
  • Internalisation Theory — Buckley & Casson.
  • Uppsala Model — gradual internationalisation.

81.6 Globalisation

TipDrivers of globalisation
  • Declining trade barriers — WTO.
  • Technology — transport, ICT.
  • Capital flows — open markets.
  • Multinational firms.
  • Standardised consumer tastes.
  • Outsourcing / offshoring.
  • Globalisation 4.0 — AI, digital platforms (WEF).

81.7 International Business Environment

TipPESTEL extended
  • Political — stability, regulation.
  • Economic — exchange rates, growth, inflation.
  • Socio-cultural — Hofstede, Hall, Trompenaars.
  • Technological — infrastructure.
  • Environmental / Ecological.
  • Legal — WTO compliance, IP.

81.8 Multinational Corporations

TipMNC structures
  • International division.
  • Geographic / Area division.
  • Product division.
  • Matrix.
  • Transnational / Network.
TipMNC strategies — Bartlett-Ghoshal
  • International — moderate global integration & local responsiveness.
  • Multidomestic — high local responsiveness.
  • Global — high integration.
  • Transnational — both high (Bartlett-Ghoshal 1989).

81.9 India and International Business

TipIndia in IB
  • Liberalisation 1991 — Manmohan Singh, Narasimha Rao.
  • WTO entry 1995 (founding member).
  • Trade-to-GDP rose from ~15 % (1990) to ~45 % (2024).
  • Top exports: Refined oil, gems, pharma, IT services, textiles.
  • Top imports: Crude oil, gold, electronics, machinery.
  • Trade partners: USA, China, UAE, EU.
  • FTAs: Mauritius, Singapore, Korea, Japan, ASEAN, UAE (CEPA 2022), Australia (ECTA 2022), EFTA (2024), UK FTA (under negotiation).
  • Make in India 2014, PLI 2020, Atmanirbhar Bharat 2020.

81.11 Practice Questions

Q 01SmithEasy

Absolute Advantage theory (1776) is by:

  • AAdam Smith
  • BRicardo
  • CVernon
  • DKrugman
View solution
Correct Option: A
Adam Smith, *Wealth of Nations*.
Q 02RicardoMedium

Comparative Advantage (1817) is by:

  • ADavid Ricardo
  • BSmith
  • CHeckscher
  • DOhlin
View solution
Correct Option: A
David Ricardo.
Q 03H-OMedium

Heckscher-Ohlin theory (1933) is about:

  • AFactor endowments
  • BMercantilism
  • CPLC
  • DEconomies of scale
View solution
Correct Option: A
Export factor-abundant goods.
Q 04VernonMedium

Product Life Cycle theory (1966) is by:

  • ARaymond Vernon
  • BKrugman
  • CPorter
  • DLinder
View solution
Correct Option: A
Raymond Vernon (Harvard).
Q 05KrugmanHard

Paul Krugman's Nobel in IB-trade theory was in:

  • A2008
  • B1994
  • C2002
  • D2015
View solution
Correct Option: A
2008.
Q 06Porter DiamondMedium

Porter's National Competitive Advantage was in:

  • A1990
  • B1980
  • C2000
  • D2010
View solution
Correct Option: A
"The Competitive Advantage of Nations" 1990.
Q 07LeontiefHard

Leontief Paradox contradicted:

  • AH-O theory
  • BRicardo
  • CSmith
  • DLinder
View solution
Correct Option: A
H-O predicted US exports capital-intensive; Leontief found labour-intensive.
Q 08India 1991Easy

India's economic liberalisation was in:

  • A1991
  • B1985
  • C1995
  • D2000
View solution
Correct Option: A
Manmohan Singh, July 1991.
Q 09DunningMedium

OLI Paradigm is by:

  • AJohn Dunning
  • BPorter
  • CVernon
  • DUppsala
View solution
Correct Option: A
Ownership, Location, Internalisation.
Q 10CEPA UAEMedium

India-UAE CEPA signed in:

  • A2022
  • B2018
  • C2024
  • D2010
View solution
Correct Option: A
Feb 2022.
Q 11BartlettHard

Transnational MNC strategy is by:

  • ABartlett & Ghoshal
  • BPorter
  • CHill
  • DKogut
View solution
Correct Option: A
Bartlett & Ghoshal (1989).
Q 12LinderHard

Linder's Income-Demand theory says trade is most among countries with:

  • ASimilar income levels
  • BDifferent factor endowments
  • CLarger population
  • DLower tariffs only
View solution
Correct Option: A
Staffan Linder (1961).
Q 13CBAMHard

CBAM is from:

  • AEuropean Union
  • BWTO
  • CIndia
  • DUSA
View solution
Correct Option: A
EU Carbon Border Adjustment Mechanism (transitional from 2023).
Q 14OECD Pillar 2Hard

OECD Global Minimum Tax rate is:

  • A15 %
  • B20 %
  • C10 %
  • D25 %
View solution
Correct Option: A
Pillar 2 — 15 % minimum effective tax.
Q 15MatchHard

Match:

(i) Absolute Advantage (a) Vernon
(ii) Comparative Advantage (b) Smith
(iii) PLC (c) Krugman
(iv) New Trade Theory (d) Ricardo
  • A(i)-(b), (ii)-(d), (iii)-(a), (iv)-(c)
  • B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • C(i)-(c), (ii)-(a), (iii)-(b), (iv)-(d)
  • D(i)-(d), (ii)-(c), (iii)-(a), (iv)-(b)
View solution
Correct Option: A
AA—Smith; CA—Ricardo; PLC—Vernon; NTT—Krugman.

81.11.1 Advanced Format Questions

AR 1Assertion-ReasonHard

A: Comparative advantage explains why countries gain from trade.
R: Even if one country is absolutely better at everything, trade still benefits both.

  • ABoth true; R explains A
  • BBoth true; R does not explain A
  • CA true, R false
  • DA false, R true
View solution
Correct Option: A
S 1Statement-basedMedium

Trade theories: (i) Smith Absolute. (ii) Ricardo Comparative. (iii) H-O. (iv) Vernon PLC.

  • AAll four chronological
  • B(i) and (ii) only
  • C(iii) and (iv) only
  • D(i), (ii), (iii) only
View solution
Correct Option: A
S 2Statement-basedHard

Bartlett-Ghoshal MNC strategies: (i) International. (ii) Multidomestic. (iii) Global. (iv) Transnational.

  • AAll four
  • B(i) and (ii) only
  • C(iii) and (iv) only
  • D(iv) only
View solution
Correct Option: A

81.12 Quick Recall

ImportantQuick recall
  • IB: cross-border commerce. Hill · Daniels-Radebaugh · Czinkota.
  • Modes: Export · Licensing · Franchising · Contract Mfg · Turnkey · JV · Alliance · WOS · M&A.
  • Trade theories: Mercantilism → Smith (Absolute 1776) → Ricardo (Comparative 1817) → Heckscher-Ohlin (Factor 1933) → Leontief paradox (1953) → Vernon PLC (1966) → Krugman NTT (1979; Nobel 2008) → Porter Diamond (1990) → Linder (1961) → Gravity (Tinbergen 1962).
  • FDI theories: OLI Dunning · Vernon PLC · Internalisation (Buckley-Casson) · Uppsala.
  • Globalisation 4.0 (WEF); drivers: trade barriers down · technology · capital · MNCs.
  • MNC strategies (Bartlett-Ghoshal 1989): International · Multidomestic · Global · Transnational.
  • India: 1991 liberalisation · WTO 1995 founder · top exports oil/pharma/IT/textiles; FTAs (Mauritius, Singapore, Korea, Japan, ASEAN, UAE CEPA 2022, Australia ECTA 2022, EFTA 2024) · Make in India 2014 · PLI 2020.
  • Modern: Slowbalisation · Friend-shoring · China+1/India+1 · digital trade · ESG · CBDC mBridge · DPI exports (India Stack) · OECD Pillar 2 (15 %) · EU CBAM · Gen-AI compliance.