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Importance of International Business


									Growth and Importance of International business
Business is increasingly becoming international or global in its
competitive environment, content and strategic intent. This is manifested
by the number of facts.
The competition a firm – local, national or foreign – now encounters, in
many cases, is global, i.e., besides the competition from the domestic
firms it has to compete with products manufactured in India by foreign
firms and imports.
Because of the liberalization, a firm has the challenging opportunity to
improve its competitiveness and scope of business by global sourcing of
technology, materials, finance, human resource, etc.
Globalization is facilitating globalization of operations management to
optimize operations and to improve competitiveness. Global value chain
management is indeed a key factor of success.
The universal liberalization and the resultant global market opportunities
are take advantage of by firms to consolidate and expand the business.
The growing competition at home is pushing many companies overseas.
For example, at the Annual General meeting of MRF, held on March
20,2003, its CMD stated that although the company is market leader in
India, the increasing competition in the domestic market, from both
Indian firms and MNCs, has prompted the company to give greater
thrust to exports and the company, which already was exporting to 65
countries, might export 50 percent of its production.
The global orientation of an increasing number of companies is evident
from their mission statements and corporate strategies.
In short, the sweeping political and consequent economic policy changes
in the erstwhile communist and socialist countries, dramatic shifts in the
economic policies in a large number of countries as diverse as
communist countries like China to democratic countries like India,
privatization in a number of market economies and the liveralisation of
trade and investment fostered by the GATT/WTO has set in motion
several forces of globalization which is defined, by IMF, as “the
growing economic interdependence of countries worldwide through
increasing volume and variety of cross border transactions in goods and
services and of international capital flows, and also through the more
rapid and widespread diffusion of technology”. And globalization
seems to be irreversible and unstoppable so that and globalization is not
an optional; it is reality. If it is an option, it is an inevitable option. If it is
an evil, it is an inevitable evil. The challenge, therefore, to the
individuals, businesses and nations is to endeavour to take advantage of
the benefits of globalization and mitigate the adverse effects.
The growing importance of international business is reflected in
several macroeconomic and micor indicators.
   1. The foreign trade – GDP ratio (i.e., the value of foreign trade
      expressed as percentage of the GDP) has been rising significantly,
      indicating that national economies are becoming more and more
      export and import dependent. In other words a rowing proportion
      of the national output is meant for sale abroad and a growing share
      of the national consumption is met by imports. In the last twenty
      five years or so, world merchandise exports have doubled from 10
      percent to 20 percent of the world GDP. That is, about 25 years
      ago on an average about one-tenth of the domestic product of a
      nation was meant to be sold and consumed in foreign countries;
      today about one-fifth of the domestic product is destined to the
      foreign markets. Similarly, the proportion of the domestic
      consumption met by goods and services produced abroad has been
   on the increase. Even in respect of a communist country like china,
   the export GDP ratio rose from about 6 percent in 1980 to nearly
   25 percent by the beginning of the present decade.
2. International investments, both direct and portfolio have been
   growing rapidly. International investment, in fact, has been
   growing much faster than international trade which has been
   growing faster than world output. The expansion of international
   investment, facilitated by the almost universal liberalization, has
   resulted in a substantial increase in their role in global production,
   employment generation and trade. In the decade since 1986,
   foreign direct investment inflows increased six fold whereas world
   exports increased less than one and a half times. The ratio of world
   FDI inflows to global gross domestic capital formation was 14
   percent in1999, compared with 2 percent twenty years ago.
   Similarly, the ratio of world FDI stock to world GDP increased
   from 5 percent to 16 percent during the same period.
3. A corollary of the rapidly growing international investment is the
   fast growing international production, i.e., production arising out
   of international investment. For example, the gross product of
   foreign affiliates of the MNCs grew at an average annual rate of
   6.7 percent during 1991-95 and 12.9 percent during 1996-2000.
4. A connotation of the growing export – GDP ratio is that the export
   intensity (i.e., exports as a share of the total sales) of companies in
   general is rising. Rising export intensity means that the foreign
   business is growing faster than the domestic business. This is true
   of several Indian industries. For example, a number of
   pharmaceutical firms have grown at much higher rates in the
   foreign markets than in India. The auto components industry
   recently registered a higher growth in the foreign market than the
   domestic growth.
5. Many firms make most of their business, like the leading IT firms
   such as TCS, Infosys, Wipro etc. and pharmaceutical firms such as
   Ranbaxy, Dr.Reddy’s etc,. from foreign markets. There are
   companies which do 100 percent of their business abroad.

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