International Financial

Management
Why do nations trade?
What is the basis of such trade?
What are the benefits/gains derived
from such trade?
Is there any pattern of such trade?
What should the nation import and
export?
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 International trade
“International trade consists of transactions between
residents of different countries.”
-Wasserman and Haltman
“ Regions and nations specialize and trade with each
other for the same reason that individuals specialize
and trade. Some are better fitted by temperament
for one work rather than another; one is a better
gardener, the other better teacher, while the third
proves an excellent doctor. The gardener would
prove a poor doctor and so on. Thus the gain from
specialization is clear.”
-Bertil Omlin
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 Why go International?

Pull factors  Proactive reasons

Push factors  Reactive reasons
1). Profit Advantage

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2). Growth opportunities.
3). Domestic market constraints.
4). Competition.
5). Government policies and regulations.
6). Monopoly power.
“Exclusive market information is another proactive
stimulus.”
-- Czinkota and Ronkainen
7). Spin-off benefit  ‘white-skin advantage’- Mr. B.K
Khaitan.
8). Strategic vision.

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 International Orientations

The degree and nature of involvement in international

business i.e. , international orientation of companies vary
widely.
EPRG Framework provided by Wind, Douglas and
Perlmutter.
Identifies four types of attitudes or orientation towards
internationalization.
1). Ethnocentrism  Home country orientation.
2). Polycentrism  Host country orientation.
3). Regiocentrism  Regional orientation.
4). Geocentrism  World orientation.
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Factors affecting EPRG
 Size of the firm.
 Experience gained in a given market.
 Size of the potential market.
 Type of the product.
 Cultural dependence.

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 Internationalization stages.

1). Domestic company: “ A purely domestic company operates

domestically because it never considers the alternative of going
international. The growing stage-one company, when it reaches
growth limits in its primary market, diversifies into new market,
products and technology instead of focusing on penetrating
international market.”
-- Warren J. Keegan.
2). International company:
3). Multinational company: “In multi-national companies, each
foreign subsidiary is managed as if it were an independent city
state. The subsidiaries are part of an area structure in which each
country is part of a regional organization that reports to world
headquarters.”
-- Keegan.
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4). Global / transnational company

Purely Domestic Company

Primarily Domestic company with some foreign

business (indirect / direct export, licensing,
franchising. etc.)

International Company

Multinational Company

Global / Transnational Company

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 International Business Decisions
Company Company
objectives resources
International
Business
Market Decisions Environmental
Potential Factors
Market selection
Decisions

Entry and
Operating decisions
1). International
Business Decisions. Promotion Product
2). Market Selection
Decisions Marketing Mix
3). Entry and Decisions
Operating Decisions. Price
4). Marketing Mix Distribution
Decisions. Marketing
5). International Organization
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Organization Decision Case 1. The Cola Impact
Decisions.