**A Theoretical Framework (Modelling) for International Business Management**

Schapour Zafarpour

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/60903

#### **Abstract**

The international business management is one of the most relevant parts for the development of the countries and at the same time the most complicated matter in this complex. There are many economic players on different levels with different tasks to achieve the final goal of the economy in a country, depending on the level of development [1]. The need for managing international business arises in the flowing areas or levels: 1. The international framework with all the institutions and organisa‐ tions that determine country's economic and support policy in emergent situations. 2. Impact of globalisation on international and national policy and activities. 3. The national framework, which fairly complicated because there are many active players: a) National economic policy: understanding it and the environment for trade activities. b) National economic structure and competiveness of the domestic companies. c) International management capacities. d) Local or regional environment and conditions for the companies. e) Focus on the world market conditions and their development

1. Real trade activities in general and special types of countries. 2. Financing possi‐ bilities of trade activities according to the financing infrastructure (financial market) in countries. 3. Benefit of trade balance to national development and economic welfare of the people in countries concerned particularly: a) Increasing of the purchasing power of the people, i.e., per capita income, b) Creating more employment opportu‐ nities

**Keywords:** International institutions, international organisations, globalisation process, national support for international trade, international management, trade activities, benefit of international trade activities on national development

© 2015 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

#### **1. Introduction**

The aim of this paper is to show and to interpret the real motivation of international trade business with all the benefits, barriers, and problems. The model we propose illustrates our approach to International Business Management. Our proposed theoretical framework could be easily applied and would probably hold good in practically 80%–90% of countries.

The international trade management is the backbone of every economy. This implies that the trade balance of a country heavily influences the economic development of the country.

The process of managing international business is not an easy one because there are many problems and barriers that need to be overcome to reach the ultimate goals of national economic policy, i.e., the economic welfare of the people, which implies a low unemployment level and a higher purchasing power of the income earners to meet their basic needs (for greater details, see discussion by [2, 3].

Our model demonstrates the complexity and independency of different levels in international business management. Each level has different goals and directions.



#### **2. Level 1: International framework**

**1. Introduction**

4 Perspectives on Business and Management

details, see discussion by [2, 3].

Level 1: International framework

Level 2: Globalisation Level 3: National objectives

Level 4: Location Level 5: Company

Level 6: Foreign trade activities → Basic → Special Level 7: Foreign trade financing

> → Short term → Medium term

→ Financial institutions → Organisational institutions

→ Political stability → Infrastructure → Trade policy

→ Company structure

→ World market conditions

→ Decision-making process (management)

The aim of this paper is to show and to interpret the real motivation of international trade business with all the benefits, barriers, and problems. The model we propose illustrates our approach to International Business Management. Our proposed theoretical framework could

The international trade management is the backbone of every economy. This implies that the trade balance of a country heavily influences the economic development of the country.

The process of managing international business is not an easy one because there are many problems and barriers that need to be overcome to reach the ultimate goals of national economic policy, i.e., the economic welfare of the people, which implies a low unemployment level and a higher purchasing power of the income earners to meet their basic needs (for greater

Our model demonstrates the complexity and independency of different levels in international

business management. Each level has different goals and directions.

be easily applied and would probably hold good in practically 80%–90% of countries.

At this level, we have two kinds of organisations with the objective to develop the world trade activities and to improve the world market sales.

**Figure 1.** International business management

#### **2.1. International financial institutions**

#### *The World Bank, International Monetary Fund, National Reserve Banks, European Central Bank, and other National Financial Institutions*

These organisations can and do support only the countries (infrastructure, etc.) and not the individual companies. The country has to apply for their financial support. The support always depends on accepting the laid down conditions (e.g., restructuring the country) of these organisations. The importance of there is now visible in the current economic and financial crisis. We must note that these financial institutions work on the benefit for the financial market.

#### **2.2. Organisational institutions**

#### *2.2.1. WTO, EU, NAFTA, MERCOSUR, ASEAN, etc. (TTIP)*

The task of these mentioned trade organisations is to create standards and free competition on the world market. However, countries with more political or economic power do and can influence the rules and get more favourable treatment.

#### **3. Level 2: Globalisation**

The phenomenon of globalisation has practically started some thirty years ago, coming down from international institutions. It was a copy of the U.S. success model of neo-liberalisation policies. Many EU countries did follow the model. The globalisation is a process and has following preconditions:

#### **3.1. Change of economic policy**


#### **3.2. Liberalisation of international trade and capital**


#### **3.3. International standards and norms**

**•** Efforts in harmonising the technical production standards to be able to push the transna‐ tional processing trade (car industry, amperage of white goods, configuration of copy machines, and printers)

Following these conditions, we do have some advantages and some disadvantages:

Liberalisation of domestic markets: The national property does not belong to any current government but to the people of a country. The governments are elected to follow the needs of the people and not to follow personal whims and interests of the people or the interests of financial markets. Privatisation could support corruption and nepotism.

The globalisation has altogether different impact on politics, people and national economies.

#### **3.4. Process of globalisation on companies**

The process means liberalisation of four markets

**•** Capital market

**2.1. International financial institutions**

*other National Financial Institutions*

6 Perspectives on Business and Management

**2.2. Organisational institutions**

**3. Level 2: Globalisation**

following preconditions:

investments

movement of goods

**3.1. Change of economic policy**

**•** Deregulation of employment markets **•** Privatisation of nationalised companies

**•** Reduction of taxes for earnings and property incomes **•** Low inflation to avoid the inflation of monetary capital

**•** Simplification of the international capital flows

**3.2. Liberalisation of international trade and capital**

*2.2.1. WTO, EU, NAFTA, MERCOSUR, ASEAN, etc. (TTIP)*

influence the rules and get more favourable treatment.

market.

*The World Bank, International Monetary Fund, National Reserve Banks, European Central Bank, and*

These organisations can and do support only the countries (infrastructure, etc.) and not the individual companies. The country has to apply for their financial support. The support always depends on accepting the laid down conditions (e.g., restructuring the country) of these organisations. The importance of there is now visible in the current economic and financial crisis. We must note that these financial institutions work on the benefit for the financial

The task of these mentioned trade organisations is to create standards and free competition on the world market. However, countries with more political or economic power do and can

The phenomenon of globalisation has practically started some thirty years ago, coming down from international institutions. It was a copy of the U.S. success model of neo-liberalisation policies. Many EU countries did follow the model. The globalisation is a process and has

**•** Improvement of the chance to success for companies to create an attractive climate for

**•** General Agreement on Trade and Tariffs (GATT) of 1948 was basis for the worldwide free

**•** Simplification of trade in goods and services as well as the transfer of capital



**Table 1.** Globalisation process has different impacts depending on the size and strategy of a company

#### **4. Level 3: National objectives**

This level is perhaps the most complex level because of complications that result due to the multiplicity of factors, players, goals, and strategies. It is expected that all of them that they create the best congenial conditions for international trade and business.

#### **4.1. Political stability**

Political stability is absolutely necessary for foreign trade activities of a country. It depends on and must thus be is based on ownership laws

	- **◦** Justice
	- **◦** Executive
	- **◦** Legislative

The following picture shows us how important political stability is. Graphic 2: Importance of political stability for the countries

**Figure 2.** Importance of political stability for the countries

Political stability is necessarily based on economic stability. Economic stability is based on social stability. Social stability in turn depends on low unemployment rate and purchasing power of the per capita income of the people (currently many countries in crisis days are faced with frequent strikes and labour unrest due to the lack of two).

#### **4.2. Infrastructure**

**4. Level 3: National objectives**

8 Perspectives on Business and Management

and must thus be is based on ownership laws

**•** that must be written down in the constitutional laws

purchasing power

with frequent strikes and labour unrest due to the lack of two).

**Figure 2.** Importance of political stability for the countries

**•** that are totally independent of the three national institutions

The following picture shows us how important political stability is.

Graphic 2: Importance of political stability for the countries

**4.1. Political stability**

**◦** Justice

**◦** Executive

**◦** Legislative

This level is perhaps the most complex level because of complications that result due to the multiplicity of factors, players, goals, and strategies. It is expected that all of them that they

Political stability is absolutely necessary for foreign trade activities of a country. It depends on

more jobs

Political stability is necessarily based on economic stability. Economic stability is based on social stability. Social stability in turn depends on low unemployment rate and purchasing power of the per capita income of the people (currently many countries in crisis days are faced

political stability

economical stability

social stability

© S. Zafarpour

create the best congenial conditions for international trade and business.

#### *4.2.1. Material infrastructure*

This must essentially need to be improved, built, and maintained in the country (e.g., roads, harbours, railways, airports, bridges, etc.). It covers the needs of the people and the companies (reducing the transport costs to become more competitive).

#### *4.2.2. Institutional infrastructure*

These are financial institutions on microlevel within countries (banks, insurance companies, and financial markets) that respond to the domestic market needs (of the people and compa‐ nies). On the other hand, they pay taxes to the government. With these taxes, the government can cover the needs of the macroeconomy.

The building of a capital market in a country depends on the policy decisions (centripetal or centrifugal) of the government. **Grapic 3: Significance of the domestic capital market for the development of a country**

#### © S. Zafarpour

**Figure 3.** Significance of the domestic capital market for the development of a country


#### *4.2.3. Personnel infrastructure*

Personnel infrastructure is the quality and quantity of professional educated people—in private and government sector—in a country. The government has a relevant role in allocating the resources and to support the sectors in quality and quantity term.

The best hardware does not work without software and the best software does not work without hardware. The country should thus educate the future decision makers in professio‐ nal, social, and international competences. This is the key of success in international business management.

#### **4.3. Trade policy**

Trade policy depends only on elected government. It could be progressive or digressive. The government may (or may not) support the companies (financially) in active and passive trade activities. The national frameworks for companies in international business may differ from country to country (e.g., state guarantee for international trade of the companies).

#### **5. Level 4: Location**

The location is essential for the success of a company. Companies are located in different areas with different conditions for different products. The selection of the right location has a direct impact on the transportation costs, which means being more or less competitive to other companies.

Conditions and factors of location are different on the mezzo level between macro and micro. That is a tandem between government tasks (responsible for infrastructure) and company needs. Many companies of any size get problems because they are not at the best matching location. The following picture demonstrates the importance of the location in general and regional determinants.

**Graphic 4: General selection factors for location of businesses** 

Source: modified S. Zafarpour based on Wirtschaftsgeographie 1 (Schätzl L. /Wagner H.G.)

**Figure 4.** General selection factors for location of businesses

#### **6. Level 5: Company**

**•** Companies need demand and purchasing power as well as improvement of national conditions to get competitive products, higher competiveness against other companies (economy of scales), higher export, optimal use of the companies' capacities, and higher

**•** Higher profit could be invested in capital market, which means cheap loan and more

**•** The government can get higher taxes for investment in political stability, economic stability,

**•** On the other hand, the government can invest in institutional, material, and personnel

Personnel infrastructure is the quality and quantity of professional educated people—in private and government sector—in a country. The government has a relevant role in allocating

The best hardware does not work without software and the best software does not work without hardware. The country should thus educate the future decision makers in professio‐ nal, social, and international competences. This is the key of success in international business

Trade policy depends only on elected government. It could be progressive or digressive. The government may (or may not) support the companies (financially) in active and passive trade activities. The national frameworks for companies in international business may differ from

The location is essential for the success of a company. Companies are located in different areas with different conditions for different products. The selection of the right location has a direct impact on the transportation costs, which means being more or less competitive to other

Conditions and factors of location are different on the mezzo level between macro and micro. That is a tandem between government tasks (responsible for infrastructure) and company needs. Many companies of any size get problems because they are not at the best matching location. The following picture demonstrates the importance of the location in general and

country to country (e.g., state guarantee for international trade of the companies).

**•** Companies with higher profit pay more taxes to the government.

the resources and to support the sectors in quality and quantity term.

profit.

investment for the companies.

10 Perspectives on Business and Management

and social stability.

*4.2.3. Personnel infrastructure*

infrastructure.

management.

**4.3. Trade policy**

**5. Level 4: Location**

regional determinants.

companies.

The company is the fundamental and essential unit in international business and trade management. There are too many intricacies at company level too. No companies, no business —no trade at all. Success of the companies depends on the competitiveness on the market (domestic or world market):


On this level, there are three different factors that act on its success in the world market.

#### **6.1. Company organisation and its production structure**

Size, product, management, finance, research and development

#### **6.2. Decision-making process (international management)**

**Graphic 5: Cross Cultural Management factors**

It is much easier to act in the domestic market, whereas it is important to have more interna‐ tional competences in the world market because each business aspect becomes "international" (financing, organisation, marketing and advertising are all measured by international param‐ eters).

This would mean that we have more competences as well as more costs, which are to be covered through the international trade. The most important person in a company is the decision maker. He or she should have special skills:


**Figure 5.** Cross cultural management factors

The picture explains the different views of companies with expectations inside the companies and external expectations on employees/labour markets.

The inside triangle shows all the tasks, capacities, and responsibilities of the company:


**6.2. Decision-making process (international management)**

maker. He or she should have special skills:

12 Perspectives on Business and Management

in Europe and probably everywhere

following picture

(which could be a problem in globalised activities)

ability to work in a team dealing with power

**Graphic 5: Cross Cultural Management factors**

acceptance of own faults maturity of personality flexibility openness

one's own initiative

(dealing with conflicts) Interest and joy in work

risk taking

**Figure 5.** Cross cultural management factors

cultures

Interest in other

respect

communication

training

Cross cultural

eters).

It is much easier to act in the domestic market, whereas it is important to have more interna‐ tional competences in the world market because each business aspect becomes "international" (financing, organisation, marketing and advertising are all measured by international param‐

This would mean that we have more competences as well as more costs, which are to be covered through the international trade. The most important person in a company is the decision

**•** Professional competence (technical education and experience)—it is more or less the same

**•** Social competence is to receive and understand the social signals and to react adequately

**•** Cross-cultural competence is to understand and evaluate your own cultural values to receive other cultural signals, to understand, and to react in the right way according to the

**financing**

**Social Competence Expertise**

**Corporate culture**

**marketing field of correlation production**

(intellectual

**Cross Cultural Competence**

Ability to qualify

awareness

own cultural

internships

international orientation

national languages

study (expertise) additional skills languages

> experience (interns.) stay abroad

> > cross cultural training technological knowledge

> > > contextual knowledge

countries and cultures

knowledge of foreign

mobility)

**M**

flexibility openness motivation working atmosphere

© S. Zafarpour


The outside triangle shows the labour market with different skills and expectations.

The problems come from the different sides of views. There are some correlations between the expectations, but not always. For example, on social competence, flexibility, openness, and so on depend on both sides understanding. The companies will profit more and the employees will have more income to cover their own needs in general.

#### **6.3. World market**

International trade management is the link between total demand on the world market and the available supply in countries. The decision maker is the key person in this process. He or she can make—with or without support—the final decision. The key person can keep direct influence on all the factors inside the company. He or she has an indirect influence on regional factors but not any significant influence on factors on the world economy. Only rare multina‐ tional companies could have some influence.

Once we have demand on the world market through international framework for all the countries and companies, we require adequate national framework at all levels to create favourable conditions for the companies to create the required level of supply. However, the task of international management or decision makers (with all their competence and skills) is to bring supply and demand together cross border.

The world market demand for the products is basically:


#### **7. Level 6: Foreign trade activities**

The measurement of success of all steps we have mentioned before are the following trade activities.

**Graphic 6: Influence of decision-makers on three different business level**

**Figure 6.** Influence of decision-makers on three different business level

#### **7.1. Basic types of international trade**


#### **7.2. Special types of international trade**


Reason: creation of better framework conditions and reduction of production costs.


© S. Zafarpour

