Studying international business theories is essential to steer, strategize, and succeed in a globalized economy, enabling professionals to understand complex trade dynamics, manage cross-cultural risks, and identify international growth opportunities. These theories provide the analytical tools needed to optimize supply chains, enhance competitiveness, and formulate effective, sustainable global strategies.

The theories can be classified into: Classical Country-Based Theories: Mercantilism, Absolute Advantage, Comparative Advantage and Heckher-Ohlin Theory. Modern Firm-Based Theories: Country Similarity, Product Life Cycle, Global Strategic Rivalry and Porter’s National Competitive Advantage.

Mercantilism

It is a form of economic system and nationalist economic policy that is designed to maximize the exports and minimize the imports of an economy. It seeks to maximize the accumulation of resources within the country and use those resources for one-sided trade.

It is also known as “commercialism,” which is a system in which a country attempts to amass wealth through trade with other countries, exporting more than it imports and increasing stores of gold and precious metals. It is often considered an outdated system.

The biggest example being Passed by the British Parliament in May 1773, the Tea Act was a mercantilist policy designed to bail out the struggling British East India Company by granting it a monopoly on tea sales in the American colonies. It allowed the company to ship tea directly to America, bypassing merchants and reducing costs, while enforcing a three-cent tax to assert Parliament’s taxing authority. The Act aimed to save the financially troubled British East India Company by allowing it to dump 17 million pounds of unsold tea in American markets, creating a practical monopoly.  Ships carrying tea were also turned away or had their tea destroyed in New York, Philadelphia, and Charleston. The Tea Act was effectively the world’s first corporate bailout (often helping by paying money in difficult situation) the act was designed to save the East India Company from bankruptcy.

Mercantilist economic policies rely on government intervention to restrict imports and protect domestic industries. Modern-day mercantilist policies include tariffs, subsidizing domestic industries, devaluation of currencies, and restrictions on the migration of foreign labor.

Modern-day mercantilism in India is reflected in policies prioritizing domestic manufacturing, reducing import dependency, and fostering a trade surplus, often termed “neo-mercantilism” or economic nationalism. Key examples include the Atmanirbhar Bharat (Self-Reliant India) initiative, the Production Linked Incentive (PLI) schemes, high tariffs on imports, and the decision to stay out of the RCEP (Regional Comprehensive Economic Partnership)  trade agreement to protect domestic sectors.

Absolute Advantage

The ability of a country to produce more of a good with the same resources than another country is absolute advantage. India has an absolute advantage in the production of wheat over China and China has an absolute advantage in the production of cloth over India. Absolute advantage in international business occurs when a country can produce more of a good or service with raw material or technology which the country enjoys. It represents superior efficiency due to factors like better technology, climate, or lower labor costs.

Due to abundant oil reserves, Saudi Arabia can produce oil at a much lower cost and in higher volume than most countries, giving it an absolute advantage. China has historically held an absolute advantage in textile production due to a large workforce, lower labor costs, and efficient manufacturing capacity. Japan possesses an absolute advantage in high-end electronics manufacturing owing to its advanced technology and highly skilled workforce.

Comparative Advantage

It is the ability of a country to produce goods at a lower opportunity cost than another country by achieving  economies of scale. Reductions in average costs due to increased production levels. For example, China’s low labor costs give it a comparative advantage as a manufacturer over many Western trading partners. South Africa has a comparative advantage in mining because of its mineral wealth.

Brazil has a comparative advantage in coffee production due to climate, while South Africa holds an advantage in mining due to mineral abundance. Germany and Japan have a comparative advantage in automobile manufacturing and high-end machinery due to advanced technology and highly skilled labor, despite higher production costs. India has a comparative advantage in software development and IT services due to a large pool of educated, English-speaking, and cost-efficient professionals, which the U.S. imports.

Eli Heckscher and Bertil Ohlin Theory

It is also known as factor-proportions theory. Both prepared a theory explaining international trade patterns by focusing on differences in factor like cheap labor, raw material, and capital between countries, suggesting that countries export goods using their abundant, cheaper factors and import goods which are scarce.

Bangladesh specializes in clothing (labour-intensive), while Germany exports machinery (capital-intensive). A country with abundant labor (e.g., India) tends to produce and export textiles, while a capital-abundant country (e.g., Germany) specializes in automobile production. While South Korea was historically labor-abundant, it successfully transitioned to capital-intensive exports (electronics) by investing in infrastructure.

Modern & Firm based theories:

Raymond Vernon’s Product Life Cycle (PLC) theory

This explains how trade patterns shift as products evolve from innovation in developed nations to mass production and standardization in developing countries, moving through introduction, growth, maturity, and decline stages. The theory explains how a product’s production and trade patterns shift over time, eventually leading the original innovating country to become an importer of the very product it invented. As the name suggests, this theory talks about a product that goes through different stages. This theory only focuses on the developed nation, not on the developing nation.  According to this theory, when a product is in its early life cycle stage, all the raw material and the labor used in making and producing that product belong to the place where the product has been invented or produced. But when that new product is introduced in the world market, then its area of origin shifts to different places

PC Personal computer) were introduced to world by US; its mass manufacturing in low-cost Asian countries declined production in US. Now US purchases Pcs from Asian countries.

Country Similarity Theory (Steffan Linder)

Trade within similar development stages (intra-industry trade) occurs due to similar consumer preferences. states that countries with similar income levels, consumer habits, and industrial development trade similar, high-quality manufactured goods with each other (intra-industry trade). Key examples include massive trade in automobiles between Germany and France, or electronics between the US and Canada.

Global Strategic Rivalry (Krugman/Lancaster)

Firms gain competitive advantage through innovation, R&D, and economies of scale, influencing trade patterns. Competition for leadership in semiconductors, artificial intelligence, and 5G networks, often involving sanctions, export restrictions, and investments in critical infrastructure.

Porter’s Diamond Model

National competitive advantage stems from four interconnected factors: factor conditions, demand conditions, related/supporting industries, and firm strategy/rivalry. Germany’s automotive industry, showcasing strong national advantage through skilled engineers (Factor Conditions), demanding consumers wanting high-performance cars (Demand Conditions), a robust supply chain (Related/Supporting Industries), and intense rivalry between BMW, Mercedes, and Audi driving innovation (Firm Strategy/Rivalry).

I am happy to announce that my book titled “International Business” has been published in Last week of May 2025 by Himalaya Publishing House its ISBN Number is 978-93-6557-175-2. 

This book “International Business” is comprehensive and practical, covering core concepts with real-world examples, caselets, case studies, and organizational consequences. It is up to date with current events and research. The book covers major aspects of international business, including globalization, international trade, foreign direct investment, international finance, international marketing, MNCs and their subsidiaries, CAGE model, Diamond model and international strategies. The book incorporates the latest events, statistics, and research findings in the field. The material is lucid for the students; it talks about how to apply concepts in real-world business situations. The language is clear and brief, avoiding unnecessary jargons. The author has created a clear and logical structure, making it easy for students to follow the flow of information. 

Globally, the Indian market is termed as ‘emerging’ market. The Indian academia is also evolving to compete with the briskly changing global market due to the VUCA. This book is an attempt in the backdrop of such evolving academia. Based on the feedback received from students and faculty on my earlier publications, I felt that there was a distinctive need for a reference book that connects the conceptual field of consumer behaviour with more emphasis on the Indian context, not only in terms of basic concepts but also in terms of examples and caselets.

The following objectives have been covered in the book:

• Attract foreign demand.
• Utilize technology.
• Use of economic resources in form of mergers & acquisitions, joint ventures etc.
• International diversification.
• Exporting goods and services.
• Giving license to produce goods in the host country.
• Global customer base.
• Facilitates the transfer of technology, knowledge, and resources between countries, contributing to economic development.

The book covers the latest syllabi in total eight chapters.

1. Introduction to International Trade

2. Evaluating Country Attractiveness

3. Understanding Cultural Difference and its impact of Business

4. International Finance Decision

5. Forex Markets

6. WTO Regional Trade

7. Managing MNCs and subsidiaries

8. Impact of I-R Model on Subsidiary Management

EPRG full form stands as Ethnocentric, Polycentric, Regiocentric, and Geocentric. It is a framework created by Howard V Perlmutter, Jerry Wind and Douglas in 1969. The EPRG Framework helps organization choose which approach is most suitable for it to achieve successful results in countries abroad. When organizations decide to go overseas in search of market expansion they need to adopt one of the styles as in ethnocentric, polycentric, regiocentric, geocentric. EPRG model often is also called EPG Model in International Business.

Organizations choose strategies based on what suits them most, therefore making them differently oriented. As a result, costs and profits are generated in different ways, depending on the mentioned kind of orientation. Therefore the identification of the right orientation is essential. For example, it is important that different activities of the organization are consistent between headquarter and SBUs situated in other part of world at various stages. It is also important that the culture of organization, its marketing strategy, financial strategy, operational strategy is consistent. Only then, the organization can operate efficiently in the market. Let us look at the four approaches as follows:

Ethnocentric: means to apply one’s own culture in social science and anthropology. Japan has a reputation for being ethnocentric. Ethnocentric comes from ethnicity which means belonging to a social group that has a common national or cultural tradition. Ethnicity as a frame of reference is used to judge other cultures, practices, behaviour, beliefs and people, instead of using the standards of the particular culture involved. Since this judgment is often negative, some people also use the term to refer to the belief that one’s culture is superior to, or more correct or normal than, all others especially regarding the distinctions that define each ethnicity’s cultural identity, such as language, behaviour and customs.

There is no change in terms of product specifications, price, promotion, and other aspects and is same as compared to the native market.

Typical examples of ethnocentric companies are Japanese companies such as Panasonic, Sony and Hitachi. In Ethnocentric Approach, the key positions in the organization are filled with the employees of the parent country. All the managerial decisions viz. Mission, vision, objectives are formulated by the MNC’s at their headquarters, and the same is to be followed by the host company. It is based on the rationale that, the staffs of the parent country is best over the others. In the host countries in top position the organization appreciates having parent country employees at top.

The head office is given more importance as compared to the overseas subsidiaries or offices situated in the international markets.  These companies ignore the potent opportunities outside the home country and they are referred to as domestic companies.

The advantages of ethnocentric approach can be as follows:

1. Better coordination between the host and the parent company.
2. The culture of the parent company can be easily transferred to the subsidiary company, thereby infusing beliefs and practices into the foreign country this also help in controlling the subsidiary effectively.
3. The parent company can have a close watch on the operations of the subsidiary.

Polycentric Orientation: Polycentric approach of business can be defined as host country orientation. Here the host country’s customs, behaviour, culture, language is considered while doing business. Under a polycentric perspective, a company’s management team believes that it is better to adopt host country’s culture to befriend the customers, suppliers and government. In Polycentric orientation organizations see host country’s unique and exclusive conduct because businesses are best run locally as per local culture. This approach lays a strong groundwork because every subsidiary develops its unique marketing and business strategies for success and the country’s domestic market is given equal importance. This approach is best suited for the developing countries in which certain constraints on the front of finance, political, and cultural front are experienced.

The best example of polycentric organization is McDonald. The familiar offerings in their restaurants in the United States may be somewhat less familiar if you venture abroad. In India, where many people do not eat beef, McDonald’s offers the McAloo Tikki, a vegetable patty with characteristic Indian spices. European McDonald’s often serve wine in addition to soft drinks. Customers in the Netherlands can order a Stroopwafel McFlurry, a dessert that mixes in a popular Dutch cookie treat. The product offerings are fine-tuned to individual country or regional tastes, polycentric advertising strategies are equally diverse, relying on music, spokespeople, language and cultural references that are familiar to the local population.

The Google search engine is well-known for its clever “Doodles” the images and text that appear almost daily to celebrate a particular person or event in a country.  Google Doodles are made as per polycentric approach. The doodles announce events around the world; special doodles are designed for Olympics, Soccer World Cup, and Cricket World Cup etc.

The advantages of polycentric approach are as follows:

1. The difficulty in the adjustment of expatriates from the parent country gets removed.
2. The hiring of locals or the nationals of the host country is comparatively less expensive. The morale of the local staff increases.
3. Better productivity due to better knowledge about the host market; the career opportunities for the nationals of the host country increases.
4. Better government support.

Regiocentric Orientation: is an approach adopted by a firm wherein it adopts a marketing strategy across a group of countries, which have been grouped on the basis of their market characteristics; i.e., the market characteristics of these countries would be more or less similar. The company which follows this approach of framework studies the similarities in markets to design strategies. The management of the company records the economic, social, cultural, and political similarities between the native areas of the overseas region to sell its products and services to potential customers. It is worth noting that the cultural and regional identity of India, Pakistan, and Bangladesh is quite similar whereas Norway and Spain that both falls in Europe are very different in terms of culture, climate, and transport amongst other aspects.

Coca-Cola and Pepsi are regiocentric companies. Regiocentric strategy assumes that all countries of the region can be regarded as a single market.

HSBC is one of the largest banking and financial services organizations in the world, with well-established Businesses in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. They use a regiocentric approach. Organization group countries on the basis of their market characteristics; i.e., the market characteristics of these countries would be more or less similar.

Some of the advantages of regiocentric approach are as follows:

1. Helps cultural fit. When organizations hire the managers from the same region as that of the host country may not encounter any problem with respect to the culture and the language followed there. It costs less in hiring the natives of the host country.
2. The managers work well in all the neighbouring countries within the geographic region of the business.
3. The nationals of host country can influence the decision of managers at headquarters with respect to the entire region.

Geocentric Orientation: is practiced when an organisation does not organise its strategies based on country or regions. Geocentric firms adopt an approach whereby they have a global mind-set. They view the whole world as their market and seek to identify global needs and wants and create products and services. The companies following the geocentric approach of the EPRG Framework are truly the global players. They think global and act global. Their HR policies for staffing and job position approach to staffing assigns job positions to any person best suited for the position, regardless of the employee’s background, culture or country of origin. These organizations understand costing in hiring in terms of immigration policies; costs of worker relocation and diversity management create pressure on HR management.

McDonalds is a global company which follows Geocentric approach because it perceives world as a single market and tries to offer low cost products and services everyone. Even MTV (24 hours music channel) is a geocentric organization.  The Geocentric approach does not connect nationality with the factor of dominance.

Advantages of geocentric orientation are as follows:

1. MNC’s can develop a pool of senior executives with international experiences and contacts across the borders in the world. The expertise of each manager can be used for the accomplishment organization’s objective as a whole.
2. Reduction in resentment, i.e. the sense of unfair treatment reduces.
3. Shared learning, the employees, will learn from each other’s experiences.

Expanding abroad allows domestic businesses to get out of a saturated market. It gives an organization access to new customers and in a market where its competitors do not operate. One of the reasons why businesses expand globally is to be able to provide a reliable service to their international clients. The Expansion through Internationalization is the strategy followed by an organization when it aims to expand beyond the national border.  

Companies habitually overestimate the attractiveness of foreign markets; they get dazzled by the sheer size of untapped markets, they lose sight of the difficulties while pioneering new, often very different territories. The problem is rooted in the analytic tools the most prominent being country portfolio analysis that managers use to judge international investments. By focusing on national wealth, consumer income, and people’s propensity to consume, managers emphasize potential sales, ignoring the costs and risks of doing business in a new market. Most of these costs and risks result from the barriers created by distance. Here “distance,” however, does not refer only to geography.

Pankaj Ghemawat is an international strategy guru who developed the CAGE framework to offer businesses a way to evaluate countries in terms of the “distance” between them. Pankaj Ghemawat’s “Distance Still Matters,” article in Harvard Business Review became world-famous. He explains distance is not only the physical geographic distance between countries but also the cultural, administrative, geographic and economic dissimilarities between them. The CAGE framework offers a broader view of distance and provides another way of thinking about location and the opportunities and affiliated risks associated with global arbitrage (taking advantage of price in two or more markets). 

Ghemawat provides an example of a North American fast-food company. In which he explains that on the basis for fast-food company to grow is per capita income. Countries like Germany and Japan would be the most attractive markets for the expansion for the North American fast-food company. However, when he plots the CAGE analysis using the CAGE framework, he shows that Mexico ranks as the second most attractive market for international expansion for the fast-food company, far ahead of Germany and Japan.

Another example provided by Ghemwat is of Dell Computers and its efforts to compete effectively in China. The vehicles it used to enter China were just as important in its strategy as its choice of geographic arena. For Dell’s corporate clients in China, the CAGE framework would likely have revealed relatively little distance on all four dimensions: Cultural, Administration, Geographical, Economical parameters. The fact that many personal computer components have been sourced from China by the mega computer manufacturing companies; however, for the consumer segment, the distance was rather great. For example, Chinese consumers don’t’ regularly buy over the Internet, which is the primary way Dell sells its products in the United States. One possible outcome could have been for Dell to avoid the Chinese consumer market altogether. However, Dell opted to choose a strategic alliance with distributors whose knowledge base and capabilities allowed Dell to bridge the CAGE gap in Chinese market

The impacts of the distances and differences figured out by the CAGE Framework between the countries have been demonstrated in a quantitative manner via gravity models. It is an excellent analytical tool for the various companies and organizations that develop international strategies with an intention of the global expansion of their businesses.

One most important parameter in CAGE framework explains that when looking to expand business into a foreign market, the cultural differences between the two countries are hard to change whereas differences due to the legal and economic structures can be changed easily.

Cultural Distance

It includes languages, different ethnicities, different religions, and different social norms.

Language

International business activities are always accompanied by language-related barriers as companies are confronted with multiple local languages and a multinational workforce. To increase the efficiency of corporate communication, documentation and cross-national teamwork, an increasing number of companies have implemented common language policies in both their headquarters and their foreign subsidiaries and made English their official corporate language.

Language differences present a common stumbling block in international business communication. It has been observed that whenever one party is using a second language or a translator, the potential for misunderstandings increases. Even if you’re bilingual, slang, jokes and figures of speech can cause problems. Try speaking slowly and clearly in these circumstances. If you’re giving an oral presentation, a clear hand out in simple language helps avoid misunderstandings. For example, BMW is easy to pronounce in English but say it like the Germans do – ‘bey-em-vey’. The ‘w’ is pronounced as ‘v’.

Ethnicities

Meaning traditions and mannerisms in ethnic groups.  For example, in Japan and the U.K. people tend to avoid the outward show of feelings, while the United States, France and Italy accept a stronger show of emotions, even in business. Some cultures have strict dress codes for business. For example, in Muslim countries, women must avoid sleeveless tops, short skirts and low necklines. In Japan, conservative business suits in dark colors are essential to make the best impression.

The advice is, when new to a culture, observe what others wear for business. Start out with conservative outfits in neutral colors until you learn what’s respectful and appropriate,

You can unknowingly cause offence when meeting foreign clients one-on-one. In Japan, you should bow rather than shake hands unless the other party offers a hand first. The exchange of business cards is a requirement in many cultures.

In Arab countries, you should accept the card with your right hand, while in China and Japan you should use both hands. In China, you can show respect by taking a Chinese name. In Brazil, business acquaintances stand close to build trust, so backing away may be construed as a rebuff.

Gift-giving etiquette is a complex subject that can be difficult to master. In China, gifts are the norm and expected, while in other countries, the wrong gifts are insulting. Avoid bringing bad luck in China – don’t give a clock or a gift with blue, white or black wrapping paper. Keep offering your gift, because Chinese recipients usually refuse three times before accepting.

If you comply with a request for a bribe in any country, corruption charges are a likely complication. It’s illegal for US nationals to bribe foreign officials, although sometimes gifts legal in the host country are allowed.

Following local customs builds better relationships at business meetings. For example, Canadians are clock-watchers and expect everyone to arrive on time. In Japanese meetings, often only the most senior person for each side talks, while others typically remain silent.

In China, business dinners often include many toasts, so pace you’re drinking accordingly. To maintain the respect of Asian contacts, avoid etiquette mistakes that cause you to lose face.

Religion

Religious observance is widespread and continues to influence managerial behaviour in many parts of the world. However, its role in international business negotiations has not received much scholarly attention. Lot of research proves that some of the key ways in which religious belief shapes negotiation behaviour.

Administrative Distance

It includes political environment, money (Currency value) political relationship (either friendly or hostile relation) government policies and institutional weaknesses.

Political Environment 

The political environment can be studied in terms of the central government, the citizens of a country, rules, and regulations or international relations. Examples of political factors related to the central government of a country are levels of bureaucracy, corruption, and government stability.

Political risk in international business results from various factors that can negatively affect a company’s income or complicate its business strategy. These factors include macroeconomic issues such as high interest rates and social issues such as civil unrest. Since the past year Lebanon is protesting also known locally as the October Revolution, for a series of civil protests taking place in Lebanon. Trade between India and Lebanon during Jan-June 2019 stands at $ 181.00 million, with Indian exports to Lebanon being $ 171.00 million and Indian imports from Lebanon amounting to $ 10.00 million which is now hampered because of Pandemic and unrest in Lebanon.

Currency Value

The balance of trade is the value of a country’s exports minus its imports. It’s the biggest component of the balance of payments that measures all international transactions. It’s easy to measure since all goods and many services pass through the customs office. India imports goods from China priced in Yuan and imports goods from U.S priced in Dollars. Both currency price changes less frequently.

Political Relationship

India’s closest friends in world include the Russian Federation, Israel, Afghanistan, France, Bhutan, Bangladesh, and the United States. India is labelled globally for many things; a regional power, a nuclear power, a nascent global power, and a potential superpower, among others. With a growing international influence, by playing influential roles in various global matters, India has always held its head high when it comes to maintaining peaceful bilateral relationships with various countries, excepting its neighbouring countries in the subcontinent. Given the current scenario of the country’s relationships, it can be imagined that the farther away a country is, the more likely it is to have a strong relationship with India.

Geographical Distance

It includes parameters such as physical remoteness, lack of common border, lack of sea or river access, size of country, time zone, weak transportation reach or communication reach, differences in climate.

Physical Remoteness

All the great empires in the world have been based around trade routes, and these are almost always maritime transports (near the sea). There are notable exceptions; the medieval Mongol empire led by Genghis Khan was based on the Silk Road from China to the west. Many of the world’s poorest countries are severely hindered because they are landlocked; they are situated either in high mountain ranges; or lack passable rivers, long coastlines, or good natural harbours.

Climate

One of the most important factors in development is geography, where the country is in the world, and climate. It’s no coincidence that the poorest countries are in the tropics, where it is hot, the land is less fertile, and water is scarcer, where diseases flourish. Conversely, Europe and North America profit from huge tracts of very fertile land, a temperate climate, and good rainfall. In extremes of climate, either hot or cold, too much energy goes into the simple business of survival for there to be much waste of energy for development.

Lack of common borders

China has three of the world’s busiest ports, and so does the US. With ports you can raise money through tolls and shipping services. If you have no access to the coast, not only do you miss out on these services, you have to transport everything by land, which is much more expensive. And what if your neighbours don’t like you? Ice-bound on its northern coastlines, Russians have quarrelled for centuries over access to a warm water port, the Crimean War being the most serious one. Countries like Afghanistan, Rwanda, Malawi, or Bolivia are all hindered by access to ports. Other countries, like Ethiopia or Lesotho, are not only landlocked, but mountainous as well, making trade even more expensive.

Economic Distance

It consists of parameters such as consumer income, natural resources, financial resources, human resources, infrastructure, intermediate inputs, information or knowledge.    

Consumer Income  

Money per capita can refer to income per capita, money supply per capita, gross domestic product (GDP) per capita, or even net worth per capita. Countries like USA, Luxembourg, Switzerland, Germany, and Australia are always an attraction in International Business. There is plentiful evidence that tradable goods are more expensive in countries with high per capita incomes.

Natural Resources

Natural resources have made countries richer. It takes infrastructure to capitalise on these, but some places have a distinct advantage over others. Oil is the most obvious. Nobody is any doubt about how Saudi Arabia or UAE make their money. Among other advantages, gold and diamonds have helped South Africa build the most successful economy on the continent. These are all non-renewable resources; once they’re gone, they’re gone, but while stocks last there is wealth to be made.

Besides these there are renewable resources; forests, fish, stocks that, if correctly managed, will refresh themselves. Much South American development has been based on the Amazon rainforest in natural rubber and then timber.

Finally, there is what is sometimes called ‘flow resources’. These are renewables that need no management, wind, tide and solar resources. The Earth Policy Institute describes the American Great Plains as ‘the Saudi Arabia of wind energy’, while sunshine-rich places like California, Sicily and Portugal are able to invest in solar power. No natural resource is a license to print money, and there are plenty of poor countries who are rich in resources, but then the fact is that have not been able to manage it.

I want to illustrate my point here with one of relevant examples how corporate invest for growing in new markets, found on Internet: when McDonald’s tried to enter the Russian market, it found an institutional void: a lack of local suppliers to provide the food products it needs. Rather than abandoning market entry, McDonald’s decided to adapt its business model. Instead of outsourcing supply-chain operations like it does in the United States, McDonald’s worked with a joint-venture partner to fill the voids. It imported cattle from Holland and russet potatoes from the United States, brought in agricultural specialists from Canada and Europe to improve Russian farmers’ management practices, and lent money to farmers so that they could invest in better seeds and equipment. As a result of establishing its own supply-chain and management systems, McDonald’s controlled 80% of the Russian fast-food market by 2010. The process, however, took fifteen years and $250 million in developing its Russian market.

Human Resources

Globalization forces companies to go international and enter new markets. All the corporate values and strategies change after internationalization. Human resource management (HRM), as a part of key business functional dimensions, faces a high level of development as well. Globalization has had far-reaching effects in business but also in strategic HRM planning. The signing of trade agreements, growth of new markets such as with India and Malaysia is because of young, trained and English speaking labour.

An example of dealing with an institutional void and changing the institutional context is by the “Big Four” audit firms (i.e., Ernst & Young, KPMG, Deloitte Touché Tohmatsu, and PricewaterhouseCoopers) when they entered Brazil. At the time, Brazil had a untried audit services market. When the four firms set up branches in Brazil, they raised financial reporting and auditing standards across the country, thus bringing a dramatic improvement to the local market. The Big Four invested in training and development the accountants in Brazil.   

Labour law

The legal system in labour law practiced in a country has a great effect on the types of compensation; union issues, how people are hired, fired, and laid off and safety issues. Rules on discrimination, for example, are set by the country. In China, for example, it is acceptable to ask someone their age, marital status, and other questions that would be considered illegal in the United States. In another legal example, in Costa Rica, known as a thirteenth month salary is required to be paid in December. In Costa Rica, All rank-and-file employees who have worked for at least one (1) month during the calendar year, are entitled to receive 13th month pay regardless of the nature of their employment and irrespective of the methods by which their wages are paid. This perilous labour law distracts many firms from starting business in Costa Rica.

Infrastructure

Infrastructure matters to trade mainly because it decreases the cost of trade and ensure the ease of doing business in host economies. Lower trade costs raise the potential for increased export markets. Firms can choose the strategy of staying away from a market with infrastructural voids. For example, Home Depot Inc. the largest home improvement retailer in the United States, supplying tools, construction products, and services requires institutions like reliable transportation networks to minimize inventory costs and the practice of employee stock ownership which motivates workers to provide great service. The Home Depot has decided to avoid countries with weak logistics systems and poorly developed capital markets because the company would not be able to attain the low cost–great service combination that is its hallmark.