What is International Business?
-Cambridge dictionary defines international business as– “the activity of trading goods and services between countries”.
However international business is beyond this definition, it has a very wide scope.
Business activities done across national borders is International Business. The International business is the purchasing and selling of the goods, commodities and services outside its national borders. For example- manufacturing, mining, construction, agriculture, banking, insurance, health, education, transportation, communication and so on.
Why study International business?
There are several reasons to study international business. Most large organizations will have international operations or be affected by the global economy. International business will allow students to better assess career opportunities, interact more effectively with other managers, and keep pace with competitors. Furthermore, students may eventually work for a company headquartered in another country. Finally, small businesses are becoming more involved in international business.
Types of International business:
All the major international business conducted in the world can come under seven main types. These can also be termed as modes of business.
Let’s look at each in detail-
Imports and exports
Imports and exports can be seen as the foundation of international business. Imports are an inflow of goods into the markets of home country for consumption, in contrast, export means selling of goods to foreign countries. In short, imports means inflow whereas export means outflow of goods in any form.
Licencing is one of the easiest ways to expand a business internationally. When a company has a standardized product with ownership rights, it can use licensing to distribute and sell the products in the international market. Licenses come in many forms, some of which are patent, copyright, trademark, etc. Products such as books and movies are usually distributed internationally through licensing agreements.
A very effective method to expand a business nationally as well as internationally, franchising is similar to licensing. In this, a parent company gives the right to another company to conduct business using the parent company’s name/ brand and products. The parent company becomes the franchiser and the receiving company becomes the franchisee. Many of the biggest restaurant chains in the world have used the franchisee model to expand internationally. Some examples include – McDonald, Pizza Hut, Starbucks, Domino’s Pizza and many more.
Outsourcing and Offshoring Outsourcing means giving out contracts to international firms for certain business processes. For example- giving out accounting function to an international firm.
This is usually effective when the cost of conducting these processes are comparatively much cheaper in some other country than in the home country. For example, many developed countries such as the USA, Australia, the UK, etc. outsource its functions to companies in India, China, etc. because it is cheaper.
Off shoring is similar to outsourcing in the sense that a function is moved away from the home country. However, it is different in the sense that the facility is physically moved to another country but the management stays with the company itself. For example, Apple Inc. is conducting its manufacturing function in China, however, it is completely controlled by Apple Inc.
Joint Ventures and Strategic Partnerships
A joint venture is a contract between two parties, one is an international company while another company is local to where the business has to be conducted. Both parties contribute to the equity and management of the company. As a result, both share the profit as well. These parties can mutually decide the percentage of equity and profit sharing.
These types of ventures and partnerships come into existence when both the party has something to offer. For example, the local company may have the brand name and network within the country while the international company may have advanced technology.
Multinational companies, that are conducting business in multiple countries. They actually set up the whole business in multiple countries. Some such examples are Amazon, Citigroup, Coca-Cola, etc.
These companies have independent operations in each country, and each country has its own set of offices, employees, etc. In fact, even the products
and marketing campaigns are customized as per local needs. For example- Nestle introduced a Matcha flavor Kit Kat in Japan as the flavor is very popular in that country, however, they don’t offer the same flavor in India.
Foreign Direct Investment
Foreign direct investment is an investment made by an individual or a company located in one country to the business interest located in another foreign country. In this the investing company usually commits more than capital, they share management, technology, processes, etc, with the company that they have invested in. The foreign direct investments can take many forms such as a subsidiary company, associate company, joint venture, merger, etc.
These are the major types through which people, companies, and government conduct international business.
Benefits of International Business :
International Business is important to both Nation and Business organizations. It offers them various benefits.
Benefits to nation
• It encourages a nation to obtain foreign exchange that can be utilized to import merchandise from the global market.
• It helps a country in enhancing its development prospects and furthermore make opportunity for employment.
• It prompts specialization of a country in the production of merchandise which it creates in the best and affordable way.
• International business makes it comfortable for individuals to utilise commodities and services produced in other nations which help in improving their standard of life.
Benefits to firm
● It helps in improving profits of the organizations by selling products
in the nations where costs are high.
● It helps the organization in utilizing their surplus resources and increasing profitability of their activities.
● Also, it helps firms in enhancing their development prospects.
● International business also goes as one of the methods for accomplishing development in the firms confronting extreme market conditions in the local market.
● And it enhances business vision as it makes firms more aggressive, and diversified.
Disadvantages of International business
- Exhaustion of Resources:
In order to earn present export advantages a country may exploit herlimited natural resources beyond proper limits. This may lead to exhaustion of essential material resources like iron, coal, oil, etc. The future generation thus stands at a disadvantage.
- Effect on Domestic Industries:
If no restrictions are placed on the foreign trade, it may ruin thedomestic industries and cause widespread distress among the people.
- Effect on Consumption Habits:
Sometimes it so happens that the traders in order to make profits import commodities which are very harmful and injurious to the people For instance, if opium, wine, etc.,are imported, it will adversely affect the health and morale of the people.
- Times of Emergency:
If each country specializes in the production of those commodities in
which it has comparative advantage over other countries, it may prove
very dangerous rather fatal during times.