What is International Business?
International business refers to commercial transactions between two or more nations. It is also called a global business that includes carrying economic transactions of goods, services, knowledge, technology, capital, labor, communication, transportation, and many more globally.
International business does not remain only to global trade of goods and services but also includes foreign investment. Globalization and technology (internet) have further boosted the performance of the business activities that direct the flow of a company’s products to users in more than one nation.
In simple words, international (global) business means carrying out business activities that take place beyond the national frontiers. And, national (domestic) business means doing business within the territory of a nation.
We find multinational products in our local shops actually today local shops are characterized by global products. We are able to use global products at our home, it all has happed because of global business.
Mainly global business contains the following:
- International movements of goods, services, capital, employees, and technology.
- Cross-border transactions in intellectual property (patents, copyrights, trademarks, graphic indicators, related rights, etc.).
- Investment in foreign physical and financial assets of foreign countries.
- Contract manufacturing and assembly of goods abroad for local sale or for export to other nations.
- Buying and selling in foreign countries.
- Establishment of foreign warehousing and distribution systems.
- Importing of one foreign country goods from a second foreign country for subsequent local sale.
In fact, today international business is indispensable for all countries. No single country is self-sufficient in producing all goods and services of its requirements. Both small and large or private and government, or country’s government all are the active players in global business.
Global development forced managers to develop business and marketing plans (marketing mix) considering the global markets. It has made the whole world a single marketplace popularly known as a global villa. It has now become a “Borderless World”. Hence, doing business today managers require to “Think Globally to Act Locally”.
Some definitions:
- Daniels; Rodebaugh and Sullivan – International business is all commercial transactions – private and governmental between two or more countries.
- Taggart and McDermott – International business can be defined as those business activities that involve the crossing of national boundaries.
- Hill (2005) – International business is any firm that engages in international trade or investment.
Characteristics of International Business
The market at both national and international levels is going global more as the days are passing. Multinational Companies (MNCs) like Coca-Cola, Sony, KFC, McDonald’s, Microsoft, Apple, etc., and their products are now reached all over the world.
MNCs have a strong influence on the advancement of global trade. In this cross borders business, any country’s government may get involved in transactions with another country’s government or private sectors and vice versa.
By discussion, the main features/characteristics of global business may be pointed out below.
- Cross-border transaction.
- Two or more countries are involved in the business.
- Global as well as domestic competition.
- Use of foreign currencies.
- Based on a free-market economy.
- Import and export of international products.
- Free flow of factors of production.
- Impact of international organizations (WTO, IMF, UN, WB, OPEC).
- Foreign laws.
- Foreign environment (political, cultural, economic, etc.)
- Concerned with MNCs and global image.
- Requires broader management skills, etc.
Dimensions of International Business
Multinational business activities are open to a wide range of stakeholders. Governments of nations are permanent organizations that can engage in such operations, whereas business firms are already engaged in international business on a regular basis.
As a result of this fact, various combinations and even permutations of these parties provide many dimensions of international commerce, which can be stated in the following terminology and sets:
- G2B (Government to Business) – When the government of any country moves the goods, services, or investments to business enterprises in another country.
- G2G (Government to Government) – when the flow of goods, services, and investments takes place between two respective countries.
- B2B (Business to Business) – This dimension takes place when a business enterprise of a country moves the goods, services, or investment to a business enterprise(s) in another country.
- B2G (Business to Government) – It occurs when the business takes initiative to move goods to the government.
- B2C (Business to Customers) – This dimension is more traditional and common. A business enterprise of one country moves the goods, services, or investments to customers or citizens in another country.
These various dimensions explain how global businesses are happening among different entities.
Components (Types) of International Business
The transactions of international business mainly include international sales/trade and international investments.
International Sales/Trade
It includes export, import, and entrepot.
Export. I think this is the first thing a business thinks about when it wants to enter into a global business. Simply exporting means selling domestic products to foreign customers. A business export merchandise products, transportation, tourism, and other services either directly to final customers or through some allies.
Import. Importing means buying products or services from foreign markets. In global business, most business companies buy raw materials from foreign markets and make final products with the hope to sell them globally.
Entrepot. It is a variation of import that is not meant for a country’s domestic consumption but for re-export to other countries. The basic difference between import and export is that import means buying products from another country either for consumption or reproduction. But, entrepot means importing final products only for re-export purposes.
International Investments
They consist of foreign direct investments (FDIs) and joint ventures (JVs). It is to enhance people’s welfare that a country’s government brings in foreign investments.
Foreign investment refers to the ownership of foreign property in exchange for financial return, such as interest and dividends. It includes direct investments and portfolio investments.
Direct Investment. Direct investment is totally foreign when a company buys a large enough stake in a company in another nation to gain considerable management control. Foreign direct investments are what they’re called (FDIs). They’re also referred to as ‘green-field’ investments.
The operation is known as a joint venture (JV) when two or more companies share ownership of an FDI. The operation becomes a mixed venture when a government joins a company in an FDI in a foreign jurisdiction (Daniels and Radebaugh, 2003).
Portfolio Investment. The purchasing of stocks and bonds in order to earn a return on the capital invested is known as portfolio investing. In most cases, such investments are not made with the purpose of gaining control of the company.
As a result, they’re also referred to as a ‘non-controlling interest.’ Portfolio investments are typically used by businesses for short-term financial advantages and as a way to make higher returns on their money while maintaining a level of safety.
Importance of Global Business
There is no doubt about the importance of global business. For better productivity, higher income, and a strong image global business is required.
A business operating in the domestic periphery may meet the all need and wants of its customers but the fact is domestic customer size is limited. When the business produces more products there are no left customers to buy.
Producing more products requires more cost so companies want to make more sales as far as possible and their best option is to step into international business. It gives them to access international markets and uncountable customers. As saying goes more customers, more profits, positively company flourishes in the international market.
Various importance lies in global business which also gives proper reasons on why companies choose to go globally. Such as some reasons (importance):
- Access to the global market.
- Global opportunities.
- Increased revenue.
- Market expansion.
- New technologies adaptation.
- Liberalization.
- Broader networking.
- Risk reduction.
- Easy in international trade.
- Access to international talent.
- Global image.
Domestic Vs. International Business
By definition, domestic business means business within the country and international business means business beyond the border of the country.
Domestic serves national customers and international serves international customers. The risk associated with managing a domestic business is different even less but increases when companies go international. The reasons are the following:
- Countries are different. It means that there is diversity in political, legal, cultural, and other environmental factors.
- The range of problems faced by a manager in international business is wider, and their problems themselves are more complex than those confronted by a manager in a domestic business.
- Managers in an international business must find ways to work within the limits imposed by governments’ intervention in the international trade and investment system.
- International transactions involve converting money into different foreign currencies. Domestic business needs no such conversion.
- Socio-cultural factors are different so management practices particularly relating to human behavioral ones bring about different and unpredictable impacts or outcomes.
- There has been a steady rise in ecological or environmental concerns across the world, though at different magnitudes/levels. A domestic business faces fewer such concerns.
Challenges to International Business
Since global business provides various benefits to companies involved in it they are also not far from the different challenges. As companies go global they enjoy global benefits, similarly, they also have to fight different global challenges.
When companies are at the national level they only have to compete with national issues and challenges but going global they have both national and international challenges. Some challenges may be pointed out below.
- Changing Environments
- Political environment
- Economic environment
- Cultural environment
- Legal environment
- Need for new strategies
- High competition
- Information Gap
- Requires quality management Skills
- Managing global teams
- Foreign exchanges and inflation
- Marketing becomes essential
- Communication issues
Conclusion…
Global (international) business hence encompasses commercial activities at the global level. It does not stop at only international trade and manufacturing foreign but also covers service industries like tourism, transportation, advertising, retailing, wholesaling, and mass communications. In addition, it includes all the commercial transactions between countries.
Going global is a blessing for businesses as it provides many benefits however businesses should make their fundamentals strong to fight emerging challenges and get the most from international business.