Definition of International Business:
The world has become a “global village.” The business has expanded and is no longer restricted to the physical boundaries of the country.
Even countries that were self-sufficient now rely on other countries to purchase goods and services. They are also ready to supply goods and services to developing countries. There is a shift from independence to addiction. This is due to the development of new communication modes and infrastructure equipment as a faster and more efficient means of transportation. That brought the nations closer to each other.
In addition to technological developments, the World Trade Organization (WTO) infrastructure and communication efforts implemented by governments of various countries are also one of the main reasons for increasing trade exchanges between countries.
Many countries have been doing business with other countries for a long time. Still, now it is catching up with the process of globalization and integrating its economy with the world economy.
Meaning of International Business:
International business refers to commercial activities that go beyond the geographical limits of a country.
Therefore, it includes not only the international movement of goods and services but also the capital, personnel, technology, and intellectual property such as patents, trademarks, technical knowledge, and copyrights.
It is a business that takes place outside the border, that is, between two countries. This includes the international movement of goods and services, capital, personnel, technology, and intellectual property rights such as patents, trademarks, and know-how. It refers to the purchase and sale of goods and services that exceed the geographical limits of the country.
It comes in three types:
1. Export Trade: It is the sale of goods and services to foreign countries.
2. Import trade: Purchase goods and services from other countries.
3. Entrepot Trade: Import of goods and services for re-export to other countries.
Scope of International Business:
1. International trade: International business includes the import and export of goods.
2. Service export and import: It is also known as invisible commerce. Invisible commerce items include tourism, transportation, telecommunications, banking, warehousing, distribution, and advertising.
3. Licenses and franchises: A license is a contractual arrangement that allows one company (licensor) access to its patents, copyrights, trademarks, or technologies to another foreign company (licensee) at a rate called royalties. Pepsi and Coca-Cola are produced and sold worldwide under a licensing system. A franchise is similar to a license, but a term used in connection with the provision of services. For example, McDonald’s operates fast-food restaurants around the world through its franchise system.
4. Foreign investment: It involves investing funds abroad in exchange for economic profitability.
There are two types of foreign investment.
(A) Foreign Direct Investment (FDI)- Investing in foreign assets such as plants and machinery for the purpose of producing and marketing goods and services abroad.
(B) Portfolio Investment- Investing in foreign company stocks or obligations to earn income through dividends or interest.
Features of International Business:
1. It includes two countries: international business is only possible when there are transactions in different countries.
2. Use of currencies: Each country has its own different currency. This causes currency exchange problems as foreign currencies are used to carry out transactions.
3. Legal obligations: Each country has its own laws regarding foreign trade, which must be complied with. Moreover, in the case of international transactions, there is more government intervention.
4. High risk: International companies face great risks due to long distances, the risk of fluctuations between the two currencies, and the risk of obsolescence.
5. Heavy document: Subject to a series of steps. Many documents need to be completed and sent to the other party.
6. Time consumption: The time interval from sending and receiving goods to payment is longer than that of domestic transactions.
7. Lack of personal contact: Lack of direct and personal contact between importers and exporters.
Factor # 1. culture: Due to the variety of cultures, companies need to learn about foreign cultures before doing business abroad. Bad decisions can result from the improper assessment of national preferences, customs, and customs. Many companies are aware that culture is changing and are tailoring their products to that culture. For example, McDonald’s sells Veggie burgers instead of beef burgers in India.
Factor # 2. Economic system: Companies need to be aware of the types of economic systems used in the countries they are considering doing business with. The country’s economic system reflects the degree of state ownership of a company and its intervention in the company. Many companies usually prefer countries without excessive government intervention.
Governments have their own policies regarding business ownership, but most policies can be categorized as capitalist, communist, or socialist.
Factor # 3. economic situation: To forecast the demand for products in a foreign country, companies need to forecast the economic situation in that country. The overall performance of a company depends on the company’s sensitivity to foreign economic growth and the circumstances of that country.
Factor # 4. Exchange rate: Countries generally have their own currency. The United States uses dollars ($), the United Kingdom uses British pounds (£), Canada uses Canadian dollars (C $), and Japan uses Japanese yen (¥). Recently, 12 European countries have adopted the euro (€) as their currency.
Exchange rates between the US dollar and currencies fluctuate over time. As a result, the amount required by a US company to purchase a foreign supply may change, even if the actual price charged to the supply by the foreign producer does not change.
Factor # 5. Political risks and regulations: Companies also need to consider the political risks and regulatory environment of a country before deciding to do business in that country. Political risk is the risk that a country’s political behavior can adversely affect a company.
Political crises are occurring in many countries in Eastern Europe, Latin America, and the Middle East. Companies are subject to policies imposed by the foreign governments in which they operate.
International business is the bridge that fills the gaps between different countries by offering commercial services and reaping benefits in return. It has a significant role to play in maintaining the balance of power between different nations.