TYPES OF GLOBAL BUSINESS

NAME: S. JAYASUDHARSAN

REG NO: RIM2019MBA026

DEPT: MBA

YEAR: 2nd year

SUBJECT: Global Human Resource Management

SUBJECT CODE: 19MBA4R8

What is Global 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. In this article, let’s understand the different areas
of international business.

Basically international business is a cross border transaction between individuals,

businesses, or government entities. The transaction can be of anything that has value,
examples include –

 Physical Goods
 Services such as banking, insurance, construction, etc.
 Technology such as Software, Arms, and Ammunition, Satellite technology,
etc.
 Capital and
 Knowledge

For ease of understanding, in this article, the word “goods” will include all of the
above-mentioned items. For regular commodities, we will be using the word “physical
goods”.

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:

Simplest and most commonly used method, 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.
Licensing:

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.

Franchising:

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 Off-shoring:

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.

Offshoring 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. A classic example of a joint venture is Tata Jaguar collaboration in India.
Sometimes there are government restrictions to international companies against
holding 100% equity in certain areas such as defense. In such cases, international
companies can take the benefit of the new market by a joint venture.

Multinational Companies:

Multinational companies, as the name suggests, are 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. This customization is one of the many
benefits of being a multinational company.

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. However, means of business is just one minor speck of the
international business environment.

One must consider many factors when setting up any business internationally. These
factors include –

Factors to Consider before Starting International Business Operations

Geographical Factors:

Simple challenges that come with the change in geography have to be studied when
considering international business. There are differences in storage requirement,
supply chain requirements, connectivity issues, etc. from country to country. Colgate-
Palmolive will face a thousand challenges even before its soaps and shampoos can
reach rural areas of India where there is a lack of basic necessities such as water,
electricity, transportation, etc.

Social Factors:

Social factors are very important in international business. It is very difficult to set up
shops in countries that are politically disturbed or are going through some tensions.
For example, most companies don’t want to expand its business in Afghanistan, as
there is so much disturbance.

Legal Policies:

Every country has different laws and governing policies. A company should check all
the legal requirements in the country in which it wants to conduct business. The basic
laws that need attention are organization laws, securities laws, consumer protection
laws, employees protection laws, and many more. The process can be lengthy but it is
necessary.
Behavioral Factors:

Every country has different cultures and beliefs, and people can be very sensitive to
these beliefs. An international company, if not careful, can land a lot of issues if they
don’t take care of the country’s behavioral factors. For example, McDonald cannot
sell its beef burgers in India, else it will have to face the brunt of the Indian
population that is majority Hindu.

Economic Forces:

These factors include the county’s currency values, market size, cost,  inflation , etc.
These are important because it directly affects the profitability of operations. Every
company should consider these factors before expanding internationally if they want
to manage its bottom line.

All these above-mentioned factors play an important role in how successful or

unsuccessful an entity will be in its international business adventures. All these factors
should be considered in the research and planning stage to get maximum benefit out of
it.