International Business

The trading of goods and services, technology and production resources such as capital
and labour across national borders at a global scale, is referred to as international business. All
these cross-border transactions can be considered as a result of globalization, which includes
contractual agreements that permit businesses to use services, products and processes from other
countries. This helps the businesses, to expand their operations to foreign markets, which would
gain them more revenue and international brand recognition (St.John & Beagle, 2023).

These international businesses can be seen in several types as;

1. Foreign Direct Investment (FDI)

2. Exporting
3. Joint Ventures
4. Licensing & Franchising

1. Foreign Direct Investment (FDI)

When an investor, company or government takes over an ownership stake in a foreign

company or project, is considered as an FDI. To distinguish itself from passive portfolio
investments, foreign direct investment (FDI) is the investment made in a company abroad to
create a long-term interest. To distinguish itself from passive portfolio investments, foreign direct
investment (FDI) is the investment made in a company abroad to create a long-term interest. The
acquisition of at least 10% of the foreign company's voting shares, which denotes operational
control, indicates this long-term interest. FDI supports active management rather than just
an investment (Corporate Finance Institute, 2024).

Both investors and host countries benefit from foreign direct investment (FDI).
Diversification of the market, tax incentives, lower labour costs, preferred tariffs, and subsidies
all help businesses. These benefits are mostly concerned with lowering costs and minimizing
risks for the investors. Conversely, host nations benefit from expanded employment possibilities,
improved human capital development, boosts the economy, and access to knowledge,
technology, and skills. The host country's prosperity and economic growth are significantly
impacted by these advantages. Therefore, FDIs play a critical role in promoting positive relations
between investors and host nations, which accelerates global economies (Corporate Finance
Institute, 2024).

Despite its advantages, FDI has two key drawbacks: profits from the investment going to
the investing country, in which foreign companies may not reinvest their gains locally, resulting
in capital outflows, and the substitution of local enterprises by giant corporations through FDI,
can create difficulties for the local businesses in the host country. Due to this, several countries
limit FDIs in their countries (Corporate Finance Institute, 2024).

2. Exporting

Exports defined as products and services made in one nation and sold to consumers in
another nation are an essential part of global trade. Exports are essential in market economies
because they increase the items' market benefit customers as well as businesses. Governments
having strong foreign relations with other countries, play a vital role in promoting exports, which
boosts exporters and makes it easier for all parties to gain from it (What is Export?, 2024).

Sri Lanka with around $10 bn of export revenue in 2023, is mostly known for exporting
mainly apparel and textiles, tea, coconut, rubber, spices, etc. Sri Lanka’s largest buyers are the
United States, the United Kindom and many European countries, Russia, India, etc.

Exportation can be done in mainly two different ways, direct selling and indirect selling.
In direct selling, the buyer gets to sell his products directly to the foreign buyer without having
any other party enter the transaction, which normally happens in a non-retail environment. This
is also known as person-to-person selling. In indirect selling, an export intermediary such as an
export management company or an export trading company would get involved between buyer
and seller in the export transaction. These intermediaries would be responsible for finding the
foreign buyers for the local exporters, shipping the products and ensuring the payment
transaction.

Businesses that focus on exports face several difficulties, including the requirement to
allocate substantial funds to market research and product customization to satisfy international
standards. Furthermore, trade restrictions are another major obstacle to global trade. These
obstacles include rules and regulations put in place by the government to safeguard domestic
businesses. These policies limit the global trade of products, which makes it more difficult for
companies that focus on exports to operate. To overcome these challenges, regulatory difficulties
related to fair international trade must be addressed (What is Export?, 2024).

3. Joint Ventures

In an international joint venture, two or more business partners from several countries
combine their resources, share the risks, and divide the profits from the business. Usually, one
partner physically works within the joint venture's borders. These types of international
businesses, have the elements of a partnership but are typically created for a specific project,
which limits its purpose, scope and duration (Stewart & Maughn, 2011). Joint ventures allow
businesses to explore international trade without having to bear the full responsibilities of cross-
border transactions, as the risks and responsibilities are distributed among the partners in the
joint venture. Microsoft and General Electric, BMW and Brilliance Auto Group are some
examples of existing joint ventures in the world.

Comparing international joint ventures to acquisitions of existing businesses or new

venture start-ups, the joint ventures provide faster access to overseas markets, in more cost-
effective way. They increase the likelihood that a venture will succeed by granting quick access
to distribution channels and giving non-resident partners to experience the local market. The
importance of existing relationships, language skills, and cultural influence are brought by
resident partners. These are more beneficial for small and medium-scale businesses that
lack funding since joint ventures allow for risk and cost-sharing (Stewart & Maughn, 2011).

However careful planning and strategy are essential to an international joint venture's
success in order to prevent failure as of any other business. Joint ventures can be affected by
unexpected causes including as changes in the market, technological problems, and
unpredictability in regulations. Furthermore, profit-sharing lowers earnings and might lead to
management issues because of different strategies. Debt financing could also be difficult due to
financing difficulties, which could increase partner risk. Joint ventures could unintentionally lead
to rivalry as well. To overcome these challenges, the joint venture structure must have strong
agreements and flexible strategies for managing the changing business environment (Stewart &
Maughn, 2011).
 4. Licensing & Franchising

While licensing enables third parties to sell your goods, franchising requires the
creation of another location for your company. The franchisee or licensee pays you a fee in each
case. While licensing gives other parties the ability to distribute your products around the
world and earn money through the licensing fee, franchising allows you to grow your brand
through the creation of identical businesses (Licensing and Franchising Meaning, 2023).

An agreement between the licensor, who is the owner of intellectual property, and the
licensee, who is granted permission to use it for a fee, is how licensing is defined. This fee may
be made in the form of one-time payments, ongoing royalties, or a share of the licensee's
earnings. To increase revenue streams, businesses frequently strive to produce licensable goods.
Licensing has several advantages for businesses. By expanding the market for their goods or
services, it can increase market share. Building brand loyalty, and influencing consumer choices
are all supported by licensing. Furthermore, it provides the licensor with an extra source of
income. A company becomes a licensee when it wants to use someone else's intellectual
property. A licensing contract between the two parties establishes their agreement and
includes details such as the license fee and permitted uses of the intellectual property by its
owner.

Profitable brands or business models are used to expand their customer base through
franchising. In return for a fee, a franchisor authorizes a franchisee to set up and manage a
branch of the franchisor's company. The franchisee might duplicate the whole business model as
it is. Franchisees often pay an initial fixed fee, and then the rest of the payment is covered
through periodic royalties, supply costs, and marketing material charges. Well-known fast-food
restaurants such as KFC, McDonald's, Burger King, etc. around the world use this method of
international business to expand their markets globally. Franchises are available for almost any
kind of business, particularly for those looking to grow their market. Compared to beginning a
new company, franchisees have several benefits, including instant brand recognition, access to
existing staff training programs, and support with marketing and promotion.
 It is important to remember that large businesses frequently use both franchising and
licensing agreements to increase their market share. When considering all the factors, franchising
is an advantageous option for both parties.

In conclusion, international business includes different types of business

models for global expansion, each with specific advantages and difficulties. Businesses can
penetrate foreign markets through foreign direct investment (FDI), but the difficulties it creates
for local businesses must be carefully considered. Furthermore, joint ventures provide shared
resources and risk distribution, while exporting could open up new markets and improve revenue
streams for local businesses. Also, intellectual property and brand awareness are utilized in
licensing and franchising (Licensing and Franchising Meaning, 2023).

References

Corporate Finance Institute. (2024). CFI. Retrieved from Foriegn Direct Investment:
https://corporatefinanceinstitute.com/resources/economics/foreign-direct-investment-fdi/

Licensing and Franchising Meaning. (2023, February 01). Retrieved from upcounsel:
https://www.upcounsel.com/licensing-and-franchising-meaning

St.John, M., & Beagle, V. (2023, May 30). What is International Business? Everything Youu
Need to Know. Retrieved from Forbes Advisor:
https://www.forbes.com/advisor/education/business-and-marketing/what-is-international-
business/#:~:text=International%20business%20refers%20to%20the,and%20processes
%20from%20different%20countries

Stewart, M., & Maughn, R. (2011). International Joint Ventures, A Practical Approach. Davis
Wright Tremaine LLP.

What is Export? (2024, April 14). The Economic Times.