International Business Management

Introduction To The Field Of International Business

International Business:
International business is all commercial transactions (private and governmental) between two countries.
OR
International business consists on transactions that are carried out across national borders to satisfy the
objectives of individuals, companies and organizations.
Difference between international business and international trade
The exchange of goods between different countries of the world is known as International Trade.
International trade, comprising exports and imports of goods is an important component of
international business.
Those business activities that take place beyond the geographical boundaries of a nation are
called International Business.
It involves movement of goods, services, capital, technology, intellectual property, like patents,
trademarks, copyrights, etc.
Foreign currencies are used in international businesses. Such types of businesses require heavy
documentation and are subject to many formalities. It also involves a high degree of risk but helps a
business to earn foreign exchange, utilize resources efficiently, and improve growth prospects and
employment potentials.

Why Companies Engage in International Business:

 Expand Sales: Going international allows companies to increase the size of the market to which
they offer their products.
 Acquire Resources: Foreign capital, technology, labor, components all can help a firm become
more competitive.
 Diversify Sources of Sales and Supplies: By operating in multiple countries, firms help protect
themselves from economic downturns in any single country. In the same way, having suppliers
in multiple countries helps protect the firm from shortages due to economic, social, or political
disruptions in any single country.
  Minimize Competitive Risk: Companies expand internationally to competitors’ home markets in
order to maintain a competitive balance across markets.
Reasons for Recent International Business Growth—From Carrier Pigeons to the Internet.
 Expansion of Technology. Air travel, the internet, e-mail, e-commerce, direct dial international
phone calls, fax, and other technologies have brought down the cost and increased the
efficiency of doing business internationally.
 Liberalization of Cross-Border Movements. The World Trade Organization (WTO) and other
international trade agreements have reduced barriers to the movement of goods and services
across national boundaries.
 Development of Supporting Services. International banking, international document delivery,
and other services have tremendously simplified the conduct of international business.
 Foreign direct investment (FDI) is equity funds invested in other nations. Industrialized
countries have invested large amounts of money in other industrialized nations and smaller
amounts in less developed countries (LDCs), such as those in Eastern Europe, or in newly
industrialized countries (NICs), such as Hong Kong, South Korea, and Singapore.
Most of the world’s FDI is in the US, the European Union (EU), and Japan. As nations have become more
affluent, they have pursued FDI in geographic areas that have economic growth potential. The Japanese,
for example, have been investing heavily in the EU in recent years.
 Opportunities in foreign markets: Developing markets have huge opportunities for foreign firms
to increase their profits and sales
 Advantage of low production cost:
Many MNC’s are locating their subsidiaries in low wage countries to take advantage of low cost of
production.
 Growing formulation of trading blocks:
Trading blocks seek to promote International business by removing trade and Investment barriers.
These blocks include NAFTA, BRICS etc.
 Increase in Global Competition.
It is becoming increasingly important that firms have international operations in order to be able to shift
production across countries and take advantage of new production location and marketing
opportunities to stay ahead of other international competitors.
MODES OF INTERNATIONAL BUSINESS:
- Merchandise Exports and Imports:
Merchandise exports are tangible products (goods) manufactured in one country and sent out of that
country to another one.
Merchandise imports are tangible products (goods) brought in one country from another country.
2- Service Exports and Imports:
Service exports and imports are international earnings that do not come from a tangible product which
physically crosses a border.
The company receiving payment is making a service export. The company paying is making a service
import.
Exports are goods and services produced in one country and then sent to another country. Imports are
goods and services produced in one country and then brought in by another country.
Information about exports and imports helps us to explain the impact of international business on the
economy.
(a) Tourism and Transportation: When an American flies to Germany on Lufthansa (a German airline)
and spends a few days in a German hotel, the payments made to Lufthansa and the hotel are service
exports for Germany and service imports for the United States.
(b) Performance of Services: When an American engineering firm receives a payment for designing a
plant in France, it is a service export for the United States and a service import for France.
(c) Use of Assets: International licensing agreements and franchising allow foreign entities to use
another firm’s trademarks, patents, or technology. Payments for the right to use these assets are a
service export for the country receiving those payments and a service import for the country making the
payments.
3. Investments:
Foreign investment means ownership of foreign property is exchanged for a financial return (e.g.,
interest and dividends).
(a) Direct Investment:
Foreign direct investment (FDI) occurs when an investor gains a controlling interest in a foreign
company. That controlling interest can be 100% or much less.
(b) Portfolio Investment:
Portfolio investment is a non-controlling investment in a foreign company. It is usually a purchase of
stock in a foreign company or loan to (bond purchase) a foreign firm.
Advantages of International Business
• Product flexibility – offer a much wide range of product globally
• Competition
• Increased investment opportunity
• Diversification of risk
• Protection from national trends and events
• Learning new methods