International Business Overview
Manufacturing and trading beyond the boundaries of one’s own country are known as international business. International business is also called international trade. But this is partially true. No doubt, international trade comprises exports and imports of goods. However, the scope of international business has expanded significantly. International trade in services such as international travel and tourism, transportation, telecommunications, banking, warehousing, distribution, and advertising has increased significantly.
Other equally important developments are the increase in foreign investment and the production of goods and services abroad. The World Trade Organisation, established by the governments of various countries, is one of the major contributors to the expansion of intercountry ties and business relations. New methods of communication and the development of faster and more efficient transportation needs have enabled most countries to do their international business efficiently. The international business contributes to the development of both importing and exporting countries, which is why it holds great importance.
International Business
Concepts of International Business
Some of the important concepts of international business are discussed below:
Merchandise Exports and Imports: Merchandise refers to tangible goods, i.e., the goods that can be seen or touched. Now, if we talk about merchandise exports, it means sending tangible goods abroad. On the other hand, merchandise imports mean buying tangible goods from abroad.
Service Exports and Imports: Also known as invisible trade, involves the export and import of services. Services included are tourism, transport, communication, marketing etc.
Licensing and Franchising: Licensing is permitting another party in a foreign country to produce and sell goods under the home country's trademark, copyright or patent in lieu of some fees. For example, Pepsi and cola. Franchising is similar to licensing only but is associated with services, e.g., Mcdonald's.
Foreign Investment: Foreign investment refers to the investment of funds in foreign countries in exchange for financial return.
Importance of International Business
Through international trade, it becomes possible for people to consume goods and services of other countries and improve their standard of living.
International companies export goods and services around the world. This allows in earning valuable foreign exchange.
When firms get involved in external trade, it increases the firm’s production capacity. Due to the advantage of economies of scale, the cost of production decreases.
International business improves business vision and makes firms more competitive and diversified.
Types of External/International Trade
Export - It refers to selling goods and services to foreign countries.
Import - It refers to buying of goods and services from foreign countries.
Entrepot (Re-Export) - It refers to the import of goods not for consumption in the home country but for exporting them to another country.
Types of Trade
Benefits of International Business
The Importance of international business to nations and firms is discussed below:
1. Benefits to Nations
Earning of Foreign Exchange: It helps a country to earn foreign exchange and can be used to import capital goods, technology etc.
More Efficient Use of Resources: Every country has some resources, e.g., labour resources, technological capabilities, water resources, etc. So, countries can choose the goods they produce efficiently with their own resources and import the rest of the goods.
Improving Growth Prospects and Employment Potential: Through external trade, countries can increase their production capacity to supply goods to foreign countries.
Increase in the Standard of Living: Through international trade, it becomes possible for people to consume goods and services of other countries and improve their standard of living.
2. Benefits to Firms
Prospect for Higher Profit: If prices in the domestic market are low, then firms can sell their products in other countries (International market) where prices are high and can earn higher profit.
Increased Capacity Utilisation: When firms get involved in external trade, it increases the firm’s production capacity. Due to the advantage of economies of scale, the cost of production decreases.
Prospects for Growth: Firms can enhance or expand their business by approaching the international market.
Decrease Competition: If there is high competition in the domestic market, then companies can sell their products in the international market or in any other country where there is less competition.
Improved Business Vision: It improves business vision and makes firms more competitive and diversified.
Case Study
Sumit operated a small fireworks production unit. He exported about 70% of his products to the United States. He was associated with relevant government agencies that obtained export licences without following procedures. He was able to avoid paying the necessary excise duty. He hired immature and illiterate people, even children, from nearby huts. He provided poor workers with drugs, rations, and interest-free loans. He hired a teacher to teach the children in the evenings. As the economy grew, demand for the company's products increased by almost 20%. Due to increased profits, he decided to expand his business further. How has international business proved beneficial for companies like Sumit's? Explain.
Ans: International business has the following advantages for companies:
Higher Profit Prospects – Low domestic prices allow companies to make higher profits by shipping their products to high-priced countries.
Increased Production Capacity – Companies can plan to expand overseas and take orders from foreign companies to take advantage of excess manufacturing capacity and improve operating revenues. Large-scale production creates economies of scale, resulting in lower production costs and higher profit margins per unit.
Growth Prospects – As domestic demand saturates, companies can look to foreign markets where demand is strong and recovering rapidly, especially in developing countries. Businesses can greatly enhance their growth prospects by expanding into foreign markets.
Summary
The introduction to the international business started with companies increasingly making investments in foreign countries and undertaking the production of goods and services in foreign countries to come closer to foreign customers and serve them more effectively at lower costs. In conclusion, international business is a much broader concept that includes cross-border trade and goods and services production.
FAQs on International Business - A Worldwide Trade
1. Mention Three Benefits of International Business About The Nation
Benefits of international business about to nations-
Whenever we export anything in the foreign countries, whatever payment is received is always received in the currency of the other, the currency which runs in the other country. It is very important in the development of a nation.
Now we can use resources in a better way, which means that anything that is too much in the country soon will not get wasted. We can export it in another country which was not available there before.
Due to this, the growth of any nation starts, it means that when a lot of countries start business internationally, then the revenue is higher. Due to which, the growth rate of GDP increases along with the number of jobs.
2. How Many Types of International Trade Are There?
There are 3 types of international trade
1) Export
2) Import
3) Entrepot
3. What are the Objectives of Export Trade?
The following list contains all the objectives of export trade. Take a look.
For selling surplus goods.
To make better utilisation of resources.
To earn foreign exchange.
To increase national income
To generate employment
To increase government revenues
To create International place and cooperation
4. What do you understand about International business and what is its significance?
The international business is the business with other countries of the world. International trade is when purchasing and selling are not done in India. When purchasing and selling are done outside India. It sometimes is also referred to as a cold trade between two or more countries. International business is divided into three types, that are: Import, Export, Entrepot. International business, also known as international trade or external trade.
5. What is the nature of international business?
The nature of international business is like whenever an international business or trade is done, the involvement of two countries is always involved, no matter what. Only then is the selling and purchasing possible among countries. Whenever you are selling or buying goods or services to other countries, the payment is supposed to be done in their currency, that is the foreign currency only.
6. What are the restrictions and the legal phases that international business consists of?
There are many restrictions and legal phases in international business-like In some countries or areas, there are a few restrictions to foreign trade and business. Due to this, there are some goods and services that cannot be purchased from that particular country. And the main and most tiresome activity is the purchasing activity. Many legal steps are taken while making payments and everything has to be secured.
7. How do language barriers challenge international business and what are the problems that language barriers create?
As we know the internal business consists of many businesses in many countries. It involves the clear reality that when you manage another country, you will observe a contrast between their language and your language, which makes it hard to impart. In this way, you need to guarantee that you either get familiar with their language well or decide on another way.
8 . How does India manage the international business on its behalf?
India takes care of all the rules and regulations created for international trade. . It includes the clear reality that when you deal with another country, you will notice a difference between their language and your language, which makes it difficult to bestow. Only one out of every odd country has everything.
9. State the reason for doing international business.
Some of the reasons for doing international business are discussed below:
Unequal distribution of natural resources: Countries cannot produce at the same level of quality and the same cost. This is due to the unequal distribution of natural resources and the differences in productivity levels between different geographic locations.
Multiple Differences: There are differences in labour productivity and manufacturing costs. It varies from country to country due to different socio-economic, geographical, and political factors.
Price differentials: Due to the difference in product prices, companies are also involved in importing and exporting goods. They import cheaper things from other countries and export goods to other countries where they can get better prices for their products.
Advantages of specialisation: The regional division of labour principle can also be applied internationally. For example, most employable developing countries specialise in manufacturing and exporting garments.
10. State the difference between export and import.
Export and Import are widely used in international business. The difference between export and import is discussed below:
The main difference between importing and exporting is that importing means bringing products or solutions from another country into your country while exporting means marketing goods or solutions from your country of residence to another country. No country has all the resources it needs, so both imports and exports are necessary for a country to exist. Therefore, nations must rely on other nations for the goods and services they lack.
3. Distinguish between Licensing and International Franchising.
The difference between licensing and franchising is discussed below:
Licensensing is permitting another party in a foreign country to produce and sell goods under the home country’s trademark, copyright or trademark in lieu of some fees. For example, Pepsi and cola. Franchising is similar to licensing only but it is associated with services, e.g., Mcdonald’s.
Licence agreements are used to monetize brands and technologies through independently operated companies. Franchise agreements are used to grow a brand through outlets that operate under a unified system controlled by the franchisor.