When laptops and smartphones are assembled in China, cars designed in Germany, and FOREX remittance flows through Singapore, business is not limited by physical boundaries. The interconnected nature of flow of goods and services today has transformed the world into a tightly-knit ecosystem of consumers and organizations.
The concept of international business has contributed immensely to the social, cultural, and economic integration in today’s world. Countries that are self-sufficient in particular resources trade those resources with other countries which mutually benefit them. The era of international business has opened the doors to cooperation in other areas such as infrastructure, defence, and geopolitics. In this article, let us explore the concept of international business, forms, features, and scope.
Definition of International Business
Simply put, international business is defined as an exchange of goods, services, technology, knowledge, intellectual property, and capital across national boundaries. Primarily, international trade can be categorized into export, import, and entrepot.
When goods and services are sold to another country, the business activity is known as export. Export leads to an inflow of foreign currency. The purchase of goods and services from another country is called import and it always results in an outflow of foreign currency. Entrepot, or re-export, happens when goods are imported and exported without any additional processing.
Unilever PLC is a British FMCG company operating in multiple countries through its subsidiaries. Unilever’s products are available in more than 190 countries across the Americas, Europe, Asia-Pacific, Africa, and Middle East that makes it a truly renowned brand in international business. A lady in India taking care of her baby using Unilever’s baby care products and a lady in Hong Kong using Unilever’s deodorant are connected by the international business operations of Unilever.
Importance of International Business
International business significantly contributes to a country’s progress by promoting skill development, employment generation, FOREX remittance, and global mobility for skilled professionals. The importance of international business is manifold as mentioned in the following –
- Technological progress
Numerous business operations are driven by state-of-the-art technology be it an AI-powered robotic loader or unloader at ports or tracking of ships across the vast oceans. As speed of business becomes crucial, the technology has to evolve itself to keep pace with the changing business environment, leading to radical innovation in different aspects of business operations.
- Geopolitical collaboration
Cross-border relationship in trade results in cooperation in other areas such as foreign policy, environmental policy, and economic policies leading to countries having more stake in each collaboration. International disputes between trade partners can be resolved amicably if both countries are bound to each other with previously agreed upon business practices. Trade blocs such as NAFTA, ASEAN, and APEC eliminate friction in business between like-minded countries, leading to more seamless international business.
- Sociocultural exchange
An international trade relation involves navigating between different sociocultural aspects of both countries. Though a case of generalization, an American has to maintain formality and respect the hierarchy of an organization while dealing with a Japanese client in a business deal though such practices may not be unacceptable in the United States. This awareness of cultural differences leads to more respect between two trade partners and the benefits impact those countries’ relations in other domains.
- Economic progress
International business promotes economic progress by creating investing foreign opportunities for entrepreneurs. These investments propel an economy by bringing in the different aspects required for a business entity to function – suppliers, customers, talent pool, and a convenient regulatory framework.
- Global mobility
Trade between nations creates global mobility opportunities for skilled manpower. No more does an employee become restricted to working within a country’s borders but can work in several subsidiaries in other countries belonging to the same parent organization. This leads to a highly mobile workforce keen to take on challenging roles in business management.
- Employment creation
The constant inflow and outflow of money across countries leads to a vibrant circulation of cash in the economy which leads to increased credit and business opportunities. This generates more employment as the talent pool gets larger because of increased employment opportunities by newer businesses.
Forms of International Business
The forms of international business could be one or a combination of several forms that are listed below –
- Import and export
Import and export refer to buying and selling of goods and services across countries. It takes out and brings in foreign currency for countries. A country that exports more than it imports has a surplus in international trade, whereas a country that imports more than it exports has a deficit. This gap between import and export in international business determines the economic might of a country in the global arena.
- Licensing
One of the go-to methods for expanding a business globally is licensing. Licensing is a great way to sell and distribute products in the international markets when the licensor has ownership rights and owns intellectual property rights such as patents and trademarks. The licensee is authorized to sell and distribute products and services but does not have ownership rights.
- Franchising
Franchising is another way for expanding a business in the global markets. In this arrangement, the franchisee in another country has some rights over the way of conducting business by using the parent company’s brand name. Restaurant and fast food chains typically move to international markets through the franchising route.
- Outsourcing and offshoring
Outsourcing involves moving a particular business process such as auditing away from the home country through awarding contracts because the cost of outsourcing is cheaper than carrying out that function in the home country. In offshoring, though the function is physically moved away from the home country, management of the function remains with the organization headquartered in the home country. Offshoring is a popular business model in the IT industry.
- Joint Ventures and Strategic Partnerships
A joint venture is a contract between a local and an international company in which both of them share profits as well as equity. The international player leverages the local market knowledge of its partner whereas the local player leverages the strong brand name and robust product range of its international partner.
A strategic partnership in international business usually refers to an arrangement between local and international players for a specific reason. A good example of such a business arrangement is the Renault-Nissan-Mitsubishi alliance in the automobile industry.
- Multinational Companies
A multinational company or an MNC sets up business entities in multiple countries. The business entities in different countries are fairly independent in terms of operations, decision-making, and business marketing which offers an advantage of customization as per local needs. Google, Microsoft, and Procter & Gamble are few examples of an MNC structure.
- Foreign Direct Investment
International business also consists of Foreign Direct Investment that involves contribution of capital, management, technology, and processes by an individual or a company from a country to another company located in a different country.
What are the Scopes of International Business?
International business covers an entire gamut of following areas related to culture, politics, economics, business, and marketing –
- Negotiation and dispute resolution
Countries engaged in international business are more likely to sit together at the negotiation table and resolve disputes. The ties in international trade help to improve relations between countries.
- Customized marketing
Companies engaged in international trade can customize their marketing management to suit local needs while reflecting the original flavor.
- Foreign currency management
Inward and outward remittance of FOREX is a key component of international trade and one which maintains the Balance of Payments (BoP) position for a country in the global market.
- Cross-cultural business management
The business practices across cultures vary widely and business across country’s borders makes communication and exchanges possible between different cultures that helps in business management.
- Global regulatory environment
Repeated business exchanges across countries gives momentum to creating an overarching international business law that represents a convergence of the regulatory frameworks of multiple countries, thus enabling easier ways to do business.
What are the features of International Business?
- Sensitivity to cultures and languages
Success in international business heavily depends on understanding the nuances of social norms, customs, and business practices.
- Geopolitical risks
Geopolitical shocks are a part and parcel of an MNC engaged in doing business across several nations. Hedging against such risks is a key component of international business.
- Integrated supply chains
Supply chains are spread across countries making international business a game of global sourcing and supply chain. A corporation needs to deal with vendors and navigate laws across several countries.
- Diverse currencies
Currency exchanges are a primary marker for any global business and an inbuilt challenge for businesses is currency fluctuations.
- Technology
Business leverage technology for entering key markets, improving business processes, or implementing a radically new tool in the global business environment.
Conclusion
While international business allows expansion of business footprint, building a global brand, creating tighter economic linkages, boosting economic growth, and a shared understanding of cultural differences, it is also subject to several risks. Business exchanges across countries are extremely important as it gives rise to newer opportunities, technology advancement, radical innovation, and strategic partnerships. For being a successful MNC, a corporation has to navigate through global volatility and ace the craft of international business.
1. What is international business?
2. Why is international business important for a country’s development?
3. What are the common forms of international business?
4. What are the key features of international business?
5. What is the scope of international business today?
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