INTRODUCTION

TO
INTERNATIONAL
BUSINESS AND
TRADE
 WHAT IS AN INTERNATIONAL 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.
Basicallyinternational 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 BUSINESSES

 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

 Licensing 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 Offshoring

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.
Influences and Goals of International Business

 Expand Sales: Companies’ sales are dependent on (a) the consumers’ interest in
their products or service and (b) the consumers’ willingness and ability to buy
them. The number of people and the extent of their purchasing powers are
higher for the world as a whole than for a single country. Hence companies
increase the potential market for their sales by pursuing global markets. Thus,
higher sales means higher profits because of economies of scale. So, increased
sales are a major motive for a company’s expansion into international business.
 Acquire Resources: Manufacturers and distributors also look for foreign capital,
technologies and information that they can use at home, to reduce their costs.
Sometimes, a company operates abroad to acquire something not readily
available in the home country so as to improve its product quality and
differentiate itself from competitors, potentially increasing market share and
profits.
 Minimise Risk: Companies seek out foreign markets to minimise swings in sales
and profits arising out of business cycle recessions and expansions which occur
differently in different countries.
FACTORS TO CONSIDER BEFORE STARTING
INTERNATIONAL BUSINESS OPERATIONS

Geographical Factors

Social Factors

Legal Policies

Behavioral Factors

Economic Forces
Global, Multinational and Transnational
Company

 Multinational companies have investment in other countries, but do not have

coordinated product offerings in each country. More focused on adapting their
products and service to each individual local market. A Multinational
Corporation (MNC) or Multinational Enterprise (MNE) is a corporation enterprise
that manages production or delivers services in more than one country. It can
also be referred to as an international corporation. They play an important role
in globalization.
 Example: Toyota, Honda, Budweiser, Kia, McDonalds, Pepsi, KFC, Adidas, Nike,
Puma, Umbro, Nissan, Renault, Citroen
 Global companies have invested and are present in many countries. They market
their products through the use of the same coordinated image/brand in all
markets. Generally one corporate office that is responsible for global strategy.
Emphasis on volume, cost management and efficiency.
 Example: Some examples of global companies are: Seagate, McDonald's boots,
pizza hut, Burger king, Thornton's asda, Tesco, etc.
 Transnational companies are much more complex organizations. They have
invested in foreign operations, have a central corporate facility but give decision-
making, R&D and marketing powers to each individual foreign market.
 Example: An example of a TNC is Nestlé who employ senior executives from
many countries and try to make decisions from a global perspective rather than
from one centralised headquarters. However, the terms TNC and MNC are often
used interchangeably.
Problems of International Business

1. Political and Legal Differences: The political and legal environment of foreign markets is different from that of the
domestic. The complexity generally increases as the number of countries in which a company does business increases.
It should also be noted that the political and legal environment is not the same in all provinces of many home
markets.
2. Cultural Differences: The cultural differences, is one of the most difficult problems in international marketing. Many
domestic markets, however, are also not free from cultural diversity.
3. Economic Differences: The economic environment may vary from country to country.
4. Differences in the Currency Unit: The currency unit varies from nation to nation. This may sometimes cause problems
of currency convertibility, besides the problems of exchange rate fluctuations. The monetary system and regulations
may also vary.
5. Differences in the Language: An international marketer often encounters problems arising out of the differences in the
language. Even when the same language is used in different countries, the same words of terms may have different
meanings. The language problem, however, is not something peculiar to the international marketing.
5. Differences in the Marketing Infrastructure: The availability and nature of the marketing
facilities available in different countries may vary widely. For example, an advertising medium
very effective in one market may not be available or may be underdeveloped in another
market.
6. Trade Restrictions: A trade restriction, particularly import controls, is a very important
problem, which an international marketer faces.
7. High Costs of Distance: When the markets are far removed by distance, the transport cost
becomes high and the time required for affecting the delivery tends to become longer.
Distance tends to increase certain other costs also.
8. Differences in Trade Practices: Trade practices and customs may differ between two countries.