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International Business

In: Business and Management

Submitted By hollowraghu
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What is International Business?

International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.

Learning Objectives

To understand the history and impact of international business.

To learn the definition of international business.

To recognize the growth of global linkages today.

To understand the U.S. position in world trade and the impact international business has on the United States.

To appreciate the opportunities and challenges offered by international business.


International business is a term used to collectively describe all commercial transactions (private and governmental, sales, investments, logistics,and transportation) that take place between two or more nations. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons. It refers to all those business activities which involves cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc.
A multinational enterprise (MNE) is a company that has a worldwide approach to markets and production or one with operations in more than a country. An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well known MNCs include fast food companies such as McDonald's and Yum Brands, vehicle manufacturers such asGeneral Motors, Ford Motor Company and Toyota, consumer electronics companies like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national markets.
Areas of study within this topic include differences in legal systems, political systems, economic policy, language, accounting standards, labor standards, living standards, environmental standards, local culture, corporate culture, foreign exchange market, tariffs, import and export regulations, trade agreements, climate, education and many more topics. Each of these factors requires significant changes in how individual business units operate from one country to the next.
The conduct of international operations depends on companies' objectives and the means with which they carry them out. The operations affect and are affected by the physical and societal factors and the competitive environment.

Importance of International Business:-

Every company is trying to expand its business by entering foreign markets. International business helps in the following ways:-

1. Helps as growth strategy: - Geographic expansion may be used as a business strategy. Even though companies may expand their business at home.

2. Helps in managing product life cycle: - every product has to pass through different stages of product life cycle-when the product reaches the last stages of life cycle in present market, it may get proper response at other markets.

3. Technology advantages: - some companies have outstanding technology advantages through which they enjoy core competency. This technology helps the company in capturing other markets.

4. New business opportunities: - business opportunities in overseas markets help in expansion of many companies. They might have reached a saturation point in domestic market.

5. Proper use of resources: -Sometimes industrial resources like labor, minerals etc. are available in a country but are not productively utilized.

6. Availability of quality products: - when markets are open, better quality goods will be available every where. Foreign companies will market latest products at reasonable prices. Good product will be available in the markets.

7. Earning foreign exchange: - international business helps in earning foreign exchange which may be used for strategic imports .India needs foreign exchange to import crude oil, deface equipment, raw material and machinery.

8. Helps in mutual growth: - countries depend upon each other for meeting their requirements. India depends on gulf countries for its crude oil supplies.

9. Investment in infrastructure: - international business necessitates proper development of infrastructure. A company entering international business must invest in roads.

Complexities involved in international business
International business by multinational so the complexities are also related to their working. Some of these complexities are discussed as follow:-

1. Controlling the market:- multinational try to control the market of the host country. Whenever they enter a new country, the first strategy is to eliminate the competitors either by taking over their business or forcing them out of market by following price reduction policies.

2. Exhausting natural resources: - multinational corporations set up their production facilities in those countries where natural resources are available in sufficient quantities.

3. Importance to luxuries: - multinational corporations enter those areas where margin of profits is high.

4. Trade practices:- since multinational corporations have their head office in one country and the trade practices followed there are adhered to.

5. Economic development: - it is generally felt that the entry of businessmen from outside may help in the economic development of that country . The actual practice in many contries is different.

Need For International Business

1. Flow of Idea :- International Business causes the flow of Ideas, services and capital across the world. We can Import and Export anything we want proper flow of Idea will lead to proper Growth of the Economy, which will further lead to development of the nation. 2. New Choices :- It gives customers new choices for the product, now they have different varieties of same product. And due to addition of new choices their demands are satisfying.

3. Acquisition of wider variety of goods :- Due to the Globalization there will be new products launching everyday and because of the high population the demand of the products are also high so there is acquisition of the wider variety of products.

4. Skillful labor :- In oreder to find out skillful labor also International Business is Important. You can find any type of labor around the world. Which you can’t find in your own country so, there is need of International business

5. Providing employment opportunities :- International Business helps in providing employment opportunities in the country in which the other country is doing business. So, it reduces the no. of unemployed persons and which helps in reduction of poverty.

6. Helps in Growing Business :- There is need of international Business in growing the business . It is not enough to do business within the country , moreover you can’t grow in the closed Economy so, there is need of International Business for the growth of the Business.

7. Scarcity of Resources in our own country :- there is scarcity of resources in one country, one cannot find every resource at one place. So, to fulfill that demand there is need of International Business.

8. Upgradation of Technology :- In the Developing and the underdeveloped countries Technology is so much lacking behind from the Developed Countries that’s the main reason for their backwardness . so, it is necessary for doing International business.

9. Source of Capital :- Capital is the main part of every business. For the developing and underdeveloped countries it is difficult to find out sources of Capital for their Business. So, there is need of International Business.

Tom Travis, the managing partner of Sandler, Travis & Rosenberg, PA. and international trade and customs consultant, uses the Six Tenets when giving advice on how to globalize one's business. The Six Tenets are as follows:

Take advantage of trade agreements: think outside the border:- * Familiarize yourself with preference programs and trade agreements. * Read the fine print. * Participate in the process. * Seize opportunities when they arise.
Protect your brand at all costs:- * You and your brand are inseparable. * You must be vigilant in protecting your intellectual property both at home and abroad. * You must be vigilant in enforcing your IP rights. * Protect your worldwide reputation by strict adherence to labor and human rights standards.
Maintain high ethical standards:- * Strong ethics translate into good business. * Forge ethical strategic partnerships. * Understand corporate accountability laws. * Become involved with the international business self-regulation movement. * Develop compliance protocols for import and export operations. * Memorialize your company's code of ethics and compliance practices in writing. * Appoint a leader.
Stay secure in an insecure world:- * Security requires transparency throughout the supply chain. * Participate in trade-government partnerships. * Make the most of new security measures. * Secure your data. * Keep your personnel secure.
Expect the Unexpected:- * The unexpected will happen. * Do your research now. * Address your particular circumstances.

All global business is personal:- * Go to the source. * Keep communications open. * Keep the home office operational. * Fly the flag at your overseas locations. * Relate to offshore associates on a personal level. * Be available to overseas clients and customers 24/7.
So. These are the Six Tenets by Tom Travis, the managing partner of Sandler, Travis & Rosenberg, PA. when giving advice on how to globalize one's business.

International business ethics

While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that decade. Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include:

* The search for universal values as a basis for international commercial behavior * Comparison of business ethical traditions in different countries. Also on the basis of their respective GDP and [Corruption rankings]. * Comparison of business ethical traditions from various religious perspectives. * Ethical issues arising out of international business transactions; e.g., bioprospecting and biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing. * Issues such as globalization and cultural imperialism. * Varying global standards – e.g., the use of child labor. * The way in which multinationals take advantage of international differences, such as outsourcing production (e.g. clothes) and services (e.g. call centres) to low-wage countries. * The permissibility of international commerce with pariah states.

The success of any business depends on its financial performance. Financial accounting helps the management to report and also control the business performance.
The information regarding the financial performance of the company plays an important role in enabling people to take right decision about the company. Therefore, it becomes necessary to understand how to record based on accounting conventions and concepts ensure unambling and accurate records.
Foreign countries often use dumping as a competitive threat, selling products at prices lower than their normal value. This can lead to problems in domestic markets. It becomes difficult for these markets to compete with the pricing set by foreign markets. In 2009, the International Trade Commission has been researching anti-dumping laws. Dumping is often seen as an ethical issue, as larger companies are taking advantage of other less economically advanced companies.

Types of International Business

Foreign trade
Foreign direct investment Franchising

Management contracts

Foreign Trade

Foreign trade is recognized as the most significant determinants of economic development of a country, all over the world. For providing, regulating and creating necessary environment for its orderly growth, several Acts have been put in place. The foreign trade of a country consists of inward and outward movement of goods and services, which results into outflow and inflow of foreign exchange. The foreign trade of India is governed by the Foreign Trade (Development & Regulation) Act, 1992 and the rules and orders issued there under. Payments for import and export transactions are governed by Foreign Exchange Management Act, 1999. Customs Act, 1962 governs the physical movement of goods and services through various modes of transportation. To make India a quality producer and exporter of goods and services, apart from projecting such image, an important Act—Exports (Quality control & inspection) Act, 1963 has been in vogue. Developmental pace of foreign trade is dependent on the Export-Import Policy adopted by the country too. Even the Exim Policy 2002-2007 lays its stress to simplify procedures, sharply, to further reduce transaction costs. Today’s international trade is not only highly competitive but also dynamic. Necessary responsive framework to make exports compete globally, is essential. In order to harness these gains from trade, the transaction costs, in turn dependent on the framework support, involved need to be low for trading within the country and for international trade.
International trade is a vital part of development strategy and it can be an effective instrument of economic growth, employment generation and poverty alleviation. Market conditions change, almost daily, requiring quick response and more importantly, anticipation of the future requirements is the need of the hour. To gear with the changing requirements, it is essential that the framework has to remain in pace and change in anticipation, accordingly, and then only international trade can pick up the speed envisaged.

Foreign Direct Investment

FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially
"hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly. In today’s world the international boundaries are not a barrier for investment and trade. Each state is dependent on the other for its development and growth. FDI is sought for by all countries to advance their development process. Keen interest is being shown in promoting and protecting such investments through national and international policy instruments. An investor has to be encouraged and his investment protected as required under the international law against the acts of the State in which he is investing, that are detrimental to investors genuine interest. It is an activity in which an investor resident in one country obtains a lasting interest in, and a significant influence on the management of, an entity resident in another country. This may involve either creating an entirely new enterprise (so-called “greenfield” investment) or, more typically, changing the ownership of existing enterprises (via mergers and acquisitions). Other types of financial transactions between related enterprises, like reinvesting the earnings of the FDI enterprise or other capital transfers, are also defined as foreign direct investment. FDI is considered to be an important driver of economic growth in OECD countries . This is because the internationalisation of production helps to better exploit the advantages of enterprises and countries, increase competitive pressures in OECD markets and stimulate technology transfer and innovative activity. In consequence, there is a wide consensus that policy should aim at reducing or eliminating hindrances to foreign direct investment (FDI) as long as this does not conflict with other legitimate policy objectives.


A franchise is the agreement or license between two legally independent parties which gives:

• a person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business (franchisor).

• the franchisee the right to market a product or service using the operating methods of the franchisor .

• the franchisee the obligation to pay the franchisor fees for these rights.

• the franchisor the obligation to provide rights and support to franchisees FRANCHISE AGREEMENT:

Franchisor Franchisee RANCHISEE FF
Owns trademark or trade name Uses trademark or trade name
Provides support: Expands business
• (sometimes) financing with franchisor’s support
• advertising & marketing
• training

Receives fees Pays fees
Management Contracts

A management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise which performs the necessary managerial functions in return for a fee. Management contracts involve not just selling a method of doing things (as with franchising or licensing) but involves actually doing them. A management contract can involve a wide range of functions, such as technical operation of a production facility, management of personnel, accounting, marketing services and training. In Asia, many hotels operate under management contract arrangements, as they can more easily obtain economies of scale, a global reservation systems, brand recognition etc. It is not unusual for contracts to be signed for 25 years, and having a fee as high as 3.5% of total revenues and 6-10% of gross operating profit. The Marriott International Corporation operates solely on management contracts. Management contracts have been used to a wide extent in the airline industry, and when foreign government action restricts other entry methods. Management contracts are often formed where there is a lack of local skills to run a project. It is an alternative to foreign direct investment as it does not involve as high risk and can yield higher returns for the company.
International Business and the Roman Empire

* Pax Romana, or Roman Peace ensured that merchants were able to travel safely and rapidly. * Common coinage simplified business transactions. * Rome developed a systematic law, central market locations, and an effective communication system; all of which enabled international business to flourish in the Roman Empire. * The growth of the Roman Empire occurred mainly through the linkages of business

* The decline of the Roman Empire can be attributed in part to:

* infighting and increasing decadence * the Pax Romana being no longer enforced * the decline of use and acceptance of the common coinage * declining levels of communication

* As a result, former Roman allies cooperated with invaders.

Expansion of International Trade

* In the past 30 years, the volume of international trade has expanded from $200 billion to over $7.5 trillion.

* The sales of foreign affiliates of multinational corporations are now twice as high as global exports.

Recent Changes in International Business

* Total world trade declined dramatically after 2000, but is again on the rise.

* The rate of globalization is accelerating.

* Regionalization is taking place, resulting in trading blocs.

* The participation of countries in world trade is shifting.

Global Links Today

* International business has created a network of global links that bind countries, institutions, and individuals with trade, financial markets, technology, and living standards.

* For example, a reduction in coffee production in Brazil would affect individuals and economies worldwide.

Composition of Trade

* Between the 1960’s and the 1990’s the importance of manufactured goods increased while the role of primary commodities (i.e. rubber or mining) had decreased. * More recently, there has been a shift of manufacturing to countries with emerging economies. * There has been an increase in the area of services trade in recent years.

United States : A Global Leader

* The United States has developed a world leadership position due to:

* its use of market-based transactions in the Western world * a broad flow of ideas, goods, and services across national borders * an encouragement of international communication and transportation * Pax Americana, an American sponsored and enforced peace

Current US International Trade Position

Exports and Imports of Goods and Services per Capita for Selected Countries

Exports per Capita
Imports per Capita
United Kingdom
United States
379 222 4,165 91 3,767 4,472
428 199 3,622 125 4,500 4,962

Impact of International Business on United States

* U.S. international business outflows are important on the macroeconomic level in terms of balancing the trade account. * On the microeconomic level, participation in international business can help firms achieve economies of scale that cannot be achieved in domestic markets.

Average Plant Salary and Wages (per worker, dollars per hour)


So, in the end it is concluded that there is a need of GLOBALISATION and INTERNATIONAL BUSINESS for every country of the World. No economy can grow or even survive without doing International Business. Today International Business is growing at a fast rate, almost all the countries are Importing and Exporting products from and to other countries respectively. In the past 30 years the volume of International Trade has expanded from $200 Billion to over $7.5 Trillion, this shows how much International Business is growing in the world.




3. Travis. T (2007). Doing Business Anywhere. The Essential Guide to going Global Hoboken: John Willey&Sons

4. Joshi, Rakesh Mohan, (2009), Internalional Business


Topics Page No.

1. What is International Business

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...mid-1980s, and then spread to Eastern Europe at the beginning of the 1990s and to China later on during the same decade. Although the transition to a free market has led to disappointing outcomes, most Eastern Europe countries have concentrated on integrating their economies with Europe and on becoming part of the EU. All these events led to the world becoming more and more global in nature and to defining globalization as a closer economic integration among nations through increased trade and capital flows. It also refers to labor movement and technology transfer across international borders as well as cultural and political issues, which are beyond the scope of this chapter. Globalization is the result of technological processes occurring mainly in the areas of information technology, telecommunications, energy, transport, and biotechnology as well as a shift in economic policies. In this chapter a number of international organizations, such as the WTO, the IMF, and the World Bank were presented and their role in terms of globalization and economic integration issues described. In the course of all these developments, “economic integration,”...

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Premium Essay

International Business

...Petro Danyliv Professor Kathy Bowen Principles of Management Due April 2, 2014 International Business Nowadays international business and globalization became very popular and gained much more importance for each and every business company. Based on the quality research and the detailed analysis, this paper would come with the conclusion to show the advantages of globalization and also how globalization and international business can be a big factor in developing world’s economy. Term of globalization can represent and mean a lot of different things, but mainly globalization/international business are known for their flows of trade, finances and factors of production across the border, and transportation with effective communications set up. Globalization is responsible to make our world a “global village”. Globalization can develop strong international bonds not just between specific groups of countries but across a wide global network in which factors of production and also finished goods can move freely. The era of globalization in which we are living now came to existence not only because of Internet, but also because of changes in the institutional environment. Today globalization is a very popular and acceptable term. Globalization is a continuous and constant debate that society should face. The nature of globalization is somewhat specific and therefore understanding the meaning of it is crucial, so any praise or critics of globalization is purely......

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Premium Essay

International Business

...Germany, 1948 by Rudolf Dassler. The major products covered almost all sport items, such as sport shoes, wears, and other sports equipment. The brand PUMA is the leader of football shoes. Puma is Olympic sponsors and partner of World formula championship tournament. Today the group has more than 9,500 employees and distributes its products more than 120 countries. Group holds three major sport brands, which are PUMA, COBRA, and Tretorn in sport industry market.(Puma, 2013). Business process outsourcing (BPO) is the key issue of today’s multinational corporation (MNC), which is considered as high chance to find out more opportunities and reduce cost. The main advantage of Business process outsourcing is that, which makes firms more flexibility, in one hand, which can help MNCs to reduce the fixed cost, as transferring into variable cost. In another hand, BPO is considered to be a good way to focus on firm’s core competencies. In addition, this process also may increase the speed of business processes. Based on these factors, BPO may help MNCs grow faster without the huge capital requested. At the same time, this process also brings limitations for MNCs, such as the higher risk level, which could be caused by both privately or structure of firm. Risks and treats of outsourcing must therefore be managed, to achieve any benefits. 2.0 Investment Market Analysis Vietnam is viewed as a viable alternative to China for foreign (particularly U.S. and European) companies......

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