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International Business

Updated on January 29, 2024
Article byAswathi Jayachandran
Reviewed byDheeraj Vaidya, CFA, FRM

What Is International Business?

International business refers to the exchange of goods and services across national boundaries. It also includes the production and distribution of resources for profit and transactions that span borders. International business can also be driven by non-financial goals, such as corporate social responsibility, that have an impact on a nation’s future.

International Business

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Cross-border transactions have positive implications for businesses and the nations they belong to. The nation can benefit from increased economic activity and resultant employment opportunities. The firms can become more profitable and expand. Additionally, it can take advantage of the global market when the local market is not accommodating.

Key Takeaways

  • International business exchanges capital, products, and services across international borders or territories. It includes all commercial transactions—private or public—between two or more countries.
  • It can also include transactions driven by non-financial goals (such as the triple bottom line, corporate social responsibility, and political favor) that impact an organization’s long-term success.
  • International trade and business differ as the latter deals with the movement of business activities along with products and services.
  • Businesses are carried out internationally through export, import, and entrepot trade.

International Business Explained

International business is the exchange of goods and services across borders. It includes the entire spectrum of cross-border exchanges of products, services, or resources between two or more countries. In international businesses, manufacturing and trading occur outside the country of origin.

It also includes all business transactions involving two or more nations, including sales, investments, logistics, etc. Resources, such as people and intellectual property (such as patents, copyrights, trademarks, and data), are also part of these exchanges. In addition, they include contractual assets or liabilities (such as the right to use a foreign asset, provide future service to a foreign customer, or execute complex financial instruments).

These can also be transferred internationally as part of the transactions and extend beyond the simple exchange of money for tangible goods. Entities that are part of international business range from big multinational companies with vast business networks to small one-person companies that are exporters or importers.

Cross-border business dealings like export, production, licensing, contracting, manufacturing, foreign assembly, joint ventures, and other forms of international commerce are just a few of the many ways an international business can take place. In addition to transactions that occur across borders for profit, the broader definition of international business also includes transactions driven by non-financial goals (such as the triple bottom line, corporate social responsibility, and political favor). They tend to have an impact on the long-term success of an organization.

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Types

The major types of International business include:

  • Export Trade: Selling products and services to other nations.
  • Import Trade: Buying goods and services from other countries.
  • Entrepot Trade: Importing goods and services to re-export them to other nations.

Strategy

Following are some of the main strategies employed by international businesses.

International Business Strategies

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#1 – International

International business management strategy focuses on exporting goods and services to international markets or vice versa. In addition, it involves importing items and resources for local consumption.

#2 – Multi-domestic

A company must invest in establishing its presence in a foreign market and customizing its products or services for the local clientele to implement a multi-domestic business plan.

#3 – Global

Global companies with a global strategy make the most of economies of scale to increase their reach and revenue while trying to diversify their customer base and sell their products in more foreign countries. In addition, multinational corporations try to homogenize their goods and services to cut costs and attract the widest possible international audience.

#4 – Transnational

The transnational business strategy is a combination of global and multi-domestic approaches. It is one of the most complex tools companies can use to grow globally.

Examples

Check out the following examples to get a better idea of international business:

Example #1

Apple’s business strategy revolves around improving a current product while tying it into a large ecosystem of software and services. They introduced innovation to their products’ OS platform, design, and related apps. For example, the tablet wasn’t created by Apple. In reality, the company began experimenting with different tablets in 1989, when GRiDPad was in use. But Apple did improve them and spawned a billion-dollar tablet business.

The global arena is challenging, and businesses must constantly innovate, capture the market’s attention, and retain their consumer base. Technology and research methodologies are used to arrive at conclusions that help businesses. For example, in 2020, Apple spent $18.7 billion on R&D while still having over $200 billion in cash. This data shows how competitive the market is and how hard businesses work for it.

Example #2

Richard and Maurice McDonald opened a restaurant in California in 1940 that would later become the foundation of the McDonald’s Corporation. It is an international fast-food franchise with American roots. The success of fast food giants is due to a variety of reasons. However, as an international business giant that exported the American way of life to several nations worldwide, McDonald’s capitalized on the trend of globalization. At the same time, McDonald’s hired local franchisees to adapt to the social environment of each country. This is an example of a global business strategy.

Advantages And Disadvantages

The importance of international business can be understood by its numerous advantages. They are listed below:

Advantages

#1 – Earning through the foreign exchange

International exchange of goods and services happens beyond the borders of various places, and profit can be made due to currency value differences. This makes the business more profitable and strengthens the economy of its home country. Therefore, an entry’s currency typically gains value when its economy is strong or when there is high demand for its products.

#2 – Optimal Resource Utilization

International business and trade maximize resource utilization. This is because manufacturers of goods for the global market are on a very large scale. Resources from all across the world are used in overseas trade. It leverages technology and financial resources from all over the world.

#3 – Achieve its objectives

International business and trade achieve their goals fairly efficiently. Global company’s primary goal is to make significant profits. Because it makes use of the most advanced technology, this is easily achievable. In addition, it manufactures things of high quality. These products are offered for sale worldwide. All of this generates substantial earnings for the firm.

#4 – Distributing business risks

A gain in one country might offset a loss in one nation. Additionally, it is possible to export excess commodities from one nation to another. Whatever is left over after production can be exported to different countries. All of this contributes to lowering business risks.

#5 – Organizational Efficiency

Increasing organizational effectiveness is important because the global business sector is well organized. This ensures they can compete in the global market, which will be difficult without efficiency. Therefore, they employ all relevant international business management strategies to increase their effectiveness. In addition, they hire managers and staff with the greatest training and expertise levels.

Regular training is given to these individuals. In addition, they have very high wages and additional perks like overseas transfers, promotions, and other advantages, which inspire them greatly. This leads to high organizational effectiveness, which means cheap costs and large returns.

#6 – Benefits for the government

Foreign exchange makes cross-border account settlement possible. The dynamics of global finance can have a big impact on a country’s economy and the success of specific businesses. The balance of payments of a nation is a record of its economic dealings with the rest of the world. It reveals whether a nation has a trade surplus (where exports exceed imports in value) or a trade deficit (where imports exceed exports’ total value).

Foreign exchange generated by international trade is significant for the nation’s economy. Because of this, the government grants the same several advantages, amenities, concessions, and tax advantages.

#7 – Diversifying business operations

Expanding and diversifying business operations with international business are easier because of the high revenues and government concessions.

#8 – Increase competitive capacity

It makes significant financial investments in global advertising. Superior managerial, marketing, and technological methods are employed. The competition is increased by all of this and will possess the capacity to withstand it.

#9 – Economies of scale

Due to their extensive output, these businesses can benefit from economies of scale. Large quantities of products are produced by international enterprises and sold in various countries. As a result, the cost of creating items per unit decreases as production volume rises, enabling them to make significant profits.

#10 – Cost advantage

By manufacturing products in one nation and exporting them in another, an international company has a cost advantage over its rivals. Then this is because theytinue to produce in a nation where inputs are readily and affordably available, and they sell the goods in other nations for higher prices. This helps to reduce the cost of the product and generate enormous profits.

#11 – Employment opportunities

Global operations in international business require the employment of a significant number of people. In addition, they carry out extensive operations throughout numerous nations, for which they need a sizable human resource.

Disadvantages

Similar to advantages, there are also some disadvantages to carrying businesses across international borders, and they are as follows:

#1 – Global politics

International trade depends on geopolitical and economic factors. If a country faces economic, geographical, or political turbulence, it will significantly impact the international business environment. Terrorism is another global issue that can affect trade across borders.

#2 – Operational risks

Operational risk is the possibility of loss due to insufficient or unsuccessful policies, procedures, or systems, personnel errors, system failures, fraud, or other criminal behavior or any occurrence that affects corporate activities. Since cross-border trade involves a lot of procedures, there might be issues along the way. A company cannot afford to waste time or money, and the international business environment has to be monitored carefully to avoid the same.

International Business vs Domestic Business vs International Trade

  • Domestic or national business refers to business transactions within a country’s territorial limits. Other names for it include internal business and house trade. International business refers to production and trading outside of one’s nation. Therefore, company activities that cross national borders are referred to as global or external business. Along with the international trade of products and services, internal business also encompasses the movement of money, people, and intellectual property, including patents, trademarks, know-how, and copyrights.
  • International business has always relied heavily on international trade, which consists of goods, exports, and imports. However, recent years have seen a significant increase in the reach of global commerce. International trade services include communication, banking, travel and tourism, transportation, warehousing, distribution, and advertising. They are closer to international clients and provide them with more efficient services at lower costs.
  • Businesses have started investing more money abroad and producing goods and services there. All these falls under the umbrella of global industry. However, internationalization is a much broader phrase that includes the production and trade of commodities and services across borders.

Frequently Asked Questions (FAQs)

1. Why is international business important?

Business across borders generates economic activity. It provides employment opportunities through which people’s standard of living rises. The nation also benefits from a positive balance of payment and income generation.

2. Why international business differs from domestic business?

Although international and domestic businesses deal with the trade of goods and services, they differ as domestic business deals only with trade within borders. But on the other hand, the former concept deals with cross-border business transactions.

3. How international business differs from domestic business?

International and domestic business differs in their fundamental idea. In Domestic business, goods and services are bought and sold within a country’s borders. In contrast, international business deals with transactions beyond borders only.

4. How does international business work?

International business works by exchanging goods and services outside borders. For example, if country A imports or exports goods or services from country B, the transactions happen outside their respective borders. The payment is made in their respective currencies through foreign exchange.

This article has been a guide to what is International Business & its definition. We explain its types, examples, advantages, disadvantages, & comparison with domestic business. You may also find some useful articles here –

Reader Interactions

Comments

  1. Sobha Newar says

    It is very helpful and thank you for the update I formation

  2. Patricio says

    I learned a lot, best material

  3. Gabriel Akinyemi Ilegbemi says

    kommune of the peoples and peoples around who want to leant an things etc.

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