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International Business
International business includes commercial transactions such as private, governmental, sales, investments, logistics, and transportation that occurs between two or more countries apart from their political boundaries. Generally, such transactions are undertaken by private sector companies to generate profit. The government sector also undertakes them to earn profit as well as for political reasons.
The term "international business" describes business activities which are engaged in crossborder transactions of products, services, resources between two or more nations. Transaction of economic resources comprises of capital, skills, people, etc. for international production of physical products and services. For example, finance, banking, insurance, construction, etc.
International marketing consists in identifying and satisfying consumers abroad; better than the national and international competitors.
Several type of companies are major participants in international marketing. Among the leaders are −
- Multi-National companies(MNCs)
- Exporters
- Importers
- Service companies
There are many companies that realize their target will be limited if they only concentrate on the US market and the global marketplace is competitive. So to increase their market share they look for various opportunities throughout the world.
Importance of International Business
The International Business principles stresses on the following −
Creating awareness of the interdependency of one nation's political policies and economic practices on another nation or nations.
Learning to improvise international business relationships by using appropriate communication strategies and techniques.
Acknowledging the global business environment, the relationship the nation’s share through their cultural, political, legal, economic, and ethical systems with one another.
Seeking clarity on concepts of international finance, management, marketing, and trade relations.
Specifying forms for ownership of enterprises and international business opportunities.
By stressing on the above points, entrepreneurs will gain a better and clear understanding of political economy. These are raw materials that would help future entrepreneurs to build a bridge between the economic and political gap between countries.
Factors in Business
Business at an international level is also affected by various factors. These can be due to the physical location of the country or due to some political matters in the country.
Some of the major factors in business are as follows −
Geographical factors − Many different geographical factors like the geographical size, the climatic challenges occurred recently, the available natural resources in a specific region, the population distribution in a nation, etc. affect international business.
Social factors − The internal factors or happenings inside a nation also plays a very important role in internal business. These include −
Political policies − Political conflicts, mostly those that result in military confrontation can disturb trade and investment.
Legal policies − National and international laws have a crucial role in framing how an enterprise can operate overseas.
Behavioral factors − In a foreign unknown surrounding, the related studies like anthropology, psychology and sociology assists the managers to have a better understanding of values, attitudes and beliefs.
Economic forces − Economics explains the differences among countries in terms of costs, currency values and market size.
Basic Modes of Entry
Modes of entry into international markets are the Internet, Licensing, International Agents, International Distributors, Strategic Alliances, Joint Ventures, Overseas Manufacture and International Sales Subsidiaries.
Licensing − Licensing is where the own organization charges fee or royalty for the use of the technology or brand.
International agents and distributors − Agents are individuals or organizations those who deal with business/marketing on your behalf in any country. Agents represent more than one organization and for this one needs to set some targets to check the level of commitment of the agent. They tend to be expensive to recruit, retain and train.
Strategic Alliances − It describes a series of different relationships between companies that market internationally.
Joint ventures − It means working equally, i.e. a new company is set up with parties owning half of the business.
Overseas Manufacture or International Sales Subsidiary − It means the organization invests in plant, machinery and labor in the overseas market. This is also known as Foreign Direct Investment (FDI).
These were the basic modes describing how international marketing is initiated between two nations or more.
Risk of Business
Business at national as well as international level is all about taking risks, nothing is certain and an entrepreneur has to take chances or risks to earn profit. These risks can at times give fruitful result and at times may lead to losses.
Given below are some of the major risks faced in international business −
Strategic Risk
An organization should always be prepared, acknowledge the competition and be ready to face it on the international market. Many companies or competitors would prove to be good to be the replacement for products or services of an unrecognized company. An excellent, creative and innovative strategy will help and make a company successful.
Operational Risk
A company should acknowledge the production costs and make sure there is no waste of time and money. If the expenditures and costs are monitored properly, it will create and maintain efficient production and also help for internationalization.
Political Risk
How a government monitors a nation deeply affects the operations of a company. The nation might have a corrupted, hostile, totalitarian government but this is a negative picture of government around the globe. A company’s reputation and status can change if it functions in a nation monitored by that type of government. An unstable political situation proves to be risky for multinational firms. Any unexpected event like elections or any other political event can change the complete situation of a nation and put a company at risk.
Technological Risk
Technological development brings in many benefits, along with some disadvantages. Like lack of security measures in electronic transactions, higher cost of developing new technology, and the fact that these new technology may fail. When all of these paired with an old fashioned outdated existing technology, the result invites new dangerous effect in doing business at the international level.
Environmental Risk
Companies that set up supplementary or factory outside the residential country are expected to be conscious regarding the externalities they will produce. Negative externalities include noise, pollution or some other disturbances like, natural calamities, etc. The mass may want to fight against the company to maintain a natural and healthy environment or nation. This type of condition can change the customer’s point of view regarding the firm and create a negative image.
Economic Risk
Economic risks arise due to inability of a nation to satisfy its financial obligations. It is very difficult to conduct international business due to changing foreign investment or domestic fiscal or monetary policy because of the effect on exchange rate and interest rate.
Financial Risk
A nation has financial risks due to the fluctuating currency exchange rate, government flexibility in allowing the companies to repatriate profits or funds outside the nation. Also, the taxes that a company pays have the probability of either being advantageous or not. It might be more or less in the host or strong nations.
Terrorism Risk
A terrorist attack opposite to a company or a nation is done intentionally to hurt or cause damage by violence. It is hatred that pushes people to do it and it is usually based on a religion, culture, political ideas, etc. Thus, it is very difficult to operate where the surrounding is tensed and scary and in countries that are likely to be attacked.
Bribery Risk
Bribery is a global issue. Multinational companies must be careful and concerned about it. Companies functioning or marketing at the international level have a major role on combating bribery accompanied by the governments, trade unions, etc.
Importance of Culture
A noticeable advantage in International Business is hiked through the knowledge and use of language. An International entrepreneur fluent in the local languages has the following advantages −
The talent of communicating with employees and customers directly.
Acknowledging the way of speaking within business in the local area to increase total productivity.
Gaining respect of customers and employees from speaking with them in their native tongue.
In some cases, it is next to impossible to completely understand a culture's buying habits without first taking the time to study the culture properly. Few examples of the benefit of understanding local culture include the following −
Facilitate marketing techniques that are precisely tailored for the local market.
Studying how other enterprises function and what might or might not be social taboos or myths.
Having a complete knowledge on the time structure of an area.
Some societies or in some regions people are more focused on "being on time" while others focus on doing business at "the right time”. Thus, while establishing a business at the international level one cannot neglect the customs, traditions and culture of various nations.