International business in all commercial transactions- private and governmental- between two or more countries. The goal of private business is to increase or to stabilize profits, which partly depends on-
When operating internationally, a company should consider its mission (What it will seek to do and become over the long term), its objectives (specific performance targets to fulfill its mission), and strategy (the means to fulfill its objectives).
Four major operating objectives that may influence companies to engage in international business.They are
To expand sales
To acquire resources
To diversify sources of sales and supplies
To minimize competitive risk
According to Peter F. Drucker, the global economy include:
1. The global economy/ transnational economy is mostly shaped by the flow of capital across the economies rather than by the flow of goods and
services. The trends in the international money markets and capital markets influence the monetary policies and fiscal policies of the sovereign governments. Sovereign governments, rather modify their monetary and fiscal policies. These modified policies determine the dynamics and direction of capital flow
across the countries.
2. Management is the primary and decisive factor whereas the other factors of production like land, capital and human resource are secondary in the transnational economy. Money markets and capital markets have also become transnational.
3. The goal of the transnational business is market expansion rather than profit maximization.
4. Global trade is a function of global investment, but not vice-versa.
5. The decision- making power shifts from
the national government to the group of governments like the European community, North American Free Trade Agreement, the World trade Organization etc.
6. Information flows through advanced information technology, organizes the
flow of money, capital and investment across the national boundaries.
7. Transnational business houses see the entire globe as a single market for production and market of goods and services.
1. Rapid increase in and expansion of technology
2. Liberalization of governmental policies on cross – border movement of trade and resources
3. Development of institutions to support and facilitate international trade
4. Increased global competition
Business is becoming more global because
- Transportation is quicker
- Communication enable control from a far
- Transportation and communication costs are more conducive for international operations
Lower governmental barriers to the movement of goods, services, and resources enable companies to take better advantage of international opportunities.
-Are made by business and government
-Ease flow of goods
More companies operate internationally because
-New products quickly become known globally
-Companies can produce in different countries
-Domestic companies’ competitors, suppliers, and customers have become international.
Potentiality of markets
*Inter-country comparative study
Differences in government policies, laws and regulations
*Host country’s monetary system
*National security policies of the host countries
*Nationalism and business policy
STAGE 1: DOMESTIC COMPANY
STAGE 2: INTERNATIONAL COMPANY
STAGE 3: MULTINATIONAL COMPANY
STAGE-4: GLOBAL COMPANY
STAGE-5: TRANSNATIONAL COMPANY
Douglas Wind and Pelmutter advocated four approaches of international business. They are:
To achieve higher rate of profits
Expanding the production capacities beyond the demand of the domestic country
Severe competition in the home country
Limited home market
Political stability vs. political instability
Availability of technology and competent Human resource
High cost of transportation
Nearness to raw materials
Availability of quality human resources at low cost
Liberalization and globalization
To increase market share
To achieve higher rate of economic development
Tariffs and import quotas
APPROACH: Domestic business’s approach is ethnocentric. It does mean that domestic companies formulate strategies, product design etc. towards the national markets, customers and competitors.
International business’s approach can be polycentric or regiocentric or geocentric. International business under polycentric approach enters foreign markets by establishing foreign subsidiaries.
Under the regiocentric, they export the product to the neighbouring countries of the host country. Under the geocentric, they treat the entire world as a single market for production, marketing, investment and drawing various inputs.
GEOGRAPHIC SCOPE: Domestic business’ geographic scope is within the national boundaries of the domestic country.
Geographic scope of the international business varies from the national boundaries of a minimum of two countries up to a maximum of the entire globe.
OPERATING STYLE: domestic business’ operating style including production, marketing, investment, R & D, etc. is limited to the domestic country.
ENVIRONMENT: Domestic business mostly analyses and scans the domestic environment.
Operating style of the international business can be spread to the entire globe.
International business analyses and scans the relevant international environment.
QUOTAS: The quotas imposed by various countries on their exports and imports not directly and significantly influence domestic business.
TARIFFS: The tariff rates of various countries do not directly and significantly influence the domestic business.
The international business has to operate within the quotas imposed by various countries on their exports and imports.
The tariff rates of various countries directly and significantly influence the international business.
FOREIGN EXCHANGE RATES: Foreign exchange rates and their fluctuations do not directly and significantly affect the domestic business.
CULTURE: Mostly domestic culture of the country affects the business operations including product design.
Foreign exchange rates and their fluctuations directly and significantly affect the international business.
Mostly culture of various countries affects the business operations including product design of international business.
EXPORT- IMPORT PROCEDURES: Domestic business is not normally influenced by export- import procedures of the country.
HUMAN RESSOURCES: Domestic business normally employs the people from the same country. Therefore, the task of HRM is not much complicated.
International business is significantly influenced by export- import procedures of various countries. They need to follow these procedures.
International business normally employs the people from various countries. Therefore, the task of HRM is much complicated.
MARKETS AND CUSTOMERS: Domestic companies meet the needs of the domestic markets and customers. As such, it would be appropriate for them to understand the domestic markets and customers.
International business should understand markets and customers of various countries.
High living standards
Increased socio-economic welfare
Reduced effects of business cycles
Potential untapped markets
Provides the opportunity for and challenge to domestic business
Division of labour and specialization
Economic growth of the world
Optimum and proper utilization of world resources
Knitting the world into a closely interactive traditional village
Huge foreign indebtedness
Tariffs, quotas, and trade barriers
Bureaucratic practices of government
Merchandise exports and imports
Service exports and imports
Tourism and transportation
Performance of services
Use of assets
PHYSICAL & SOCIETAL FACTORS
POLITICAL POLICIES & LEGAL PRACTICES
MAJOR ADVANTAGE IN PRICE, MARKETING, INNOVATION, OR OTHER FACTORS