The significance of international business is better than ever as companies around the world become enhanced connected. It is always played a major role in a country’s growth and economy. International business is very important for the sustenance of a country as the gross domestic product or the GDP is reliant on good foreign business. It is a very broad term because it holds various types of rules and regulations. It refers to business activities that take place transversely national frontiers.
The scope of International Business
International business is much broader than international trade. It includes not only international trade (i.e., export and import of goods and services) but also a wide variety of other ways in which the firms operate internationally. International Management professionals are familiar with the language, culture, economic and political environment, and business practices of countries in which multinational firms actively trade and invest.
Major forms of business operations that constitute international business are as follows.
- Merchandise exports and imports
Merchandise means goods that are tangible, i.e., those that can be seen and touched. When viewed from this perceptive, it is clear that while merchandise exports mean sending tangible goods abroad, merchandise imports means bringing tangible goods from a foreign country to one’s own country.
- Service exports and imports
Service exports and imports involve trade in intangibles. It is because of the intangible aspect of services that trade in services is also known as invisible trade.
- Licensing and franchising
Permitting another party in a foreign country to produce and sell goods under your trademarks, patents or copyrights in lieu of some fee is another way of entering into international business. It is under the licensing system that Pepsi and CocaCola are produced and sold all over the world by local bottlers in foreign countries.
- Foreign investments
Foreign investment is another important form of international business. Foreign investment involves investments of funds abroad in exchange for financial return. Foreign investment can be of two types: direct and portfolio investments.
- Monopoly Power
It might arrive from patent rights, technological advantages, product segregation etc. Another reason for internationalization is limited market information.
- Benefiting from currency exchange
Those who add an international business to their assortment may also advantage from currency fluctuations. For example, when the U.S. dollar is down, you might be able to export more as foreign customers benefit from the favorable currency exchange rate.
- Limitations of Domestic Market
Some demographic trends such as a contraction in birth rate decline in domestic demand, fully tapped market potential have adverse effects on some businesses. When the domestic market is small, international business is the option for growth. Depression in the home market drives companies to explore foreign markets.
- Increased revenues
One of the top advantages of international business is that you may be capable to enlarge your number of probable clients. Each country you add to your list can open up a new path to business growth and increased revenues.
- Growth opportunities
Foreign markets both developed country and developing country provide considerable expansion opportunities for the firms from a developing country. MNCs are interested in no. of developing countries due to initially increasing in their income and population of the predictable 1 billion increases in world population during 2000 to 2015; only about 3% will be in the high-income countries, foreign markets, both developed and developing countries after ample opportunities for developing country firms also.
- Expand and diversify
International business can enlarge and expand its activities. This is because it earns very high profits. It also gets financial help from the government.
- Opportunity to specialize
International markets can open up avenues for a new line of service or products. It can also give you an opportunity to specialize in a different area to serve that market.