UNIT –I

International trade is the exchange of goods and services between countries.

Trading globally gives consumers and countries the opportunity to be exposed to
goods and services not available in their own countries, or which would be more
expensive domestically.

Nature of International Business

In international business, there is a fear of the restrictions which are imposed by

the government of the different countries. Many country’s governments don’t
allow international businesses in their country. They have trade blocks, tariff
barriers, foreign exchange restrictions, etc. These things are harmful to
international business.

1.Benefits to Participating Countries

It gives benefits to the countries which are participating in the international

business. The richer or developed countries grow their business to the global level
and they get maximum benefits. The developing countries get the latest
technology, foreign capital, employment opportunities, rapid industrial
development, etc. This helps developing countries in developing their economy.
Therefore, developing countries open up their economy for foreign investments. 

2.Large Scale Operations

International business contains a large number of operations at a time because it

is conducted on a large scale globally. Production of the goods at a large scale,
they have to fulfill the demand at a global level. Marketing of the product is also
conducted at a large scale to make them aware of the product. First, they fulfill the
domestic demand and then they export the surplus in the foreign markets.

3.Integration of Economies

International Business combines the economies of many countries. The

companies use the finance, labor, resources, and infrastructure of the other
countries in which they are working. They produce the parts in different countries,
assembles the product in other countries and sell their product in other countries.

4.Dominated by Developed Countries

International business is dominated by developed countries and their MNC’s.

Countries like U.S.A, Europe, and Japan all are the countries that are producing
high-quality products, they have people working for them on high salaries. They
have large financial and other resources like the best technology and Research and
Development centers. Therefore, they produce good quality products and services
at low prices. They help them to capture the world market.

Market Segmentation

International business is based on market segmentation on the basis of the

geographic segmentation of the consumers. The market is divided into different
groups according to the demand of the consumers in different countries. It
produces goods according to the demand of the consumers of the different market
segmentations.

Market Segmentation

International business is based on market segmentation on the basis of the

geographic segmentation of the consumers. The market is divided into different
groups according to the demand of the consumers in different countries. It
produces goods according to the demand of the consumers of the different market
segmentations.

Characteristics and Features of International business

1.Large scale operations

International businesses are conducted on a very large scale. They perform their
operations in different countries globally. Their business activities are very large in
size ranging from production, marketing & selling of their products. These
businesses serve the demands of local markets also where they are present & also
demands of different countries globally. That’s why they produce a large amount
of goods & services to cater to the large demands.
2.Earns foreign exchange

International businesses are served as an important source for earning foreign

exchange. Foreign Currencies of different countries are involved in transactions in
these businesses. This helps in getting enough foreign exchange reserves for the
country.

3.Integrates economies

Another important feature of international business is that it integrates the

economies of different countries worldwide. It takes advantage of different
economies & aims at providing its services economically. It takes labor from one
country, technology from one country & finance from another country. Also, it
designs, produces, assembles its products not only in one country but in different-
different countries. This helps in taking advantage of different economies &
becoming economical.

4.Large number of middlemen

International businesses are very large in size. Their scale of operations is not
limited to one country but performs in different countries globally. There is a large
number of middlemen involved in international businesses. These all person
renders their services properly for the efficiency of the business. Their services
help the business in easy expansion & growth.

High risk

The degree of risk associated with international business is very high. These
businesses require a large amount of resources both in terms of money &
manpower for carrying out its operations. These need to carry out trade in different
countries at large distances. It requires a huge cost & time to carry these goods &
services. Also, sometimes different economies face unfavorable conditions which
affect the business conditions.

Intense competition

International business faces a large number of risks internationally. These

businesses invest large amounts in advertising their products. There are a large
number of competitors in the international market. There is tough competition in
terms of price, quality, design, packing, etc. Business needs to focus on these
things to face the tough competition going on.

International restrictions

International businesses face large restrictions while carrying out there

operations in different countries. Sometimes they are not allowed to inflow &
outflow goods, technology & different resources. There are restricted by the
government of different countries to not enter into their countries. They face
several foreign exchange barriers, trade barriers & trade blocks which are harmful
for international business.

Highly sensitive nature

International businesses are highly sensitive in nature. Proper market research is

very essential for carrying out these businesses effectively. Any unfavorable
economic conditions in one country will adversely affect the business. If there is
any economic, political or technological change will directly influence the
functioning of the business. Therefore, these businesses should change their
activities from time to time to survive the change.

Advantages and Disadvantages of International Trade

International trade allows countries, states, brands, and businesses to buy and
sell in foreign markets. This trade diversifies the products and services that
domestic customers can receive. It offers the potential for development and
expansion, but without the risks of internal research and development.

Here Are the Advantages of International Trade

1. It provides a foundation for international growth.

Companies that are involved in exporting can achieve levels of growth that may
not be possible if they only focus on their domestic markets. This allows brands
and businesses an opportunity to achieve sustained revenues from a diversified
portfolio of customers in several markets instead of a limited customer base in a
single home market.
2. International trade improves financial performance.
Brands and businesses which assert themselves in foreign trade work can
increase their financial performance. This allows them to augment the returns they
achieve on their investments into research and development. By rotating the
products or services through the global market, the commercial lifespan of each
opportunity can be amplified, expanding what existing products and services can
provide. This benefit can even be achieved if a domestic market is no longer
interested.

3. It spreads out the risk a brand and business must assume.

Organizations can better protect themselves from risk thanks to international
trade because of the amount of diversification that can be achieved. Whether it is a
financial disaster, like the Great Recession of 2007-2009, or a natural disaster like
Hurricane Katrina, a company with an international presence can survive and even
maintain profitability without domestic customer support. A home market may be
unstable, but international trade can still let the brand and business be stable.

4. International trade encourages market competitiveness.

When a brand and business competes in several markets simultaneously, then
it must focus on its competitiveness for it to be able to thrive. By observing a larger
range of trends because of their greater level of global market access, brands and
businesses can focus on quality, design, and product development improvements
so that they can continuously improve and diversify.

5. International exchange rates can be beneficial to a business.

Brands and businesses involved with international trade can further reduce their
risk by taking advantage of monetary exchange rates. If a company does most of its
trading in US dollars, then trading with Japan to spread the risk of the exchange
rate between the yen and the dollar can potentially add to the profits of the
company. The same could be said of the euro or the pound to the dollar.

6. Revenue streams have some protection.

Although all risk cannot be eliminated from international trade, a series of
contracts, insurance, and financial instrument trading can help to protect the
revenue streams a brand and business is able to develop.

7. It can be used as a way to get around high levels of domestic competition.

A domestic market can have several products or services that are like what a
new brand and business is trying to offer. Instead of competing for a small sliver of
that domestic market, going through international trade can help an organization
target similar foreign markets where competition may be much lower. Over time,
the experiences gained in the foreign market can help an organization be able to
establish a stronger domestic presence as well.

Disadvantages of International Trade

1. There is always a political risk involved with international trade.

If you were a brand and business that was counting on the TPP, then the words
of Donald Trump represent a high political risk. Different countries provide their
own political risks at varying levels, while domestic politics changes over time and
presents an ongoing challenge. A government can change laws in a discriminatory
fashion or create regulations that directly impact a specific organization.

2. There can be severe exchange rate risks.

Many businesses focus on emerging markets for their products or services
because it can greatly extend the lifespan of them. This also means the exchange
rates in those emerging markets may fluctuate wildly, making it difficult to
forecast finances for budgeting purposes. The value of assets and liabilities that are
in foreign currencies creates the potential of a brand and business becoming
immediately less competitive overnight, resulting in steep revenue losses.

3. International trade also presents cultural complications.

Different cultures have different attitudes, standards, and expectations that can
create problems for a brand and business. Failing to consider the expectation a
different culture may have can lead to mistakes that damage the reputation of the
brand and can be very costly to the bottom line. Any step of the sales process could
create an offense. Something as simple as inappropriate packaging can be enough
to permanently damage a brand’s reputation.

4. It has a credit risk that must be specifically managed.

Many brands and businesses tend to overlook the risk of non-payment when
they begin to operate in the world of international trade. Credit risks can be
managed by obtaining insurance or a letter of credit, but customer finances and
credit can still impact the number of potential sales that can be received within a
market. Without an understanding of the B2B and B2C credit potential of an
international market, the success a brand and business can receive will be hit or
miss at best.
5. International trade increases the risk of proprietary information theft.
Going into an international market with a product or service increases the risk
of another brand or business stealing proprietary information, marketing concepts,
or even a personal identity. China has a reputation of doing this, even if there isn’t
a business presence in the local market. Do you remember the Obama Fried
Chicken billboard from 2011?

The advantages and disadvantages of international trade can all be managed

appropriately with good market research and an understanding of foreign cultures.
There will always be brands and businesses that succeed more than others in any
trade deal. The goal must be to evaluate these key points so that a full
understanding of what to expect can be obtained so participation levels can be
properly gauged.