INTERNATIONAL BUSINESS AND TRADE

CHAPTER I
Introduction
The beverages you drink might be produced in India, but with the collaboration of a USA
company. The tea you drink is prepared from the tea powder produced in Sri Lanka. The spares
and hard disk of the computer you operate might have been produced in the United States of
America.
The perfume you apply might have been produced in France. The television you watch
might have been produced with the Japanese technology. The shoe you wear might have been
produced in Taiwan, but remarketed by an Italian company. Air France and so on so forth might
have provided your air-travel services to you.
Most of you have the experience of browsing Internet and visiting different web sites,
knowing the products and services offered by various companies across the globe. Some of you
might have the experience of 'even ordering and buying the products through Internet. This process
gives you the opportunity of transacting in the international business arena without visiting or
knowing the various countries and companies across the globe.
Thus, Business activities done across national borders is INTERNATIONAL BUSINESS.
The International Business is the purchasing and selling of the goods, commodities and
services outside its national borders. Such trade modes might be owned by the state or privately
owned organization.
In which, the organization explores trade opportunities outside its domestic national
borders to extend their own particular business activities, for example, manufacturing, mining,
construction, agriculture, banking, insurance, health, education, transportation, communication,
and so on.
International business means collective description of commercial transactions that
occurs between two or more nations beyond the boundaries of the home nation. Very often private
companies are part of these transactions in order to incur maximum profit. Movement of goods,
skill, resources, services etc are done in order to produce physical goods and services in
international business. This business includes several options to conduct a business for instance
exporting goods and services, providing license to manufacture physical goods in host country,
opening a joint venture with a company etc. International business has formed networks of global
links that brings nations, institution, financial market, living standards together due to development
and invention of several technologies world has become smaller which enabled to conduct
businesses even faster.
Trade refers to the exchange of goods and services for money, which can be undertaken
within the geographical limits of the countries or beyond the boundaries. The trade which takes
place within the geographical boundaries of the country is called domestic business,
whereas trade which occurs between two countries internationally, is called international
business. ... Although international business enjoys large customer base as they operate in
multiple countries.
International business is all commercial transactions private and governmental between
two or more countries. Private companies undertake such transactions for profits; governments
may or may not do the same in their transactions. These transactions include sales, investments
and transportation.
Study of international business has become important because
(i) It comprises a large and growing portion of the world’s total business.
(ii) All companies are affected by global events and competition, whether large or small, since
most sell output to and secure raw materials and supplies from foreign countries.
The company’s external environment conditions such as physical, societal and competitive
affect the way business functions such as marketing, manufacturing and supply chain management
are carried out. When a company operates internationally, foreign conditions are added to domestic
ones making the external environment more diverse and complex.
Global, Multinational and Transnational Company
Each term is distinct and has a specific meaning, which defines the scope and degree of
interaction with their operations outside of their "home" country.
• Multinational companies have investment in other countries, but do not have
coordinated product offerings in each country. More focused on adapting their products and
service to each individual local market. A Multinational Corporation (MNC) or Multinational
Enterprise (MNE) is a corporation enterprise that manages production or delivers services in more
than one country. It can also be referred to as an international corporation. They play an important
role in globalization. Example: Toyota, Honda, Budweiser, Kia, McDonalds, Pepsi, KFC, Adidas,
Nike, Puma, Umbro, Nissan, Renault, Citroen, etc.
• Global companies have invested and are present in many countries. They market their
products through the use of the same coordinated image/brand in all markets. Generally, one
corporate office that is responsible for global strategy. Emphasis on volume, cost management and
efficiency. Example: Some examples of global companies are: Seagate, McDonald's boots, pizza
hut, Burger king, Thornton's asda, Tesco, etc.
• Transnational companies are much more complex organizations. They have invested in
foreign operations, have a central corporate facility but give decision-making, R&D and marketing
powers to each individual foreign market. Example: An example of a TNC is Nestlé who employ
senior executives from many countries and try to make decisions from a global perspective rather
than from one centralized headquarters. However, the terms TNC and MNC are often used
interchangeably.
A. EVOLUTION AND NATURE OF INTERNATIONAL BUSINESS AND TRADE
The Evolution of International Business.
The business across the borders of the countries had been carried on since times
immemorial. However, the business had been limited to the international trade until the recent past.
The post-World War II period witnessed an unexpected expansion of national companies
into international or multinational companies. The post 1990s period has given greater fillip to
international business. In fact, the term international business was not in existence before two
decades. The term international business has emerged from the term international marketing,
which in turn, emerged from the term ‘export marketing’.
Originally, the producers used to export their products to the nearby countries and
gradually extended the exports to far-off countries.
Nature of International Business
• The study of international business focuses on the particular problems and opportunities
that emerge because a firm is operating in more than one country.
• Examples: Foreign legal systems, foreign exchange markets, cultural differences, and
different rates of inflation. (Thus, it might be said that domestic business is a special limited case
of international business.
• The distinguishing feature of international business is that international firms operate in
environments that are highly uncertain and where the rules of the game are often ambiguous,
contradictory, and subject to rapid change, as compared to the domestic environment.
B. GOALS AND INFLUENCES OF INTERNATIONAL BUSINESS AND TRADE
A. GOALS, OBJECTIVES, AND INFLUENCES OF INTERNATIONAL BUSINESS
AND TRADE
1. Expand Sales: Companies’ sales are dependent on:
(a) the consumers’ interest in their product or service and
(b) the consumers’ willingness and ability to buy them. Higher sales mean higher
profits because of economies of scale.
Therefore, increased sales are a major motive for a company’s expansion into
international business.
2. Acquire Resources: Manufacturers and distributors also look for foreign capital,
technologies and information that they can use at home, to reduce their costs. Sometimes
a company operates abroad to acquire something not readily available in the home country
so as to improve its product quality and differentiate itself from competitors, potentially
increasing market share and profits.
 3. Minimize Risk: Companies seek out foreign markets to minimize swings in sales and
profits arising out of business cycle recessions and expansions which occur differently in
different countries. Example: Sales decrease or grow more slowly in a country that is in
recession and increase or grow more rapidly in one that is expanding rapidly in one that is
expanding economically.
Many companies enter into international business for defensive reasons (example:
to counter advantages competitors might gain in foreign markets that in turn, can hurt them
in the domestic market). The company forms its strategies and the means to implement
them after examining the external environment. The company faces different external
environment in each country where it operates.
C. BENEFITS OF INTERNATIONAL BUSINESS AND TRADE
International Business is important to both Nation and Business Organizations.
BENEFITS to Nation
• It encourages a nation to obtain foreign exchange that can be utilized to import
merchandise from the global market.
• It prompts specialization of a country in the production of merchandise, which it
creates in the best and affordable way.
• In addition, it helps a country in enhancing its development prospects and
furthermore make opportunity for employment.
• It makes comfortable for individuals to utilize commodities and services produced
in other nations, which help in improving their standard of life.
BENEFITS to Firms
• It helps in improving profits of the organizations by selling products in the nations
where costs are high.
• It helps the organization in utilizing their surplus resources and increasing
profitability of their activities.
• In addition, it helps firms in enhancing their development prospects.
• IB also goes as one of the methods for accomplishing development in the firms
confronting extreme market conditions in the local market.
• Moreover, it enhances business vision as it makes firms more aggressive, and
diversified.
C. PROBLEMS AND CHALLENGES OF INTERNATIONAL BUSINESS AND TRADE
• Political and Legal Differences: The political and legal environment of foreign
markets is different from that of the domestic. The complexity generally increases as the
number of countries in which a company does business increases. It should also be noted
that the political and legal environment is not the same in all provinces of many home
markets. Example: The political and legal environment is not exactly the same in all the
states of India.
• Cultural Differences: The cultural differences, is one of the most difficult
problems in international marketing. Many domestic markets, however, are also not free
from cultural diversity.
• Economic Differences: The economic environment may vary from country to
country.
• Differences in the Currency Unit: The currency unit varies from nation to
nation. This may sometimes cause problems of currency convertibility, besides the
problems of exchange rate fluctuations. The monetary system and regulations may also
vary.
• Differences in the Language: An international marketer often encounters
problems arising out of the differences in the language. Even when the same language is
used in different countries, the same words of terms may have different meanings. The
language problem, however, is not something peculiar to the international marketing.
Example: The multiplicity of languages in India.
• Differences in the Marketing Infrastructure: The availability and nature of the
marketing facilities available in different countries may vary widely. For example, an
advertising medium very effective in one market may not be available or may be
underdeveloped in another market.
• Trade Restrictions: A trade restriction, particularly import controls, is a very
important problem, which an international marketer faces.
• High Costs of Distance: When the markets are far removed by distance, the
transport cost becomes high and the time required for affecting the delivery tends to
become longer. Distance tends to increase certain other costs also.
• Differences in Trade Practices: Trade practices and customs may differ between
two countries.
Comparison Between Domestic Business and International Business

BASIS FOR
DOMESTIC BUSINESS INTERNATIONAL BUSINESS
COMPARISON

Meaning A business is said to be domestic, International business is one which

when its economic transactions are is engaged in economic transaction
conducted within the geographical with several countries in the world.
boundaries of the country.

Area of operation Within the country Whole world

Quality standards Quite low Very high

Deals in Single currency Multiple currencies

Capital investment Less Huge

Restrictions Few Many

Nature of Homogeneous Heterogeneous

customers

Business research It can be conducted easily. It is difficult to conduct research.

Mobility of factors Free Restricted

of production

Definition of Domestic Business

The business transaction that occurs within the geographical limits of the country is known
as DOMESTIC BUSINESS. It is a business entity whose commercial activities are performed
within a nation. Alternately known as internal business or sometimes as home trade. The
producer and customers of the firm both reside in the country. In a domestic trade, the buyer and
seller belong to the same country and so the trade agreement is based on the practices, laws and
customs that are followed in the country. There are many privileges which a domestic business
enjoys like low transaction cost, less period between production and sale of goods, low
transportation cost, encourages small-scale enterprises, etc