1) Benefits of International Business

International business has many advantages and benefits for a Production or manufacturing

company. With local markets being saturated, many companies think of expansion via international
business. So the question which pops up is – What is the importance of international business and
what are the benefits of International business? Let us discuss the same.

1) Market expansion

Everyone wants to expand their market share and to sell more and more products. The importance
of International business lies in the fact that you get a new market to enter and to expand in. No
matter what was your position in the old market, the new market is a new playing field for any
company.

2) Non-availability of product in new market

A major advantage the company can have is that the product it produces is not available in the
international market which the company is targeting. The firm, therefore, has a “production
advantage” which it can use to maximum benefit. As a result, it is one of the benefits of the
International business that the firm can establish a monopoly or a duopoly in the target market,
thereby generating a lot of revenue.

3) Cost advantage

Many times, there is a cost advantage of exporting products to a different country. This cost
advantage is apparent in the way China is operating in today’s business environment. The benefits of
International business are huge to Chinese companies because their cost of production is very low.
One of the major contributors is their low Labour cost due to which Chinese equipments are able to
match any rates in the International market.

4) Product Differentiation

If your products are differentiated and the differentiation is possible only in one’s own country, then
a company should definitely expand to International markets.

Furthermore, if a company is capable of product design and implementation as well as establishing

new products and services, then this company has various benefits of International business already
available. Expanding to international market sounds logical if you can differentiate your products
from existing market products.

5) Economic recession in one’s own country

The Importance of International business is fourfold if a company is afraid of the recession in their
own country. Companies like Mitsubishi, Daikin, Blue Star and others have presence across multiple
countries and regions. This is so that they can mitigate the effects of a slow economy in their home
country.
Just like diversification of products is important, diversification of markets can also benefit the
company. Hence, one reason International business is considered important is because of the safety
it provides to the company lest an economicdownturn happens.

6) Loss of Domestic market share

Even if the external business environment is not down, there are other worse things that can happen
to the company which increases the importance of International business. A company could be
losing its domestic market share and it could find solace in a new international market. This will
revive the company in a big way and give fresh revenue to the company which can help it fight in the
local market as well.

There are 2 main reasons that such loss can happen in domestic market share.

1. Due to Competition increasing and market becoming saturated.

2. Due to the product of the company becoming obsolete in current market but being
attractive in a new market (developed vs underdeveloped economy)

7) Growth in Demand in other markets

When South Africa belonged to the primitives and native tribes, there was no business being
conducted. However, with globalization, we can see the growth and development of Ghana and
Nigeria as well as other African cities. The growth of these cities and the flourishing commerce is
another proof of the importance of International business.

As demand rises in new markets, the growth in demand automatically attracts new companies. If
your company is the one to reach there on time, it will automatically grow its market share – which
is what all companies want.

8) Excess capacity of Production

One reason for large companies to look towards international business is to utilize the excess
production capacity of their manufacturing plants. Companies like Ultratech, Blue Star, Garment
manufacturers, Chocolate manufacturers have huge production capacity. When you have such
production potential, utilizing that potential is important.

As a result, many companies take the benefits of International business by utilizing their
manufacturing potential and starting the sale of their brand in International markets. This helps the
brand generate revenue and also push huge volumes out of their large factories.

9) Economies of Scale

Naturally, when we are talking of operations and growth, one factor which helps the profitability of
the company to a great extent is Economies of scale. We have an excellent article on Economies of
scale explained with examples.
With your business growing and you increasing your fixed costs, the concept of economies of scale
sets in. Basically, the fixed cost goes down when the manufacturing goes up from the same assets.
This benefits the company because the company gets a cost advantage over competitors. It also
improves its own scale of operations.

10) Purchasing Power

One last reason for the Importance of doing International business is the purchasingpower rising
in target markets. The best example of this is Dubai which as a country has grown exponentially in
the last several years and today is a huge tourist market. The purchasing power in Dubai is great and
you will find showrooms of all top brands present in Dubai markets. Thus, if there is purchasing
power of customers in a market, it makes logical sense that the brands will target that market as
well.

Overall, there are many benefits to international business expansion and all the above points prove
that if you have the capital and the potential to expand, then you should do so because there are
many benefits associated with it.

2) What Is a Primary Goal of a Multinational Corporation?

A corporation is a legal entity that is designed to protect its individual members from financial
liability. From this basic legal identity, some multinational corporations have grown into enormous,
world-spanning organizations with the power to influence national economies. Corporations are
owned by shareholders, and their purpose is to maximize profits for their owners.

Profit

People on both sides of the controversies that rage around the activities of multinational
corporations acknowledge that their primary goal is to maximize profits. Shareholders and
supporters see this as a positive trait that improves economies and benefits people, while opponents
accuse the profit motive of encouraging exploitation of the poor and environmental destruction.
Movements such as Corporate Social Responsibility, or CSR, attempt to temper the profit motive by
making corporations more accountable to communities and the natural world, encouraging them to
re-invest some of their profits in social programs and environmental protection.

Market Dominance

A corporation can most effectively protect its profits by achieving market dominance. This involves
extensive advertising, producing a product that appeals to the public and squeezing out competitors
through efficient production techniques and high sales. Market dominance helps a multinational
corporation thrive in good economic times and survive during lean times. A competitive economic
system favors companies who are able to outperform their competitors. While many countries have
laws against monopolistic business practices, a well-honed corporation can effectively dominate a
market while steering clear of practices that could actually be labeled as a monopoly.
Innovation

A growth-based economic system requires corporations to continually invent, develop and market
new products to expand their market share. This process requires large investments in research and
development. A central goal of a multinational corporation is to remain more innovative than its
competitors, and to anticipate what products will be most profitable in the coming years. The
corporation must then get that product into the market. Competitors will copy a successful idea as
soon as it is made public, so corporations put great effort into keeping innovative ideas secret until
they can be publicly released as fully developed products.

Expansion

Multinational corporations are required to maximize returns for their shareholders, and this requires
constant expansion to keep profits growing. Expansion may take the form of growth within a
company, or it may manifest itself as friendly or hostile takeovers of other companies. Mergers and
acquisitions form a large percentage of corporate growth within a market that is largely saturated in
terms of growth potential. Companies that weaken or whose growth slows are at greater risk of
takeover by other companies.

3) Methods of International Business

1. Exporting:

Exporting is often the first choice when manufacturers decide to expand abroad. Simply stating,
exporting means selling abroad, either directly to target customers or indirectly by retaining foreign
sales agents or/and distributors. Either case, going abroad through exporting has minimal impact on
the firm’s human resource management because only a few, if at all, of its employees are expected
to be posted abroad.

2. Licensing:

Licensing is another way to expand one’s operations internationally. In case of international

licensing, there is an agreement whereby a firm, called licensor, grants a foreign firm the right to use
intangible (intellectual) property for a specific period of time, usually in return for a royalty. Licensing
of intellectual property such as patents, copyrights, manufacturing processes, or trade names
abound across the nations. The Indian basmati (rice) is one such example.

3. Franchising:

Closely related to licensing is franchising. Franchising is an option in which a parent company grants
another company/firm the right to do business in a prescribed manner. Franchising differs from
licensing in the sense that it usually requires the franchisee to follow much stricter guidelines in
running the business than does licensing. Further, licensing tends to be confined to manufacturers,
whereas franchising is more popular with service firms such as restaurants, hotels, and rental
services.

One does not have to look very far to see how important franchising business is to companies here
and abroad. At present, the prominent examples of the franchise agreements in India are Pepsi Food
Ltd., Coca-Cola, Wimpy’s Damino, McDonald, and Nirula. In USA, one in 12 business establishments
is a franchise.

However, exporting, licensing and franchising make companies get them only so far in international
business. Companies aspiring to take full advantage of opportunities offered by foreign markets
decide to make a substantial direct investment of their own funds in another country. This is
popularly known as Foreign Direct Investment (FDI). Here, by international business means foreign
direct investment mainly. Let us discuss some more about foreign direct investment.

4. Foreign Direct Investment (FDI):

Foreign direct investment refers to operations in one country that ire controlled by entities in a
foreign country. In a sense, this FDI means building new facilities in other country. In India, a foreign
direct investment means acquiring control by more than 74% of the operation. This limit was 50% till
the financial year 2001-2002.

There are two forms of direct foreign investment: joint ventures and wholly-owned subsidiaries. A
joint venture is defined as “the participation of two or more companies jointly in an enterprise in
which each party contributes assets, owns the entity to some degree, and shares risk”. In contrast, a
wholly-owned subsidiary is owned 100% by the foreign firm.

An international business is any firm that engages in international trade or investment. International
trade refers to export or import of goods or services to customers/consumers in another country. On
the other hand, international investment refers to the investment of resources in business activities
outside a firm’s home country.

4) Meaning of Financial Management

Financial Management means planning, organizing, directing and controlling the financial activities
such as procurement and utilization of funds of the enterprise. It means applying general
management principles to financial resources of the enterprise.

Scope/Elements
1. Investment decisions includes investment in fixed assets (called as capital budgeting).
Investment in current assets are also a part of investment decisions called as working capital
decisions.
2. Financial decisions - They relate to the raising of finance from various resources which will
depend upon decision on type of source, period of financing, cost of financing and the returns
thereby.
3. Dividend decision - The finance manager has to take decision with regards to the net profit
distribution. Net profits are generally divided into two:
a. Dividend for shareholders- Dividend and the rate of it has to be decided.
b. Retained profits- Amount of retained profits has to be finalized which will depend
upon expansion and diversification plans of the enterprise.

Objectives of Financial Management

The financial management is generally concerned with procurement, allocation and control of financial
resources of a concern. The objectives can be-

1. To ensure regular and adequate supply of funds to the concern.

 2. To ensure adequate returns to the shareholders which will depend upon the earning capacity,
market price of the share, expectations of the shareholders.
3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in
maximum possible way at least cost.
4. To ensure safety on investment, i.e, funds should be invested in safe ventures so that
adequate rate of return can be achieved.
5. To plan a sound capital structure-There should be sound and fair composition of capital so
that a balance is maintained between debt and equity capital.

Functions of Financial Management

1. Estimation of capital requirements: A finance manager has to make estimation with
regards to capital requirements of the company. This will depend upon expected costs and
profits and future programmes and policies of a concern. Estimations have to be made in an
adequate manner which increases earning capacity of enterprise.
2. Determination of capital composition: Once the estimation have been made, the capital
structure have to be decided. This involves short- term and long- term debt equity analysis.
This will depend upon the proportion of equity capital a company is possessing and additional
funds which have to be raised from outside parties.
3. Choice of sources of funds: For additional funds to be procured, a company has many
choices like-
a. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. Public deposits to be drawn like in form of bonds.

Choice of factor will depend on relative merits and demerits of each source and period of
financing.

4. Investment of funds: The finance manager has to decide to allocate funds into profitable
ventures so that there is safety on investment and regular returns is possible.
5. Disposal of surplus: The net profits decision have to be made by the finance manager. This
can be done in two ways:
a. Dividend declaration - It includes identifying the rate of dividends and other benefits
like bonus.
b. Retained profits - The volume has to be decided which will depend upon expansional,
innovational, diversification plans of the company.
6. Management of cash: Finance manager has to make decisions with regards to cash
management. Cash is required for many purposes like payment of wages and salaries,
payment of electricity and water bills, payment to creditors, meeting current liabilities,
maintainance of enough stock, purchase of raw materials, etc.
7. Financial controls: The finance manager has not only to plan, procure and utilize the funds
but he also has to exercise control over finances. This can be done through many techniques
like ratio analysis, financial forecasting, cost and profit control, etc

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