INTRODUCTION AND MEANING OF INTERNATIONAL BUSINESS

The term international business refers to any business that operates across international borders.
At its most basic, it includes the sale of goods and services between countries.

Yet, other forms of international business do exist. For example, a business that produces
components or products overseas but sells them domestically can be considered an international
business, as can an organization that outsources services, such as customer service, to locations
where labor expenses are cheaper.

For most organizations, decisions around building, producing, and selling products or services
are informed by many factors. Cost is an important one because businesses that primarily operate
in developed markets, like the United States and Europe, can often source cheaper labor abroad.

WHAT IS A SUCCESSFUL INTERNATIONAL BUSINESS?

International businesses must have resilient, adaptable, communicative, and resourceful

employees who know when to seize expansion opportunities. They need to have a deep
understanding of international economics to anticipate how global markets will affect their
bottom line and international marketing to effectively communicate their organization’s value to
diverse audiences.

Are you interested in working with an international organization? Do you have plans and
aspirations to take your business international? Here’s a look at five well-known international
businesses that have successfully—and not so successfully—navigated the global market.

EXAMPLES OF INTERNATIONAL BUSINESSES

1. Apple

Apple Inc., founded by Steve Jobs, Steve Wozniak, and Ronald Wayne in the 1970s, is now
considered one of the most influential international companies. Headquartered in the United
States, Apple designs, develops, and sells electronics, software, streaming, and online services
worldwide.

Apple opened its first international location in Tokyo, Japan, in 2003 after saturating the
American market. Under Jobs, Apple touted ease-of-use, innovative design, and customer loyalty
with the marketing slogan, “Think Different,” and it continues to use visionary strategic
marketing and a tight ecosystem to overcome competition and attract creative audiences around
the globe.
Apple not only sells products internationally but has supply chains from 43 countries that ship
supplies to China for final production and assembly. By keeping a tight-knit and strong
relationship with suppliers, strategic inventory, and a focus on sustainability, Apple stands as one
of the world’s most successful companies.

2. Financial Times

The Financial Times is a formerly British daily newspaper that’s now owned by the Japanese
holding company Nikkei. The Financial Times’ mission is to deliver unbiased, informed
investment and economic information to empower individuals and companies to make secure
investment decisions.

The Financial Times had a rocky start trying to break into the international market. Andrew
Gilchrist, former managing director of the Financial Times, describes his experience at the
publication in the online course Global Business.

During his tenure, the Financial Times prioritized entering the international market in India.
Despite a large English-speaking population and strong government support, domestic
journalism was considered culturally and legally suspect. In fact, the Financial Times was
eventually tied up in legal knots because the local newspaper barons were able to challenge
every move through the courts.

Eventually, the Financial Times’ attempt to go international in India led to an economic

slowdown and sluggish company growth.

EXAMPLES OF INTERNATIONAL BUSINESSES

1. Apple

Apple Inc., founded by Steve Jobs, Steve Wozniak, and Ronald Wayne in the 1970s, is now
considered one of the most influential international companies. Headquartered in the United
States, Apple designs, develops, and sells electronics, software, streaming, and online services
worldwide.

Apple opened its first international location in Tokyo, Japan, in 2003 after saturating the
American market. Under Jobs, Apple touted ease-of-use, innovative design, and customer loyalty
with the marketing slogan, “Think Different,” and it continues to use visionary strategic
marketing and a tight ecosystem to overcome competition and attract creative audiences around
the globe.
Apple not only sells products internationally but has supply chains from 43 countries that ship
supplies to China for final production and assembly. By keeping a tight-knit and strong
relationship with suppliers, strategic inventory, and a focus on sustainability, Apple stands as one
of the world’s most successful companies.

3. McDonald’s

Two brothers, Maurice and Richard McDonald, converted their drive-through barbecue
restaurant in San Bernardino, California, into a burger and milkshake restaurant—now known as
McDonald’s—in 1948.

The McDonald brothers focused on creating a better business system geared toward self-service
and efficient and repeatable processes that relied on heating lamps instead of waiters. This
model, known as “Speedee,” led to lower costs, cheaper products, and faster growth. It became
the epitome of “fast food.”

Soon after, Ray Croc took McDonald’s a step further by bringing in franchisees and suppliers,
leading to the creation of restaurants across the United States. McDonald’s model continued to
expand, and, in 1967, the company opened locations in Canada and Puerto Rico.

McDonald’s has been internationally successful, thanks in large part to the consistency its
business model allows. The fact that a Big Mac tastes the same regardless of which country you
order it in is a testament to the company’s long history. Today, there are 38,000 restaurants in
more than 120 countries.

Significance of IB

 Uneven Distribution of Natural Resources: Due to unequal distribution of natural

resources, all countries cannot produce goods at a low cost. As a consequence, it has an
impact on their productivity levels. Therefore, the countries with less quantity of a natural
resource either purchase the resource or the actual product itself from the countries with an
abundance of these. For example, crude oil is exported from the USA as it is found in
abundance there.
 Availability of Productivity Factors: The numerous production variables, like labor,
capital, and raw materials, that are required to produce and distribute diverse commodities
and services are found in different quantities in different countries. It gives rise to buying
and selling of productivity factors among the countries. For example, due to
unemployment in India, foreign countries can employ labor at chap rates from India.
 Specialization: Some countries specialize in producing goods and services for which they
have advantages such as education, favorable climatic circumstances, and so on. It results
in the business between different countries for the purchase and sale of specialized
products. For example, the Indian market specializes in handcraft products which
increases its exports to other countries.
 Cost Advantages: Production costs vary according to geographical, political, and
socioeconomic situations in different countries. Some countries are in a better position to
manufacture certain commodities at a lower cost than others. Firms participate in
international trade to purchase products that are cheaper in other countries and to sell things
that they can supply at a lower cost. For example, China sells various goods at a low price
to different countries all over the world because of the cost advantage.

 Imports and Exports of Merchandise: Merchandise refers to physical products, such as

those that can be seen and felt. Therefore, imports and exports of merchandise mean the
transfer or exchange of tangible goods from and to different countries of the world. It is
also called trade in goods as it excludes buying and selling of services.
 Imports and Exports of Services: Imports and exports of services involve intangible
goods that cannot be seen, felt, or touched. It is also known as invisible trade. Services such
as tourism and travel, transportation, communication, etc. are imported and exported.
 Licensing and Franchising: Licensing is a contractual agreement between two firms,
where the licensor (one firm) grants the licensee (another firm), access to trademarks,
copyrights, patents, etc. in a foreign country in exchange for a fee. The fee charged by the
licensor is known as royalty. For example, Microsoft grants a license to different
companies in exchange for royalty.
Franchising is also similar to licensing. However, it provides services rather than access to
patents, etc. For example, Subway has various franchises all over the world where it
provides the same services to the customers.
 Foreign Investment: It means investing money into a foreign country in exchange for a
profit. Foreign investment can be of two types Direct and Portfolio Investment.
Direct investment occurs when a firm invests directly in the machinery and plant in another
country to produce and market goods and services in that country.
A portfolio investment is a foreign investment where a company buys shares of another
company in a different country or lends money to another company. The return of portfolio
investment is received in the form of dividends or interest respectively.

Process of Evolution of International Business

In looking at these stages Hashmi (2009), concluded that any company or individual who gets into the

business of internationalization will have to go through one or more of these processes: Direct

exportation, indirect exportation (use of agents), foreign presence, and home manufacture and foreign

assembly. The processes largely depend on the destination thereof in balance with many factors that

come into play when the product is moving from producer to consumer.

Direct Exportation
When the exporter decides to export his product directly, his is the burden to research about the

market quality, the planning of the foreign distribution, and the collection of his product by the

consumer. It is a tasking venture and requires a lot of strategic planning on the side of the exporter in

order to gain the most from it. Nevertheless, with proper guidance from the relevant commercial

authorities, the process can make one gain maximum profit since it does not involve brokers or

franchisers who will always sack up some of the exporter’s profits. Small-sized companies may be

advised to go for this if they can commit a dedicated number of staff to it.

Indirect Exportation

Unlike direct exportation, sources incorporate the services of a firm that acts as an agent on behalf of

the exporter. These agents are capable of finding a viable market on behalf of the producer.

International trade consultants have enough trade contacts to ease the producer’s burden on time

consumption in looking for markets. Nevertheless, the exporter still has a form of control over the

process. This is a good way of getting a hold of new techniques in the market and also getting to know

more about the competitors that one is facing in his line of production.

Foreign Presence

Another way of handling the international market is by the exporter or his representative

accompanying the product to the consumer. The representative stands on behalf of the company and

uses the company’s samples to attract potential consumers. He may work on a commission basis and

he is usually under a contract that clearly defines terms, method of sale, and termination of the

agreement. He may decide to operate exclusively or non-exclusively.

Home Manufacture and Foreign Assembly

As the name suggests, the exporter will concentrate on converting the raw material into a finished

product. This is most cases will be a part of the main product that will require assembly to be

complete. An example is how a company in, say, Japan will manufacture a certain microchip and ship

the merchandise to the United States for assembly probably by companies like Dell or Apple.

Companies decide to do so if they especially have specialized in a certain field and will require the

help of another company overseas to finish up on the product.

The four processes that are involved in the international market when an exporter decides to sell are

greatly influenced by one of five of the following according to an article in case studies of the factors

that impact the international market (2010). The company should understand the preferences of the

customer. Indirect exporting will be preferred especially in a situation where the exporter does not

necessarily understand what the market prefers in a foreign land. This is simply because the agent may

have a better understanding of the foreign market as compared to the exporter. The exporter must also

consider the cost of exporting. Direct exporting happens to be the cheapest means of exporting but

portrays the lowest form of market knowledge. Sticking the balance is therefore necessary.

Laws and regulations of a certain foreign land always affect market prices. Government policies

concerning the prices of certain imports always vary from country to country. Consultancy is therefore

advised if the seller will not want to risk losses for his product. Nevertheless, consultancy is always an

expense that the exporter will have to incur in the process of selling. Another factor to be considered is

the compatibility of the product

. Many products that are exported may lack functionality in the place they have been taken to. For

example, it is of no use for a cell phone company to export its products to a country with no network

provider. Again, knowledge about the market is necessary for exporters to understand this and

consultancy may be preferred when considering the type of exportation he wants t to undertake.
Finally, the cultural background of a certain community affects the importation of certain goods in the

country. It will be of no use to export pork meat to an Islamic state, having considered the religious

implication of the country. Cultural factors may also affect the importation of some products to the

positive side. Generally, the process of exportation that a seller will undertake may vary if he /she will

consider these factors.

International business and globalization are interdependent with each other; events

occurring in business have direct or indirect impacts on all over globe.

Role of Technologies: There are acute changes in technologies i.e. technologies are getting more
dynamic and innovative that it ensures efficiency in production. Communication and
transportation are the key components of international trade.

Government regulation: Government is reducing restrictions in order to encourage the firm to go

global.

Provision of services: Several institutions are providing services to firms in order to increase
their production to meet the demand in domestic and international market.

Competition: Entry into the foreign market has increased competition all over the world.

Demographics: Market varies in population and therefore international business helps to provide
product according to the market structure.

Difference between IB and Domestic Business

Domestic Business

Domestic business involves those economic transactions that take place inside the geographical
boundaries of a country. Both the buyer and seller belong to the same country in this form of
business. Domestic business is also known as ‘Internal Business’ or ‘Home Trade’. It is
relatively easier to conduct business research in domestic business when compared to companies
from abroad, and the degree of risk is also much lower. The selling process, currency, type of
customers, taxation laws, and other regulations are more or less uniform, which can significantly
benefit any organisation.
International Business
International business involves those economic transactions that take place outside the
geographical boundaries of a country. The buyer and seller do not belong to the same country in
this form of business. Companies involved in international business are known as ‘Multinational’
or ‘Transnational’ companies. It is much more difficult to conduct business research on
international business firms when compared to domestic companies, and the degree of risk is
also higher. The selling process, currency, type of customers, taxation laws and other regulations
are different for the buyer and seller, which can be a hindrance for any organisation to conduct
business.

Particulars Domestic Business International Business

Definition Domestic business involves those International business involves

economic transactions that take place those economic transactions that
within the geographical boundaries take place outside the
of a country. geographical boundaries of a
country.

Buyer and Seller Both the buyer and seller belong to The buyer and seller belong to
the same country in domestic different countries in international
business. business.

Currency Domestic businesses deal with the International businesses deal with
same currency since both the buyer different currencies since the
and seller are from the same country. buyer and seller are not from the
same country.

Customers There is greater homogeneity in There is greater heterogeneity in

terms of the nature of customers of terms of the nature of customers
domestic businesses. of international businesses.

Geographical Geographical boundaries limit Geographical boundaries do not

Boundaries domestic businesses. limit international businesses.

Business Business Research is less complex Business Research is more

Research and relatively cheaper for domestic complex and relatively expensive
businesses compared to international for international businesses
organisations. compared to domestic companies.

Capital Capital investment is lower for Capital investment is higher for

Investment companies that are involved in companies that are involved in
domestic business. international business.

Factors of The domestic business has greater The international business has
 Production mobility of factors of production lesser mobility of factors of
compared to international business. production compared to domestic
business.

Quality The quality standards for domestic The quality standards for
Standards business tend to be relatively lower international business tend to be
than international business. relatively higher than domestic
business.

Restrictions Domestic business involves lesser International business involves

restrictions than international greater restrictions than domestic
business. business.

Factors for growth in International Business

There are many nuances that drive the business decision. When pondering if international
expansion is right for you, consider these four factors:

1. Culture

The cultural difference can determine whether the business is successful or not. If the product or
service doesn't add value or meet the desires of the local markets, there's no need to go sailing! It
is vital to have an intimate understanding about who lives in the community and what they value.
Consider the following:

Knowing how to conduct business among the "local" markets is extremely important. Do not
underestimate the effects of cultural differences. You must be willing to invest significant time
and energy in order to pursue an overseas venture. Seek first to understand the culture.

2. Legal and regulatory barriers

Conducting business in foreign markets is achievable if the business is flexible enough to work
within the local laws and regulation guidelines. Review aspects such as:

When reviewing legal and regulatory commitments, it is highly advised that you seek
experienced legal counsel for overseas business practices to identify hazards that may cause
barriers for your business. Don't skimp on the cost of using overseas expert legal counsel, it can
save you in the long run.

3. Foreign government consideration

The stability of the local government and its authority are very important when reviewing
overseas business options. Aspects to consider are:

 Currency exchange rates

 Access to needed resources and materials
 Communication and transportation options
 Government assistance programs for businesses
 Access to affordable capital
 Protection policies for businesses
 Immigration and employment Laws

Government stability holds the key to contract integrity, employee security and rights, trademark
and intellectual property and many other facets in conducting business. Make sure to seek "local"
expertise over the political and business factors before entertaining any overseas expansion.

4. Business case

It is essential that the business case responds to the challenges, adversity and rewards of
expanding overseas. Some strategies to consider are:

 Perform a market study to understand the market's personality, economic feasibility, market
trends, financial cost patterns and market forecasts
 Do a financial feasibility study to determine if the move makes financial sense
 Intellectual property and trademark protection, and making sure the governmental authorities
in that location recognize and protect the businesses proprietary needs
 Partnership and liaison relationship development – seek guidance and opportunity by
engaging in a "local" partnership with an existing client or supplier

Expanding into unchartered foreign market waters can be lucrative. However, it can become a
nightmare. In addition to the four aspects discussed, you can reach out to the American Chamber
Abroad, an affiliate of the U.S. Chamber of Commerce are located worldwide. Don't be a
casualty, be prepared for clear sailing!