International Business

International Business
International business is the performance of business
activities across national boundaries. Every nation in the
world participates in international business to some extent.
International business takes place between two or ore
countries. The term "international business" refers to all
those business activities which involve cross-border
transactions of goods, services, and resources between two
or more nations.
Why firms conduct international
business?
A country with a surplus of some product may decide to sell
this surplus to other nations. Such sales will enable the
country to purchase other products that it may not have the
ability to produce. Scarcity of resources is the main reason
why nations trade with each other.
No nation has every raw material, no nation can produce
everything it needs. Most nations specialize in producing
particular goods or services.
A nation has an absolute advantage if it can produce a
product more efficiently than any other nation. Absolute
advantages are rare because at least two countries can
efficiently supply a specific products.

A nation has a comparative advantage if it can produce

one product more efficiently than other products, in
comparison to other nations. Comparative advantages shift
frequently.
A nation has an absolute advantage if it can produce a
product more efficiently than any other nation. Absolute
advantages are rare because at least two countries can
efficiently supply a specific products.

A nation has a comparative advantage if it can produce

one product more efficiently than other products, in
comparison to other nations. Comparative advantages shift
frequently.
Basic concepts of International
Business
Exporting: selling domestic made goods in another
country.
Importing: purchasing goods made in another country.
Balance of Trade: A country's balance of trade is the
difference between the amount it exports and the amount it
imports. A nation that exports more than it imports maintain
a favorable balance of trade or trade surplus. A nation that
imports more than it exports has an unfavorable balance of
trade or trade deficit.
Balance of payments: a country’s balance of payments is
the total flow of money into and out of the country. A
country has a favorable balance of payment if more money
is flowing in than is flowing out and an unfavorable balance
of payments exists when more money is flowing out of the
country than in.
Barriers to International Business
Firms desiring to enter international business face several
obstacles. The most common barriers to effective
international business are:
 Cultural and social barriers
 Political barriers
 Tariffs and trade restrictions
 Currency conversion
Cultural and social Barriers

A nation’s culture and social forces can restrict

international business activities. Culture consists of a
country’s general concepts and values. Social forces
include family, education, religion and customs.

Selling products from one country to another country

is sometimes difficult when the cultures of the two
countries differ significantly.
Social forces can create obstacles to international
trade. In China, for example, a firm can not claim in its
advertisements to be number one, since the moral
system there holds that everyone is equal. In some
countries, purchasing items such as food, clothing can
be influenced by religion
Political Barriers
The political climate of a country can have a major impact
on international business. Instability of political condition
creates an unfavorable atmosphere for international trade.
Some countries are more attractive because of their political
stability.
Tariffs and Trade Restrictions
Tariffs: it is a tax imposed on imported goods to raise their
market prices, making the cost of competing domestic
products attractive by comparison. In brief, tariffs is a tax
that levied against goods brought into a country. Tariffs can
be used to discourage foreign competitors from entering a
domestic market. The risk in imposing is that the other
country could take the same action.
Currency Conversion: a firm transacting business with a
company in another country faces the ongoing problem of
converting its currency to that of the trade partner’s
currency.