What is international business?

       International business denotes all those business activities which take place beyond the geographical limits of the home country. It involves not only the international movements of goods and services, but also of technology,capital personnel and intellectual property like patents, trademark, know-how and copy rights. 

TYPES OF INTERNATIONAL BUSINESS:

           International business can be divided into three kinds on the basis of sale and purchase of goods and services. 

               A) EXPORT TRADE. 

               B) IMPORT TRADE. 

               C) ENTREPOT TRADE. 

   A) EXPORT TRADE:

          When the firm of country sells goods and services to a firm of another country it is called export trade. Export trade indicates selling of goods and services from the home country to a foreign country. For Example; the sale of handicraft, leather products, electronic goods, herbal products, etc., by Indian company to other countries is known as export trade.

B) IMPORT TRADE:

   When the business firm of a country purchases goods from the firm of another country it is called import trade. Importing means purchase of foreign products and bringing them into one’s home country. For example when Indian enterprise purchases petroleum products, electrical goods, machinery, and medical equipments etc., from other countries, it is termed as Import Trade. 

C) ENTREPOT TRADE:

      When the firm of country imports goods for the purpose of exporting the same goods to the firms of some other country with or without making any change in the goods meant for export it is known as entrepot trade For example, If an Indian company imports crude oil from Iran and exports it as petroleum after refining it in India, to Nepal it is called Entrepot trade. In this context crude is converted into petrol and exporter as petrol to Nepal Now you must be thinking why India comes between Iran and Nepal. Why does not Nepal directly import crude oil from Iran?. Let us explore what could be the possible reasons for this.

Methods of conducting International business:

1.Exporting and importing

     Exporting denotes selling of goods and services from the home country to a foreign country. Similarly importing refers to purchase of products from foreign country and bringing them into home country. 

2.contract manufacturing or outsourcing

      It connotes a type of international business where a firm enters into a contract with one or a few local manufacturers in foreign countries in order to get certain components of goods produced according to its specifications. It is also called outsourcing or contract manufacturing. 

3.Licensing and franchising 

        

        Licensing is contractual agreement wherein one firm grants access to its plants, trade secrets or technology to another firm in a foreign country, for a fee called royalty, e.g. 

McDonald, Pisa Hut, etc.,The firm which grants such permission is called Licensor or Franchisor and other firm to whom the license is granted is called Licensee or Franchisee.   

      

4.joint venture

           

          A Joint venture is a business agreement 

wherein parties agree to develop a new entity 

and assets subscribing to equity shares and 

thereby exercising control over enterprise 

and consequently sharing revenues, expenses and the assets. It can be established under three different ways namely;

          (i) Foreign Investors buying an interest in 

local company

         (ii) Local firm acquiring an interest in the 

existing foreign firm

        (iii) Both the foreign and local firms jointly 

forming a new enterprise.                     

 5. Foreign Direct Investment (FDI)

      FDI means investment made by a company 

or individual in one country in the business 

interest in another country in the form of 

either establishing new business operations 

or acquiring business assets in the other 

country.      

  
Advantages and Disadvantages of International Business:

Advantages:

1. Geographical Specialization

       Countries across the world differ significantly in terms of natural resources, capital equipment, manpower, technology and land and so on. Some countries are rich in mineral resources hydro-electric power metallic resources, and so on while some other countries may possess advanced technique of manufacturing, efficient working population, capital equipment and so on. International business is required to exchange the surplus resources resulting from geographical specialisation for deficit resources in other countries. 

2.Optimum use of natural resources:

       International business operates on a simple principle that a country which can produce more efficiently and trade the surplus production with other countries has to procure what it cannot produce more efficiently. This enables the countries to optimally utilize the scarce resources available with them. 

3. Economic Development.

International business helps the developing 

countries greatly in achieving rapid economic development by importing machinery, equipment, technology, talent, and so on. For example., China, India, Brazil and South Korea which were once slower in their economic development are achieving faster economic development due to international business. Even the developed countries like Japan, USA, UK, etc., have achieved remarkable economic progress through the import of raw materials and export of manufactured goods.

4. Generation of Employment.

International business generates employment opportunities by assisting the expansion and growth of agricultural and industrial activities. It provides direct employment to those people who are hired by export and import firms and 

generates indirect employment to number of intermediary firms like, clearing and forwarding agent, indent houses transport organizations, outsourcing agencies, etc.

5. Higher Standard of Living.

      On account of international business, the citizens of the country can buy more varieties of goods and services which cannot be produced cost effectively within the home country. This exchange of goods and services among the countries enhances the standard of living of people.

6. Price Equilisation:

       International business helps to stabilize the prices of various commodities which are 

fluctuating on a daily basis in the world market. Whenever the price of a commodity 

rises sharply in a particular country, the same commodity is imported from some other foreign countries to prevent the sharp rise in prices in the home country. Thus international business prevents violent fluctuations of prices of various commodities and helps maintain prices of various commodities at stable level in each and every country.

7. Prospects for Higher Profit.

       International business helps the firms which produce goods in excess to sell them at relatively higher price to various countries in the international market. This enables them to earn higher profit.  

8. Capacity Utilisation.

      International business enables the firms 

across the country to sell their goods and 

services on a large scale in the international 

market. As a result their machinery and 

equipments are used to their full capacity. 

In short very prospect of selling goods 

in international market besides selling 

the goods in home market keeps the 

machineries, tools, equipment, and factory 

fully engaged all through the year.

9. International Peace.

       International business makes countries 

across the world become inter-dependent while these countries are independent in their functioning. This facilitates the exchange of

culture, ideas and mutual understanding. It 

develops and strengthens cultural and social 

relations among the people of different countries. All these collectively contribute 

to maintain international peace.

Disadvantages

1. Economic Dependence.

        International trade is more likely to make 

the country too much dependent on imports 

from foreign countries. The former may not 

take any efforts to produce goods and services indigenously to substitute imported goods and 

thus becoming self sufficient. As a result the 

importing country may become economically 

slave to exporting country and end up becoming colony of the exporting country.

2. Inhibition of Growth of Home Industries.

       International business may discourage the 

growth of indigenous industry. Unrestricted imports and severe competition from foreign 

companies may ruin the home industries altogether. 

3. Import of Harmful Goods. 

      International business may lead to import of luxurious goods, spurious goods,dangerous 

goods, etc. It may harm the well-being of people.

4. Shortage of Essential Goods in Home 

Country. 

          Moreover the export of essential commodities out of the greed of earning more foreign exchange may result in absolute shortage of these goods at home country and people may have to buy these commodities at exorbitant price in the local market. 

5. Misuse of Natural Resources.

     Excessive export of scarce natural resources to various countries across the world may lead to faster depletion of the resources in the exporting countries. This in turn may bring about ecological disaster in the 

country from which it is exported.

6. Political Exploitation.

      International business may create economic dependence among the countries which may threaten their political independence. The MNCs may influence the policy decision of the government to their favour. In due course of time they may dictate terms to administrators of nation by the sheer 

strength of their money power. For example 

Britishers came to many countries as mere 

traders and ultimately colonized those countries and ruled them for centuries.

7. Rivalry among the Nations.

      Acute competition for exports may lead to 

rivalry among the nations. This may lead to 

conflict of interest among the countries and 

end up in wars among them.

8. Invasion of Culture.

    International business may result in invasion of country’s culture. Younger generation is more likely to imitate foreign culture and buy goods and services beyond their means to gain acceptance in the affluent section of society. This will ruin the conventional lifestyle of the society.