International business 1

1. INTERNATIONAL BUSINESS
 Introduction
 Meaning
 Objectives
 Domestic business v/s International business
 Modes
 Advantages

2. DEFINE INTERNATIONAL BUSINESS
Introduction : International business h as been playing a
crucial role for centuries . In the present day world it h as
become in dispensable for any country. Its role h as
increased in
significance, both at the macroeconomic and
microeconomic levels . No country developed or developing
produces all commodities to meet its requirements . It needs
to import items
that are not produced domestically. At the same time, it tries
to export all items that are produced over and above its
domes tic requirements .

3. MEANING OF INTERNATIONAL BUSINESS
International business means carrying on business activities beyond
national boundaries . These activities normally include trans
action of economic
resources such as :
 Goods
 Capital
 Services (comprising technology killed labor and transportation
, etc.)
 International production.
Production may either involve production of physical goods or
provision of services like banking , finance ,insurance ,
Construction ,trading and so on. Thus international business
includes not only international trade of goods and services but
also foreign investment , especially foreign direct investment.

4. OBJECTIVES OF INTERNATIONAL BUSINESS
 Sales Expansion : The main objective of International
business is to increase the sale because in
international business a firm can s ell its product in
domes tic as well as in foreign market.
 Resource Acquisition : It means getting the resources
from other countries because there may be s o many
resources of other country which may not be
available in home country.
 Minimize Competitive Risk : Many companies move
internationally to minimize the risk of competitors .
They want to go in international market for defensive
reasons

5.  Diversification : Many companies want to
diversify the sources of s ales and supplies ,
so they may s eek foreign market for this purpose.

6. DOMESTIC BUSINESS VERSUS INTERNATIONAL
BUSINESS
International business differs from domes tic business in that the former involves
across the country trans actions or across the country production or provision of
services,whereas,in case of domes tic business such activities are limited to the
length and breadth of the country. International business is
different from domes tic business . In international business :
(1) Intra-firm trans actions using transfer pricing is common.
(2) There are many complexities in international business that are not found in case
of
domes tic business .
(3) Varying environment-political ,legal ,economic ,socio-cultural and ethical-in host
countries , often not known to the firm.
(4) Presence of political risk and also of exchange rate risk , sometimes leading to
financial risk.
(5) Varying strategies of business in different host countries .

7. MODES OF INTERNATIONAL BUSINESS
A firm adopts various modes for its entry into
business transaction across borders . Which
particular mode a firm should adopt depends
, at least, upon four factors .They are:
(1) Subservience of the corporate objective
(2) Corporate capability
(3) Host country environment
(4) Perceived risk

8. MODES OF INTERNATIONAL BUSINESS ARE :
(1) Direct and Indirect Export : Trade mode presents the firs t step in international
business . It includes export and import. Export may be either direct or indirect:
(i) Direct Export : In case of direct export , a company takes full responsibility
for
making its goods available in the target market by selling directly to the end
Users ,normally through its own agents . Direct export is feasible when the
exporter desires to involves itself greatly in international business ; and at the
same time possesses the capacity to do so. There are also some commodities
where direct export is more convenient. They are ,for example , air crafts and
similar industrial products .
(ii) Indirect Export : When the exporting company does not possess the
necessary infrastructure to involve its elf in direct exporting ,Indirect export takes
place. It takes place when the exporting company s ells its products to
Intermediaries ,who in turn sell the same products to the end users in the target
market.

9. (2) Counter-Trade : Counter trade is a s ort of bilateral
trade where one s et of goods is exchanged for
another set of goods . In this type of external trade , a
seller provides a buyer with delivers and contractually
agrees to purchase goods from the buyer equal to the
agreed percentage of the original sale contract value.
(3) Contractual Entry Modes : Contractual entry modes
are found in case of intangible products such as
technology , patents and s o on. When a company
develops a particular technology through its own
research and development programmed , it likes to
recover
the cost of research and development. To this end ,it
sells the
technology either to a domes tic form or to a foreign
firm. The contractual entry mode , often known as
technical collaboration or technical joint-venture , is

10. ADVANTAGES OF INTERNATIONAL BUSINESS
(1) Increased Socio Economic Welfare : International business
enhances consumption level ,and economic welfare of th e
people of th e trading countries . For example ,the people of
China are now enjoying a variety of products of various countries
th an before as China h as been actively involved in international
business like Coca Cola , McDonald's range of products ,
electronic products of Japan and coffee from Brazil. Thus ,the
Chinese consumption levels and socio-economic welfare are
enhanced.
(2) Wider Market : International business widens th e market and
increases th e demand for th e product in a s ingle country or
customer's tastes market size. Therefore , the companies need
not depend on th e preferences of a s ingle country. Due to the
enhanced market th e Air France , now mostly depends on th e
demand for air travel of th e customers from countries other th an
France. This is true in case of most of the MNCs like Toyota
,Honda , Xerox and Coca Cola.

11. 
(3) Reduced Effects of Business Cycles : The stages of business cycles vary from
country to country. Therefore ,MNCs shift from th e country , experiencing a
recession
to the country experiencing 'boom' conditions . Thus international business firms
can
escape from the recessionary conditions .
(4) Reduced Risks : Both commercial and political risks are reduced for th e
companies
engaged in international business due to spread in different countries .
Multinationals ,which were operating in to erst while USSR , were affected only
partly
due to their safer operations in other countries . But th e domes tic companies of th
en
U SSR collapsed completely.
(5) Large Scale Economies : Multinational companies due to th e wider and larger
markets produce larger quantities . Invariably , it provides th e benefit of large scale
economies like reduced cost of production ,availability of expertise , quality etc

12. (6) Provides the Opportunity for and Challenge to Domestic
Business : International business firms provide th e
opportunities to th e domes tic companies . These
opportunities include technology , management expertise ,
market intelligence, product developments etc. For example ,
Japanese firms operating in U S provide these opportunities
to U S companies . This is more evident in the case of
developing countries like India , African countries and Asian
countries