The nature and characteristics or features of international business are:
1. Large scale operations
In international business, all the operations are conducted on a very huge scale. Production and marketing activities are conducted on a large scale. It first sells its goods in the local market. Then the surplus goods are exported.
2. Integration of economies
International business integrates (combines) the economies of many countries. This is because it uses finance from one country, labor from another country, and infrastructure from another country. It designs the product in one country, produces its parts in many different countries and assembles the product in another country. It sells the product in many countries, i.e. in the international market.
International business is dominated by developed countries and their multinational corporations (MNCs). At present, MNCs from USA, Europe and Japan dominate (fully control) foreign trade. This is because they have large financial and other resources. They also have the best technology and research and development (R & D). They have highly skilled employees and managers because they give very high salaries and other benefits. Therefore, they produce good quality goods and services at low prices. This helps them to capture and dominate the world market.
4. Benefits to participating countries
International business gives benefits to all participating countries. However, the developed (rich) countries get the maximum benefits. The developing (poor) countries also get benefits. They get foreign capital and technology. They get rapid industrial development. They get more employment opportunities. All this results in economic development of the developing countries. Therefore, developing countries open up their economies through liberal economic policies.
5. Keen competition
International business has to face keen (too much) competition in the world market. The competition is between unequal partners i.e. developed and developing countries. In this keen competition, developed countries and their MNCs are in a favourable position because they produce superior quality goods and services at very low prices. Developed countries also have many contacts in the world market. So, developing countries find it very difficult to face competition from developed countries.
6. Special role of science and technology
International business gives a lot of importance to science and technology. Science and Technology (S & T) help the business to have large-scale production. Developed countries use high technologies. Therefore, they dominate global business. International business helps them to transfer such top high-end technologies to the developing countries.
7. International restrictions
International business faces many restrictions on the inflow and outflow of capital, technology and goods. Many governments do not allow international businesses to enter their countries. They have many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is harmful to international business.
8. Sensitive nature
The international business is very sensitive in nature. Any changes in the economic policies, technology, political environment, etc. have a huge impact on it. Therefore, international business must conduct marketing research to find out and study these changes. They must adjust their business activities and adapt accordingly to survive changes.
The points below highlight the importance of international business:
1. Earn foreign exchange
International business exports its goods and services all over the world. This helps to earn valuable foreign exchange. This foreign exchange is used to pay for imports. Foreign exchange helps to make the business more profitable and to strengthen the economy of its country.
2. Optimum utilization of resources
International business makes optimum utilization of resources. This is because it produces goods on a very large scale for the international market. International business utilizes resources from all over the world. It uses the finance and technology of rich countries and the raw materials and labor of the poor countries.
3. Achieve its objectives
International business achieves its objectives easily and quickly. The main objective of an international business is to earn high profits. This objective is achieved easily. This it because it uses the best technology. It has the best employees and managers. It produces high-quality goods. It sells these goods all over the world. All this results in high profits for the international business.
4. To spread business risks
International business spreads its business risk. This is because it does business all over the world. So, a loss in one country can be balanced by a profit in another country. The surplus goods in one country can be exported to another country. The surplus resources can also be transferred to other countries. All this helps to minimize the business risks.
5. Improve organization’s efficiency
International business has very high organization efficiency. This is because without efficiency, they will not be able to face the competition in the international market. So, they use all the modern management techniques to improve their efficiency. They hire the most qualified and experienced employees and managers. These people are trained regularly. They are highly motivated with very high salaries and other benefits such as international transfers, promotions, etc. All this results in high organizational efficiency, i.e. low costs and high returns.
6. Get benefits from Government
International business brings a lot of foreign exchange for the country. Therefore, it gets many benefits, facilities and concessions from the government. It gets many financial and tax benefits from the government.
7. Expand and diversify
International business can expand and diversify its activities. This is because it earns very high profits. It also gets financial help from the government.
8. Increase competitive capacity
International business produces high-quality goods at low cost. It spends a lot of money on advertising all over the world. It uses superior technology, management techniques, marketing techniques, etc. All this makes it more competitive. So, it can fight competition from foreign companies.
Companies engage in international for a variety of reasons, but the goal is typically company growth or expansion. Whether a company hires international employees or searches for new markets abroad, an international strategy can help diversify and expand a business.
Let us look at some of the reasons why companies engage in international business:
1. To expand Sales
Companies are dependent on
- Consumers’ interest in product and services and
- The consumers’ willingness and ability to buy them
Over years the number of consumers is increasing with their standard of living also rising, which has led to increased purchasing power and demands in a particular country. When this is compared to the consumers and demand of the entire world it opens up an exciting world of opportunities. This means higher sales and higher profits due to economies of scale that can be achieved with high volumes.
2. To acquire Resources
Manufacturers and distributors look for foreign capital, technology and information that they can use at home to reduce costs. Sometimes companies operate abroad to acquire something which is not readily available at home country so as to improve the cost and product quality. Also it is possible that setting up the industry in another country is cheaper than transporting the raw material from other country to home country.
3. Minimize Risk
Companies seek foreign markets to minimize swings in sales and profits arising of business cycle i.e. recession and expansions, which occur differently in different countries. For example there would be recession in one country where the sales are growing very slowly on other hand there would be a developing country where there is high demand for its products due to its expanding markets.
4. Lower Cost of Production
Companies go international to find alternative sources of labor. Labor in developing countries is much cheaper when compares to developed countries, labor cost has a direct impact on the cost of production which affects the bottom line of the companies. Some companies look to international countries for lower-cost manufacturing, technology assistance and other services in order to maintain a competitive advantage
5. Broaden Workforce
Companies go international to broaden their work force and obtain new ideas. A work force comprised of different backgrounds and cultural differences can bring fresh ideas and concepts to help a company grow. For example, IBM actively recruits individuals from diverse backgrounds because it believes it’s a competitive advantage that drives innovation and benefits customer.
Companies who are proactive in international business are, in most cases, better positioned than companies that simply react. If you simply react you might make a mistake and not do things properly because you are stressed for time, money or manpower.
International business has growth dramatically in recent years because of strategic imperatives and environmental changes.
Strategic imperatives include the need to leverage core competencies, acquire resources, seek new markets, and match the actions of rivals. Although strategic imperatives indicate why firms wish to internationalize their operations, significant changes in the political and technical environment have no doubt facilitated the explosive growth in international business activity that has since World War 2. The growth of the internet and other information technologies is likely to redefine global competition and ways of doing international business once again.
There are many reasons why international business is growing at such a rapid pace. Below are some of those reasons:
1. Saturation of Domestic Markets
In most of the countries due to continuous production of similar products over the years has led to the saturation of domestic markets. For example in Japan 95% of people have all types of electronic appliances and there is no growth of organization there, as a result they have to look out for new markets overseas.
2. Opportunities in Foreign Markets
As domestic markets in some countries have saturated, there are many developing countries where these markets are blooming. Organizations have great opportunities to boost their sales and profits by selling their products in these markets. Also countries that are attaining economic growth are demanding new goods and services at unprecedented levels.
3. Availability of Low Cost Labor
When we compare labor cost in developed countries with respect to developing countries they are very high as a result organizations find it cheaper to shift production in these countries. This leads to lower production cost for the organization and increased profits.
4. Competitive Reasons
Either to stem the increased presence of foreign companies in their own domestic markets or to counter the expansion of their domestic markets more and more organizations are expanding their operations abroad. International companies are using overseas market entry as a counter measure to increase competition.
5. Increased Demands
Consumers in counties that did not have the purchasing power to acquire high-quality products are now purchasing them due to improved economic conditions
To counter cyclical patterns of business in different parts of the world, most of the companies expand and diversify their business, to attain profitability and uncover new markets. This is one of the reasons why international business is developing at a rapid pace.
7. Reduction of Trade Barriers
Most of the developing economics are now relaxing their trade barriers and opening doors to foreign multinationals and allowing their companies to set-up their organizations abroad. This has stimulated cross border trade between countries and opened markets that were previously unavailable for international companies.
8. Development of communications and Technology
Over last few years there has been a tremendous development in communication and technology, which has enabled people sitting at their home at one part of the world to know about demands, products and services offered in other part of the world. Adding to this is the reducing cost of transport and improved efficiency has also led to people expanding their business.
9. Consumer Pressure
Innovations in transport and communication as led to development of more aware consumer. This has led to consumers demanding new and better goods and services. The pressure has led to companies researching, merging or entering into new zones.
10. Global Competition
More companies operate internationally because
– New products quickly become known globally
– Companies can produce in different countries
– Domestic companies, competitors, suppliers have becomes international
As international companies venture into foreign markets, these companies will need managers and other personals who understand and are exposed to the concepts and practices that govern international companies. Therefore the study of international business may be essential to work in global environment
Our great grandfathers ate food which was grown by them, wore clothes which were stitched by them. Slowly as the population of a country began to increase, there was also an advancement of technology leading to improved production and distribution methods. Slowly people began to depend on others for goods and services. Slowly some people started to specialize in one activity for example, producing food grains, stitching clothes, making food, etc… this lead to increased dependence.
People then started to buy and sell goods and services amongst themselves in the same country. Slowly with advent of modern technology and distribution system these transaction started to be conducted beyond the borders of one country.
Now you wear shirt made in Thailand, shoes made in US, use music system made in Japan, own a television set made in China. Most of you have the experience of browsing Internet and visiting different web sites, knowing the products and services offered by various companies across the globe. Some of you might have the experience of even ordering and buying the products through Internet. This process gives you the opportunity of transacting in the international business arena without visiting or knowing the various countries and companies across the globe. You get all these even without visiting or knowing the country of the company where they are produced.
We all are now a part of global economy. Political boundaries of nations, states or regions are no longer the fetters for business in the global economic paradigm. Production and consumption are globally spread for most products.
International Business is all commercial transactions – private or government – between two or more countries. International Business allows you to purchase popular items made in other countries, without global business our life probably would have been different. Private organizations may undertake these activities for profits whereas governments may or may not for profits.
International Business means carrying business activities beyond national boundaries. These activities include transactions of economic resources such as:
- International production
Study of international business has become very important because:
- It comprises a large and growing portion of the world’s total business
- It provides a source of raw materials and parts for foreign products
- It allows new markets for investments
- It helps improve political relations
- All companies are affected by global events and business
Thus, international business is the process of focusing on the resources of the globe and objectives of the organizations on global business opportunities and threats.