Meaning of International Business

MEANING OF
INTERNATIONAL
BUSINESS
DEFINITION OF INTERNATIONAL
BUSINESS
In today’s technology-connected global economy,
even small businesses can compete in the
international marketplace.
 According to business directory.com
 Definition 1
The economic system of exchanging good and

services, conducted between individuals and
businesses in multiple countries.
 Definition 2
The specific entities, such as

multinational corporations (MNCs) and
international business companies (IBCs), which
engage in business between multiple countries
DEFINITION OF INTERNATIONAL
BUSINESS
• International Business is all business transactions that

involve two or more countries.

• International Business comprises a large and growing

portion of the world’s total business.

• International Business usually takes place within a
more diverse external environment.
• International trade is a vital part of the
• economy
• • Trade has contributed to world wide
• economic growth
Why Companies Engage in
International Business


A) To Expand Sales: companie’s sales are dependent
on two factors: the consumers’ interest in their
product or services and the consumers’ ability and
willingness to buy them.
 B) Acquire Resources: products, services,
technology, and information
 C) Diversify Sources of Sales and Supplies
 D) Minimize Competitive Risk: companies move
internationally for defensive reasons. Profits from
one market can be used to expand operations in
other markets
Reasons for Recent International
Business Growth
 Expansion of Technology:
 transportation, telecommunications;
 Transportation and telecommunications costs are
more conducive for international operations.
 Liberalization of Cross-Border Movements:
 goods, services, labour, Capital
 Development of Supporting Institutional
Arrangements: development by business and
governments of institutions that enable us to
effectively apply that technology.
 Increase in Global Competition:
 new products become global; Globalization of
production
Reasons for trade
 • Non availability of goods
 – permanent non-availability
 – Temporary non-availability
 – product differentiation
 • Differences in technology
 – Principle of absolute advantage (A. Smith)
 – Principle of comparative advantage (D. Ricardo)
 • Differences in factor endowments
 – Heckscher-Ohlin Theorem
 • Differences in consumer demand
 • Transport costs
 • Economies of scale in production
 • Government policies
Trade policies
 “Trade policies aimed to protect domestic producers do usually reduce
 social welfare”
 • Tariffs, import quotas, tariff rate quotas, variable levies, state trading
 – At a specific point in time, the effects of import quota and tariffs are similar
 – Given the dynamic of price changes, tariffs are preferable to other import
restrictions since
 world price changes are transmitted to the domestic market
 • Export subsidies
 – Export subsidies do not only reduce domestic welfare, they are also costly for the
national
 budget
 – Foreign exporters suffer, while foreign importer benefit from export subsidies
 • Price discrimination
 – State trading opens the opportunity that large countries can act as oligopolists/
 oligopsonists and thereby realise an additional rent by charge different price for
different
 countries
 • Technical barriers to trade
POSSIBLE INTERNATIONAL
BUSINESS ACTIVITIES
 International trading (an international company can
be used as intermediary to re-invoice exports and
imports)
 International services companies (re-invoice services
through an international company)
 International construction and / engineering
companies
 International transport/distribution companies
 Royalty companies
 Real estate companies
 Shipping and ship management companies
 Commission agents
 E-business
international business is in the Banking, Commerce &
Finance and International Trade & Relations subjects
MODES OF INVESTMENT
 1) Foreign Direct Investment: gives the investor a controlling Interest in a
foreign company. It gives access to:
 - foreign markets
 - foreign resources
 - higher profits than exporting
 - partial ownership


 2) Portfolio Investment: stock in a company or loans to a company or
country in the form of bonds, bills, or notes that the investor purchases.
 E - Other Operational Definitions
 - Strategic Alliances
 F – MNCs, MNEs, TNCs, Global Company, Multidomestic Company
 External Influences on International Business
 Understanding a Company’s Physical and Societal Environment Managers
need a working knowledge of business operations, a working Knowledge of
political sciences, law, anthropoly, sociology, economics, and geography.


MEANING OF DOMESTIC TRADE
Trading that is aimed at a single
market, the firms domestic trade, is
referred to as domestic trading. In
domestic trading, the firm faces only
one set of competitive, economic, and
market issue and essentially must
deal with only one set of customers,
although the company may have
several segments in this one market.
Difference between domestic and
international trade
Difference between domestic trade and foreign trade and their
peculiar problems Trade, no doubt, implies exchange of goods
between persons, but there are marked differences between
domestic trade and international trade. The differences and the
complications arise therein are as follows:
Distance
The distance involved in export of goods in external trade is
generally greater than on the domestic trade.
 Language differences
There are differences in the languages of the nations of the world.
The overseas traders should be very careful in preparing the
publicity material in the languages of the trading country
 Cultural difference
A producer should have full knowledge about the market of his
products. For exporting goods particularly a thorough research is
undertaken.
Differences between domestic and
international trade

Documentations
In the home trade there are few documents involved in the exchange of goods.
 Payments
In the internal trade, the goods are exchanged in the currency unit of the country. In
case of foreign trade currencies differ widely throughout the world and those also vary in
value.
 Transport and insurance cost

The transport and insurance costs are less in case of domestic trade. For the exports, on
the other hand the cost of transport is high and the insurance is complicated.
 Technical difference
In the national market the difference in the technical specification for goods
and their requirements is not wide.
 Tariff barriers
In the national trade, there are no custom duties, exchange restrictions,
fixed quotas or other tariff barriers.

REASONS FOR RECENT INTERNATIONAL BUSINESS
GROWTH
 Expansion of Technology
 transportation, telecommunications:
Transportation and telecommunications
costs are more conducive for international
operations.
 Liberalization of Cross-Border Movements:
goods, services, labor, Capital
 Development of Supporting Institutional
Arrangements: development by business
and governments of institutions that enable
us to effectively apply that technology.
 Increase in Global Competition: new
products become global; Globalization of
production

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MEANING OF

The economic system of exchanging good and

The specific entities, such as

• International Business is all business transactions that

• International Business comprises a large and growing

 Transport and insurance cost

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