Why is International Business Important?
Globalization has connected regions geographically, physically, and culturally diverse around the world. Companies and organizations which operate across the globe through these various locations to provide the best services. With a proper understanding of local customs, laws, and culture, the managers can successfully execute the businesses from these locations. The textbook definition of international trade is any transaction that involves two or more nations. These businesses can occur in the form of payments transfer of goods and services between private firms or even the governments.
Large companies and the governments of specific countries trade with other countries regularly for raw materials, technologies, and even labour. With increased globalization, the importance of international business rises throughout the world. Open markets nearly in all countries have made even the small to medium businesses take leaps towards global business.
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The growing relevance of international business has led to the development of a newer form of management strategy called international management. This mostly deals with setting up businesses and running them smoothly by focusing on the company motives as well as local agendas and laws.
Features of International Business
In this section, the different features of global business practices have been discussed.
The primary difference that international businesses have from the domestic one is the sheer difference in the scale of operations. Being simultaneously operational in different countries, these have to handle multiple jurisdictions.
The second feature of international business is that the firms have to take into account the different economic factors and levels of the involved countries. Managing all these economies helps in smooth functions of importing, exporting, financing, hiring, selling, and managing.
When international businesses come into the market, local small businesses have to face fierce competition from these large corporations which have unlimited resources and funds in comparison.
Lastly, the international business market is not evenly spread throughout the world. Not every country provides opportunities for local industries to grow and expand overseas. Therefore the international is dominated by the USA, UK, Japan, China, Germany, India, etc.
Importance of International Business
There are innumerous benefits that the organization and the economy as a whole get when it deals with International business. Few of these are stated below-
International business helps in foreign exchange of currency. When the two or more countries carry out transactions between them, multiple currencies are used. All these currencies exchanged in payment of goods and services help to keep the currency value stable. Therefore the economy of the countries remain stable and even get a boost over time.
For industries, international markets are huge customer bases and a chance to obtain large sums of profits. This is only possible when the company carries out international business with other countries selling and gaining popularity for its products in new parts of the world.
The importance of international business can be seen in the utilization of resources of a country. In the case of surplus resources in a country, the government can form trade relations with other countries and sell its surplus in exchange for some products, services, or goods it needs.
Relevance of International Business
The relevance of international business is ever increasing. With more unified notions and culture around the world and a chance to boost the economy and give the population a better life with cheaper services, even the governments of several countries encourage international trade and businesses.
The high profits these businesses earn keep the economy running. Therefore the government encourages large as well as medium enterprises to reach out to foreign markets by giving them several exemptions and benefits.
Risk management is another integral factor that makes international business beneficial even if the local market fails due to bad economic conditions. Diversification of the market by the company helps it to maintain some of its profit in the international markets.
Remote Working Systems
With better technology, employees can conduct international businesses without ever physically being in the meeting locations. Better communication, companies can now connect over long distances easily and save a lot on transport and other overseas costs required previously for international trade.
Retail and Workplace Flexibility
The significance of international business can be understood by the change in the industry operating methods. Remotely working using computers has become a possibility with the help of technology. With better connectivity, companies need not be established all around the world anymore. Even a medium-sized company based in a single country can ship its products around the world with the help of technology. It has made remote working accessible, which in return has made International business more accessible.
Information technology companies hiring professionals is not limited to just a single country anymore. Employees with the usage of the internet and other technologies can operate without ever physically being in the office. This helps the enterprises to save funds reserved for buying offices.
FAQs on International Business and Global Practices: An Overview
1. What is the fundamental concept of international business?
International business refers to all commercial transactions, including the transfer of goods, services, capital, and technology, that take place between two or more countries. These transactions can occur between private companies or between governments. It essentially involves conducting business activities across national borders, which introduces complexities not found in domestic business.
2. How does international business differ from domestic business?
The primary differences between international and domestic business stem from the environment in which they operate. Key differences include:
- Nationality of Stakeholders: International business involves engaging with buyers, sellers, and employees from different countries, bringing diverse cultural and social perspectives.
- Currencies Used: It involves transactions in multiple currencies, exposing firms to the risk of currency fluctuations.
- Legal and Political Systems: Businesses must navigate different laws, tax systems, and political climates in each country of operation.
- Scale of Operations: The scale is typically much larger, involving complex logistics, supply chains, and market strategies for multiple regions.
3. What are the main modes of entry into international business for a company?
As per the CBSE syllabus for the 2025-26 session, the primary modes of entry into international business are:
- Exporting and Importing: The most basic mode, where a company sells its domestically produced goods in another country or buys goods from another country.
- Licensing and Franchising: Granting a foreign firm the right to use intellectual property (licensing) or a complete business model (franchising) for a fee or royalty.
- Joint Ventures: Forming a partnership with a foreign company to create a new, jointly-owned business entity.
- Wholly Owned Subsidiaries: Establishing a firm in a foreign country that is fully owned and controlled by the parent company, often through Foreign Direct Investment (FDI).
4. Why is international business considered important for a nation's economy?
International business is vital for a country's economic growth and stability. Its importance lies in:
- Earning Foreign Exchange: It helps a country accumulate foreign currency reserves, which are essential for paying for imports and strengthening the domestic currency.
- Efficient Resource Utilisation: Countries can export surplus resources and import those that are scarce, leading to more efficient use of global resources.
- Economic Growth: Access to larger international markets allows domestic companies to increase production and generate higher profits, contributing to national income and employment.
- Risk Diversification: By operating in multiple markets, a country's economy becomes less dependent on domestic conditions and can withstand local economic downturns better.
5. What is the scope of international business?
The scope of international business is very broad and goes beyond just the trade of physical goods. It includes:
- Merchandise Trade: The export and import of tangible goods like machinery, electronics, and agricultural products.
- Service Trade: The export and import of intangible services, such as tourism, banking, IT services, and transportation. This is also known as invisible trade.
- Foreign Investments: Investing funds abroad in exchange for financial return. This can be Foreign Direct Investment (FDI), where a company establishes operations, or Portfolio Investment (FPI), which involves buying financial assets.
- Licensing and Franchising: Permitting a foreign entity to use a company's patents, trademarks, or business processes.
6. How has technology changed modern global business practices?
Technology has revolutionised international business by breaking down geographical barriers. It has enabled instantaneous communication through the internet, allowing for remote collaboration and management of global teams. Advances in logistics and supply chain technology have made it possible to track goods in real-time, reducing costs and improving efficiency. Furthermore, e-commerce platforms have empowered even small and medium-sized enterprises (SMEs) to access global customers directly, making international trade more accessible than ever before.
7. What are some real-world examples of different international business types?
Here are some practical examples:
- Exporting: An Indian tea company selling its packaged tea to supermarkets in the UK.
- Franchising: McDonald's or Subway operating restaurants in various countries through local franchise owners who follow their strict business model.
- Licensing: A pharmaceutical company giving a foreign manufacturer the license to produce and sell its patented drug in a specific region.
- Foreign Direct Investment (FDI): A car manufacturer like Toyota building and operating its own assembly plant in India.
8. What are some significant challenges a business might face when operating globally?
Operating globally presents unique challenges that are not present in domestic markets. Key challenges include political and legal differences, where businesses must navigate unfamiliar regulations and potential instability. Cultural differences can impact marketing strategies and management styles. Additionally, currency exchange rate fluctuations can significantly affect profitability, and businesses must also manage complex international logistics and supply chains.
