International Business refers to the global business where goods and services are exchanged between countries. It involves transfer of goods, services, information, resources, capital etc.
International business comprises of all commercial transactions that take place between two or more countries beyond their political boundaries. These transactions may take place between private companies or governments of different countries.
According to Grosse and Kojawa, “International business is defined as transactions devised and carried out across international borders to satisfy corporations and individuals”
Drivers of International business→
(i) Continuous decline in trade restrictions and investment barriers after the World War II has resulted in increased international business between countries.
(ii) Changes in technology and communication have made it easier to interact and exchange goods, services and information across geographic borders.
(iii) Emergence of global institutions like IMF, GATT and WTO have helped in managing and regulating the foreign markets and provided a platform to its member countries for trading across borders.
(iv) Potential markets of the world are being exploited to generate maximum returns due to increase in the level of competition.
Factors affecting International Business →
Types of Orientation in International Business →
(A) Ethnocentric approach – It focuses on the values and ethics of the home country. The strategies are devised and formulated for domestic operations first and the overseas operations are secondary. The foreign activities are conducted mainly to distribute surplus. This approach is suitable for small companies as less investment is required and less risk is involved. The activities are managed by an export department or a separate international division.
(B) Polycentric approach – Under such an approach a company’s policies and procedures are based on host country. The local market needs and requirements are met by a team of local employees and various foreign subsidiaries are established to work independently to achieve the objectives and plans of the organization. Such an approach is generally used by Multi-national Corporations.
(C) Regiocentric approach – It is applicable when the company caters to different regions or different markets. Each region has a special or distinctive feature depending upon regional factors, political factors, economic factors etc. The regions are categorized and strategies are formulated accordingly having national and regional headquarters.
(D) Geocentric approach – It applies for the entire globe or world. A Company following this approach uses common practices and strategies throughout the world i.e. Common HR and marketing practices. It helps in building a common brand image and goodwill. Such an approach is used by large scale enterprises.
Advantages of International Business →
(i) Business development – Business expansion, survival of a firm, overseas marketing, development of export culture, use of new strategies etc
(ii) Financial benefit – Scale of economies, optimum utilization of resources, increased sales and profit
(iii) Technological benefits – Benchmarking, new product development, global quality standards
(iv) Production advantages – Large scale production, flexibility in operations, use of global resources, improved productivity, full use of plant capacity
(v) Human resource advantages – Diversified human resource portfolio, increased labour productivity, improvement working culture, better standards on living
Problems in International Business
- Political stability of host country
- Tariffs, Quotas and Trade Barriers
- Corruption and Bureaucratic practices in host country
- Piracy of Technology
- Maintaining quality standards
- Difference in culture and Language barriers
- War and terrorism
- Competition from domestic companies