Whether it’s vehicles that run on fossil fuels, the design and assembly of smartphones, or the creation of lucrative job opportunities in multinational companies, international business has far-reaching effects on every aspect of life.
International business includes the trade of goods, services, and ideas across borders, driving global economic growth and connecting the world like never before.
This article explores the international business’ definition, scope, functions, and other associated aspects.
What is International Business?
International business’ meaning refers to all commercial activities that take place beyond a country’s border. These activities involve the trade of goods, services, capital, technology, and intellectual properties like patents, copyrights, and trademarks.
International businesses can be carried out at individual levels, between organisations, or even between countries. What affects all of these players are the different economic, political, legal, and social factors that exist between the countries.
What are the Features of International Business?
International business plays a significant role in global connectivity, with companies and governments expanding beyond domestic borders to access new markets, resources, and opportunities. This gives rise to some unique features of international business, which are as follows:
1. Transactions in international business use multiple currencies depending on the country where operations are conducted.
2. Formation of strategic alliances and partnerships with foreign firms or governments.
3. Global competition from different firms working in different countries.
4. Subject to political instability, changing financial policies and trading agreements, and economic fluctuations.
5. For smooth functioning, a deep understanding of cultural differences like language, customs, business preferences, and social norms is needed.
6. Subject to diverse legal and economic regulations owing to associations with different countries.
7. Depend on robust global supply chains with production, sourcing, and distribution spread across different countries.
What is the Scope of International Business?
International business has a broad scope. It includes both international trade and other types of collaborations. Significant forms of international business operations include:
1. Import and export
Importing goods or services means purchasing them from a foreign market while exporting means selling products or services to a foreign country. It just requires setting up proper supply chains for efficient trade.
2. Foreign direct investment (FDI)
Foreign direct investments happen when a company directly invests funds in any foreign firm to market and produce goods and services in those countries. FDIs can be in the form of joint ventures or wholly owned subsidiaries.
-Joint ventures
Joint ventures refer to the collaboration between two or more firms. These firms include a combination of foreign and domestic firms that jointly establish a new firm.
-Wholly owned subsidiary
A wholly owned subsidiary is formed when a foreign company buys the whole stake in a domestic firm. It can be formed by establishing a new firm called a Green Field Venture or completely acquiring an already established firm.
3. Licensing and franchising
Licensing is an agreement in which a firm of the host country, called a licensor, allows a foreign firm, called a licensee, to carry out business operations in that foreign country using the patents, copyrights, and trademarks of the licensor. Franchising is similar to licensing, but it’s an agreement to provide only services with stricter rules and regulations.
What are the functions of international business?
Various functions associated with international businesses include:
1. Increased FDI
The increased flow of FDIs in the domestic market brings capital, advanced technology, and new business practices, which allow domestic businesses to compete globally and lead to overall economic growth.
2. Employment opportunities
With the influx of foreign firms, there is an increasing demand for labour to conduct business operations. This creates employment opportunities in the local markets. This also improves the standard of living in the domestic country.
3. Market expansion
International business gives firms access to newer markets and a consumer base. This gives them an opportunity to produce on a larger scale and expand their businesses substantially.
4. Enhanced competition
Foreign firms also bring more competition with them. This enhanced competition incentivises local businesses to improve the standards of their goods and services, which ultimately benefits the customers.
5. Foreign currency earnings
With increased foreign investments, there is an increase in foreign currency. This currency is used to pay for imported goods and services from any foreign country.
6. Resource utilisation
When foreign firms establish businesses in resource-rich markets, they gain access to local resources that were not previously available or were very costly. This reduces production costs and enhances efficiency, leading to long-term growth.
Final Thoughts
International business plays an essential role in connecting the global economy by allowing trade, investment, and the exchange of ideas across borders. As the world becomes more interdependent, reliance on international business to drive long-term success and growth becomes even more pivotal.
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FAQs
Any business operating beyond borders through physical presence or online platforms qualifies as an international business. An example of an international business is Tata Motors.
International business helps in global economic integration and facilitates cross-border trade, investment, and cultural exchange. It also drives innovation, enhances competition, and contributes to the economic growth of nations.
Advantages of international business include widening of customer base, growth of revenues, access to a greater talent pool, better resource utilisation, culture exchanges, and employment prospects.
Five types of international businesses include import and export of goods and services, licensing, franchising, Foreign Direct Investment, strategic partnerships, and joint ventures.
18 March 2025
5 mins read
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