The business and its related transactions taking place beyond national boundaries are termed as international business. International business is an all-inclusive term which includes FDI (foreign direct investment), globalization, trade policies, multinational companies and their tactics, mergers, and acquisitions, export-import, managing international human resource, cross-cultural management, and the effects of dynamic global factors on business.
Presently, international business has become a necessity for every country whether developed or developing. When economic resources like goods, capital, services (i.e., skilled labor, technology, transportation) and international production are exchanged across international borders, international business takes place. This production does not necessarily involve tangible products but it also involves services like finance, banking, construction, etc. International business also encompasses FD1 (foreign direct investment).
What is International Business
According to Robock and Simmonds, “International business is defined as a field of management training (that) deals with the special features of business activities that cross national boundaries”.
According to Czinkotra and Grosse and Kojawa, “International business is defined as transactions devised and carries out across international borders to satisfy corporations and individuals”.
International business = Business transactions crossing national borders at any stage of the transaction
International business or global business can be defined as a set of all the commercial activities such as sales, logistics, investments, transportation, etc., performed by government and private firms across the national borders. Such commercial activities are generally undertaken with different motives by the private and government firms, where private firms focus on profit-making, and the government firms have both profits as well as the political motives behind it.
Characteristics of International Business
A detailed view of the various characteristics of international business is given below:
1) Includes Commercial Activity:
The transactions taking place across the boundaries in international business are commercial in nature. These include the overseas exchange of skilled labor, human resource, copyright, trademarks, patents, commodities, services, capital, insurance, technology, etc., by means of franchising and licensing. Investments in financial and physical assets also come under international business.
2) Prone to Political Risk:
International business is complex and always surrounded by risks of political nature. This is because in overseas markets, managers have to continuously alter their strategies keeping in mind the changes in economy, regulations and political stability. Also, adjustments have to be made in marketing initiatives that are greatly affected by cultural and national factors of that country.
3) Proactive or Reactive:
International business can be done in a pre-emptive or responsive manner. If an organization senses an opportunity and makes full use of it beforehand, it is termed as a proactive approach. On the other hand, the reactive approach is when the organisation waits for competitors’ moves and acts or protects itself accordingly.
4) Different from Domestic Business:
As business is carried out beyond international boundaries international business differs a lot from domestic business. The international business takes place beyond’ domestic boundaries, in different economic conditions, with people of different cultures living in distinct geographical locations. It is also affected by national markets that vary significantly in area and population, and the industrial revolution around the world.
5) Large-Scale Operations:
Activities and operations are performed on a very large scale in international business. These activities involve producing and marketing goods at the international level. The surplus good is exported to the international market once the goods have been sold in the local market.
6) Amalgamation of Economies:
Finance, labor, infrastructure, raw materials, and other factors of production are procured from distinguished economies. Even the designing, production, assembling, and marketing of the products take place in different countries. Hence, more than one economy is combined together in international business.
7) Maximum Control Enjoyed by MNCs and Developed Countries:
As the MNCs and developed countries possess huge capital, skilled workforce, latest technology, and efficient R&D (research and development) teams; they are in a better position to produce an improved quality of goods at a nominal cost. Also, they tend to retain employees as they can afford to compensate a premium salary to them. All these advantages have led to the dominance of developed countries and MNCs in the international markets.
8) Advantageous for Involved Countries:
Though there is a gap between the proportions of advantages received by developed and developing countries, there are considerable advantages for developing countries as well. Developing countries can widen up their economies through liberal economic policies to gain the advantage of the latest technology, more capital, employment opportunities, and rapid industrial development.
9) Excessive Competition:
As mentioned earlier, MNCs and developed countries tend to dominate international business due to their massive capital and ability to produce high-quality products at low prices. An added advantage is the significant links these countries have in the world market. Hence, the developing countries that possess limited resources have to face a lot of competition and find it difficult to survive in the international market.
10) Significance of Science and Technology:
In ensuring increased output and achieving economies of scale, science and technology play a vital role in the international business scenario. In fact, a major reason for developed countries dominating the international market is that they focus a lot on using advanced technologies. When MNCs and developed countries use advanced technologies in their international business activities, there is a high possibility of these technologies getting transmitted to developing countries as well.
11) Regulations and Limitations:
As the international business has to be carried out across boundaries of several countries, it has to go through a lot of laws, regulations, barriers to entry, etc., which vary from country to country. Few countries tend to resist international business and have very stringent rules including trade barriers, constraints on foreign exchange, etc., which is detrimental for international business.
12) Gets Easily Affected:
Due to its sensitive nature, international business is instantly impacted by even a minute change in laws, procedures, policies, political scenarios, technology, etc. Organizations involved in international business need to adjust themselves according to these changes and are advised to indulge in thorough study and market research, to study the patterns of these dynamic factors.