International business is a mechanism to bring about globalization. International business consists of all commercial transactions including sales, investments, and transportation that take place between two or more countries.
The main idea
One of the most important in studying international business is because global events affect companies of all sizes and in all industries. In fact, managers today need to consider where in the world to obtain the inputs they need of the required quality and at the best possible price and also where they can best sell the product or service that they have put together from those inputs. In many cases, managers may find that they can be more competitive by engaging in global business transactions.
It’s also important to recognize that the best way of doing business abroad may not be the same as the domestic business. When a company operates internationally, it engage in modes of business such as exporting and importing that differ from those in which it engages domestically.
In addition, physical, social, and competitive conditions differ among countries and affect the optimum ways to conduct business. So we often find that companies operating internationally have more diverse and complex operating environments than those that conduct business only at home.
Even you are not working at an international company it is also important to understand international business complexities because overall national condition like profits, employment security and wages, consumer prices, and national security are all affected by the international operations of companies and by government regulations of those operations.
Factors in International Business
1. Physical and Social Factors
- Geographic influences ; natural conditions influence production locations
- Political policies ; determines where and how business occurs
- Legal policies ; influence how a company operates
- Behavioral factors ; may require changes in operations
- Economic forces ; explain differences in costs, currency values, market size
2. The Competitive Environment
- Competitive strategy for products (Cost strategy,Differentiation strategy, Focus strategy)
- Company resources and experience (market leaders have more resources for international operations)
- Competitors faced in each market (local or international)
Modes of operations in International Business :
- Merchandise exports & imports
- Service exports & imports
- Turnkey operations and management contracts
- Licensing and franchising
- Investments ; Foreign Direct Investment (FDI) and Portfolio Investment
The future of International BusinessThere are three different perspectives on what the future might hold. Some believe that future globalization is inevitable. Those taking this perspective note that advances in transportation and communications are so pervasive that consumers everywhere will demand the best products for the best prices regardless of their origins. Moreover because MNEs have so many international production and distribution networks in place, they’ll pressure their governments to place fewer rather than more restrictions on the international movement of goods and the means of producing them. The largest challenge to overcome in this scenario will be figuring out how to spread the benefits of globalization equitably while minimizing the hardships placed on individuals and companies affected by increased international competition.
Others however, think that in the future international business will grow more along regional rather than along global lines. This argument is based on studies that indicate that companies tend to conduct international business in neighboring countries. It’s logical that when companies first engage in international business, they expand into neighboring countries first and continue outwardly from there. This helps reduce transportation costs and companies can benefit from regional trade agreements that reduce barriers.
Still others feel that the pace of both globalization and international business will slow down. Recall that anti globalization sentiments have surfaced over the years, protesting against some of the negative effects of international business activity. This sentiment together with economic recession, growing political instability, and rising fuel costs among other things, threatens to slow international business growth.
John D.Daniels, Lee H. Radebaugh, Daniel P. Sullivan, International Business Environments and Operations, 13th edition, 2011.
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