BST international business

Chapter 11: International Business

Learning Objectives

  • Understand the meaning of International Business.

  • Differentiate between Internal and International Business.

  • Discuss the scope of International Business.

  • Enumerate the benefits of International Business.

  • Explain the documents required for import and export transactions.

  • Identify incentives and schemes for international firms.

  • Explore the role of organizations in promoting International Business.

  • Recognize major international institutions and agreements for global trade.

Introduction to International Business

  • Global shift in production and marketing of goods and services.

  • National economies are increasingly interdependent due to cross-border trade.

  • Factors driving this change: communication, technology, and infrastructure improvements.

  • Historical context of countries previously isolated due to geographical and economic barriers.

  • Case Study: Mr. Sudhir Manchanda's exploration to enter international markets.

11.1 Meaning of International Business

  • Definition: Business activities occurring beyond national borders.

  • Includes:

    • Goods and services: Import/export of products.

    • Capital: Investment in foreign markets.

    • Personnel: Movement and employment of workforce overseas.

    • Technology: Transfer of technological knowledge.

    • Intellectual property: Patents, trademarks, and copyrights.

  • Not limited to trade; includes foreign investments and service exports (e.g., tourism, banking).

11.1.1 Reasons for International Business

  • Countries produce products and services at varying efficiencies due to:

    • Unequal distribution of natural resources.

    • Differences in productivity levels.

    • Countries trade to acquire goods they cannot produce effectively.

11.1.2 Differences Between International and Domestic Business

  • Complexity: International business involves varied market conditions, cultural differences, and regulatory environments.

  • Key Differences:

    • Nationality of parties involved (different countries)

    • Stakeholders (different nationalities)

    • Mobility of production factors varies greatly between countries.

11.2 Scope of International Business

  • Broader than international trade, it includes:

    1. Merchandise Exports and Imports: Trade in physical goods.

    2. Service Exports and Imports: Intangible goods like tourism and consulting.

    3. Licensing and Franchising: Using another's trademark or business model.

    4. Foreign Investments: Direct and portfolio investments in foreign entities.

    5. Contract Manufacturing: Outsourcing manufacturing processes.

11.1.5 Benefits of International Business

Benefits to Countries

  1. Foreign Exchange Earnings: Essential for funding imports and enhancing economic stability.

  2. Efficient Resource Utilization: Countries focus on producing goods they can create efficiently while trading surplus.

  3. Growth and Employment: Global markets can stimulate local economies and increase job opportunities.

  4. Improved Standard of Living: Access to a wider range of goods and services.

Benefits to Firms

  1. Higher Profit Prospects: Selling in markets with higher demand and prices.

  2. Increased Capacity Utilization: Leveraging production capabilities.

  3. Growth Opportunities: Expanding beyond saturated domestic markets.

  4. Enhanced Competitive Edge: Gaining insights from varied market exposure.

11.2 Modes of Entry into International Business

  • Various methods include:

    • Exporting and Importing: Simplest entry methods.

    • Contract Manufacturing: Outsourcing production to foreign companies.

    • Licensing and Franchising: Granting permission to use patents/trademarks.

    • Joint Ventures: Partnering with local firms.

    • Wholly Owned Subsidiaries: Establishing full control over operations.

11.3 Export-Import Procedures and Documentation

Export Procedure Steps:

  1. Inquiry and Quotation: Receiving buyer inquiries and sending quotes.

  2. Order Placement: Confirming orders and agreements.

  3. Creditworthiness Assessment: Ensuring buyer's financial reliability.

  4. Compliance: Securing export licenses, finding funding, and inspection.

  5. Transportation and Documentation: Arranging shipping and customs documents.

Import Procedures:

  1. Trade Inquiry: Sourcing and negotiating with exporters.

  2. Obtaining Licenses: Following regulatory requirements for importing.

  3. Financing Arrangements: Securing funds to facilitate transactions.

  4. Customs Clearance: Processing shipments through customs regulations.

Conclusion

  • International business fosters economic interconnectivity, presenting both opportunities and challenges for firms aiming to operate across borders.

  • Understanding these factors is crucial for success in the increasingly globalized economy.