1. International Business International business refers to buying and selling of goods and services beyond the geographical limits of a country. It is also called trade between two countries.
International trade is of three types
(i) Export
(ii) Import
(iii) Entrepot (Re-export)
(i) Nature of International Business
(a) Involvement of two
(b) Payment in foreign countries currency
(c) Legal procedures
(d) Restrictions
(e) High risk
(f) Different languages
(ii) Reasons for International Business
(a) The countries can not produce equally well or cheaply all that they need.
(b) There is a unequal distribution of natural resources among different countries.
(c) Availability of different factors of production such as land labour, capital and raw material differs among different nations.
(d) Difference in labour. productivity and production cost due to socio economic geographical and political reasons.
(e) There is not even a single country which is in a better position to produce better quality products at lower cost.
2. International Business us Domestic Business The key areas, in respect of which domestic and international business differ from each other
(i) Nationality of buyers and sellers
(ii) Nationalities of other stake holders
(iii) Mobility of factors of production
(iv) Customer heterogeneity across markets
(v) Differences in business systems and practices
(vi) Political system and risk
(vii) Business regulation and policies
(viii) Currency used in business transactions
3. Scope of International Business
(i) Merchandise exports and imports
(ii) Service export and import
(iii) Licensing and franchising
(iv) Foreign investment
It is of two types
(a) Direct investment
(b) Portfolio investment
4. Benefits of International Business
(i) Benefits to Nations
(a) Earning of foreign exchange
(b) More efficient use of resources
(c) Improving growth prospectus and employment potential
(d) Increases standard of living
(ii) Benefits to Firms
(a) Prospects for higher profit
(b) Increased capacity utilization
(c) Prospects for growth
(d) Way out from intense competition in the domestic market
(e) Improved business vision
5. Mode of Entering into International Business
(i) Contract Manufacturing With many business facing high start up cost and limited resources, companies are turning to contract manufacturing. Contract manufacturing allows a company to use the products or services that are manufactured by another external production company.
(a) Merits
- There is almost no investment risk involved as there is hardly any investment in the foreign country.
- Contract manufacturing gives the advantage to international firms to get the goods manufactured at a lower cost.
- Local manufacturers also get the benefits to be involved with international business and start. exporting.
(b) Demerits
- Local firms might not follow and provide the same quality standards. causing problems to international rums.
- The local manufacturer loses his control as goods are manufactured strictly according to the terms and specifications of international firms.
- The local manufacturer is not free to sell the goods according to his will.
(ii) Licensing and Franchising Licensing is an agreement between licensor and licensee where by licensor permits licensee to use the permits/patent rights 01′ trade secret acquired by the licensor.
Franchising is an agreement between franchisee and franchiser.
(a) Benefits
- Established brand
- Quality product
- Advertisement
- Financing
- Training
- Technological upgradation
- Uniform control system
- Better start
- Expansion
- Enhancing the goodwill
- Direct feedback
(iii) Joint Venture When two or more firms join together to establish a new enterprise then it is known as a joint venture.
The two firms contribute capital and participate in management enterprise.
(a) Merits
- Reduces competition
- Reduces risk
- Protection for small companies
- Advance technology
- Reduction in cost
- Better competence
- Large capital
(b) Demerits
- Problem in sharing capital
- Legal restrictions
- Conflicts
- Mergers and monopolies
- Lack of co-ordination
(iv) Setting-up WhOlly Owned Subsidies According to Indian Companies Act a foreign company can set up its subsidiary by acquiring more than 50% voting power (equity share) in a company.
(a) Advantages
- The parent company is able to exercise full control over its operation in foreign countries.
- There is no disclosure of technology or trade secret as the parent company itself looks after the entire operations.
(b) Limitations
- The entire loss is for the parent company as the parent company alone invests the 100% investment.
- This form of business is subject to higher political risks as some countries do not permits 100% wholly owned subsidiaries.
(v) Exporting and Importing Exporting refers to sending of goods and services from the home country to a foreign country and importing means buying goods and services from a foreign country. The exporting and importing can be done in two ways; direct or indirect.
(a) Advantages
- It is easiest way to get entry in a foreign country.
- Firms have to invest less as compared to joint venture and manufacturing plants.
- Foreign investment risk is nil or very less as compared to other options.
(b) Demerits
- Since goods physically move from one country to another so it involves additional packaging, insurance and transportation cost.
- Some countries put import restrictions. In such cases, exporting is not a good option for other foreign countries.
- The exporters are not near the customers so they cannot serves the customer better than a local firm.
6. India’s Place in World Business
(i) India’s Export and Import of Goods After the new economic policy of liberalisation and globalisation there is a tremendous increase in India’s foreign trade. The share of foreign trade in the GDP has increased from 14.6% in 1990·91 to 24.1% in 2003 – 2004.
(ii) India’s Export and Import of Services India’s share of software export has increased from 10.2% in 1995-96 to 49% in 2003-04. Where as share of travel and transportation has declined from 64.3% in 1995 – 96 to 29.6% in 2003-04.
7. India’s Foreign Investment The inflow as well as out flow of foreign investment has grown after the new economic policy of 1991. India’s investment in foreign countries has also increased from Rs 19 crore in 1990-91 to Rs 83,616 crore in 2003-04.
