International Business
Overview
International business refers to the trade of goods, services, technology, capital and/or knowledge across national borders and at a global or transnational scale. It involves cross-border transactions of goods and services between two or more countries. Transactions of economic resources include capital, skills, and people for the purpose of the international production of physical goods and services such as finance, banking, insurance, and construction.
History
The history of international business dates back to the early civilizations. Trade between cultures, states and nations has been a cornerstone of economic activity since the dawn of human civilization. The advent of industrialization, advanced transportation, multinational corporations, offshoring and outsourcing, has led to a significant increase in international business.
Types of International Business
There are several ways in which businesses can expand their operations internationally. These include exporting, importing, foreign direct investment, licensing and franchising.
Exporting and Importing
Exporting is the process of selling goods or services produced in one country to another country. Importing or global sourcing involves the procurement of goods or services from an external or international supplier.
Foreign Direct Investment
Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. This can be achieved either by buying a company in the target country or by expanding operations of an existing business in that country.
Licensing and Franchising
Licensing is a relatively flexible work arrangement that involves selling the rights to its products, trade name or business process to another company. Franchising on the other hand is a form of licensing in which a franchisor, in exchange for a financial commitment, grants a franchisee the right to market a product or service under the franchisor's brand and to use its business system.
Theories of International Business
Several theories have been proposed to explain the dynamics of international business. These include the International Trade Theory, Theory of Comparative Advantage, and the Eclectic Paradigm.
International Trade Theory
The International Trade Theory explains the pattern of international trade and the distribution of the benefits of trade. It is based on the concept of countries specializing in the production of goods and services where they have a comparative advantage.
Theory of Comparative Advantage
The Theory of Comparative Advantage posits that countries should specialize in the production of those goods and services they can produce more efficiently than others and trade them for goods and services they produce less efficiently.
Eclectic Paradigm
The Eclectic Paradigm is a theory in economics and is also known as the OLI-Model or OLI-Framework. It is a further development of the internalization theory and published by John H. Dunning.
Challenges in International Business
International business is fraught with challenges and companies undertaking this journey need to be aware of these challenges. These include differences in legal systems, political systems, economic policy, language, accounting standards, labor standards, living standards, environmental standards, local culture, corporate culture, foreign-exchange market, tariffs, import and export regulations, trade agreements, climate, education and many more.
Impact of Technology on International Business
The advent of technology has had a significant impact on international business. It has made it easier for companies to conduct business internationally. Technology has also led to the emergence of global e-commerce and digital economy.