INTERNATIONAL BUSINESS – This section will help you understand the international business and the reason why are companies going international?
International business is all commercial transactions – Private and governmental – between two or more countries. Private companies undertaken such transactions for profits; governments may or may not do the same in the transactions. These transactions include sales, investments and transportation all commercial transactions.
The company’s external environmental conditions such as physical, social and competitive affect the way business functions such as marketing manufacturing and supply chain management are carried out. When a company operates internationally, foreign conditions are added to domestic ones making the external environment more diverse and complex.
Advantages of International Business
1. Growth of Business : Companies advance their business by setting up subsidiaries or branches of their parent company in order to reach out to mass level for reaping the benefits of economies of scale. They expand their business with the motive of earning increased goodwill and networking facilities for better growth prospects.
2. Diversification of Businesses : Companies usually diversify their businesses in order to reach out to potential customers who are having a particular segment of demand which is not applicable in domestic country. This way they can look for expansion in terms of increase in different target segments.
3. Earning more Margins : Difference in currency at exchange rate will help companies to accrue benefits with a margin ratio. For example, Indian rupee is weak as compared to Euro. In exchange for 1,00,000 INR Indian company will get 1190 Euros (i.e. 1 INR = 0.0119 EUR at exchange rate).
4. Receiving Earlier Payments : Domestic companies as well as overseas companies always have a liaison with their banks for smooth execution of international transactions. Companies bank will facilitate for advance payment before execution of order takes place. Factoring is one such example many export companies are involved with. In routine course of business, banker (or factor such as HSBC Bank India) will arrange for at least 80% of payments from customers bank as against of bill receivable or invoice made to the exporter .
5. Diversification of Risk : Directing all business activities and resources in one market into a single currency proves risky. There are unforeseen global disasters such as financial meltdown, earthquakes and unrest in the Middle east and their drastic impact on the markets. In such situation, domestic market could shrink or disappear but business would be protected by the revenue it generates overseas.
6. Lesser Competition : The potential to stand out amongst the competitors is an important factor in business. If there are few competitors, the task becomes simpler to achieve. By making products and services available to overseas buyers would help the business to stand out the competition as such would create new avenues for the business by being in less competition. This will increase sale potential and allow the business to flourish.
Types Of International Business
1. Importing & exporting
4. strategic partnerships & Joint venture
5. foreign direct investment (fdi)
Reason why are companies going international ?
(A) Expand sales : Companies’ sales are dependent on (a) the consumers interest in their products and services and (b) the consumers’ willingness and ability to buy them. The number of people and the extent of their purchasing powers are higher for the world as a whole than for a single country. Hence, companies increase the potential market for their sales by pursuing global markets. Thus, higher sales means higher profits because of economies of scale. So increased sales are a major motive for a company’s expansion into international business.
(B) Acquire resources : Manufacturers and distributors also look for foreign capital, technologies and information that they can use at home, to reduce their costs. Sometimes, a company operates abroad to acquire something not readily available in the home country so as to improve its product covers across Asia, Australia, Europe, Africa. Click here for international marketing notes and business cycle.
Nature of International Business
1. Accurate Information
2. Information not only accurate but should be timely
3. The size of the international business should be large
4. Market segmentation based on geographic segmentation
5. International markets have more potential than domestic markets
Scope of International Business
1. International Marketing
2. International Finance and Investments
3. Global HR
4. Foreign Exchange