International business refers to cross-border commerce and other business transactions between governments or companies.
Before proceeding to the topic let's see the relevance of this topic in the new syllabus of UGC Net Commerce examination issued by NTA.
Unit I – Business Environment and International Business
International business refers to cross-border commerce and other business transactions between governments or companies. The exchange of goods and services among individuals and businesses in multiple countries. A specific entity, such as a multinational corporation or international business company that engages in business among multiple countries.
Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. A system or network that allows trade is called a market. An early form of trade, barter, saw the direct exchange of goods and services for other goods and services.
(1) Exporting – It is the process of selling goods and services produced in one country to other country.
(2) Joint Venture – It is a strategy used by companies to enter a foreign market by joining hands and sharing ownership and management with another company. It is used when two or more companies want to achieve some common objectives and expand international operations.
(3) Outsourcing – It is a cost effective strategy used by companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. It includes both domestic and foreign contracting and also off shoring (relocating a business function to another country).
(4) Franchising – It is a system in which semi-independent business owners (franchisees) pay fees and royalty to a parent company (franchiser) in return for the right to be identified by its trademark, to sell its product or services, and often to use its business format or system.
(5) Turn Key Project – It involves the delivery of operating industrial plant to the client without any active participation. A company pays a contractor to design and construct new facilities and train personnel to export its process and technology to another country.
(6) Foreign Direct Investment – It is a mode of entering foreign market through investment. Investment may be direct or indirectly through Financial Institutions.
(7) Mergers & Acquisitions – A merger is a combination of two or more district entities into one, the desired effect being accumulation of assets and liabilities of distinct entities and several other benefits such as, economies of scale, tax benefits, fast growth, synergy and diversification etc. The merging entities cease to be in existence and merge into a single servicing entity.
(8) Licensing – Licensing is a method in which a firm gives permission to a person to use its legally protected product or technology (trademarked or copyrighted) and to do business in a particular manner, for an agreed period of time and within an agreed territory.
(9) Contract manufacturing – When a foreign firm hires a local manufacturer to produce their product or a part of their product it is known as contract manufacturing. This method utilizes the skills of a local manufacturer and helps in reducing cost of production. The marketing and selling of the product is the responsibility of the international firm.
(10) Strategic Alliance – It is a voluntary formal agreement between two companies to pool their resources to achieve a common set of objectives while remaining independent entities. It is mainly used to expand the production capacity and increase market share for a product. Alliances help in developing new technologies and utilizing brand image and market knowledge of both the companies.
Non-tariffs are barriers that restrict trade through measures other than the direct imposition of tariffs. This may include measures such as quality and content requirements for imported goods or subsidies to local producers. By establishing quality and content requirements the government can restrict imports, because only products can be imported that meet certain criteria. Example - US government could restrict trade by passing a law that requires all candy bars sold within the US to contain at least 50% locally produced sugar.
Quotas are restrictions that limit the quantity or monetary value of specific goods or services that can be imported over a certain period of time. The idea behind this is to reduce the quantity of competitive products in local markets which increases demand for local goods and services. For example, the US government could decide to limit the amount of candy bars that can be imported from Japan to 100,000 every year.
An exchange rate is the price of a nation's currency in terms of another currency. Thus, an exchange rate has two components, the domestic currency, and a foreign currency, and can be quoted either directly or indirectly.
A legal contract between two parties, known as the licensor and the licensee. The licensor grants the licensee the right to produce and sell goods, apply a brand name or trademark, or use patented technology owned by the licensor.
The process of the development of a global market-driven economy. Globalization is the process of interaction and integration between people, companies, and governments worldwide. Globalization has grown due to advances in transportation and communication technology. With increased global interactions comes the growth of international trade, ideas, and culture. Globalization is primarily an economic process of interaction and integration that’s associated with social and cultural aspects. Globalization involves goods and services, and the economic resources of capital, technology, and data.