Contents<\/span><\/p>\n International or external business can be defined as those business activities that take place beyond the geographical boundaries of a country. In other words buying and selling of goods and services between two countries are called external trade.<\/p>\n It involves not only the international movements of goods and services but also of capital, personnel, technology and intellectual property like patents, trademarks, know-how and copyrights.<\/p>\n Reasons for international business:<\/span> 2. Labour productivity and production costs differ among nations due to various socio-economic, geographical and political reasons.<\/p>\n 3. Availability of various factors of production such as labour, capital and raw materials differ among nations.<\/p>\n Differences between International Business and Domestic Business:<\/span><\/p>\n Scope of International Business:<\/span> 2. Service exports and imports: 3. Licensing and franchising: 4. Foreign investments: (b) Portfolio investment: In this investor does not get directly involved in production or marketing of goods. It simply earns an income by investing in shares, bonds, bills, or notes in a foreign country or providing loans to foreign business firms.<\/p>\n Benefits of International Business:<\/span> 2. More efficient use of resources: 3. Improving growth prospects and employment potentials: 4. Increased standard of living: 5. International relation: Benefits to Firms: 2. Increased capacity utilisation: 3. Prospects for growth: 4. Enhances competition: 5. Improved business vision: Mode of Entry into International Business:<\/span> Limitations:<\/p>\n 2. Contract Manufacturing (Outsourcing): Advantages:<\/p>\n Limitations: (b) Local manufacturer in the foreign country loses his control over the manufacturing process because goods are produced strictly as per the terms and specifications of the contract.<\/p>\n (c) The local firm cannot sell the contracted output as per their will.<\/p>\n 3. Licensing and Franchising: Franchising is similar to licensing. But it is used in connection with the provision of services. The parent company is called the franchiser and the other party to the agreement is called the franchisee. 1. It is a less expensive mode of entering into international business.<\/p>\n 2. There is no investment risk<\/p>\n 3. Since the business in a foreign country is managed by the licensee\/franchisee who is a local person, there are lower risks of business takeovers or government interventions.<\/p>\n 4. Since the licensee\/franchisee is a local person, he has the greater market knowledge and customer contacts. It helps the licensor\/franchiser in successfully conducting its marketing operations.<\/p>\n Limitations: (b) Trade secrets may lose in the foreign markets.<\/p>\n (c) Conflicts often develop between the licensor\/franchiser and licensee\/franchisee oyer issues such as maintenance of accounts, payment of royalty, etc.<\/p>\n 4. Joint Ventures: Advantages:<\/p>\n Limitations:<\/p>\n\n
\n1. Because of the unequal distribution of natural resources and differences in productivity levels, a country cannot produce all that they need<\/p>\n\n\n
\n Domestic Business<\/td>\n International Business.<\/td>\n<\/tr>\n \n Both the buyers and sellers are from the same country<\/td>\n Buyers and sellers are from different Countries<\/td>\n<\/tr>\n \n Various stakeholders such as suppliers, employees, middlemen .shareholders and partners are usually citizens of the same country<\/td>\n Various stakeholders such as suppliers, employees, middlemen, shareholders and partners are from different nations<\/td>\n<\/tr>\n \n The factors of production Like capital, labour and raw material can move freely within the country<\/td>\n There are, restrictions on free mobility of factors of production across countries<\/td>\n<\/tr>\n \n Domestic markets are relative more homogeneous in nature<\/td>\n International markets lack homogeneity due to differences, in languages, preferences customs etc across markets.<\/td>\n<\/tr>\n \n Business systems and practices are relatively more homogeneous within a country<\/td>\n Business systems and practices vary considerably across countries.<\/td>\n<\/tr>\n \n It has to face the political system and risk of only one country<\/td>\n Different countries have different forms of political systems and risk.<\/td>\n<\/tr>\n \n Business laws, regulations and economic policies are uniformly applicable within a country.<\/td>\n Business laws, regulations and economic policies are differ widely among nations.<\/td>\n<\/tr>\n \n Currency of domestic country is used.<\/td>\n They use different currencies for business transactions.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\n1. Merchandise exports and imports:
\nmerchandise exports means sending tangible goods abroad, merchandise imports means bringing tangible goods from a foreign country to one\u2019s own country. It is also known as trade in goods (visible trade), include only tangible goods and exclude services.<\/p>\n
\nIt involves trade in intangibles. It is also known as invisible trade which includes services received from other countries or services rendered to other countries. eg: Tourism and travel, communication, marketing, transportation services etc.<\/p>\n
\nPermitting another party in a foreign country to produce and sell goods under their trademarks, patents or copyright in lieu of some fee is called licensing. Franchising is similar to licensing, but it is a term used in connection with the provision of services.<\/p>\n
\nForeign investment involves investments of funds abroad in exchange for financial return. Foreign investment can be of two types.
\n(a) Direct investments:
\nDirect investment takes place when a company directly invests in properties such as plant and machinery in foreign countries with a view to undertaking production and marketing of goods and services in those countries. This is also known as Foreign Direct Investment, i.e., FDI.<\/p>\n
\nUnder portfolio investment, a company makes investment by acquiring shares or providing loans to a foreign company and earns income by way of dividends or interest on loans.<\/p>\n
\nThe benefits of international business to the nations and business firms are.
\nBenefits to Nations:
\n1. Earning of foreign exchange:
\nIt helps a country team foreign exchange which can be used for importing capital goods, technology, petroleum products and fertilisers, pharmaceutical products, etc.<\/p>\n
\nExternal trade enables a country to utilize the available resources in the best possible manner.<\/p>\n
\nExternal trade helps to accelerate the economic growth and employment opportunities of a country.<\/p>\n
\nForeign trade helps in raising the standard of living of a country.<\/p>\n
\nExternal trade helps to promote harmonious and cordial relationship among the nations.<\/p>\n
\n1. Prospects for higher profits:
\nWhen the domestic prices are lower, business firms can earn more profits by selling their products in countries where prices are high.<\/p>\n
\nIt help firms in using their surplus production capacities and improving the profitability of their operations. Large scale production helps to reduce the cost of production.<\/p>\n
\nIt helps firms in improving their growth prospects by creating demands for their products in foreign countries.<\/p>\n
\nExternal trade enhances competition, which compels the domestic firms to improve technology of production, production process and quality of the products.<\/p>\n
\nIt improves business vision as it makes firms to grow, more competitive and diversified.<\/p>\n
\n1. Exporting and Importing:
\nWhen goods are sold to a foreign country, it is called export trade. When goods are purchasing from a foreign country, it is called import trade.
\nAdvantages:<\/p>\n\n
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\nWhen a firm enters into a contract with one or a few local manufacturers in foreign countries to get certain goods produced as per its specifications it is called contract manufacturing. It is also known as outsourcing and it can take place in the following forms.<\/p>\n\n
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\n(a) It may affect the quality of the products.<\/p>\n
\nLicensing is a contractual arrangement in which one firm grants access to its patents, trade secrets or technology to another firm in a foreign country for a fee called royalty. The firm that grants permission is known as licensor and the firm that receives the rights to use technology or patents is called the licensee.<\/p>\n
\nAdvantages:<\/p>\n
\n(a) The licensee can start marketing an identical product under a slightly different brand name.<\/p>\n
\nJoint venture means establishing a firm that is jointly owned by two or more independent firms. It can be brought into existence in three major ways.<\/p>\n\n
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