International Business – The Basics
International business is a phenomenon which affects almost every aspect of your life, including the food you eat, the clothes you wear, and the people you meet. Regardless of where you live or to what part of the world your career takes you, knowledge of international business is a vital key to success.
What is international business?
The term commonly refers to “all those business activities which involve cross-border transactions of goods, services, resources between two or more nations. Transactions of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc.” (wikipedia.org).
International business has been considerably facilitated by the globalised marketplace. Over time, a single interactive society has emerged in which all parts of the world can participate – all due to modern communication technologies.
A global commercial village
Nowadays, the world is more closely connected than ever before because technology such as the internet has eliminated barriers that once separated markets from each other. Thanks to developments in communication technology, faster intercontinental travel, and improvements in international banking and law, a wealth of opportunities now exists for international business. The resulting ease of trade across the global marketplace has made the world a big commercial “village”.
Multinational Enterprises (MNEs) – companies engaging in forms of international business transactions – have their operations, facilities, materials, or personnel in more than one country, and often maintain subsidiaries. Some of the popularly known MNEs are Walmart, Volkswagen and Toyota.
All companies, big or small, face the same basic set of challenges: to overcome the constraints of the geographic, economic, political, and regulatory environments that frame the global business context. In order to determine how desirable a particular market may be for international business, the level of risk involved is one of the critical considerations. The risk is calculated with respect to different factors, including geographic, economic, political and regulatory challenges.
1. Geography of global business
- Although groups of countries may share histories, religions, languages or political characteristics, each country has its own cultural heritage that affects all aspects of business.
- A number of international organisations exist to facilitate international affairs, e.g. World Trade Organisation (WTO), World Bank Institute and International Monetary Fund (IMF).
- Trade agreements serve to reduce or eliminate taxes on traded goods among signatory countries (bi-lateral agreement between two countries or trade blocs – several countries sharing a single trade agreement, e.g. the EU, NAFTA etc.)
2. Economic and political context
- The economic health of a country as a potential partner, consumer or supplier can strongly affect the level of profitability an international business venture might enjoy.
- Business analysts look at economic indicators (statistics which reflect the overall economic health of a nation and which measure stability, growth, trends which may “make or break” any particular business venture).
- The ability to engage in global commerce is dependent on a government’s policies on trade as well as on its overall relationships with other countries.
- A nation’s political system is also a determining factor (the spectrum ranging from democracy at one end to totalitarianism at the other).
3. Regulatory environment
- How easy is it to operate a business in another country? To what extent do a country’s laws and procedures invite participation in a market? These are questions international entrepreneurs ask themselves when they consider expanding their interests to different parts of the world.
- Another element shaping countries’ business environments is the type of legal system which oversees that country’s judicial processes (common law vs. civil law).
- Economic freedom is the extent to which a country’s laws and policies limit the growth and operation of a business. The countries which appear to enjoy the highest levels of democracy and business freedoms are also the ones who tend to have the largest international presence.