International Business
Encyclopedia
International business is a term used to collectively describe all commercial transactions (private and governmental, sales
, investments, logistics
,and transportation) that take place between two or more regions, countries and nations beyond their political boundary. Usually, private companies undertake such transactions
for profit
; governments undertake them for profit and for political reasons. It refers to all those business activities which involves cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc..
A multinational enterprise (MNE) is a company that has a worldwide approach to markets and production or one with operations in more than a country. An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well known MNCs include fast food
companies such as McDonald's
and Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company
and Toyota, consumer electronics companies like Samsung
, LG
and Sony
, and energy companies such as ExxonMobil
, Shell
and BP
. Most of the largest corporations operate in multiple national markets.
Areas of study within this topic include differences in legal systems, political systems, economic policy
, language
, accounting standards, labor standards, living standards, environmental standard
s, local culture
, corporate culture, foreign exchange market
, tariff
s, import
and export
regulations, trade agreements, climate
, education
and many more topics. Each of these factors requires significant changes in how individual business units operate from one country to the next.
The conduct of international operations depends on companies' objectives and the means with which they carry them out. The operations affect and are affected by the physical and societal factors and the competitive environment
.
Operations
Means
Physical and societal factors
Competitive factors
There has been growth in globalization
in recent decades due to the following eight factors:
Studying international business is important because:
Managers in international business must understand social science disciplines and how they affect all functional business fields.
Tom Travis, the managing partner of Sandler, Travis & Rosenberg, PA. and international trade and customs consultant, uses the Six Tenets when giving advice on how to globalize one's business. The Six Tenets are as follows:
According to C.K. Prahalad & S. Hart,2002, The fortune at the bottom of the pyramid, Strategy & Business, 26: 54-67, and (2) S.Hart, 2005, Capitalism at the Crossroads (p. 111), Philadelphia: Wharton School Publishing.
Top Tier:
Per capita GDP/GNI > $20,000
Approximately one billion people
Second Tier:
Per capita GDP/GNI $2,000-$20,000
Approximately one billion people
Base of the Pyramid
Per capita GDP/GNI < $2,000
Approximately four billion people
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
, investments, logistics
Logistics
Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and...
,and transportation) that take place between two or more regions, countries and nations beyond their political boundary. Usually, private companies undertake such transactions
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
for profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
; governments undertake them for profit and for political reasons. It refers to all those business activities which involves cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc..
A multinational enterprise (MNE) is a company that has a worldwide approach to markets and production or one with operations in more than a country. An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well known MNCs include fast food
Fast food
Fast food is the term given to food that can be prepared and served very quickly. While any meal with low preparation time can be considered to be fast food, typically the term refers to food sold in a restaurant or store with preheated or precooked ingredients, and served to the customer in a...
companies such as McDonald's
McDonald's
McDonald's Corporation is the world's largest chain of hamburger fast food restaurants, serving around 64 million customers daily in 119 countries. Headquartered in the United States, the company began in 1940 as a barbecue restaurant operated by the eponymous Richard and Maurice McDonald; in 1948...
and Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company
Ford Motor Company
Ford Motor Company is an American multinational automaker based in Dearborn, Michigan, a suburb of Detroit. The automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford and Lincoln brands, Ford also owns a small stake in Mazda in Japan and Aston Martin in the UK...
and Toyota, consumer electronics companies like Samsung
Samsung
The Samsung Group is a South Korean multinational conglomerate corporation headquartered in Samsung Town, Seoul, South Korea...
, LG
LG
LG may refer to:*LG Corp., a South Korean electronics and petrochemicals conglomerate*LG Electronics, an affiliate of the South Korean LG Group which produces electronic products* Lawrence Graham, a London headquartered firm of business lawyers...
and Sony
Sony
, commonly referred to as Sony, is a Japanese multinational conglomerate corporation headquartered in Minato, Tokyo, Japan and the world's fifth largest media conglomerate measured by revenues....
, and energy companies such as ExxonMobil
ExxonMobil
Exxon Mobil Corporation or ExxonMobil, is an American multinational oil and gas corporation. It is a direct descendant of John D. Rockefeller's Standard Oil company, and was formed on November 30, 1999, by the merger of Exxon and Mobil. Its headquarters are in Irving, Texas...
, Shell
Royal Dutch Shell
Royal Dutch Shell plc , commonly known as Shell, is a global oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the fifth-largest company in the world according to a composite measure by Forbes magazine and one of the six...
and BP
BP
BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
. Most of the largest corporations operate in multiple national markets.
Areas of study within this topic include differences in legal systems, political systems, economic policy
Economic policy
Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...
, language
Language barrier
Language barrier is a figurative phrase used primarily to indicate the difficulties faced when people who have no language in common attempt to communicate with each other...
, accounting standards, labor standards, living standards, environmental standard
Environmental standard
An environmental standard is a policy guideline that regulates the effect of human activity upon the environment. Standards may specify a desired state or limit alterations An environmental standard is a policy guideline that regulates the effect of human activity upon the environment. Standards...
s, local culture
Culture
Culture is a term that has many different inter-related meanings. For example, in 1952, Alfred Kroeber and Clyde Kluckhohn compiled a list of 164 definitions of "culture" in Culture: A Critical Review of Concepts and Definitions...
, corporate culture, foreign exchange market
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
, tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s, import
Import
The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus...
and export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
regulations, trade agreements, climate
Climate
Climate encompasses the statistics of temperature, humidity, atmospheric pressure, wind, rainfall, atmospheric particle count and other meteorological elemental measurements in a given region over long periods...
, education
Education
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
and many more topics. Each of these factors requires significant changes in how individual business units operate from one country to the next.
The conduct of international operations depends on companies' objectives and the means with which they carry them out. The operations affect and are affected by the physical and societal factors and the competitive environment
Social environment
The social environment of an individual, also called social context or milieu, is the culture that s/he was educated or lives in, and the people and institutions with whom the person interacts....
.
Operations
- Objectives: salesSalesA sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
expansion, resourceResourceA resource is a source or supply from which benefit is produced, typically of limited availability.Resource may also refer to:* Resource , substances or objects required by a biological organism for normal maintenance, growth, and reproduction...
acquisition, riskRiskRisk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
minimization
Means
- Modes: importing and exporting, tourismTourismTourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
and transportation, licensing and franchisingFranchisingFranchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
, turnkeyTurnkeyA turn-key or a turn-key project is a type of project that is constructed by a developer and sold or turned over to a buyer in a ready-to-use condition.-Common usage:...
operations, managementManagementManagement in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
contracts, direct investment and portfolio investments. - Functions: marketingMarketingMarketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
, global manufacturingManufacturingManufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
and supply chain managementSupply chain managementSupply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...
, accounting, financeFinance"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
, human resourcesHuman resourcesHuman resources is a term used to describe the individuals who make up the workforce of an organization, although it is also applied in labor economics to, for example, business sectors or even whole nations... - Overlaying alternatives: choice of countries, organization and control mechanisms
Physical and societal factors
- Political policies and legal practices
- Cultural factors
- Economic forcesEconomic forcesEconomic forces are the factors that help to determine the competitiveness of the environment in which the firm operates.These factors include:# Unemployment level# Inflation rate# Fiscal policies# Government changes etc....
- Geographical influences
Competitive factors
- Major advantage in pricePrice-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
, marketingMarketingMarketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
, innovationInnovationInnovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...
, or other factors. - Number and comparative capabilities of competitors
- Competitive differences by countryCountryA country is a region legally identified as a distinct entity in political geography. A country may be an independent sovereign state or one that is occupied by another state, as a non-sovereign or formerly sovereign political division, or a geographic region associated with a previously...
- Local taxes
There has been growth in globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
in recent decades due to the following eight factors:
- TechnologyTechnologyTechnology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
is expanding, especially in transportation and communications. - Governments are removing international business restrictions.
- Institutions provide services to ease the conduct of international business.
- ConsumersConsumerConsumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
know about and want foreign goods and services. - CompetitionCompetitionCompetition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...
has become more global. - Political relationships have improved among some major economic powers.
- Countries cooperate more on transnational issues.
- Cross-national cooperation and agreementsCross-national cooperation and agreementsIntegration is a political and economic agreement among countries that gives preference to member countries to the agreement . General integration can be achieved in three different approachable ways: through the World Trade Organization , bilateral integration, and regional integration...
.
Studying international business is important because:
- Most companies are either internationalInternational----International mostly means something that involves more than one country. The term international as a word means involvement of, interaction between or encompassing more than one nation, or generally beyond national boundaries...
or compete with international companies. - Modes of operationBusiness operationsBusiness operations are those ongoing recurring activities involved in the running of a business for the purpose of producing value for the stakeholders...
may differ from those used domestically. - The best way of conducting business may differ by countryCountryA country is a region legally identified as a distinct entity in political geography. A country may be an independent sovereign state or one that is occupied by another state, as a non-sovereign or formerly sovereign political division, or a geographic region associated with a previously...
. - An understanding helps you make better careerCareerCareer is defined by the Oxford English Dictionary as a person's "course or progress through life ". It is usually considered to pertain to remunerative work ....
decisions. - An understanding helps you decide what governmental policies to support.
Managers in international business must understand social science disciplines and how they affect all functional business fields.
Tom Travis, the managing partner of Sandler, Travis & Rosenberg, PA. and international trade and customs consultant, uses the Six Tenets when giving advice on how to globalize one's business. The Six Tenets are as follows:
- Take advantage of trade agreements: think outside the border
- Familiarize yourself with preference programs and trade agreements.
- Read the fine print.
- Participate in the process.
- Seize opportunities when they arise.
- Protect your brand at all costs
- You and your brand are inseparable.
- You must be vigilant in protecting your intellectual property both at home and abroad.
- You must be vigilant in enforcing your IP rights.
- Protect your worldwide reputation by strict adherence to labor and human rights standards.
- Maintain high ethical standards
- Strong ethics translate into good business.
- Forge ethical strategic partnerships.
- Understand corporate accountability laws.
- Become involved with the international business self-regulation movement.
- Develop compliance protocols for import and export operations.
- Memorialize your company's code of ethics and compliance practices in writing.
- Appoint a leader.
- Stay secure in an insecure world
- Security requires transparency throughout the supply chain.
- Participate in trade-government partnerships.
- Make the most of new security measures.
- Secure your data.
- Keep your personnel secure.
- Expect the Unexpected
- The unexpected will happen.
- Do your research now.
- Address your particular circumstances.
- All global business is personal
- Go to the source.
- Keep communications open.
- Keep the home office operational.
- Fly the flag at your overseas locations.
- Relate to offshore associates on a personal level.
- Be available to overseas clients and customers 24/7.
According to C.K. Prahalad & S. Hart,2002, The fortune at the bottom of the pyramid, Strategy & Business, 26: 54-67, and (2) S.Hart, 2005, Capitalism at the Crossroads (p. 111), Philadelphia: Wharton School Publishing.
Top Tier:
Per capita GDP/GNI > $20,000
Approximately one billion people
Second Tier:
Per capita GDP/GNI $2,000-$20,000
Approximately one billion people
Base of the Pyramid
Per capita GDP/GNI < $2,000
Approximately four billion people
See also
- International Masters of Business AdministrationInternational Masters of Business AdministrationA International Masters of Business Administration is a Masters of Business Administration degree with a keen focus on International Business...
- International tradeInternational tradeInternational trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...
- Emerging MarketsEmerging marketsEmerging markets are nations with social or business activity in the process of rapid growth and industrialization. Based on data from 2006, there are around 28 emerging markets in the world . The economies of China and India are considered to be the largest...
- World economyWorld economyThe world economy, or global economy, generally refers to the economy, which is based on economies of all of the world's countries, national economies. Also global economy can be seen as the economy of global society and national economies – as economies of local societies, making the global one....
- 3G (countries)3G (countries)3G countries or Global Growth Generators countries are 11 countries economies which have been identified as sources of growth potential and of profitable investment opportunities.-Background:...
External links
- US Chamber of Commerce The world’s largest business federation representing more than three million businesses and organizations
- The International Trade Centre ITC is the joint agency of the World Trade Organization and the United Nations
- The U.S. Government’s export promotion and finance portal A government resource for U.S. exporters
- UK Trade & Investment A government resource for UK exporters
- globalEDGE Knowledge web-portal that connects international business professionals worldwide