International Business Overview

Learning Objectives

• State the meaning of International Business
• Distinguish between Internal and International Business
• Discuss the scope of International Business
• Enumerate the benefits of International Business
• Discuss the documents required for import and export transactions
• Identify the incentives and schemes available for international firms
• Discuss the role of different organizations for the promotion of International Business
• List the major international institutions and agreements at the global level for the promotion of international trade and development.

Introduction

• Countries all over the world are undergoing fundamental shifts in how they produce and market goods and services.
• National economies, previously focused on self-reliance, are now increasingly dependent on other countries for various goods and services.
• Increased cross-border trade and investments are leading to a more interconnected global economy.

International Business Meaning

• Domestic or national business is transactions within a country
• International or external business is transactions outside a country's boundaries

Reasons for International Business

• Countries cannot produce all goods and services equally well or cheaply.
• Unequal distribution of natural resources across countries.
• Differences in productivity levels.
• Differences in factors of production (labor, capital, raw materials) and their costs.
• Geographical specialization leads to advantages for certain countries in producing specific goods.

International Business vs Domestic Business

• Nationality of buyers and sellers: International businesses involve buyers and sellers in different countries. Difficulty in communication, values, and customs.
• Nationality of other stakeholders: International businesses involve more diverse stakeholders with varying values and approaches.
• Mobility of factors of production: International movement is restricted compared to domestic movement for labor and capital.
• Customer heterogeneity: International markets are more diverse than domestic markets due to differences in tastes, preferences, and cultures.
• Business systems and practices: Different countries have distinct business systems, cultures and practices.
• Political system and risks: Varying political systems and risks among countries.
• Business regulations and policies: International business requires navigating diverse legal, regulatory, and tax frameworks in multiple countries.
• Currency used in business transactions: Fluctuating exchange rates add complexity to international transactions.

Scope of International Business

• Merchandise exports and imports: Trading tangible goods (exports out of the country, imports into the country).
• Service exports and imports: Trading intangible services (tourism, transportation, banking, consultations, etc.).
• Licensing and franchising: One company permits another to use intellectual property (patents, trademarks, etc.) in return for a fee.
• Foreign investments: Putting funds abroad to make financial returns. Direct investment (acquiring direct ownership) or portfolio investment (purchasing assets like shares).

Benefits of International Business to Countries

• Earning foreign exchange: Gaining foreign currency for importing needed resources.
• Efficient use of resources: Concentrate on producing items that are most efficient and trade for others.
• Growth prospects and employment: Expand production, increase available jobs.
• Increased standard of living: Access to greater variety of goods and services.

Benefits of International Business to Firms

• Prospects for higher profits: Leveraging opportunities in global markets with higher prices.
• Increased capacity utilization: Use excess production capacity through overseas markets.
• Growth prospects: Increased sales.
• Competition mitigation: International expansion to offset domestic competition.

Modes of Entry for International Business

• Exporting/importing (direct/indirect): The simplest form of international business.
• Contract manufacturing: Local producers in a new country manufacture goods to the exporting company's specifications.
• Licensing and franchising: Licensing allows use of intellectual property; franchising involves broader business model transfer with more controls.
• Joint ventures: Two or more independent firms collaboratively operate in a new country.
• Wholly-owned subsidiaries: A company acquires or establishes full ownership of a firm in a foreign country.

Export Procedures

• Enquiry and Quotations: Receiving and responding to foreign buyer inquiries.
• Order/Indent: Buyer places order for a specific amount of goods with specific terms and conditions.
• Assessing Importer's Creditworthiness and Guarantee: Checking the reliability of the importer (and securing payment assurance via letter of credit).
• Obtaining Export License: Formal approvals and licenses are secured for exports.
• Pre-shipment Inspection: Conducting quality checks on exported goods to meet the needs of destination country.
• Obtaining Finance (Pre-shipment): Arranging funds for export production/acquisition.
• Producing/Procuring Goods: Production or purchase of the requested materials.
• Packing and Forwarding: Preparing the shipment for export.
• Insurance of Goods: Shipping insurance for potential damage or loss during transit.
• Customs Clearance: Formal clearance for the shipment to exit the country.
• Obtaining Transport: Arranging shipment arrangements/shipping space with carriers.
• Payment of Freight and Issuance of Bill of Lading (or Airway Bill): Payment for transport and receiving cargo shipment documentation.
• Securing Payment: Ensuring payment via letter of credit and other appropriate payment methods.
• Export Documents: Preparing and transmitting the necessary export documents to the foreign buyer/importer

Import Procedure

• Trade Enquiry: Making request for information concerning the export product.
• Obtaining Import Licence: Getting formal permission to import depending on customs regulations.
• Obtaining Foreign Exchange: Securing foreign currency to pay for the import.
• Placing Order/Indent: Providing order and specifics about the goods to required importer.
• Letter of Credit: Buyer arranges financial guarantee (letter of credit) with their bank to ensure payment.
• Arranging for Finance: Setting up finances to meet potential costs from purchasing goods to importing them.
• Shipment Advice: Buyer receives notification of goods shipment.
• Arrival of Goods: Imported products are delivered to their designated destination.
• Customs Clearance & Release of Goods: Final clearance from customs, receiving release order/documentation for cleared goods.