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Chapter: Business Science - International Business Management

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Internationalization of Business

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 nations.

INTERNATIONALIZATION OF BUSINESS:

 

1 Meaning of International Business:

 

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 nations. Usually private companies undertake such transactions for profit; organizations undertake them for profit for political reasons. 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 (TCN). 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 Exxon Mobil, Shell and BP. Most of the largest corporations operate in multiple national markets.

 

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.

 

 

Internationalization of Business has benefited TCS, Asian paints, Wipro, Infosys. It may be understood as those business transactions that involve the crossing of national boundaries'. They include;

 

           Product presence in different markets of the world.

           Production bases across the globe.

           Human resource to contain high diversity

 

           Investment in international services like banking, advertising, tourism, retailing, and construction

 

           Transactions involving intellectual properties such as copyrights, patents, trademarks and process technology

 

2 Why study international business?

 

           1. Increasingly, companies are sourcing their human resource requirement globally, Sony corporation.

 

           2. Most of the products we consume everyday are supplied to us by global businesses. We are sure of quality if the products bear such names as Nike, Toyota, Colgate, Gap T-shirt, and the like. To know these brands is to understand international business

 

           3. Managing an international business is major complex than running a domestic business. Global business involves production of goods in facilities located in different countries with resources, human and physical sourced from all parts of the globe and marketing goods and services to users across the globe.

 

           4. The major impact of international business in this area has been impetus on governments to open up their borders to international trade and investment, standardize their systems and procedures, and adopt internationally acceptable values and attitudes.

 

           5. International business executives play a powerful role in determining the relative competitiveness of various countries in the global arena.

 

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Advantages of international business:

 

Product Flexibility

 

If you have products that don’t sell well in your local or regional market, you may find greater demand abroad. You don’t have to dump unsold inventory at deep discounts. You can search for new markets where your products can sell for even higher prices than they did in your local market. In fact, you may find new products to sell abroad that you don’t offer where you are based. You can offer a much wider range of products when you market globally.

 

 

Less Competition

 

Company may have come to view competition as a local phenomenon. You can find international markets that have less competition and move quickly to capture market share. This can be particularly advantageous when you have access to high-quality versions of products that are superior to versions in other countries. Though your local competition may have access to the same quality as you have, you will have little competition if you find an international market that has been buying an inferior product.

 

Protection from National Trends and Events

 

When you market to several countries, you are not as vulnerable to events in any one country. For example, if you sell soft drinks with high sugar content, you could discover that your home country frowns upon drinks that offer extra calories. You may be able to sell the same product in another country that has a much different attitude toward these drinks. In addition, a natural disaster in any one market can disrupt business, but you can compensate by focusing your sales efforts in another part of the world.

 

Learning New Methods

 

When you do business in another country, you learn new ways of doing things. You can apply this new knowledge to other markets. For example, according to the Cite Sales website, Unilever discovered a market for laundry detergent that would function in Europe’s high-mineral-content or "hard" water. This product can now be marketed to parts of the U.S. that have similar water problems.

 

 

The  economic benefits that  greater  openness to   international          trade  bring      are:

 

Faster growth: economies that have in the past been open to foreign direct investments have developed at a much quicker pace than those economies closed to such investment e.g. communist Russia

 

Cheaper imports: this is down to the simple fact that if we reduce the barriers imposed on imports (e.g. tariffs, quota, etc) then the imports will fall in price

 

New technologies: by having an open economy we can bring in new technology as it happens rather than trying to develop it internally

 

Spur of foreign competition:

 

foreign competition will encourage domestic producers to increase efficiency. Carbaugh (1998) states that global competitiveness is a bit like golf, you get better by playing against people who are better than you.

 

Increase consumer income: multination will bring up average wage levels because if the multinationals were not there the domestic companies would pay less Increased investment opportunities: with globalization of companies can move capital to whatever country offers the most attractive investment opportunity. This prevents capital being trapped in domestic economies earning poor returns.

 

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