International Business Prospective

1. Introduction to Global Business

International business consists of business transactions between parties from more than one country.

Examples include buying materials in one country and shipping them to another for processing or assembly,

shipping finished products from one country to another for retail sale, building a plant in a foreign country to

capitalize on lower labor costs, or borrowing money from a bank in one country to finance operations in

another. The parties involved in such transactions may include private individuals, individual companies,

groups of companies, and/or governmental agencies.

How does international business differ from domestic business? Simply put, domestic business involves

transactions occurring within the boundaries of a single country, while international business transactions

cross national boundaries. International business can differ from domestic business for a number of other

reasons, including the following:

• The countries involved may use different currencies, forcing at least one party to convert its

currency into another.

• The legal systems of the countries may differ, forcing one or more parties to adjust their

practices to comply with local law. Occasionally, the mandates of the legal systems may be

incompatible, creating major headaches for international managers.

• The cultures of the countries may differ, forcing each party to adjust its behavior to meet the

expectations of the other.

• The availability of resources differs by country. One country may be rich in natural resources

but poor in skilled labor, while another may enjoy a productive, well-trained workforce but lack

natural resources. Thus, the way products are produced and the types of products that are

produced vary among countries.

In most cases the basic skills and knowledge needed to be successful are conceptually similar whether

one is conducting business domestically or internationally. For example, the need for marketing managers to

analyze the wants and desires of target audiences is the same regardless of whether the managers are engaged

in international business or domestic business. However, although the concepts may be the same, there is

little doubt that the complexity of skills and knowledge needed for success is far greater for international

business than for domestic business. International businesspeople must be knowledgeable about cultural,

legal, political, and social differences among countries. They must choose the countries in which to sell their

goods and from which to buy inputs. International businesses also must coordinate the activities of their

foreign subsidiaries, while dealing with the taxing and regulatory authorities of their home country and all

the other countries in which they do business.

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2. Activities of Global Business

Historically, international business activity first took the form of exporting and importing. However, in

today's complex world of international commerce, numerous other forms of international business activity

are also common.

2.1. Exporting and Importing

Exporting is the selling of products made in one's own country for use or resale in other countries.

Importing is the buying of products made in other countries for use or resale in one's own country. Exporting

and importing activities often are divided into two groups. One group of activities is trade in goodsвЂ"tangible

products such as clothing, computers, and raw materials. The other group of activities is trade in servicesвЂ"

intangible products such as banking, travel, and accounting activities.

Exports are often critical to a firm's financial health. For example, about 53 percent of Boeing's

commercial aircraft sales are to foreign customers, creating tens of thousands of jobs at the company and

thousands more at the factories of its parts suppliers. International sales often are equally important to

smaller firms, such as Markel Corporation, a Pennsylvania manufacturer of tubing and insulated wire.

Exports account for 40 percent of its $26 million annual sales. Trade is important to countries as well. As

Figure 1 shows, exporting accounts for over 60 percent of the Netherlands' gross domestic product (GDP),

and over a quarter of the GDPs of Canada, Germany, France, and the United Kingdom.

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28,2 27,6 27,1

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Netherlands

Canada

Indonesia

Germany

France