International Business

INTERNATIONAL BUSINESS

International Business is a term used to collectively describe topics relating to the operations of firms with interests in several countries. International trade occurs because no single country has the resources to produce everything well. Nations specialize in the production of certain goods and trade with other nations for those they do not produce. More and more companies are recognizing that pursuing opportunities in the global marketplace is the key to their present and future success. There are many advantages of going global such as, new markets, new sources of capital abroad, swifter technological advancement, and more choices for consumers, just to name a few. One of the results on the increasing success of international business ventures is Globalization. Globalization can be described as an increased connectivity among societies and their elements due to the explosive evolution of transport and communication technologies to facilitate international cultural and economic exchange. There are several countries that participate in international trade, as well as several forms of international business activities.

Any company can become involved in world trade through a range of activities. Many companies first expand into international trade through importing and exporting. Importing is buying goods or services from a supplier in another country. Exporting is selling products outside the country in which they are produced. At any given time, a country may be importing more of one type of product and exporting more of another. The relationship between the value of a country’s imports and the value of its exports determines its balance of trade. The level of a country’s imports and exports forms an important part of international business economics. When a country exports more goods than it imports, its balance of trade is favorable, creating a trade surplus. However, when a country imports more than it exports, its balance of trade is unfavorable, creating a trade deficit. The top three of the world’s major trading economies are Europe, United States, and Japan. The top ten trading economies of the world include both industrialized and developing nations.

Although companies may first expand globally through importing and exporting, there are other forms of international business activities. License Agreements entitle one company to produce or market another company’s product or to utilize its technology in return for a royalty or fee. Another way to expand into foreign markets is by franchising. With a franchise agreement, the franchisee obtains the rights to duplicate a specific product or service and the company selling the franchise obtains a royalty fee in exchange. Joint ventures and strategic alliances offer another approach to international business. A joint venture is a partnership in which one company cooperates with other companies or governments to develop, produce, or sell products. A strategic alliance is a long-term partnership between two or more companies aimed at helping each to establish competitive advantages. Ultimately, the most absolute form of international business is a wholly owned operation run in another country, without the financial participation of a local partner. Many U.S firms currently do business in this way, some operations are started from scratch and others are acquired from local owners.

Government actions that affect trade, foreign investment, and currency values can distinguish a country’s expenses in its international economic relationships. Every country has the right to control its participation in the global marketplace. All countries practice protectionism, which are government policies aimed at shielding a country’s industries from foreign competition, in one way or another. Tariffs and non-tariff barriers are two categories that protectionism is broken into. Tariffs are taxes levied against imported goods. They raise the price of imported goods to give domestic producers a cost advantage. Non-tariff barriers include quota, which are fixed limits on the quantity of imports a nation will allow for a specific product, and subsidies, when countries prefer to subsidize domestic producers so that their prices will be substantially lower than import prices, rather than restrict imports. The goal of subsidies are often to help build up an industry until it is strong enough to compete on its own in both domestic and foreign markets.

Sometimes countries engage in trade practices that are deemed unfair by the host country. To prevent trade disputes from escalating into full-blown trade wars, and to ensure that international business is conducted in a fair and orderly fashion, the countries of the world have created a number of agreements. The major trade agreements include The General Agreement on Tariffs and Trade (GATT), The World Trade Organization (WTO), The Asia Pacific Economic Cooperation Council (APEC), and several regional trading blocs. The GATT is a worldwide trade pact that was first established in the aftermath of World War II. Nondiscrimination has been the guiding principle. Any trade advantage an GATT member gives to one country must be given to all GATT members, and no GATT nation can be singled out for punishment. GATT successfully reduced tariff barriers on manufactured goods. The WTO is a permanent negotiating forum for implementing and monitoring international trade procedures and for mediating trade disputes among its 123 member countries. The WTO’s goals include facilitating free trade, lowering the costs of doing business, enhancing the international investment environment, simplifying customs, and promoting technical and economic cooperation. The APEC is an organization of 18 countries that are making efforts to liberalize trade in the Pacific Rim (the land areas that surround the Pacific Ocean). The members are comprised of the United States, Japan, China, Mexico, Australia, South Korea, and Canada.

One way to encourage trade is through trading blocs, which are regional groupings of countries that agree to remove trade barriers with each other. Trading blocs generally promote trade inside the region while creating uniform barriers against goods and services entering the region from nonmember countries. One of the largest trading blocs is the European Union (EU). The EU’s trading partners are France, Germany, Italy, Belgium, the Netherlands, Luxembourg, Great Britain, Denmark, Greece, Ireland, Portugal, Spain, Austria, Finland, and Sweden. With combined gross domestic product of over $6.5 trillion and a population