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Summer Drive MB0053-1. Define international business. What are the advantages of international business?

Answer : International Business – Definition

International business includes any type of business activity whether goods or services that crosses national boundaries. A number of definitions of international business can be found but no single universally accepted definition exists for the term international business.

Some people define international business as an organization that

buys and/or sells goods and services across two or more countries. Some others consider it as big enterprises which have operating units outside their home country. Still others consider it as joint ventures with locally owned business or with foreign governments.

International business has become massive in scale and has come to exercise a major influence over political economic and social forces because of many types of comparative business studies and knowledge of many aspects of foreign business operations. In fact, sometimes the foreign operations and comparative business are used as synonymous for international business. Foreign business refers to domestic operations within a foreign country. Comparative business, on the other hand, focuses on similarities and differences among countries and business systems.

Scope of International Business

The distinguishing feature of international business is that international firms operate in environments that are highly uncertain. Moreover, the rules of the game are often ambiguous, contradictory and are changing rapidly as compared to domestic environment. International managers have to learn the factors which are unique to the country of their operations. Managers who are shrewd in identifying new ways of doing business that satisfy the changing priorities of foreign governments have an obvious and major competitive advantage over their competitors who cannot or will not adapt to these changing priorities.

An international business firm should incorporate a global perspective. The firms should explicitly define their guiding principles in terms of an international mandate rather than allow the firm’s guiding principles in terms as an incidental adjunct to its domestic activities. Incorporating an international outlook into the firm’s basic statement of purpose will help focus the attention of managers on the opportunities outside the home economy.

The dynamic factors in foreign countries have impact on all stages of evolving and implementing business plans by an international business firm. First, it must define the firms guiding principles for the market place. The guiding principles should, in addition to other things, provide a long term view of what the firm is striving to become and provide direction to divisional and subsidiary managers.

Nowadays, many large enterprises operate internationally and hence awareness of the major issues in international business is a valuable asset for international managers. The study of international business helps an individual to supplement his knowledge of practices, systems, styles, problems and solutions used in the other countries. It develops a person’s sensitivity to foreign cultures, values and social norms and enables him to adopt broader perspective and hence improve his overall managerial efficiency.

Motives of International Business

Businesses undertake international operations because of a number of benefits that arise from international business. Motives of international business are as follows:

i) International business helps a firm in spreading the commercial risk across several countries. When demand of a product in one country is depressed, the production may be exported to other countries, cold weather, for instance may depress soft drink consumption in one country but all countries do not have winter at the same time. In fact, some countries are relatively warm throughout the year. Such markets provide outlets for production of soft drinks even in winter.

ii) International business helps a firm in increasing their overall sales and profit. Many firms in USA have done well because of their international sale.

iii) Many firms resort to international business with a motive to survive. Some firms may not have large market in home country. There may be intense competition in the home country. Under such a situation, the firm would look towards foreign markets.

iv) International business operations explore management to new ideas and different approaches to solving problems. This in turn will help individual executives to develop their general management skills and personal effectiveness. They become innovative and adopt broader horizons. All these factors can give a firm a competitive edge in the home country.

v) Many firms conduct international business to harness the economics of scope. Economies of scope provide benefits like unit cost reductions resulting from undertaking range of activities using common services and inputs useful for each activity.

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