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3 Major Verticals affecting the International Business

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International Business

After globalization becoming the buzzword in today’s world, international business has given a new shape and has also created a new dimension in the world of business as in how the business is carried out.

In a layman’s word International Business is related to the business which is carried out internationally. Formally it is a term which is used to describe all the transactions including those of governmental or private that take place between two or more regions, countries, nations beyond the political boundary.

With the sole motive of making profit the private companies and government companies indulge themselves in the cross border trade. International Business basically involves the trade of goods, services and resources between the nations at some pre-defined prices as per global market standards.

The Verticals affecting the International Business

1) Objectives of International Business

The main objectives of the International business are:

  1. Sales expansion – which deals with the expansion of sale of products and services, not only in the country which produces but also across the globe
  2. Resource acquisition – Acquiring resources which is available in some parts of the world to produce different products
  3. Risk minimization – Minimization of risk in the international market with the availability of vast scope, the risk minimization is seen by the producers.

2) Mode of Conducting International Business

With the different mode of conducting businesses available, following are some of the methods used for International Business:

  1. Importing – When the goods are bought from other nations it is termed as importing. The goods here can be resources, or finished products.
  2. Exporting – When a good is imported in a country, it means it is exported from the country which is selling it to the buyer country, thus Import and Export goes hand in hand and it develops a healthy international trade relation globally.
  3. Tourism and Transportation – Tourism and Transportation are yet another mode of conducting business internationally. Tourists, who are on tour/visit to different countries get the products for themselves and also products are being transported to nations by means of air, ship, etc for trade.
  4. Licensing and Franchising – Licensing is the authorization of trade internationally, whereas franchising means obtaining the promotional rights from the main organization in different cities across nations. For example: McDonalds, the fast food restaurant, is opening franchisees across nations where in Individuals promote and sell McDonalds products on the basis of some mutual agreement signed with the parent company.
  5. Management Contracts – A management contract is an arrangement which underlies the operational control of an enterprise is vested by contract in a separate enterprise which performs the necessary managerial functions in return for a fee from the main organization.
  6. Direct investment – This refers to the Foreign Direct Investment where in the Foreign Individuals, corporations invest their money in different market across the world buying stake in companies, buying stocks etc.
  7. Portfolio investments – The purchase of stocks, bonds, and money market instruments by foreigners for the purpose of investment aimed at realizing a financial return, which does not result in foreign management, ownership, or legal control.

3) Physical and Societal Factors

Following are the physical and societal factor which creates an impact on the promotion of Trade across boundaries:

  1. Political policies and legal practices – The political laws formulated and governed, treaty, MoU’s signed by the governments of different nation to promote trade and exchange resources for the improvement of standard of living. Example: The recent Eurozone crisis including the Middle East crisis showed a huge impact on the world economy and the economy of major nations including India where in the growth of European Nation is predicted to decline heavily to mere 1%.
  2. Cultural factors – The culture of the nation which when migrated to different country creates an impact their thus promoting the culture of the originating nation and promoting International Trade.
  3. Economic forces – After globalization, the economies of nations are open to each other. With the major stock exchanges dependent on each other, the economic working of a nation affects the economy of other as well especially the growing economy. Example: the recent credit downgrading of US from AAA to AA+ by S&P resulted in the volatility in US exchanges which in turn showed its effect across the stock market of other nation as well like Japan, India, China, and Hong Kong.
  4. Geographical influences – The geographical demography of a nation also effects the promotion of international business.

Globalization

Globalization, the new alternative name of today’s economy has come to dominate the world since its implementation in nineties of the last century with the end of the cold war and the break-up of the former Soviet Union and the global trend towards the rolling ball.

Globalization has brought in new opportunities to developing countries. Greater access to developed country markets and technology transfer, promise improved productivity and higher living standard. But globalization has also thrown up new challenges like growing inequality across and within nations, volatility in financial market and environmental deteriorations. Another negative aspect of globalization is that a great majority of developing countries remain removed from the process.

Read Pros & Cons of Globalization on GWI.

Following are the major factors which led to the growth of globalization:

  • With the increase in Technology, the world is now no more a far place and one can reach any part of the world easily. The massive growth especially in transportation and communications has diminished all physical borders.
  • Governments are removing international business restrictions. The policy reforms which are formulated by the economic advisors, finance ministers and the government is now liberalized keeping in mind the growth of the country. The foreign investment is now welcome which was not done previously to a large extent.
  • Consumers – Consumers are now more aware as compared to their awareness previously. Now they know about and want foreign goods and services, thus increasing its demand and supply as a whole.
  • Competition has become more global. After globalization the wide domain is opened for the companies to compete and thus more and more companies are now looking beyond their scope to compete and outperform.
  • Political relationships – It has played a major role in the promotion of international business and trade. The relationship among nations particularly the developed economies have improved to a great extent which is now helping the developing economy to grow faster.
  • Countries – The international issues are now dealt in co-operation. With the UN coming into function the nations are now becoming more cooperative on transnational issues.
  • Cross-national cooperation and agreements – Agreements and MoU’s are signed which again helps in the development of the economy and implementation of newer technologies from nations across the world. Also it helps in dealing with the common problem like the global warming, etc unitedly.
PG

Niraj Satnalika

Niraj is an MBA in International Business (Finance). Prior to this he completed B.Tech in Electronics and Instrumentation. He is currently working with Confederation of Indian Industry (CII), Kolkata in capacity of Consultant. Satnalika is actively involved with an NGO and works towards promoting education among the underprivileged.

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