The Impact Of International Business On The Global Economy


International businesses are getting immensely attractive with winds of globalization. The most profitable of all companies are the ones which has presence internationally. An aspiring international company must need to understand and strategies about the local culture and language of the prospective market. Also, legalities and political atmosphere can make an international venture profitable or difficult.

The International Business Imperative

Technological advancements have propelled the rise of international businesses. The ever increasing competitiveness of local markets have driven businesses to look for upcoming opportunities. The gradual easiness of international trade barriers, finance flow pushing EXIM and foreign direct investment (FDI).

Multinational companies have emerged as catalyst for international multi economic harmonization. These companies are encouraging innovation and providing new products and services to such new markets. Moreover, the emergence of BRIC economies has given strength to the cash strapped businesses in current economic conditions.

Culture vs. International business

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Chevrolet was at the receiving end during their promotion of Chevy Nova in the Mexican markets, the company research team failed to evaluate the local culture before embarking on this advertising campaign as in the Spanish language "No va" translates to "It doesn't go".

Another example of cultural non-conformity refers to the case of General Motors which launched one of its frontline passenger vehicle Matador in Puerto Rico, however, Matador in its local culture refers to "Killer" and also the local traffic rate of accidents are quiet high. Therefore its of utmost importance to research local customs and behavior prior to formally entering any new market.

A television advertisement proved to be a gross mistake for Doubletree Hotels Corporation. It was a $51 million marketing campaign aimed at highlighting the hospitality of its group of service companies. However, the whole exercise turned upside down and resulted into losses of revenue and brand equity. The company didn't research the local culture and customs and designed an advertisement in which local hotel staffs were dressed in arabic-style clothing and bowing to the guests. This advertisement sent out a message that the company employees are worshipping or praying to hotel guest which is forbidden in Islam. As all Muslims worship the one true God, this advertisement was seen as ridicule of reality.

Politics and Laws

Political risk in international business entails discontinuities occurring in the business environment that are: difficult to anticipate; and that result from political action(s) or changes(s) that possess the potential to significantly affect profit or business goals. Political risk may be related to political instability but it need not be (Kluyver, 2003).

World businesses have perennially recommended regional governments to provide basic legal and institutional framework to promote international investments and ventures. They have also asked them to provide an effective framework wherein competition, trust and markets are more fairly competitive.

The European Commission has stated that its primary aim in issuing the draft -- Directive on Certain Legal Aspects of Electronic Commerce -- is to respond to this call from the private sector and to eliminate certain legal obstacles that remain to the online provision of services, particularly for small and medium sized enterprises ("Policy Statement"). XXXXX EU JOURNAL LINK Political and legal factors are immensely important for the growth of any economy via international investments.

Theoretical analysis of international trade & investment

In today's age of globalization is not limited to provision goods or commodities across borders depending upon consumer or provider. Countries sometimes avail imported goods which can be produced more cheaply locally than getting from across borders. To explain this example lets consider Great Britain, it has been proven that Great Britain can raise dairy products more economically than Denmark, however, it still get it imported from this country as it want to focus its resources to produce machinery, electrical and other technological goods. It is more advantageous over Denmark in technical manufacturing than dairy products. This is theoretically referred in international trade as the principle of comparative costs or comparative advantages.

The law of comparative costs is an extension of the principle of division of labor to the international field (Gartside, 195). International investment creates international production and is integrated via international trade which in turn leads to knowledge, know-how and technology being transferred between countries along with financial capital (Wei).

Economic Integration

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The integration of economies is not a new trend. Since ancient times, certain communication and trade took place between civilizations and after Marco Polo's travels seven centuries ago, the global economic integration, in the form of trade or commodities movement has been on a rise.

This globalization process has never been smooth or beneficial during various periods of times. However, despite constant hurdles or interruptions, the degree of economic integration has been on a rise.

There are basically three major fundamental factors that have affected the global economic process. Firstly, immense progress in the transportation and communication technology has reduced the cost associated with goods transportation, service and other factors of production. Improvements in the technology of transportation and communication have reduced the costs of transporting goods, services, and factors of production. Secondly, individual and societal liking for taking advantage of this lowered cost of transportation and communication through integration of economies. And thirdly, policies, laws and other fundamental institutional frameworks have drastically influenced the pace and nature of economic integration, though not always in the positive direction.

International Business Entry

Many countries mould their institutional framework so as to make it extremely attractive for being chosen as incorporation destination, even though if the activities are meant to be executed somewhere else. In fact, there are multiple choice of jurisdictions which are so efficient in taxation that it becomes difficult for a prospective company to make an incorporation choice. An apt example is Belize, it is such country which has adopted the best and the most attractive jurisdictions features from across economies. Also, its legal system is based on English common law and it is one of the most stable democracies making it an interesting choice for businesses.

Multinational Corporations

A multinational corporation is a company which is defined as a company or enterprise which is conducting business in several countries and usually has around 25% or more engagements located outside the country of origin. According to Forbes 2009 edition of world companies, HSBC Holdings, General Electric and Bank of America are the three largest multinational companies of this world.

Strategic Planning in International Business

Strategic planning must be developed and always owned by the team of experts during its lifespan and it must be objective as well. After successfully conducting the research, the team of international business management must chalk out a first year budget, infrastructure planning which can absorb expansion and finally prepare the business for international expansion. It must also understand and develop contrasting growth roadmap and document the risk and rewards of each. The international business must implement the right mix of operations (direct or indirect) and the right order of launch sequence to minimize risk and maximize increasing market share and revenue generation. Basically to create an excellent international expansion strategy, a business should be equipped with broadened exposure along with rich past market experience.

Past events have proved that effective management of international business operations includes few major functions which must be implemented as highest priority (viz. efficient management of finance, personnel, product development, marketing, and communication). This is so that the organization, implementation and control of the operations go well. The future of international business is bright as globalization and the need for universality continue.