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One of the most dramatic and significant world trends in the past decades has been the rapid, sustained growth of international business. Thus, international business is the process of focusing on the resources of the globe and objectives of the organization on global business opportunities and threats, in order to produce buy, sell or exchange of goods and services worlds-wide. International business, though usually used to describe the communication between and among global businesses, is used in various applications to communicate a strategy of operating business clearly in each global market. When companies use a global business approach, they indulgence each country as a unique market place and regulate business marketing, operations, promotion, sales, service and other business functions to more suitable in each country.
The apparel you get might be produced in India, but the collaboration of china Company. The coffee you drink is prepared from caffeine powder produced in Switzerland. The car technology you drive might be produced in India, but the collaboration of Germany Company. The spares and hard-disk of the computer you might be produced in the United States of America. The television you watch might have been produced with the Korea technology. The shoes you wear might have been produced in United Kingdom, but remarketed by an Italian company. Most of individual experience of surfing internet and visiting different web sites, knowing about the different product and services offered by the various companies across the globe. Some of them might have the experience of even ordering and buying online for example Amazon, eBay. This process gives a opportunity of transacting in global business arena without visiting or knowing the various countries and companies where they produced. All these activities have become a certainty due to the operation and activities of international business (Roa, 2011)
History of Globalization
The origin of globalization goes back to human civilization. The concept of international business a border concept relating to the integration of economies and societies, dates back to the 19th century. The first phase of globalization began around 1870 and ended with the World War 1 in 1919 driven by industrial revolution in UK, Germany and the USA. The imports of raw material by the colonial empires from their colonies and exporting finished goods were the main reason for the sharp trade increase in trade during this phase.
In the 15th & 16th century: Europeans made important discoveries in their exploration of the world ocean. They travel across Atlanta to the new world of Americas.
In 17th & 18th century: colonization of land took place. Countries Europe, uk started making there colonies and ruling throughout the world. And there after movement of people, goods and ideas took place.
19th century - development of new forms of transportation, steamship & railroads and telecommunication which help the countries to trade internationally and even advancement in technology took place.
20th century - airlines and roadways transportation has become even faster, and the advent of electronic communication, most noticeable cellular phone phones and the internet, linked and connected billions of people in the new ways leading into the 21st century (Roa, 2011)
Understanding the Importance of International Business
International business focuses on global resources, opportunities or threats, in order to produce, buy, sell, or exchange world wide. International business is evolved from international trade & international marketing, international business include wider market, high living standard, optimum utilization of resources (Roa, 2009). Whereas globalization aims at free flow of all kinds of resources, it is more integrated and interdependent to world economy, globalization is process includes globalization of markets, production, technology, investment. International business is all business operation - private and public those engage two or more countries. International business comprises a large and increasing portion of the world's overall business. Today, every company, small or large, are affected by worldwide events and competition because all sell products and services to secure traders from international countries compete against goods and services that come from abroad.
Companies that involve in some of international business are involved in exporting and importing, than in any other nature of business transaction. Several of the international business experts debate that exporting is a sensible process with a normal structure, that can be view mainly as a technique of understanding the objective of country's environment, using the proper tools for developing a marketing plan, marketing mix by using the mix and implementing a tactic strategy through plan and in last using a control method to ensure the plan is followed to. This exporting practice is reviewed and evaluate frequently and modification are made to use of this mix, to take account of market changes impacting upon competitiveness.
Another core issue in international business is the company constant growth and development and its importance of networking and communication. This view looks at the way in which companies and organizations interact and therefore system and network with each other to expand potential commercial advantage in world markets. The network can be using similar subcontractors or components, sharing research and intensification costs or operating within the same governmental structure. Clearly, when businesses originate a trading block with no internal barriers they are in fact creating their own networks. Collaborations in aerospace, automobile manufactures and engineering have all sponsored the growth of a country's or a group of countries view based on their own internal market network. This network and communication approach to internationalization shows the essence of being able to control decisions when knowing how the international network players work or interact (Buchanan, 2006)
Importance of international business
Telecommunication makes business much easier by making their product and services easily available to world markets. Thus going globally has certain difficulties, business might be profitable or not, and there are many competitors who enjoy the market with resource diversification.
Globalization increases returns potential by expansion market base. Though expansion of market base does not effect to managerial difficulties but has to overcome on such complication of taxation issues and the laws and bureaucracy related import and export but going globally it has potential benefits and are usually are much larger than managerial difficulties.
If any company is in view of trying to create a stronger international presence, then it should expect that the competitors are perhaps considering it as well. If company wants to remain competitive, it must be ready to incur the disbursement of globalization.
Expert investors often talk about the importance of portfolio diversification as investing in various types of businesses and commodities minimizes risk and lends to steady development. This is accurate for market presence as well. If a company only has occurrence in a small market can get into recession if the market fall down and can also have uneven risk. But if it has various market portfolio in different country can minimize the recession risk.
By making relationships and building infrastructure in or associated to markets around the world, organization can extend company's ability to draw from manufacturers, trained human resources and technology in a variety of countries. This diversification can help companies to make down the costs of all aspects of business, including production, distribution and management (Kimmons, n.d.)
Domestic Companies Going Globally
Companies go globally for many reasons, but the ultimate goal is normally company growth or development. Whether company hire global employees or searches for new markets abroad, an international strategy can help develop and expand a business.
Many companies go internationally for growth. Launching a existing products internationally can expand a company's consumer base, sales and revenue. For example, after mc Donald's dominated the U.S. market, it extended their business globally starting in 1926 to increase sales and profits.
Companies go worldwide to find another source of labor. Some companies look to international countries for lower-cost manufacturing, technology assistance and other services in order to maintain a competitive advantage.
Some companies go globally to obtain resources that are not easily obtain in their home markets, or that can be obtained a better resource at better price by going globally.
Companies go globally to expand their labor and work force and also to obtain new ideas. A work force comprises of diverse backgrounds and cultural differences can bring new ideas and concepts to help a company develop. For example, Infosys recruits individuals from different backgrounds to have a benefit of competitive advantage which help to drive innovation and benefits to their customer.
Some companies go globally to diversify. Selling goods and services in many countries reduces the company's exposure to feasible economic and political insecurity in that single country (Acevedo, n.d.)
ons for Companies going internationally
Economic globalization is the process during which businesses rapidly develop their markets to include global consumers. Such development is possible in part because technological breakthroughs during the 20th century rendered international communication easier. Email and air travel networks mean it is likely to manage a business from a distant location. Now that businesses often have the opportunity of going global, they assess a range of considerations before beginning such expansion.
Wider market: global business broadens the market and increases the market size and base. Therefore, the company need not have to depend on the demand for the product in a single country or customer's tastes and preferences of a single country. Due to better market the Air emirates, generally depends on the demand for air travel of the customers from country other than France. This is true scenario of most of the multinational companies like Hyundai, Pepsi, and coca-cola.
Reduce risks: both business and political risks are reduced for the firms engaged in global business due to spread in many countries. Multinationals which were working and operating previously USSR were affected only somewhat due to their safer operations in other country. But domestic companies of the then USSR collapsed completely.
Optimum utilization of world resources: international business provides a smooth flow of raw materials, natural resources and human resources from the countries where they are in surplus supply to those countries which are in short supply or need most. For instance, flow of human resources from china, consumer goods from United States, France, UK, Germany and Italy to developing countries. This, in turn, helps in the optimum utilization of global resource (Roa, 2011)
Expertise: Companies search for specific expertise they can be find only in a different country. For example, an upholstery company may buy a silk weaving store in Italy in order to buy Italian silk at a cheap cost.
Labor: If the cost of labor is extensively lower in another country with much lower living and income standards, such as China or India, companies can save wealth by manufacturing there and shipping their final manufactured goods back home.
Taxes: Taxes, rules and regulation are the main reason to choose a company in countries that have favorable trade tax laws, such as in the Caribbean, or that offer tax benefits for particular industries, such as Vancouver gives to the pictures industry (Lee, n.d.)
Leading with example of United States Companies Going Globally
Throughout history, companies in United States had gained much from trade by doing business with wide market throughout the world. As united states has always had a advantage in trading due to currency power and its very easy for any united states base company to expand globally due to new technologies, they bring to market which helps them to seek out a new market or the expertise and the labor found globally to start opportunities that domestic trading cannot match.
Domestic market Situation in United States
Since the global financial crisis of 2008 and 2009, the reason to expand globally has turn out to be much greater for many U.S. companies. As home consumer demand has weaken, many United States based firms have to move abroad to look for out new markets, to constrain revenue growth and boost declining profits.
Weak Dollar (currency)
The flaw of the U.S. currency in comparison with other trading partners means the United States produce a goods which are much cheaper to buy in international markets. Many U.S. businesses are taking benefit of this difference and realizing that new markets and customers demands with the means to buy their goods and services be present in huge numbers beyond the boundaries of the United States.
As hundreds of millions of public around the world move from poverty and survival livelihood to the middle classes with real purchasing power, vast new markets and opportunity occur for United States companies. The emerging nations like Brazil, Russia, India and China alone are all rapidly emerging and together include 40 % of the world's population. This new situation combined with a positive idea of United States culture and customer goods among these substantial, youthful and ambitious populations has determined many U.S. companies to hold these new markets.
The new technologies have made outsourcing easier proposition than in the earlier period. Now small U.S based businesses and startup companies that in the past use find difficulties to operate due to costs can access and utilize the vast and cheap labor markets of the globe. Having their goods made abroad for a portion of the cost of domestic production way many businesses can get off the ground position and create or establish profitability and strength far easier than before (Lee, n.d.)
Risk Involved in an International Business
Every nation presents its own investment opportunities. Before expanding a company overseas, however, company should aware of the further risks of the international trade market. In general, the risks which are concerned in international business can be segmented into four main categories: country, political, regulatory and currency risk.
Weigh the reimbursement of any company doing business abroad against the possible pitfalls. Poor infrastructure in any country can make business worst for instance, such as roads, bridges and telecommunications networks can make it expensive to functions a business in another country. Trade and industry conditions such as high unemployment or a mainly unskilled and uneducated labor force can be barriers to entry. Nations may have available potential, but may also pose risks such as terrorism, interior conflict and civil unrest. Anti-foreign view among citizens, other country risks includes crime and corruption.
Political stability of the country is very important factor to enter to that country for business. An unstable government will be incapable to protect any business interests. Lack of a strong international trade policy in a country may lead business unfriendly decide to raise tariffs or force quotas. For instance, china, Pakistan and the USA (before 1998) imposed tariffs quotas and barriers on imports from India. But erstwhile USSR and present Russia liberalized imports for India.
A sudden amendment in trade policy or a poor lawful system exposes any business to regulatory risk. For instance, a nation without visibly defined intellectual property laws make it complicated for international software companies to look after their funds and investments. There are various regulatory bodies which help the countries to go globally for instance, GATT and WTO.
Fluctuations of a international country's currency can deteriorate profits when converting back to the home currency. Evaluate the probability of risk and rewards of making a deal in another country. The currencies of secure government are less unstable than those of less-developed countries. Equivocation strategies could moderate some of the currency risk; however, businesses are still at the understanding of the vagaries of the local currency market. Unexpected changes in economic policy will also have an effect on currency rates (Saint leger, n.d.)
International business has prospered over the centuries due to many advantages it has offered to several countries across the world. It has accounted in major for countries gross domestic product is on the most important pillar for the developing countries.
Countries with durable international business have prospered and have become independent on each other due to which there is a friendly atmosphere in all the countries. It is also become one of the significant contributors to the reduction of poverty all though it has many advantages it carries some disadvantages government should strike an equilibrium in there policies which can the global business but also maintain the interest of local industries, no country in future can survive without having major global business through close economy. International business will tackle the main issue face by many countries of in equal distribution of natural resources.