Importance of international business
| Importance of international business |
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| See also |
In current global economy importance of international business is very high, because of:
- industry interdependence on various natural resources
- access to global financial markets
- fast movement of people, goods and information
- changing global tariffs and tax policies
- possibility to expand to new markets
- capturing cost advantage in different countries (e.g. lower labour costs)
- improvement in logistics processes can increase efficiency
- capturing demand of more customers in different countries and diverse cultures
- gaining knowledge from other countries increase innovation
International business refers to the trade of services, goods, technology, capital and knowledge. It involves cross-border transactions of goods and services between two or more countries. International business is also known as globalization’’’. International business is also the study of the internationalization process of multinational enterprises’’’.
Multinational Enterprise
A multinational enterprise (MNE) is a company which has a worldwide approach to markets, operations and production in several countries’’’.
Well-known multinational enterprises include companies: McDonald's, Starbucks Coffee Company, Microsoft, etc.
To MNEs leaders include also:
- vehicle manufacturers such as: Ford Motor Company, and General Motors.
- Consumer-electronics producers such as: Samsung, LG and Sony
- Energy companies such as: Exxon Mobil and British Petroleum.
To conduct business abroad, companies should be conscious of all the factors that may affect any business activities, including:
- difference in legal systems,
- political systems,
- economic policy,
- language,
- accounting standards,
- labor standards,
- living standards,
- local cultures,
- foreign-exchange markets,
- import and export regulations,
- trade agreements,
- climate,
- education.
Each of these factors can require changes in how companies operate from one country to the next.
International Company
All company that want to go international have one aim in common: the desire to increase their respective economic values when engaging in international trade transactions.
To gain this goal, each company must develop its individual strategy and approach to maximize value, increase profits and lower costs.
A firm's value creation is the difference between the value of the product being sold (V) and the cost of production per each product sold (C)[1].
Value creation may be categorized as:
- Primary activities (production, marketing, sales and customer service)
- Support activities (logistics, Information systems and human resources).
All of these activities must be managed effectively and be consistent with the company strategy.
The success of internationally firms depends on the goods or services sold and on the firm's core competencies (Skills within the firm which competitors cannot easily match). For a firm to be successful, strategy must be consistent with the environment. Firm's organizational structure must to reflect changes in the setting in which they are operating and the strategy they are pursuing[2].
When a firm decides to enter a foreign market, it must decide on a mode of entry. There are six different modes to enter a foreign market[3]:
- exporting,
- turnkey projects,
- licensing,
- franchising,
- establishing joint ventures with a host-country firm
- setting up a new wholly owned subsidiary in the host country.
Means of Businesses[4]:
- Entry modes: Export/import, wholly owned subsidiary, merger, acquisition, alliances and joint ventures.
- Modes: importing and exporting, tourism and transportation, licensing and franchising, turnkey operations, management contracts, direct investment and portfolio investments.
- Functions: marketing, global manufacturing and supply chain management, accounting, finance, human resources.
- Overlaying alternatives: choice of countries, organization and control mechanisms.
References
- Hill Charles W. L. (2005) International Business: Competing in the Global Marketplace, McGraw-Hill Higher Education.
- Hoffman R. C., & Gopinath, C. (1994). The importance of international business to the strategic agenda of US CEOs. Journal of International Business Studies, 25(3).
- Luthans F., Doh J. P. (2015) International Management: Culture, Strategy and Behavior, McGraw Hill.
Footnotes
Author: Karolina Piotrowska
