Chapter 4: International Business Environment
International Business
The buying and selling of the goods and services across the border.
The national border are crossed by the enterprises to expand their business activities like manufacturing, mining,
construction, agriculture, banking, insurance, health, education, transportation, communication and so on.
Trade
Trade means exchange of goods and services for the satisfaction of human wants.
When trade is confined to the geographical limits of a country, it is a domestic or national trade.
International or foreign trade refers to the trade between two countries.
Technically, domestic trade and international trade are more or less identical and are based on the same basic
principles of trades.
Differences between Domestic and International Business
Difference in Currencies
Difference in Natural and Geographical Conditions
Mobility of Factors of Production
Sovereign Political Entities
Imposition of tariffs and customs duties on imports and exports;
Quantitative restrictions like quotas;
Exchange control;
Imposition of more local taxes etc.
Different Legal Systems
Importance of IBE
Helps in expansion: Geographic expansion may be used as a business strategy. Even though companies may
expand their business at home.
Helps in managing product life cycle: Every product has to pass through different stages of product life
cycle when the product reaches the last stages of life cycle in present market, it may get proper response at
other markets.
Technology advantages: Some companies have outstanding technology advantages through which they
enjoy core competency. This technology helps the company in capturing other markets.
New business opportunities: Business opportunities in overseas markets help in expansion of many
companies. They might have reached a saturation point in domestic market.
Proper use of resources: Sometimes industrial resources like labor, minerals etc. are available in a country
but are not productively utilized.
Availability of quality products: When markets are open, better-quality goods will be available everywhere.
Foreign companies will market latest products at reasonable prices. Good product will be available in the
markets.
Earning foreign exchange: International business helps in earning foreign exchange which may be used for
strategic imports. India needs foreign exchange to import crude oil, deface equipment, raw material and
machinery.
Helps in mutual growth: Countries depend upon each other for meeting their requirements. India depends on
gulf countries for its crude oil supplies.
Problems in International Business
Controlling the market: Multinational try to control the market of the host country. Whenever they enter a new
country, the first strategy is to eliminate the competitors either by taking over their business or forcing them out of
market by following price reduction policies.
Exhausting natural resources: Multinational corporations set up their production facilities in those countries
where natural resources are available in sufficient quantities.
