These businesses are part of the economic development of many countries, today more than ever. They are present in many goods that we consume and in many services that we use, although we do not realize it, since they occur through imports and exports of different types and with different scopes. In this article, we will help you understand what they are and what they imply.
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What is the International Business Environment?
International business is the set of exchanges and transactions of goods and services, private and governmental, between two or more countries. It is the buying and selling that takes place across borders and involves sales, investments, logistics, and transportation. It is an important activity for each country since it promotes foreign investment and increases the quantity and quality of products offered in the market.
International administration or trade, the possibility of negotiating and marketing with other countries, has allowed many companies that traditionally operated at a national level to expand beyond borders and therefore grow, offer more jobs, and be a source of wealth for their country…
However, international business is much more complicated than that, as it depends on the political, economic, and social context of the countries involved.
The transactions carried out in international business involve three types of relationships:
– Business-Government.
For example: The government of a country may choose to hire the services of a foreign company.
– Company-Company.
For example: Companies from different countries that buy and sell products to each other.
– Investments in other countries.
For example: A company decides to establish itself in another country to reduce its production costs.
These types of relationships can be complicated due to the laws and policies of each country, which is why agreements and treaties are often entered into whose purpose is to facilitate transactions and ensure good relations between countries so that each one gets what they need.
The interest that any of these actors may have when getting involved in international business may include:
- Fiscal benefits
- Risk diversification
- Take advantage of the economic growth of other countries
- Pursue technology or raw materials that they cannot find in their own countries
Read More: What is a business venture? Characteristics and examples
Main areas of international business Environment
International business depends on many elements, some more practical and others more conceptual, and are classified into two areas:
- Foreign trade
It is the set of policies, practices and procedures that the government of a country requires so that a national company can trade with another country.
- International Trade
It is the study, at a macroeconomic level, of said commercialization. Study and develop factors such as the international market or international financing.
- International business activities
International market competition is very diverse, but can basically be divided into six large areas:
- Export of goods and services
It involves selling resources, products, or services outside the national territory for market expansion and is regulated by tax and customs laws. There are two types of export:
Definitive: assets that remain abroad for an unlimited period of time.
Temporary: goods that leave a country for a specific purpose and time.
- Import of goods and services
It involves acquiring goods and services provided by a foreign entity and introducing them into the national territory. Operations of this type are under great scrutiny to avoid the transfer and marketing of prohibited products. In addition, they are subject to customs regulation for the payment of the corresponding taxes. Like exports, goods and services that enter the national territory do so in two ways: definitive and temporary.
- Foreign investment
It is the movement of capital across borders. This capital is used to acquire property, acquire other companies, or start a new company or business in another country. This is an option that different companies look for to diversify their assets and can be done in two ways:
direct investment
You invest in the purchase of a foreign company to have control over its operations and production, or you buy the shares of a company to have part of the decision control of its activities.
Portfolio investment
It refers to the investment made in foreign companies without any controlling interest or the acquisition of their debt securities. The latter is especially interesting for many businesses, as it makes it possible to negotiate with them and this allows them to obtain short-term profits and, in turn, is another way to diversify their assets.
- Joint Venture
It is a co-participation alliance between two or more companies. It involves the creation of a new entity from the resources that each one can provide. It is characterized by the sharing of profits, risks, and decision-making.
- Subcontracting
Also called outsourcing or externalization, it is an agreement reached by two companies in which one hires another to carry out a specific activity. This activity is part of the normal production process, but, for different reasons, are entrusted to another company.
- Franchises and licenses
When a successful company wants to expand its business model, it can choose to document it step by step and offer it to potential investors. Investors acquire the right to exploit said model and use the name and image of the brand. This is called a franchise.
On the other hand, many successful brands grant part of the exploitation rights, often for a limited time, to other companies that in return will pay royalties for the profits they receive thanks to the use of these elements.
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Advantages of international business Environment
International business involves growth and expansion, sometimes alliances. Many times, they will have a direct impact on diplomatic relations between two or more countries if they involve large companies or exchanges. More specifically, the advantages of starting an international business include:
- More resources
The ability to import resources for processing or sale, or to include them in the production process of a good is a great advantage, since many times they can be acquired at a lower cost or perhaps imported to a country that does not have them…
- More sales
International businesses allow expansion, in the first instance, when a good is offered to many new potential buyers. The market may be larger or may not have enough supply, providing a business opportunity.
- Less risks
Being present in several countries means that economic fluctuations do not affect a company in the same way as they would in a single country. Diversifying investments can help a company have different sources of income and have several options for how to deal with economic recessions or crises of different dimensions.
- More quality
Often the requirements to export a good or service require that it have a certain quality standard, which makes the company interested in exporting improve its entire production line and offer something better inside and outside its country of origin. Likewise, international markets can be more demanding and to ensure sales, companies improve their products or services.
Read More: How to Get a PMP Certification: An Overview
Disadvantages of international business Environment
It is important for a business or company to know the economic and political context of the country with which it wants to negotiate, as well as the risks involved.
- Cultural differences
Although entering an international market is a great opportunity for expansion, it must be taken into account that the new audience may not have the same needs, or may have different customs that distance them from the value proposition.
Likewise, differences in language, which are present even when the language is the same, can represent a problem in terms of marketing or the advertising used, which is no small investment.
It is a big investment and therefore a big risk.
The research required to explore the possibility of entering an international market is long and expensive. You have to study different economic, political, and cultural aspects of the country you want to enter to make sure it is a viable and realistic option. Once this investment is made, the business may fail for reasons beyond the company’s control, which involves significant risk.
- The overexploitation of resources
The demands of the international market and relations with other countries can cause some resources to become unavailable to the inhabitants of the country of origin, either because their value increases or because the resource is more difficult to obtain.
In the same way, there is a risk of over-exploiting reserves of natural resources such as water, flora, fauna, or minerals, which affects the quality of life of the inhabitants and puts the ecosystem in which they live at risk.
Conclusion
As you can see, international business involves a lot of work by different types of specialists such as financiers, logistics specialists, and import and export specialists. At the same time, it is an option for companies to take advantage of the infrastructure they already have and try to capture new markets.
we invite you to approach our team, who will help you learn more details about the entire admission process and other Educational Support that will help you give a boost to your career.
Contact with IBAS: +201000498154