Business Set up Outside India
International business refers to the trade of goods, services, technology, capital and/or knowledge across national borders and at a global or transnational scale.
It involves cross-border transactions of goods and services between two or more countries. Transactions of economic resources include capital, skills, and people for the purpose of the international production of physical goods and services such as finance, banking, insurance, and construction. International business is also known as globalization.
To conduct business overseas, multinational companies need to bridge separate national markets into one global marketplace. There are two macro-scale factors that underline the trend of greater globalization. The first consists of eliminating barriers to make cross-border trade easier (e.g. free flow of goods and services, and capital, referred to as “free trade”). The second is technological change, particularly developments in communication, information processing, and transportation technologies.
“International business” is also defined as the study of the internationalization process of multinational enterprises. A multinational enterprise (MNE) is a company that has a worldwide approach to markets, production and/or operations in several countries. Well-known MNEs include fast-food companies such as: McDonald’s (MCD), YUM (YUM), Starbucks Coffee Company (SBUX), etc. Other industrial MNEs leaders include vehicle manufacturers such as: Ford Motor Company, and General Motors (GMC). Some consumer electronics producers such as Samsung, LG and Sony, and energy companies such as Exxon Mobil, and British Petroleum (BP) are also multinational enterprises.
Multinational enterprises range from any kind of business activity or market, from consumer goods to machinery manufacture; a company can become an international business. Therefore, to conduct business overseas, companies should be aware of all the factors that might affect any business activities, including, but not limited to: difference in legal systems, political systems, economic policy, language, accounting standards, labor standards, living standards, environmental standards, local cultures, corporate cultures, foreign-exchange markets, tariffs, import and export regulations, trade agreements, climate, and education. Each of these factors may require changes in how companies operate from one country to another. Each factor makes a difference and a connection.
One of the first scholars to engage in developing a theory of multinational companies was Canadian economist Stephen Hymer. Throughout his academic life, he developed theories that sought to explain foreign direct investment (FDI) and why firms become multinational.
There were three phases of internationalization according to Hymer’s work. The first phase of Hymer’s work was his dissertation in 1960 called the International Operations of National Firms. In this thesis, the author departs from neoclassical theoryand opens up a new area of international production. At first, Hymer started analyzing neoclassical theory and financial investment, where the main reason for capital movement is the difference in interest rates. After this analysis, Hymer analyzed the characteristics of foreign investment by large companies for production and direct business purposes, calling this Foreign Direct Investment (FDI). By analyzing the two types of investments, Hymer distinguished financial investment from direct investment. The main distinguishing feature was control. Portfolio investment is a more passive approach, and the main purpose is financial gain, whereas in foreign direct investment a firm has control over the operations abroad. So, the traditional theory of investment based on differential interest rates does not explain the motivations for FDI.
All firms that want to go international have one goal in common; the desire to increase their respective economic values when engaging in international trade transactions. To accomplish this goal, each firm must develop its individual strategy and approach to maximize value, lower costs, and increase profits. A firm’s value creation is the difference between V (the value of the product being sold) and C (the cost of production per each product sold).
Value creation can be categorized as: primary activities (research and development, production, marketing and sales, customer service) and as support activities (information systems, logistics, human resources). All of these activities must be managed effectively and be consistent with the firm strategy. However, the success of firms that extend internationally depends on the goods or services sold and on the firm’s core competencies (Skills within the firm that competitors cannot easily match or imitate). For a firm to be successful, the firm’s strategy must be consistent with the environment in which the firm operates. Therefore, the firm needs to change its organizational structure to reflect changes in the setting in which they are operating and the strategy they are pursuing.
Types of operations
Exports and import
· Merchandise exports: goods exported—not including services.
· Merchandise imports: The physical good or product that is imported into the respective country. Countries import products or goods that their country lacks in. An example of this is that Colombia must import cars since there is no Colombian car company.
· Service exports: As of 2018, the fastest growing export sector. The majority of the companies create a product that requires installation, repairs, and troubleshooting, Service exports is simply a resident of one country providing a service to another country. A cloud software platform used by people or companies outside the home country.
· “Tourism and transportation, service performance, asset use”.
Exports and Imports of products, goods or services are usually a country’s most important international economic transactions.