Introduction to International Business
Business activities carried across the national borders is known as International Business. The International business is the transfer of goods, commodities and services outside its national borders. Such trade modes might be owned by the state or privately owned organization. In which, the organization explores trade opportunities outside its domestic national borders to extend their own particular business activities, for example, manufacturing, mining, construction, agriculture, banking, insurance, health, education, transportation, communication and so on.
REASON FOR GOING INTERNATIONAL BUSINESS
One of the most important objectives of internationalization of business is the profit making. International business can be more profitable than the domestic. There are cases where more than 100 per cent of the total profit of the company is made in the foreign markets. Even when international business is less profitable than the domestic, it could increase the total profit. Further, in certain cases, international business can help increase the profitability of the domestic business.
- Growth Opportunities
The huge growth potential of many foreign markets is a very strong attraction for foreign companies. In some of the developing countries, both the population and income are growing fast. Growth rate of India has also been good due to liberalization. Even if the market for several goods in the countries are not very substantial at present, many companies are eager to establish a foothold there, considering their future development. Similarly, when the East European economies opened, there was a rush of MNCs to establish a base in these markets.
Competition may become a driving force behind internationalization. A protected market does not normally motivate companies to seek business outside the home market. Until the liberalizations which started in July 1991, the Indian economy was a highly protected market. Not only that the domestic producers were protected from foreign competition but also domestic competition was restricted by several policy induced entry barriers, operated by such measures as industrial licensing and the MRTP regulations.
- Government Policies and Regulations
Government policies and regulations also motivate internationalization. There are both positive and negative factors which can cause internationalization. Many governments give a number of incentives and other positive support to domestic companies to export and to invest in foreign countries. Similarly, several countries give a lot of importance to import development and foreign investment. Sometimes, as was the case in India, companies may be obliged to earn foreign exchange to finance their imports and to meet certain other foreign exchange requirements like payment of royalty, dividend, etc. Further, in India, permission to enter certain industries by the large companies and foreign companies was subject to specific export obligation. Some companies also move to foreign countries because of certain regulations, like the environmental laws in advanced countries. Government policies which limit the scope of business in the home country may also provoke companies to move to other countries.
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