Management > International Business Management > Introduction to International Business > Scope of International Business
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International business refers to the exchange of goods, services, and capital across national borders. It involves the activities of businesses that operate in multiple countries, including trade, investments, production, and marketing of goods and services. The goal of international business is to capitalize on global opportunities and operate in diverse markets, which can lead to increased growth, efficiency, and profitability. In this article, we shall discuss objectives of international business.
Objectives of International Business:
The objectives of international business revolve around achieving growth, expanding market reach, optimizing operations, and enhancing competitive advantages.
To take first-mover advantage:
It refers to getting into a new market and enjoying the advantages of being first. It is easy to quickly start doing business and get early adopters by being first. International markets can have less competition where the businesses can capture a market share quickly. This factor is particularly advantageous when high-quality and superior products are available. Local companies may have the same quality products, but international businesses may have little competition in a market where an inferior product is available. A company with unique competencies and capabilities gain benefits in the international market. For example, Intel’s (USA) competencies and capabilities in semiconductors and chips have propelled it to global market leadership in microprocessors.
To earn foreign exchange:
The international business exports its goods and services all over the world. It helps a country to earn valuable foreign exchange which can be used to pay for imports. Foreign exchange helps to make the business more profitable and to strengthen the economy of the country. Local and foreign It increases investment in the business which is important for the economic stability of the country.
To overcome the limitations of the domestic market:
Some demographic trends such as contraction in birth rate decline in domestic demand, fully tapped market potential, etc. have adverse effects on some businesses. When domestic market is small or saturated, international business is the alternative for growth. Recession in the home market drives companies to explore foreign markets. Foreign markets both developed country & developing country provide substantial growth opportunities for the firms from a developing country. MNCs are interested in developing countries due to fast-rising in disposable income and population.
To take advantage of the low-cost production:
A company can take advantage of low-cost production outside its domestic operations by identifying a nation where the labour is cost-effective and in abundant supply. For example, countries like China, India, the Philippines, and Mexico offer such low-cost production opportunities.
To take advantage of Government Policies:
Many Governments provide incentives to a domestic company to export and invest in foreign countries. The government gives permission to companies to earn foreign exchange for their imports and make payments for royalty, dividend etc. as per foreign exchange requirements
To diversify risk:
Any company can dilute its business risk by spreading its operations to a number of different and diverse countries rather than depending on any one market or region. For example, during the 1997 Asian financial crisis, companies with exposure in European and American countries were able to sustain far better than their counterparts in Asia.
To increase monopoly:
Monopoly Power may arrive from patent rights, technological advantages, product differentiation, etc. Another reason for internationalization is exclusive market information
To discourage local competitors:
Acquiring a new market may mean discouraging other players from getting into the same business-space as one company is in.
To acquire product flexibility:
International businesses having products that don’t really sell well enough in their local or regional market may find a much better customer base in international markets. Business can search for some new markets where the products sell at a higher price. A business having international operations may also find new products to sell internationally which they don’t offer in the local markets. International businesses have a wider audience and thus they can sell a larger range of products or services.
To acquire new knowledge and technology:
Doing business in more than one country offers great insights to learn new ways of accomplishing things. This new knowledge, technology, and experience can pave ways to success in other markets as well.
To increase the number of customers:
If customers are in short supply, it may hit a company’s potential for growth. In such a case, companies may look for internationalization. Expanding into markets of foreign countries leads to exposure to more customers, better revenues, increased profits, and lateral growth. This scenario is ideal when the company has already established products in its domestic market.
To increase strategic resources:
A company utilizes many valuable resources available in a foreign country either by importing from that country or by setting up a subsidiary, manufacturing, or production plant in that country. These resources can be human or natural resources like minerals. For example, India has an abundance of skilled engineers, and many global companies take advantage of this resource by either setting up a subsidiary in India or through their partners.
To increase profitability and growth:
Revenue and profit can be boosted by tapping into global markets. Expanding internationally often allows for greater sales volume and higher returns, especially in emerging or rapidly growing markets.
To diversify the risk:
International business spreads risks across different markets. Operating in multiple countries can help a company reduce its dependence on a single market and mitigate risks associated with economic downturns or regulatory changes in one country.
To access resources and cost efficiency:
International business helps in accessing resources, raw materials, labour, and technology at a lower cost. Many companies look to countries with cost advantages in labour or materials to optimize production costs and increase margins.
To attain economies of scale:
International business helps in increasing production scale to reduce per-unit costs. Expanding internationally can allow companies to produce on a larger scale, spreading fixed costs over more units, which lowers overall production costs.
To achieve competitive advantage:
International business helps in gaining a competitive edge by entering foreign markets. Early market entry and international expansion can give companies advantages over local competitors, enhancing their market position and brand presence.
To access advanced technology and innovation:
International business helps in acquiring new technologies, processes, or knowledge. Expanding to technologically advanced markets or forming alliances with foreign companies can provide access to innovative technologies that improve products or services.
To have customer acquisition and brand recognition:
International business helps in building a global brand and gain loyal customers. Global presence increases brand visibility and loyalty, leading to stronger brand recognition and customer base worldwide.
To Enhance R&D Capabilities:
International business helps in accessing global research talent and develop products that cater to different markets. International R&D partnerships or overseas research centers provide valuable insights into customer needs, helping companies create innovative, market-specific products.
To improved business resilience:
International business helps in strengthening the company’s ability to weather global disruptions. By diversifying operations across several regions, international businesses can remain resilient against regional downturns, political instability, or supply chain disruptions.
To perform Corporate Social Responsibility:
International business helps in acting as a responsible global player contributing to local economies. Many companies aim to enhance their brand reputation by supporting ethical, environmental, and social initiatives, leading to stronger customer trust globally.
Knowledge Transfer and Skill Development:
International business helps in facilitating knowledge and skills transfer between regions. International operations enable companies to integrate knowledge from diverse cultural and economic backgrounds, improving organizational learning and adaptability.
These objectives allow businesses to capitalize on global opportunities, develop a more resilient business structure, and ultimately create a lasting impact in the global market.
Conclusion:
The objectives of international business are multifaceted, reflecting the diverse goals organizations pursue in the global marketplace. One primary objective is to expand market reach, allowing businesses to tap into new consumer bases and increase sales. By entering international markets, companies can diversify their revenue streams, reducing reliance on domestic sales and cushioning against local economic fluctuations. Another significant objective is to achieve cost advantages through economies of scale and access to lower production costs. By establishing operations in countries with favourable economic conditions, businesses can optimize their supply chains and enhance profitability. This objective is often complemented by the pursuit of resource acquisition, where firms seek access to raw materials, technology, and skilled labour that may not be available in their home markets.
Innovation and competitiveness are also key objectives of international business. Exposure to diverse markets fosters innovation, as companies adapt products and services to meet varying consumer preferences and cultural demands. This continuous learning process not only enhances product offerings but also positions firms as leaders in their respective industries. Additionally, building strategic alliances and partnerships is a critical objective, enabling firms to leverage local expertise and share risks. Collaborations can lead to improved market entry strategies and shared resources, enhancing overall operational efficiency. Finally, international businesses often aim to contribute positively to global trade dynamics and sustainable development. By adhering to ethical practices and engaging in corporate social responsibility, companies can build a favourable brand image and foster long-term relationships with stakeholders.
In conclusion, the objectives of international business encompass market expansion, cost efficiency, resource acquisition, innovation, strategic partnerships, and responsible global engagement. These goals not only drive business growth but also play a crucial role in shaping a more interconnected and sustainable global economy.
Related Topics
Introduction to International Business
- Need of Study of International Business
- Scope of International Business
- Features of International Business
- Comparison of Domestic Business and International Business
- Advantages of International Business
- Disadvantages of International Business
- Factors Affecting International Business
- Drivers of International Business
- Forms of International Business
- Transformation of Business: Domestic to Global
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