Features of International Business

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In this article, we shall understand the features of international business.

Large scale Operations:

To cope with the global competition in international business, all the operations are conducted on a very huge scale and generally using special purpose machinery and high skill labour. Production and marketing activities are conducted on a large scale. After satisfying the domestic market, the international market is tapped.

Immobility of Factors:

The degree of immobility of factors like labour and capital is generally greater between countries than within a country due to the immigration laws, citizenship, qualifications, etc. These restrictions slows down the international mobility of labour.  Similarly, the international capital flows are prohibited or severely limited by different governments having different fiscal policies.

Heterogeneous Markets:

A cross-border business is very different from one that involves a single country.  The international markets lack homogeneity on account of differences in climate, language, preferences, habit, customs, weights and measures, etc. The behaviour of international buyers in each case would, therefore, be different. International trade takes place between differently cohered groups. The socio-economic environment differs greatly among different nations.

Integration of Economies:

Economic integration is an arrangement between different regions that often includes the reduction or elimination of trade barriers, and the coordination of monetary and fiscal policies. Economic integration aims to reduce costs for both consumers and producers and to increase trade between the countries involved in the agreement.  There are seven stages of economic integration: preferential trading area, free trade area, customs union, common market, economic union, economic and monetary union, and complete economic integration. The final stage represents a complete monetary union and fiscal policy harmonization. International business integrates (combines) the economies of many countries. This is because It designs the product in one country, uses finance from one country, labour from another country, and infrastructure from another country. It sells the product in many countries, i.e. in the international market.

Dominated by developed countries and MNCs:

International business is dominated by developed countries and their multinational corporations (MNCs). Multinational Corporations (MNCs) encompass a number of countries. Their sales, profits, and the flow of production is reliant on several countries at once.  Such companies from large economies like the USA, UK, Japan, China, Germany, India, etc. dominate international trade. This is because they have large financial and other resources. They also have the best technology and research and development facilities. They have highly skilled employees and managers. These high skill people are given very high salaries and other benefits. Therefore, they produce good quality goods and services at low prices. This helps MNCs and developed countries to capture and dominate the global market.

Beneficial to Participating Countries:

International business gives benefits to all participating countries. Developing countries get foreign capital and technology from developed countries. They get rapid industrial development. They get more employment opportunities. Developing countries get economic development from the developing countries. Hence, developing countries open up their economies through liberal economic policies.

Keen Competition:

International business increases competition in domestic markets and introduces new opportunities to foreign markets. The global competition encourages companies to become more innovative and efficient in their use of resources. For consumers, international business introduces them to a variety of goods and services. The competition in the international market is between unequal partners i.e. developed and developing countries. The developed countries and their MNCs produce superior quality goods and services at very low prices. They have many contacts in the world market. Hence, developing countries find it very difficult to face competition from developed countries.

Special Role of Science and Technology:

International business gives a lot of importance to science and technology. Developed countries use high technologies. Therefore, they dominate global business. International business helps them to transfer such top high-end technologies to the developing countries. Such technology transfers help people from developing countries to learn from dynamic industry experts in a diverse learning environment. It helps them to receive groundbreaking training and unlock the door to entrepreneurship.

International Restrictions:

International business faces many restrictions on the inflow and outflow of capital, technology, and goods. Many governments do not allow international businesses to enter their countries. The main types of trade restrictions are tariffs, quotas, embargoes, licensing requirements, standards, and subsidies. A tariff is a tax put on goods imported from abroad. The effect of a tariff is to raise the price of the imported product. It helps domestic producers of similar products to sell them at higher prices. All this is harmful to international business.

Sensitive Nature

The international business is very sensitive in nature. Any changes in the economic policies, technology, political environment, etc. has a huge impact on it. Similarly the culture and beliefs of that country also play very important role in international business. Therefore, international business must conduct marketing research to find out and study these changes and sensitivity of the society also. They must adjust their business activities and adapt accordingly to survive changes.

The Removal of Trade Barriers and the Development of Trading Blocs:

After World War II, the General Agreement on Tariffs and Trade (GATT) and the WTO have reduced tariffs and various non-tariff barriers to trade. It enabled more countries to explore their comparative advantage. It has a direct impact on globalization.  The ‘regional trade agreement’ (RTA) abolished internal barriers to trade and replaced them with a common external tariff against non-members. Trading blocs actually promote globalization and interdependence of economies via trade creation. Example G5, G7, SCO, SAARC, etc.

Different Policies and Different Currencies:

Economic and political policies differ from one country to another. Policies related to trade, commerce, export and import, taxation, etc., also differ widely among countries. Trade restriction policy adopted by governments interfere with the course of normal trade between the countries. At the same time, international trade involves the use of different types of currencies. Each country has its own policy in regard to exchange rates and foreign exchange. Hence we have to consider the exchange rate policies of the countries involved in international business.

Conclusion:

The countries cannot produce equally well or cheaply all that they need. There is not even a single country, which is in a better position to produce better quality products at a lower cost because there is an unequal distribution of natural resources among different countries. The availability of different factors of production such as land, labour, capital and the raw material is not the same everywhere. The difference in labour, productivity, and production cost due to socio-economic, geographical and political reasons make International Business important. The features of international business give us idea of how this problem can be tackled. The features of international business also give us an idea about the problems faced by international business.

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Management > International Business Management > Introduction to International Business > Features of International Business