International business involves cross-border exchanges of goods, services, and resources between countries. It encompasses trade, foreign direct investment, global supply chains, and multinational corporations operating in diverse cultural and regulatory environments.

Compared to domestic operations, international business faces multiple markets, legal systems, and currencies. It involves complex supply chains, intense global competition, and various market entry modes like exporting, licensing, and joint ventures.

Understanding International Business Fundamentals

Components of international business

• International business involves cross-border exchange of goods, services, capital, technology, and knowledge between two or more countries
• International trade encompasses import and export of goods and services across national borders
• Foreign direct investment (FDI) establishes business operations in foreign countries through wholly owned subsidiaries or joint ventures
• Global supply chains source materials and coordinate production across multiple countries to optimize efficiency
• Multinational corporations (MNCs) operate in multiple countries, managing diverse cultural and regulatory environments
• International finance manages currency exchange, international banking, and global capital markets to facilitate cross-border transactions

Domestic vs international operations

• Market environment shifts from single, familiar market to multiple, diverse markets with varying cultures and regulations
• Legal and regulatory framework expands from single set of laws to multiple legal systems and regulatory requirements across countries
• Currency considerations evolve from single currency to multiple currencies and exchange rate risks (USD, EUR, JPY)
• Competition intensifies from local competitors to global competitors and varying competitive landscapes (Walmart vs Carrefour)
• Supply chain complexity increases from simpler, often localized operations to more complex, cross-border logistics and trade barriers

Modes of international market entry

• Exporting involves selling products directly to foreign customers or using intermediaries for indirect exports
• Licensing grants foreign companies rights to use intellectual property or produce goods (Coca-Cola bottling agreements)
• Franchising allows foreign entities to operate under the company's brand and business model (McDonald's franchises)
• Joint ventures partner with local companies to share ownership and operations in foreign markets
• Strategic alliances collaborate with foreign companies without forming new entities to access markets or share resources
• Foreign direct investment (FDI) establishes wholly owned subsidiaries or pursues mergers and acquisitions for complete control

Role of trade in global economy

• Economic growth facilitates specialization and comparative advantage, increasing productivity and efficiency
• Market expansion provides access to larger consumer bases and enables economies of scale for businesses
• Competition and innovation encourages companies to improve product quality and drives down prices for consumers
• Foreign exchange earnings help countries accumulate reserves (USD, EUR) and support balance of payments
• Global supply chains enable efficient resource allocation across countries and promote economic interdependence
• Technology transfer facilitates the spread of knowledge and technological advancements between nations
• Employment opportunities create jobs in export-oriented industries and support economic development in emerging markets