Scope and Importance of International Business: The Commerce subject detailed notes with practice tests are very useful for Assistant Professor / UGC NET / JRF and other competitive exams preparation.
International business is simply the summation of all commercial transactions that take place between different nations across their boundaries (crossing political boundaries). Multi National Enterprise (MNE) is main incumbent in international business that pursues strategic success in global production and sales. We can cite examples of Apple, McDonald’s, Honda, Samsung, Sony etc. to name a few. This is happening in service sector as well.
Scope and Importance of International Business
The main objective for organizations is global expansion, though it is costly and complex. To offset these costs and risks, organizations must have strong reasons for developing a global strategy.
The reasons may be expanded into the following three strategic areas.
1. Global Concentration: Depending upon the competitive concentration of a given industry in a particular region, it may make sense to enter a market where competition is relatively scarce (and demand is high).
2. Global Synergies: Some organizations have highly developed competencies that can be easily scaled. In these situations, global expansion means natural synergy.
3. Global Strategic Motivations: For the reasons such as developing new sourcing sites for production or acquiring strategic assets in a given region.
Important Reasons
The greater integration with world economy (and society) helps in the following three manners.
1. Importance to National Economy
(a) To meet up the industrial needs.
(b) This helps in debt servicing to grant loan for businesses and for their industrial development.
(c) For rapid economic growth.
(d) For profitable use of natural resources.
(e) To face competition successfully better quality goods production having lower or moderate prices.
(f) To improve the image of the producer as well as of the country in the minds of foreign customers.
(g) Increase in employment opportunities.
(h) To increase national income.
(i) Increase in standard of living of the people.
2. Importance to Exporting Firms
(a) Insufficiency of Domestic Demand: In such situations, the firm may take a decision to enter the foreign market. In this way he can equalise the production and demand.
(b) For better Utilization of Installed Capacity: The surplus production can be exported in such situations.
(c) Legal Restrictions: Some sanctions are imposed on production of certain items by the government for the sake of environmental and social objectives. The demand of these items can be met through imports.
(d) Relative Profitability: The export business helps the firms in higher profitability that helps in their growth and expansion.
(e) Less Business Risk: A diversified export business helps the exporting firm in mitigating the risk of sharp fluctuations in the business activity of the firm.
(f) Increased Productivity: The higher production helps in reducing costs, thus exports help in generating revenues.
(g) Social Responsibility: Sometimes international business helps in meeting social responsibilities.
(h) Product Obsolescence: If a product becomes obsolete in domestic market, it may be in demand in International markets. The firm has to make a survey for introducing the product in those markets.
3. Importance From Other Points of View: The importance of export business can also be viewed from some other angles:
(a) International Collaboration: Developed countries fix their import quotas for different countries and for different commodities. A county can export various commodities to these developed countries to the extent of its quota.
(b) International Business Brings Various Countries Closer: Better business relations are established among the nations through visits and financial transactions. People know the habits of each other.
(c) Helps in Maintaining Good Political Relations: The economic relations between two countries help each other to improve their political relations. Various countries having different political ideologies import or export their products.
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