International Business
International
business encompasses au business activities that involve
exchanges across national boundaries. International trade is
based on specialization, whereby each country produces those
goods and services that it can produce more efficiently than any
other goods and services. A nation is said to have a comparative
advantage relative to these goods. International trade develops
when each nation trades its surplus products for those that are
in short supply.
A
nation's balance of trade is the difference between the value of
its exports and the value of its imports. Its balance of
payments is the difference between the flow of money into and
out of the nation Generally, a negative balance of trade is
considered unfavorable.
In spite
of the benefits of world trade, nations tend to use tariffs and
nontariff barriers (import quotas, embargoes, and other
restrictions) to limit trade. These restrictions are typically
justified as being needed to protect a nation's economy,
industries, citizens, or security. They can result in the loss
of jobs, higher prices, fewer choices in the marketplace, and
the misallocation of resources.
World
trade is generally increasing. Trade between the United States
and other nations is increasing in dollar value but decreasing
in terms of our share of the world market. The General Agreement
on Tariffs and Trade (GATT) and various economic communities
have been formed to dismantle trade barriers and provide an
environment in which international business can grow even
faster.
A firm
may enter international markets in several ways. It may license
a foreign firm to produce and
market its products. It may export its products and sell
them through foreign intermediaries or its own sales
organization. It may enter into a joint venture with a foreign
firm. It may establish its own foreign subsidiaries. Or it may
develop into a multinational enterprise. Generally, each of
these methods represents a deeper involvement in international
business than those that precede it in this list.
A firm's
marketing program must be adapted to foreign markets to account
for differences in the business environments and target markets
from nation to nation. Social, cultural, economic, and legal
differences may require modification of elements of the
marketing mix&-especially the product and its promotion.
Various additional costs involved in foreign marketing tend to
increase the prices of exported goods.
The
financing of international trade is more complex than that of
domestic trade. Institutions such as Eximbank and the
International Monetary Fund have been established to provide
financing and ultimately increase world trade for American and
international firms.
