|Management of a business|
International business refers to the trade of goods, services, technology, capital and/or knowledge across national borders and at a global or transnational scale.
It involves cross-border transactions of goods and services between two or more countries. Transactions of economic resources include capital, skills, and people for the purpose of the international production of physical goods and services such as finance, banking, insurance, and construction. International business is also known as globalization.
To conduct business overseas, multinational companies need to bridge separate national markets into one global marketplace. There are two macro-scale factors that underline the trend of greater globalization. The first consists of eliminating barriers to make cross-border trade easier (e.g. free flow of goods and services, and capital, referred to as "free trade"). The second is technological change, particularly developments in communication, information processing, and transportation technologies.
"International business" is also defined as the study of the internationalization process of multinational enterprises. A multinational enterprise (MNE) is a company that has a worldwide approach to markets, production and/or operations in several countries. Well-known MNEs include fast-food companies such as: McDonald's (MCD), YUM (YUM), Starbucks Coffee Company (SBUX), etc. Other industrial MNEs leaders include vehicle manufacturers such as: Ford Motor Company, and General Motors (GMC). Some consumer electronics producers such as Samsung, LG and Sony, and energy companies such as Exxon Mobil, and British Petroleum (BP) are also multinational enterprises.
Multinational enterprises range from any kind of business activity or market, from consumer goods to machinery manufacture; a company can become an international business. Therefore, to conduct business overseas, companies should be aware of all the factors that might affect any business activities, including, but not limited to: difference in legal systems, political systems, economic policy, language, accounting standards, labor standards, living standards, environmental standards, local cultures, corporate cultures, foreign-exchange markets, tariffs, import and export regulations, trade agreements, climate, and education. Each of these factors may require changes in how companies operate from one country to another. Each factor makes a difference and a connection.
One of the first scholars to engage in developing a theory of multinational companies was Canadian economist Stephen Hymer. Throughout his academic life, he developed theories that sought to explain foreign direct investment (FDI) and why firms become multinational.
There were three phases of internationalization according to Hymer's work. The first phase of Hymer's work was his dissertation in 1960 called the International Operations of National Firms. In this thesis, the author departs from neoclassical theory and opens up a new area of international production. At first, Hymer started analyzing neoclassical theory and financial investment, where the main reason for capital movement is the difference in interest rates. After this analysis, Hymer analyzed the characteristics of foreign investment by large companies for production and direct business purposes, calling this Foreign Direct Investment (FDI). By analyzing the two types of investments, Hymer distinguished financial investment from direct investment. The main distinguishing feature was control. Portfolio investment is a more passive approach, and the main purpose is financial gain, whereas in foreign direct investment a firm has control over the operations abroad. So, the traditional theory of investment based on differential interest rates does not explain the motivations for FDI.
According to Hymer, there are two main determinants of FDI; where an imperfect market structure is the key element. The first is the firm-specific advantages which are developed at the specific companies home country and, profitably, used in the foreign country. The second determinant is the removal of control where Hymer wrote: "When firms are interconnected, they compete in selling in the same market or one of the firms may sell to the other," and because of this "it may be profitable to substitute centralized decision-making for decentralized decision-making".
Hymer's second phase is his neoclassical article in 1968 that includes a theory of internationalization and explains the direction of growth of the international expansion of firms. In a later stage, Hymer went to a more Marxist approach where he explains that MNC as agents of an international capitalist system causing conflict and contradictions, causing among other things inequality and poverty in the world. Hymer is the "father of the theory of MNEs", and explains the motivations for companies doing direct business abroad.
Among modern economic theories of multinationals and foreign direct investment are internalization theory and John Dunning's OLI paradigm (standing for ownership, location and internationalization). Dunning was widely known for his research in economics of international direct investment and the multinational enterprise. His OLI paradigm, in particular, remains as the predominant theoretical contribution to study international business topics. Hymer and Dunning are considered founders of international business as a specialist field of study.
There has been growth in globalization in recent decades due to the following factors.
Managers in international business must understand social science disciplines and how they affect different functional business fields.
To maintain and achieve successful business operations in foreign nations, persons must understand how variations in culture and traditions across nations affect business practices. This idea is known as cultural literacy. Without knowledge of a host country's culture, corporate strategizing is more difficult and error-prone when entering foreign markets compared with the home country's market and culture. This can create a "blind spot" during the decision making process and result in ethnocentrism. Education about international business introduces the student to new concepts that can be applicable in international strategy in topics such as marketing and operations.
A considerable advantage in international business is gained through the knowledge and use of language, thereby mitigating a language barrier. Advantages of being an international businessperson who is fluent in the local language include the following:
In many cases, it plays a crucial role. It is truly impossible to gain an understanding of a culture's buying habits without first taking the time to understand the culture. Examples of the benefit of understanding local culture include the following:
The international business standards focus on the following:
By focusing on these, students will gain a better understanding of Political economy. These are tools that would help future business people bridge the economic and political gap between countries.
There is an increasing amount of demand for business people with an education in international business. A survey conducted by Thomas Patrick from University of Notre Dame concluded that bachelor's degree and master's degree holders felt that the training received through education were very practical in the working environment. Increasingly, companies are sourcing their human resource requirement globally. For example, at Sony Corporation, only fifty percent of its employees are Japanese. Business people with an education in international business also had a significantly higher chance of being sent abroad to work under the international operations of a firm.
The following table provides descriptions of higher education in international business and its benefits.
|Who is this degree for||People interested in management careers with multinational companies||People who are interested in academic or research careers|
|Common career paths (with approximate median annual salary)||- Chief executives ($167,000)*
- General or operations managers ($95,000)*
|- University business professors ($75,000)*
- Economists ($91,000)*
|Time for completion||1–2 years full-time||3–5 years in addition to master's or other foundational coursework|
|Common graduation requirements||- Roughly 15-20 graduate level courses
- Internship or study abroad program
- Foreign language requirement
|Most (or all) of the master's degree requirements, plus:
- At least 12 more graduate level courses
- Ph.D. qualifier exams
- Dissertation prospectus (proposal)
- Teaching requirement
|Prerequisites||Bachelor's degree and work experience, quantitative expertise||Bachelor's or master's degree in business or related field|
International Business can also be referred as globalization. Globalization refers to the shift toward a more integrated and interdependent economy In order to conduct business overseas, multinational companies need to separate national markets into one huge global marketplace. Two macro factors underline the trend of greater globalization. The first is falling of barriers to make cross-border trade easier such as the free flow of goods and services, and capital. The second factor is technological change, particularly the developments in communication, information processing, and transportation technologies. Usually, private companies undertake transactions for profit; governments undertake such transactions for profit and for political reasons.