Chapter 3: Global Business
International business is a business activity that encompasses all business activities that involves
exchanges across national borders. A firm is said to be engaged in an international business when it
buys some portion of its input from (or sells some portions of its output to) an organisation located in
a foreign country.
Reasons why international business prevails:
- Some countries have more equipment than others
- Some countries have more natural resources than others
- Some countries can produce more efficiently
Exporting = selling and shipping raw materials or products to other nations, and getting profit from it.
Importing = purchasing raw materials or products from other nations and bringing them into one’s
own country.
Importing and exporting are the principal activities in international trade. That’s how international
business works.
There’s an important concept in international business called the balance of trade.
If a country imports more than its exports, its balance of trade is negative and it is said to be
unfavourable because the country needs to export money to pay for its excess imports.
Are trade deficits bad?
→ Daniel T. Griswold , associate director of the Centre for Trade Policy at the Cato Institute,
remarked, “The trade deficit is not a sign of economic distress, but a rising domestic demand and
investment. Imposing new trade barriers will only make Americans worse off while leaving the trade
deficit virtually unchanged.” When a country has more exports than imports, it is said to have a
favourable balance of trade. This has consistently been the case for Japan over the last two decades or
so. A nation’s balance of payments is the total flow of money into a country minus the total flow of
money put out of that country over some period of time.
Methods of entering the international business:
1. Licensing
- a contractual agreement in which one firm permits another to produce and market its
product and use its brand name in return for a royalty or other compensation.
- Advantageous for small manufacturers wanting to launch a well-known domestic
brand internationally.
2. Exporting
- Can be a low-risk method of entering foreign markets, but not as simple as licensing
because it opens up several levels of involvement to the exporting firm.
3. Joint ventures
- A point venture is a partnership formed to achieve a specific goal or to operate for a
specific period of time.
- May be used to produce and market an existing product in a foreign nation, or to
develop an entirely new product.
4. Strategic alliances
- The newest form of international business structure, is a partnership formed to create
competitive advantage on a worldwide basis.
International business is a business activity that encompasses all business activities that involves
exchanges across national borders. A firm is said to be engaged in an international business when it
buys some portion of its input from (or sells some portions of its output to) an organisation located in
a foreign country.
Reasons why international business prevails:
- Some countries have more equipment than others
- Some countries have more natural resources than others
- Some countries can produce more efficiently
Exporting = selling and shipping raw materials or products to other nations, and getting profit from it.
Importing = purchasing raw materials or products from other nations and bringing them into one’s
own country.
Importing and exporting are the principal activities in international trade. That’s how international
business works.
There’s an important concept in international business called the balance of trade.
If a country imports more than its exports, its balance of trade is negative and it is said to be
unfavourable because the country needs to export money to pay for its excess imports.
Are trade deficits bad?
→ Daniel T. Griswold , associate director of the Centre for Trade Policy at the Cato Institute,
remarked, “The trade deficit is not a sign of economic distress, but a rising domestic demand and
investment. Imposing new trade barriers will only make Americans worse off while leaving the trade
deficit virtually unchanged.” When a country has more exports than imports, it is said to have a
favourable balance of trade. This has consistently been the case for Japan over the last two decades or
so. A nation’s balance of payments is the total flow of money into a country minus the total flow of
money put out of that country over some period of time.
Methods of entering the international business:
1. Licensing
- a contractual agreement in which one firm permits another to produce and market its
product and use its brand name in return for a royalty or other compensation.
- Advantageous for small manufacturers wanting to launch a well-known domestic
brand internationally.
2. Exporting
- Can be a low-risk method of entering foreign markets, but not as simple as licensing
because it opens up several levels of involvement to the exporting firm.
3. Joint ventures
- A point venture is a partnership formed to achieve a specific goal or to operate for a
specific period of time.
- May be used to produce and market an existing product in a foreign nation, or to
develop an entirely new product.
4. Strategic alliances
- The newest form of international business structure, is a partnership formed to create
competitive advantage on a worldwide basis.
