Understanding the Nature of International Business/Trade
International business includes any type of business activity that crosses national borders.
International business may be defined as organization that buys and sells goods and services across two or more boundaries, even if its management may be located in one country.
International business is a process of focusing on the resources of the globe and objectives of the organization on the global business opportunities and threats.
International business includes those big enterprises that have operating units outside their own countries.
International business may also be defined as the institutional arrangements that provide for some managerial directions of economic activity taking place abroad. For example, the Joint-Ventures abroad.
International business is the one that owns productive assets in different countries and has a common strategy formulation and implementation across national boundaries.
International business is the one that owns outputs of goods and services originating in more than one country.
International business units are those units that carry out their transactions in two or more countries, having single decision-making authority and the transactions are under the influence of factors that are exogenous to the home country environment.
Any business transaction that involves persons and firms of more than one country is known as international business.
According to Robinson, international business is defined as a field of study and practice that encompasses public and private business activity affecting the persons or institutions of more than one national state, territory or colony.
The effect of international business may affect people’s economic well being, political status, convictions, skills or knowledge.
Different Categories of International Business
Since many terminologies describe International businesses, we devote this segment of the literature to clarify what those terminologies mean.
1. International Business
An international business is a business whose trading and business activities involve the crossing of national borders.
The capital and asset base, and the ownership and management of such a business is generally national, although non-nationals may have a minority stake in it whereby they do not gain control of or say in the management of the company.
An international business may or may not have branch offices in foreign countries. The foreign branch offices of an international company operate within the strategic framework of the home-office of the company, and generally they do not engage in the formulation of the company’s overall business strategy.
Although they make inputs relating to adoption of a specific marketing strategy based on the market differences that exist in their operational territories. Export House is an example of an international company.
Another interesting concept about the definition of an international business advocates that an international business company disperses its operations to a greater degree than a global company but essentially transfers the parent company’s knowledge with marginal adaptation to individual countries.
Generally, an international company is good at transferring knowledge from headquarters to subsidiaries than a multinational or a global company.
2. Foreign Business
A foreign business denotes domestic business operations within a foreign country. Basically it means:
a foreign company is essentially a domestic company whose majority equity holding is in the hands of non-nationals but which formulates its own business strategy based on the market conditions prevailing in the country of its domicile.
The term is sometimes used interchangeably with international business.
3. Multinational Company (MNC) or Enterprise (MNE)
Essentially a multinational company (MNC) or enterprise (MNE) is a company that operates in more than two countries.
It signifies a company that has overseas operations in a number of countries — referred to as subsidiaries or affiliates, each of which formulates its own business strategy based on the perceived market conditions or differences prevailing in the country where it is domiciled.
However, operations of certain functional areas within such subsidiaries and affiliates may be standardized to a limited degree.
For example, Coca-cola operates in a number of countries and its subsidiaries in each country design its marketing strategies based on prevailing domestic marketing conditions. However, it has standardized its production functions, which its subsidiaries have adhered to.
An important feature of a multinational company is that it operates by building a strong local presence through sensitivity and responsiveness to differences across countries.
4. Multidomestic Company
Harvard Business Review (September – October 1982) in its article on How Global Companies Win Out suggested Multidomestic Company as a synonym for multinational company. However, there is a subtle difference between multinational and multidomestic companies.
A multidomestic company is essentially a conglomerate of a number of domestic companies operating in different countries, which operate completely independently, and at times, even compete with each other in different markets.
5. Global Company
Global Company is an organization that attempts to standardize operations worldwide in all functional areas.
Global has become the most widely accepted term to describe an organization that produces in, markets in, and obtains the factors of production from multiple countries for expanding overall benefits to the enterprise.
A global company essentially attempts to build a strong cost advantage through centralized large-scale operations.
Moreover, the strength of a global company lies in generating economies of scale while that of a multinational corporation lies in enabling efficient responsiveness to local needs.
Hewlett Packard Opens in new window, a former company which designed its products in one or more countries, got its components manufactured in a number of other countries, assembled them elsewhere and marketed them globally, at the time served an excellent example of a Global Company.
Whereas a company such as General Electric, Opens in new window which has subsidiaries in many countries and whose subsidiaries produce and market their products mainly in the countries they are domiciled in, fits more appropriately in the definition of a multinational company.
6. Worldwide Company (WWC)
The term worldwide company means either a global company or a multinational company. However, the use of the term may have two distinct meanings, depending on whether the context signifies “ownership” or “areas of operation”.
7. Transnational Company/Corporation (TNC)
The term transnational company has only recently evolved to describe a multinational or a worldwide company that that has successfully overcome the weaknesses of traditional international, multinational or global companies and has at the same time, built into its mission, vision and operations the strengths of other forms of international businesses.
A global company is in general poor in terms of local responsiveness. A multinational company finds it difficult to generate global synergies and transfer knowledge across the worldwide system.
The international organization lies somewhere in between and finds it difficult to use effectively the knowledge generated by subsidiaries. A transnational company is a company that can simultaneously build all the three capabilities and use them judiciously based on the specific requirements of each business activity.
In other words, a Transnational Company is a multinational or a global company that has succeeded in adopting a highly flexible yet multidimensional approach, in which a particular dimension is emphasized, based on the requirements of the business.
8. Supranational Corporation/Company
The term Supranational Corporation was coined in the 1980s by United Nations to describe an organization chartered by an international agency such as United Nations, in which both the operations and ownerships are multinational.
However, such a corporate form now does not exist. Moreover, with the implication of anti-social activities or operations that affect the global citizens highly adversely, attached to the term by most anti-globalization activists, the term is now rarely used in the international business arena.