Scope of International Business
As mentioned, international business is much broader than international trade. It involves not only international trade but also, a wide variety of other ways in which the organisations operate internationally. Major forms of business operations that comprise international business are as follows.
- Merchandise Exports and Imports: Merchandise can be defined as goods that are tangible, i.e., those that can be seen and touched. When viewed from this understanding, it is clear that merchandise exports means sending tangible goods abroad and merchandise imports means bringing tangible goods belonging to a foreign country to one's own country. Merchandise exports and imports, also known as trade in goods, comprise only tangible goods and exclude trade in services.
- Service Exports and Imports: Service exports and imports comprise trade in intangibles. It is because of its intangible feature of services that trade in services is also called as invisible trade. A wide variety of services are as follows: tourisim, travel, boarding, lodging, recruiting, training, construction, engineering, educational and financial services etc. Out of these, tourism and travel are considered to be the major components of world trade in services.
- Licensing and Franchising: Permitting a new party in a foreign country inorder to produce and sell goods under your trademarks, patents or copyrights in lieu of some fee is another way of entering into international business. It is under the licensing system that Pepsi and Coca Cola are produced and sold all over the world by local bottlers in foreign countries. Franchising is similar to licensing, but it is a term used in connection with the provision of services. McDonalds, for instance, operates fast food restaurants the world over through its franchising system.
- Foreign Investments: Foreign investment is another important form of international business. Foreign investment involves investments of funds abroad in exchange for financial return. Foreign investment can be of two types: direct and portfolio investments. Direct investment takes place when a company directly invests in properties.