International business refers to business activities that are held across national frontiers. Though many people use the terms international business and international trade simultaneously, the former is a much broader term. International business involves trade in goods and services, as well as other operations such as manufacture and marketing of goods and services in foreign nations.
The main cause for international business is that countries cannot efficiently manufacture all that they need. Countries find it much more Beneficial to manufacture goods and services where they have cost advantage and trade the excess in such goods and services with other countries in exchange of goods and services which other countries can manufacture more efficiently, because of differences in resource endowments and labour productivity.
International vs Domestic Business
Conducting and managing international business operations is more complicated than undertaking domestic business. Variations in the nationality of parties involved, relatively lower mobility of factors of production, customer heterogeneity across markets, differences in business practices, political systems, varied business regulations and policies, use of varied currencies are the main features that distinguish international businesses from domestic business. These also are the factors that make international business much more complicated and a difficult activity.
Scope of international business is quite wide. It includes merchandise exports, as also trade in services, licensing and franchising along with foreign investments.
International business benefits both the nations and companies. Nations benefit by way of earning foreign exchange, more efficient use of domestic resources, better prospects of growth and more room for job opportunities. The benefits to the business companies comprise: scope for higher profits, greater use of manufacturing capacities, way out to extreme competition in domestic market and better business outlook. Methods of entry: A company that wishes entry into overseas business has many options in front of it. These range from exporting/importing to contract manufacturing overseas, licensing and franchising, joint ventures and establishing wholly owned subsidiaries overseas. Each entry mode has its own benefits and drawbacks that the company has to take into account when choosing the preferred mode of entry.
India's Involvement in International Business
For centuries, India has been trading with countries abroad. Over the years, India's trade has recorded an exceptional growth. At present, foreign trade accounts for about 24 percent of the India's Gross Domestic Product (GDP). India's major items of exports include engineering products and chemicals and related products, textiles and garments, gems and jewellery, agricultural and allied products Crude oil and petroleum products, precious and semi-precious stones, capital goods (i.e., machinery), pearls, gold, electronic goods, silver and chemicals are some of the important items of its imports. The major trading partners include USA, UK, Belgium, Germany, Japan, Switzerland, Hong Kong, UAE, China, Singapore and Malaysia. In 2003-04, these eleven countries together accounted for about 48 per cent of India's total trade(including both the exports and imports).
Trade in Services
India's trade in services have also undergone considerable reforms over the years both in terms of volume and composition of trade. The most obvious change being emergence of software exports which recently account for about 49 per cent of India's total services exports. Data relating to India's foreign investments (both inward and outward) also show an extraordinary growth. While the inward foreign investments have increased significantly by more than 750 times, from just Rs. 201 crores in 1990-91 to Rs. 1,51,406 in 2003-04, India's investments overseas have increased much more exponentially, around 4,927 times, from Rs. 19 crores in 1990-91 to Rs. 83,616 crores in 2003-04.
However, in terms of international comparison India's performance does not appear very satisfactory. India's contribution in world trade is a mere 0.8 percent. Its position with regards to investments abroad is also poor. India continues to stay behind significantly in comparison with other developing countries which have come up as major destinations for foreign investments.