Read this essay on “International Business”– (1085 Words)!
There are many different forms and levels of international business. In addition to domestic business which essentially acquires its resources and sells its products and services domestically, within a single country, the international business can be defined at three levels. These are International business, Multinational business and Global or Transnational business.
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An International business can be defined as a business which is primarily based in a single country but acquires a reasonable share of resources from other countries. Wal-Mart Stores, for example, are located in America but buy much of the merchandise from Korea and Taiwan. Similarly, a business that is located in one country but derives a part of its revenues from other countries would also be considered as an international business. Boeing company manufactures its airplanes in America but sells all over the world.
A Multinational business has a worldwide market place from which it buys raw materials, acquires capital, manufactures its products and subsequently sells these products’5‘. For example, Ford Motor Company, an American automobile manufacturing enterprise, had one of its cars, namely, Mercury Tracer, designed and engineered in Japan, manufactured in Mexico and sold in the United States.
A Global business transcends national boundaries and is not committed to a single home country. A global company, also known as a “transnational company” is a firm that views the world as one market, conducts operations in many countries irrespective of national boundaries.
According to Mondy and Premeaux, “a transnational company buys supplies, raises capital, conducts research and development and manufactures its products wherever in the world it can do so most effectively and efficiently It seeks to develop and maintain a single worldwide identity. Its executives are of various nationalities and they are global mangers.”
For example, Nestle is a Swiss firm, headquartered in Vevey, Switzerland, but has a German Chief Operating Officer (CEO), has more that 95 percent of its assets outside of Switzerland and derives 98 per cent of its revenues from outside. It has ten general managers with only five of these being Swiss. It is clearly a transnational company.
The Changing International Scene:
In the two decades after World War II, the United States dominated the world economically, politically and militarily. The American companies generally viewed the rest of the world simply as a source of raw materials and cheap labour.
The picture changed in the 1960s when Western European firms and Japanese firms, after developing their domestic markets, started entering the American markets. As a result, the international trade and competition have both intensified so that one quarter of all the goods produced now in the world cross national borders and nearly three- quarters of the goods produced in the United States face foreign competition.
The business forecasters have identified the move towards global business as one of the ten key changes that are occurring now and will occur in the near future. Accordingly, the organizations are recognizing the need for global considerations in their strategic plans. Another key change is the economic power gained by the non U.S. based firms in the global market place.
For example in 1980 there was only one Japanese bank in the top ten in terms of assests. Now eight of the world’s ten largest banks are Japanese. Similarly by 1991, only ten of the world’s twenty five largest industrial companies were American.
According to Kenichi Ohmae, the future belongs to three global markets. These are: Japan, Europe and North America.
The Japanese economy has enjoyed unparalleled success after a near total destruction during World War II. It may be partly due to work ethics that are culturally based and partly due to complex but harmonious interaction between macro and micro variables involving government, capital, labour and technology.
However, Japan is facing a number of problems and challenges that could erode its economic growth. This includes changes in work ethics, especially among the younger workers who take life in a more leisurely manner.
Employees are not as loyal to their companies as they used to be as the competition for human resources becomes intense. More and more women are joining the work force which has become, a necessity but is still culturally unacceptable.
However, inspite of all these challenges, Japan is building new economic ties with Asian countries and it seems certain that it will replace the United States as the most powerful economic force in Asia.
The European Economic Community (EEC), an integrated entity of twelve European nations has eliminated all trade tariffs and restrictions on the movements of goods and services among their 340 million people.
It is expected that other European nations, including the Eastern European nations, will join EEC and by the year 2000, the domestic market of this integrated Europe may be 450 million.
This integration of market will increase their own resources so that these European countries could compete on a global basis. They could test the product in their own market before marketing it on a global basis. According to Shawn Tully, “What Europe is doing is gigantic. The drive for economic unity is the most important thing that will happen for the next 50 years.”
North America primarily constitutes the three principal economic powers, namely United States, Canada and Mexico. Mexico is not such an economic power, but a new trade agreement, known as North American Free Trade Agreement (NAFTA) which went into effect in 1994 included Mexico in creating a free trade zone among these three countries.
This agreement will give North American firms access to new markets and an inexpensive work force in Mexico so that Mexico will benefit from increased investments and new jobs so that it becomes an economic power in the area.
In addition to these three major movers of the global economy, China and India are expected to have a major influence on the world markets simply by their very large consumer base and significant purchasing power.
China is rapidly changing from a planned economy to a market economy so that many American companies such as Reebok, Nike, and Ingersoll-Rand and soon have entered into collaborative joint ventures with Chinese companies.
India has become the most open market economy and has tremendously relaxed the licensing and other collaborative agreements with foreign companies. The growth in the number of collaborations in the last five years (1990-1995) has been more than the previous 40 years put together. The purchasing power of the middle class Indians is opening up a huge market of quality goods at competitive prices.