INTERNATIONAL BUSINESS MANAGEMENT

Definition of International Business

International business is any business activity organised and carried across national borders by business firms in pursuit of their stated aims and objectives. International activities fall into two broad categories that is international trade and international investment. International trade takes place when a firm engages in export and or import of goods and services. International investment takes place when a firm transfers resources to undertake business activities outside its country of origin. The firm’s investment activities are carried out in various forms, ranging from investment by its wholly owned subsidiary or in partnership with a local business firm in the form of a joint venture, to licensed or franchised operation or a turnkey project management contacts resulting from different laws, cultures and societies. The basic principles of business still apply but their application, complexity and intensity may vary substantially.

International business executives they have to consider international issues and make decisions related to questions such as these:

•  How will my idea, product or service fit into the international market?
•  What adjustments are or will be necessary?
•  What threats from global competition should I expect?
•  How can those threats be counteracted?
•  What are my strategic global alternatives?

Finally this will result to: growth, profit and need satisfaction not available to firms that limit their activities to the domestic market place.

IMPORTANCE OF INTERNATIONAL BUSINESS

1.  International business offers companies new markets.

It presents more opportunities for expansion, growth and income that does domestic business alone.  International business also offers consumers new choices by permitting the acquisition of a wide varied of products both in terms of quantity and quality and at a reduced price through international competition. Therefore, both as an opportunity and a challenge, international business is important to countries, companies, and individuals.

In recent years, however, international business has acquired additional importance for host countries in particular and world economies in general as a result of developments in the following areas:

2. Technology

The technological developments are transmitted to every corner of the earth through the practice of international business. This transmission is not only in the form of products and services used every day, but also in the form of modern management, production, marketing and logistics systems employed by domestic as well as international firms.

3.  Competition

Except in the case of acquisition entry, the arrival of an international business firms in the host country, either in partnership with a local firm or on its own, may stimulate domestic entrepreneurial challenges especially in developing countries. International firms with superior worldwide experience, knowledge, technology and other relevant resources have the ability to offer goods and services often at a lower prices and higher quality.

4.  Standardization

One of the major difficulties facing firms, especially in the developing countries is the lack of universal standards in their basic business functions such as marketing and more importantly, in the design and specification of their products. Standardization refers to the adoption of norms and practices generally acceptable in world markets. In some cases, the result is one standard product sold throughout the world using similar selling techniques which enables easier and more effective comparisons to be made by consumers and other interested parties (health and safety authorities for example). National and regional differences in consumer tastes, preferences and interests and in patterns of market demand have diminished as a consequence of advances in technology, telecommunication, transport and advertising. This has made product standardization an easier option.

THE BUSINESS ENVIRONMENT

A business firm operates within its internal and external environment. The internal environment is one over which the firm has considerable control; The external environment is one over which the firm has little or no control; what little control the firm may have is usually the consequence of its market power or collective action by a representative body such as Kenya Manufacturers Association etc. The firm must, therefore, confirm to its external environmental factors, whether they are national, international and global, or suffer the consequences of its failure to do so.

 The Political impact of international business

Governments play an important role in the development and promotion of international business activities. They provide a great variety of financial and non-financial incentives to attract FDI into their countries, often in competition with their neighbors. The increasing scale of liberalization of trade and environment, - Deregulation of domestic industries. - Privatization of state-owned enterprises has the attraction of foreign business as one of its primary objectives. These programmes have created immense international business opportunities.

Economic integration and globalization

One of the most fundamental impacts of the process of internalization since the end of

World War II has been the progressive ending of the isolation of national economies.

Gradually, more and more of the barriers to international trade and investment are being replaced with measures designed to enhance co-operation and co-ordination among nation states. The need to co-operate and co-ordinate over wider geographical areas has led to the formation of regional groupings in the form of free trade areas.

THE DIFFERENCE BETWEEN INTERNATIONAL AND DOMESTIC BUSINESS

The same basic business principles concerning tasks, functions and processes apply to international business as to domestic business. However, the environment in which domestic and international business firms operate varies considerably and therefore requires an international business firm to alter and modify its business practices country by country.  More specifically, an international business differs from a domestic business in the following ways:

1.     Each country in which the firm operates is culturally different. To be successful, the firm must operate in a culturally sensitive manner and within the constraints of the culturally determined manners, customs, values and norms of the host country.

2.   Conducting business across national borders involves the use of different currencies and observing different government rules and regulations limiting the firm’s freedom of action.

3.  The legal environment differs from country to country, requiring firms to show particular sensitivity to laws, rules and regulations and performance.

4.   The differences in consumer tastes and preferences and demand patterns stemming from cultural differences require the firm to adopt appropriate production, procurement and marketing strategies to minimise costs and maintain the firm’s value.

5.  Different countries possess different factor endowments with different qualities, requiring the firm to formulate and implement suitable product development and logistics strategies consistent with the availability and quality of resources in the host country.

BARRIERS TO INTERNATIONAL TRADE

To regain some power to influence policies, some governments have sought to restrict the influence of   world trade by erecting barriers, charging tariffs, and implementing import regulations. However, these measures too have been restrained by the existence of global agreements forged through institutions such as the GATT or bilateral negotiations.

Due to this vulnerability has resulted barriers to trade namely:

a) Tariff barriers. A tariff is a tax on imports. Duty is charged on all products based on the product and the country of origin, some products are permitted duty-free entry into the Kenyan market.

b) Non-tariff barriers. Non-tariff barriers include a variety of measures that have the common objective of restricting imports such as,

•  Quotas which limit the amount of product that may be imported during a certain period of time.
•  Local content regulation is a requirement that some specified portion of a product be produced locally.
• Voluntary export restraints are quotas and exports set by the exporting country to forestall more severe restrictions by the importing country.
•  Subsidies are payments made by governments to industries or companies that essentially offset their high costs and permit them to be artificially competitive in an export market, thereby compromising the intent of free trade.
•  Administrative barriers are complex of laws, regulations, administrative rulings, health and safety standards testing certification etc. that when applied make it difficult, costly or virtually impossible to export goods to a foreign country.

Reasons for Government’s Protection of Business Activities

1. To prevent national wealth from being transferred in exchange with another nation for goods. (Keep-money-or-home)

2. To encourage home industry to perpetuate.

3. To make local goods compete fairly against imports, which otherwise may be cheaper because of technological advantage or other similar reasons.

4. To protect home industry from imports from low-wage countries.

5. To safeguard against potential trade concessions that may have to be made in response to multinational trade agreements.

6. To protect level of home employment.

7. To prevent dumping of foreign products.

8. To seek reduction of tariffs by other countries or to retaliate against another country.

9. To be on one’s own for national security reasons such as was for national calamities.

10. To encourage new industries in the country

11. To compensate the country for loss in revenue when price elasticity of import demand is greater than zero.