Evolution Of International Business Economics Essay
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Published: Mon, 5 Dec 2016
In 1960s multinational companies came into existence focusing on interest of general public. Gradually there was a change seen in the trade patter when the multinational enterprises turn into factual multinational as the countries like European and East Asian firms expanded in global market and also at the same time new cross national strategic partnership of the enterprises appeared (Jones and Geoffrey, 1996). The era of pre-World War II indicates the initial stage of capital movement of European nations. There are three significant phases of International Business i.e. U.S and U.K dominated the global market during 1940’s to 1960’s, later the dominance of UK and U.S no longer remained the same when the continental Europe and Japan came into existence. Later the third phase indicates Foreign Direct Investment where Europe became major source of investment (Mujumdar, 2009).
Definition of International business:
International business consists of transactions that are formulated and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.
International business means collective description of commercial transactions that occurs between two or more nations beyond the boundaries of the home nation. Very often private companies are part of these transactions in order to incur maximum profit. Movement of goods, skill, resources, services etc are done in order to produce physical goods and services in international business. This business includes several options to conduct a business for instance exporting goods and services, providing license to manufacture physical goods in host country, opening a joint venture with a company etc. International business has formed networks of global links that brings nations, institution, financial market, living standards together Due to development and invention of several technologies world has become smaller which enabled to conduct businesses even faster. Objectives of International business determine several operations such as:
Expansions: Businesses enter into the international market in order to incur maximum profits which help to expand its organization.
Sales: To create the demand of the product companies push themselves in foreign market which enable to sale its product, which eliminates losses.
Acquisition of resources: In order to meet the demand the utilization of resources are done wisely without wastage (Jones and Geoffrey, 1996).
Features of International Business:
Operations in large scale: First goods are distributed in local market and then they are distributed in to foreign market which is termed as exports. All operations such as marketing and productions are carried out on massive scale.
Integration of economics: Economies of several countries are combined in international business. It happens as resources are used from several countries and the production, designing and assembly of the product happens in various parts and in different countries.
Developed countries and MNCs are dominating the market: Developed countries like U.S has the power to regulate the activities. Multinational Corporations are significant player; and are considered as the business that has direct investment (Guyon, 2007).
Benefits to participating countries: Developing countries are benefited with legal assistance and also help to diversify their network which enables to avoid exploitation of the resources of those countries (FCIBglobal, n.d.)
Intense competition: Expansion, new entrants are creating intense competition in the market
Technology: Technologies are playing vital role international business, globalization takes place due to shrinking of distance consequently as it is easy to bring together seller and buyer within a second any where around the globe (The times 100, n.d.).
Sensitive nature: Businesses are subject to changes in the nature, therefore any changes occurring in the economy have direct impact on the conduct of international business.
Need of International Business:
Need of employment opportunities.
Allocation of resources, global level activities shift, allotment of preferential choices to global level.
Requirement of acquisition and mergers for product variety.
Need of labor. Technology and capital at lower cost.
Advantages of international Business:
It enables the firm to utilize new market opportunity.
Utilization of resources like raw material and labor at lower prices.
Local business has become less vulnerable as international market allows the firm to get diversified.
It also enables foreign direct investment.
Increases the GDP of the host country.
Market fluctuation is stabilized.
Competitive advantage is enhanced.
Enables to gain global market share.
Existing market dependency is reduced.
Advantage of international trade is that profits will earned in foreign currencies.
Manufactures will be benefited as the foreign market will not demand for the product at same time as the domestic market will demand; this ensures potentiality to produce their products at a full swing (Economywatch, 2010).
Importance of international business in global scenario:
All companies are affected by events occurring globally, because sellers supply there products to secured suppliers from countries and competes adjacent to the products and services to that of foreign countries. These theories are usually related to enterprises which are based internationally. International business play a major role in today’s global scenario which is indicated by the performance of several countries, which can been seen in their life style and economic growth. Global economy is usually depended on the trade that occurs; global economic values are shaped by trade flows and currency flow. According to the survey it is observed that U.S comprises of more than 25 percent of the GDP which was more as compared with banking sector and housing sector.
International business and globalization are interdependent with each other; events occurring in business have direct or indirect impacts on all over globe.
Role of Technologies: There are acute changes in technologies i.e. technologies are getting more dynamic and innovative that it ensures efficiency in production. Communication and transportation are the key components of international trade.
Government regulation: Government is reducing restrictions in order to encourage the firm to go global.
Provision of services: Several institutions are providing services to firms in order to increase their production to meet the demand in domestic and international market.
Competition: Entry into the foreign market has increased competition all over the world.
Demographics: Market varies in population and therefore international business helps to provide product according to the market structure.
Regulatory bodies play a major role in today’s global scenario of international business:
IMF: International Monetary Funds were brought into existence in order to support the trade interest of the nations. Its aim was to stabilize exchange rates and to assist the reconstruction of the world’s international payment system post World War II. Improvement of economies of the member countries are assured under IMF. It secures financial stability, fosters global monetary corporation of 188 countries in order to secure financial stability. The ideas of this organization are to ensure international trade, employment, cooperation from the economy including financial resources to the member country to meet the requirement of balance of payment. Financial supports and advices on monetary issues are provided. It provides helping hand to developing nations in order to reduce poverty in that particular nation (International Monetary Fund, (n.d.).
WTO: World trade organization is a place where trade issues are solved, which the traders face with each other. In 1995 WTO was replaced by GATT. It liberalizes the trade policies in order encourage trade and support the traders from exploitation. It protects consumer’s interest in trade that occurs. The agreement of World trade organization is negotiated and signed by all the countries i.e. trading nations. The intention of WTO is to make sure that the activities of global trade is going smoothly. The aim of this organization is to ensure economic peace. WTO has 157 members out which consist of 117 developing countries i.e. it has separate custom territories (Investopedia, 2003).
Activities of WTO:
Elimination, reduction and negotiating of trade barriers.
Rules related to trade services are monitored administered by WTO.
Providing education regarding mission statement and activities of WTO.
Settling disputes of the trade activities.
Collect data and conduct economic research to support WTO (WTO, n.d.).
European Union was established after Second World War. In this Type of unions 27 countries came together which covered most of the continents which is a distinctive political partnership between those countries. The idea behind this union is to ensure independent trade for the countries involved in international trade activities. EU complies of laws and rules. I.e. every activity of EU is originated on voluntary and democratically approved by every member of the country. The main focus of this Union is to encourage human right both internally and beyond the World. Whenever EU applies law it is bound by the government of EU. The achievement of EU is, it was awarded as Nobel Peace prize award on 12th December 2012. This award was based on the recognition peace, human rights present, future and past since the six decades (European Union, 2012).
FDI through International Business in Global Scenario:
International business enables foreign direct investment in the host country i.e. investment by corporation in a profit-making venture in different country. The venture may be gained through public or private funding, but the amount essential are usually more than capital that is accessible within the country’s limitations. FDI practice has increased considerably in past decades. Entity creating direct investments classically has a considerable influence and power over the corporation into which the investment is been done. Open economies with expert services and goods growth prospects enables to attract huge amount of foreign direct investment than, highly regulated economies. Countries may acquire investment through setting up subsidiary, merger, joint ventures etc (The Gemini geek, n.d.).
How FDI is beneficial for the economy:
Cost of trade is reduced which allows easy flow of production and distribution.
Ensure political support and ensures employment, investment and gain in the host country.
Allows taking advantage of low-cost labor and proximity of resources.
FDI enables to increase productivity through transfer of technologies and expert information.
It gradually fills the gap between internal saving capacity and growth of a country.
Political factors effecting international business: A countries politics affects its regulatory policies and geopolitical relationship. Businesses scrutinize and avoid unexpected operational cost follow-on from national politics. Government policies can make huge difference in the countries economy and at the same time it can adversely affect the nation’s economy (Zoldak, n.d.).
For instance China has more competitive advantage over others; this is because of the government and senior management support, these are the critical success factor of China.
Other example is McDonalds in Pakistan, as the laws and policies are liberal in that nation the expansion of this franchise increased aggressively. Therefore adequate and wise implementation of policies is necessary in this business.
Economic factors effecting international business: Businesses are affected by consumer behavior; it is affected by purchasing power of possible consumers. Businesses are affected by changes in inflation rate, economic growth, budget allocation etc. It plays a vital role in the countries economy as whole.
For instance in Asia, Vietnam suffered a lot due to inflation as many companies and factories had to shut down due to the same.
Societal factors effecting international business: Societal factor means dealing with sentiments, beliefs, religion, culture etc of the market population. It accounts a lot in maintaining the standards of the business to ensure profitability.
For instance McDonalds in India, this particular franchise consumes huge amount of beef and Indian Hindu’s do not prefer beef for spiritual reasons. Therefore 27 stores in India were forced to shutdown. Keeping in mind the consumption pattern, this particular franchise made changes in the food items which go with the preferences and choice of the population.
Similarly Coca-Cola bottles or tins supplied in gulf countries are labeled as ‘No Alcohol’
Technological Factor: Improvement in infrastructure enables to attract investors to invest in their organization or country. Technologies such as transport, communication etc helps the nation to flourish and improve profits. Compatibility in business system is easily possible through liberal accounting system. Technological advancement ensures quick movement of goods, services, labors, ideas and information.
For instance Internet has provided many opportunities to airlines, which enabled long term efforts to promote Indian aviation infrastructure (Zoldak, n.d.).
Effects of International Business on India:
International business helped India in much aspect i.e. GDP of the economy improved. India products started becoming popular all over the world and also demand for the increased accordingly. Outsourcing facilities has flourished the market i.e. it has created wide amount of job opportunity to the local population of the host country. According to the article it is observed that firms may not have to depend for loan on banks, but can raise finances all the way through the marketplace and play significant responsibility in contributing to the economic expansion of the nation. Apparently the involvement of SMEs growth rate was more than 7 per cent of GDP and 45 per cent to industrial total production. Expansion in construction and service sector is at 6.7 per cent and 7.2 per cent which was more then the same quarter of previous year. It is observed that consumption of government stood at 8.7% in the same quarter which shows a positive sign for the financial system at the same time investment jumped by 4%, therefore FDI needs to set a benchmark in order to enhance fiscal as well industrial growth. Due to technological improvement it is possible to produce efficient product which is accelerates the demand pattern in the economy. Due to technologies it is possible to deliver the product as soon as possible it is observed that handcraft material, spices outsourcing services are very much in demand therefore this improves the standards of the country ensuring investment in the host country. International business enables the firm to sell constricted range of primary brands into vast geographic area (manas, 2012).
Effects of International Business in U.S:
International engagement and coherence regulatory is the major aspect. United States councils to promote international business that encourages open market, innovation and corporate responsibility. USCIB provides wide range of services which are valuable facilitates trade and investment. According to the reports it is noticed that export trade has increased by 31 per cent and imports are also increasing at average rate i.e. 1.5 per cent which gradually gets balance by imports. U.S is considered to be powerful countries and most of the authorities of international trade are with U.S. This country is not well versed with all resources therefore it imports raw materials, labors in order to manufacture goods. All this is possible due to internal business and rapid growth of globalization which positively affects the nation. Participation of the firms in international business helped the nation economies of scale which was not possible in their own domestic market, it also helped their firms to balance there trade account (Uscib, 2012).
Conclusion: Transformations in the activities of international business has effected positively to the countries around the globe. There are significant opportunities related with the trade values. Government rules and regulation in International Business are geting redefined which in return are resulting into challenges to the enterprise. New technologies and the development in trade pattern are benefiting the countries at a tremendous level. Regulatory bodies are serving as a helping hand in conduct of international business in order ensures smooth flow of trade. International Business encouraged foreign direct investment which boosted the economy of the nations. Availability of job opportunity and progression of the standards of living is also possible due to international businesses.
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