What is an International Business and it’s types.

What is an International Business?

According to the Cambridge dictionary, an international business is any business in which “…… trading of goods and services between countries” is taking place. And although that is the correct definition of an international business, but it is not a complete one. Technology has played a huge role in shifting the dynamics of businesses, and hence the term “International Business” has increased in scope. There are numerous ways international businesses are carried out these days.

  • Exchange of transactions between the parties of more than one country
  • Operating in more than one currency
  • Following different legal systems or cultures, or both.
  • Having a diverse supply chain
  • Having presence in multiple countries
  • Outsourcing from more than one country

If a business does even one of the mentioned ways, then it is called an International Businesses.

What are the types of International Business?

All international businesses can be categorized in 6 types. These types are;

  1. Importing and Exporting

This is the most basic type of international business and hence the least risky as well. In this type, goods and services are simply exchanged between countries. Goods can include tangible products like clothing, electronic devices, and raw material. Whereas travel industry is a major example of services in this type of international business.

  • Foreign Direct Investment

In Foreign Direct Investment (FDI), a business shifts its entire department/s from one country to another country. Some businesses are able to get resources and labor at a much lower cost in a host country than in their parent country. Hence, to benefit from these factors, investments are made in the business of the host country. The party, an individual or a company, carries this out either by purchasing or investing in the operations of the businesses in the target country.

  • Franchising

Sometimes, a well-established business in one country gives the rights to another company in other country to carry out their businesses using their brand name. The company giving the rights is called a franchiser where as the company getting the rights is called as the franchisee. In this type, the franchise carious out all the elements of the business, aside from production or manufacturing, using the brand name and trademarks of the franchiser and in return gives them some royalty payments.

Many organizations such as McDonald’s, Starbucks, and Domino’s use this method as it reduces the risks and costs involved in entering a new market.

  • Licensing

Licensing occurs when a you sign an agreement with a foreign company to sell your product or service. The parent company, in this case, is known as licensor whereas the foreign company is known as the licensee. The licensee has the rights to produce or manufacture that product and sell it locally. This is one of the easiest ways to expand internationally and best suitable for companies who have a standardized product.

A lot of times people confuse Licensing and Franchising as they are similar in many ways, however there is one major difference between the two. Franchising does not give you the right to produce or manufacture the actual products, it just gives you the right to sell it in your country. Licensing actually gives you the right produce or manufacture the product.

  • International Management Contracts

International Management Contracts occur when businesses completely outsource on their operations to another country. In majority cases, businesses carry out their production in countries where the labor is cheap and the legal system is not strict.

  • Multinational Companies

As the names says it, Multinational Companies are organizations that have their businesses carried out in more than one country. They have independent operations being carried it multiple countries. Their products and services can vary depending on the demands and cultural systems of individual countries.

Multinational companies play a huge role in improving the economy of the countries that they have established themselves in. They provide employment and offer better products to the locals.

In order to know about the different economic systems in the world, READ : Out of the 3 economic systems, what kind of economic systems now prevailing worldwide?