INTERNATIONAL BUSINESS

International business consists of transactions that are developed and carried out across two or more international borders to satisfy the business objectives of individuals and organizations. Technology has created opportunities for business internationally in ways that make boundaries of countries seamless in transacting business at the click of a computer.

MAJOR FACTORS AFFECTING THE GROWTH OF INTERNATIONAL BUSINESS

International business has experienced an unusually strong growth pattern since 2004. Several major factors are involved in this growth. One major factor deals with the surge in oil prices, a commodity in great demand by many nations.

Another major factor affecting the growth of international business has been the expansion of technology. Computers and all their applications have deeply penetrated international business, and using the Internet as an integral tool of communication has been paramount in promoting diversified international business opportunities.

A third major factor has been the decline in the value of the U.S. dollar. When prices are lower for U.S. goods, other nations rush to take advantage of the bargain prices.

EXPORTING AND IMPORTING

The primary activities that take place in international business transactions are exporting and importing. Exporting is the act of an individual or business in one country selling goods and services to a buyer in another country. Importing is the act of a buyer in one country buying goods and services from an exporting organization in another country.

For example, when an individual organization in Country A sells goods to a buyer in Country B, the Country A seller would receive the proceeds from the sale to Company B, just as in a domestic sale between two companies within the same borders.

The amount of the proceeds from the sale would be the amount agreed upon by the two companies, less any expenses incurred by Country A, the exporter. To calculate the annual income, however, it is necessary to calculate the balance of payments for a stipulated time, such as a month or years. The balance of payments may include gold, merchandise costs, services costs, interest and dividend payments, travelers' expenditures, and loan repayments.

Usually, trade between two countries does not involve ownership interest in the other nation's business firm. Occasionally, however, one of the trading nations makes a foreign direct investment in the other nation's trading firm with whom they are doing business.

A list of the items typically imported by the United States would include machinery, transport equipment, manufactured articles, crude materials, chemicals, food and live animals, minerals and lubricants, beverages, and tobacco.

In addition, almost all countries appear to have a need for engaging in international business. The major reason lies in the need to acquire sufficient quantities of needed commodities in order to have a healthy balance of needed items available. Virtually no country can produce enough of every kind of material it needs by itself. So, if Country A has plenty of a certain kind of raw material, it can trade it to Country B in exchange for Country B's manufacturing capacity and know-how, which Country B can trade to Country A, sometimes at lower prices.

Shortly after the 2004 U.S. presidential election, the value of the U.S. dollar went down. The reduced value, however, made U.S. prices abroad more attractive to buyers throughout the world. The United States began experiencing a serious trade deficit. It is worthy of taking note that capital-intensive products (such as cars, trucks, construction equipment, and industrial machinery) are manufactured by countries with a strong industrial base.

Labor-intensive products (such as shoes and clothing) are made in countries with low labor costs and relatively modern productive plants, often found in Asian countries.

GOVERNMENTAL INTERNATIONAL TRADE POLICIES

Domestic sales are those made where both seller and buyer are conducting business within the same borders. Domestic business organizations of all types—such as retail, wholesale, manufacturing, and agriculture—look to their government to protect them against firms from other nations taking away their customers and their sales.

A tariff is an example the kind of protective legislation used by governments that seek to provide this kind of protection. Suppose, for example, that $500 is the typical price of an item imported by Country A. When the residents of Country A learn they can buy the item from within the bounds of Country A from a foreign source for $500, they will tend to buy the lower-cost item, even if the item must be purchased from a foreign source. Imposition of a tariff by Country A would have the effect of a tax on the items. It would raise the real cost to a figure higher than the domestic cost.

Sometimes a country suffering from a protective tariff will enact a tariff of its own on a product. In 1930, for example, the U.S. Congress passed the Hawley-Smoot Tariff Act. This placed protective tariffs on some of imports. The legislation was popular among U.S. voters. The legislative analysts determined it was a large mistake. To correct the error, Congress reduced the price of affected products by 50 percent.

CULTURAL DIFFERENCES

With most foreign countries, there are cultural differences about which it is essential to question and to learn:

• Do men and women shake hands with each other?
• In business meetings, do participants "get right down to business" or would that be considered impolite?
• Should the American visitors' clothing be approximately the same as the foreign hosts?
• If the Americans bring their families, are there any special rules about associating with the children in that country?
• What sort of medical facilities are available for Americans?
• What languages are used?
• What holidays are observed in the country?
• What special rules about traffic accidents exist?
• What is the situation regarding religious observances?

INTERNATIONAL TRADE COMMISSION

The International Trade Commission is not technically a part of the U.S. government but rather an independent agency. Its principal task is to determine whether imports are injuring any domestic industry. The commission analyzes the manner in which the domestic industry relates to the international industry. It also investigates and reports on tariff and foreign trade matters. Upon request, it reports to Congress and/or the president.

It studies the methods by which the international laws operate. It investigates claims that are submitted regarding conflicts of opinions within the dependent trade's areas.

The commission was organized in 1916. Its original title was the U.S. Tariff Commission; it received its current title in 1975. The commission is headed by six commissioners who are appointed by the president with the approval of the U.S. Senate.

see also International Investment; International Marketing; International Trade

bibliography

Ball, Donald A. et al. (2006). International Business: the challenge of global competition (10th ed.). Boston: McGraw-Hill/Irwin.

Hill, Charles W. L. (2007). International Business: Competing in the Global Marketplace (6th ed.). Boston: McGraw-Hill/Irwin.

Morrison, Janet (2006). The International Business Environment: global and local marketplaces in a changing world (2nd ed.). New York: Palgrave Macmillan.

Dorothy A. Maxwell