what is international business and its characteristics?

what is international business and its characteristics?

by Alex James
international-business

The types of international business have existed since prehistoric times, if you think about it in detail, surely you have studied it in school, when the trade of goods was done over long distances. Even during the Roman Empire, merchants brought their wares to consumers around the world.

It should be noted that cultural customs and traditions are key in international negotiations. How is this? Let’s look at an example with two of the strongest powers in the international business race.

In the United States, for example, competition prevails, short-term results and personal relationships are not cultivated. On the other hand, the Japanese make group decisions with long-term results; for them it is essential to develop friendship before negotiating.

In this way we can say that there is much more in relation to the types of international business than what we can see with the naked eye. Among the success factors that we can mention in the operations of international business forms, we include competitiveness, financial support between the parties and logistics.

This last aspect is extremely important since when the actors involved are in different countries or regions, the realization and success of the international business is even more complicated.

International business areas

  1. Foreign trade

To fully understand what an international business is, it must be clear what foreign trade is. This concept refers to the conditions and forms in which it occurs in the negotiation process of the exchange of goods and services; exactly, are the national laws and regulations for handling international trade.

It is subject to various standards for product control, for example health and safety; such as procedures, red tape, records and taxation (taxes, tariffs, etc.). Foreign trade also makes it possible to complement domestic production when it is insufficient to satisfy local demand.

  1. International trade

It is one that consists of negotiations (imports, exports, direct investment, external financing, etc.) that are carried out around the world and in which different multinational companies are involved.

Characteristics of an international business plan

Foreign trade presents the following basic characteristics:

  • It is a trade outside the borders of the country, which can trade with one or more nations.
  • The countries that trade have open economies, this means that they allow transactions with other countries, or at least have agreements with a particular country.
  • Countries interested in exchanging goods and/or services with others usually sign trade agreements or conventions that seek to facilitate exchange processes.
  • The entry or exit of products will generate a flow of foreign currency. When trading countries have different currencies, the value of the currency relative to the local currency is reflected in the exchange rate.
  • Exchange rate fluctuations can affect foreign trade flows between countries with different currencies.

There is usually a public body in charge of controlling the entry and exit of goods from a country. This body is called Customs and it is in charge of controlling the entry and exit flows of goods across the border and the application of taxes determined by law.

Elements of an international business plan

There are three central operational points to make an international business plan:

Export and import of merchandise or goods

If we talk about what an international business is, probably the first thing that comes to mind is the export and import of products. It is no secret that export and import is the international operation most applied by large and small companies, although in different proportions, logically.

Normally, large companies have a different participation in international operations, to which import and export are added. The most relevant thing is that exports and imports are important sources of income and expenses for all countries in the world and this is well used by companies.

foreign investment

When we talk about foreign investment, we refer to the possessions that a company has in other countries with which they plan to generate higher profits with interest and dividends. There are two types of investments in the world of international business that must be distinguished:

  • Direct investment. When we speak of a direct investment, we refer to one that provides the investor with a controlling interest in a company in a foreign country. This participation does not necessarily have to be linked to total control of the company, just a minority percentage of the investment is enough to start making decisions within the organization that occurs abroad.
  • Portfolio investment. This investment is an uncontrolled interest in a company or ownership of a loan to another party. This type of foreign portfolio investment is very important for most international businesses, since it allows for short-term profits, which means extra monetary income than what it usually generates. You can control your numbers through this sales and income projection template in Excel.

Export and import of services

Although many people think that only physical products can be imported and exported, income can also be generated from services. Some of the best examples to understand this type of companies that carry out some international business are the following:

  • Tourism and transportation. Generally, people who visit a place consume in establishments such as restaurants, hotels, recreational activities, among many others. This is how opening businesses in strategic places is also a way to start what an international business is.
  • Service performance. There are certain franchises or large companies that generate income by way of rent. For example, industries like Disney or McDonalds have branches around the world from which they receive fees for the use of the brand. This can hardly be seen in a company that is just emerging.

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