International business is a wide concept and it encompasses varied activities that makes its scope even wider. With the advent of the LPG Movement, the global Market place has shrinked and became one platform for conducting market activities. Thus, capsulating a wide range of operations and activities under its scope:-
(1) Exports and Imports – These are the main activities which are carried by firms in IB.
Exports are goods and services produced in one country but marketed in another country. It can be as :
(a) Export Trade – In it, domestic marketing companies or firm sell or export their products to other countries.
(b) Re-export trade – In it, raw materials or semi-finished goods are imported by marketing company from other countries and are converted in finished goods. Then, the finished goods are exported to other countries.
Imports are goods and services produced in one country but bought by another country. It can be also as :
(a) Import trade – In this goods are imported from various countries by international marketing and are sold in the home country. Such activity is done due to non-availability of goods in sufficient quality or because of lower comparative cost.
Exports & Imports do not take place only in tangible goods, but also includes services as those provided by international airlines, emise lines, hotels etc.
(2) Foreign Direct Investment – FDI is equity fund invested in other nations. The FDI is undertaken by multinational enterprises who exercises control of their foreign affliates like exports and imports. It is used by the firms to establish foothold in the world market place. It may be in the form of :
(a) Joint Venture – A joint venture is defined as a commercial collaboration between two or more unrelated parties whereby they pool, exchange or integrate certain of their respective resources. They are usually formed to undertake a specific project that has to be completed within a set period.
Acc. To ‘Terpstra’ – “A joint venture is a foreign operation in which the international company has enough equity to have a voice in management but not enough to completely dominate or control the venture.”
(b) Wholly-owned subsidiary – This is done when a firm sees its long-term substantial interest in the foreign market. A wholly owned subsidiary can be set up in a foreign market in two ways : The company can set up a totally new operations or can acquire an established firm and use the firm to promote its product.
Acc. to ‘Peter Drucker’ – “It is simply not possible to maintain substantial market standing in an important area unless one has a physical presence as a producer.”
(3) Licensing/Franchising – Acc. to ‘Root’- “Licensing can be defined as a contractual arrangement whereby one company (Licensor) makes an asset available to another company. (Licensee) in exchange for royalties, License fees or some other form of compensation.”
Franchising is a form of licensing. It is the practice whereby a company permits its name, logo, cultural design and operations to be used in a new firm or store.
These are the means of establishing a foothold in foreign markets.
(4) Management Contracting – A management contract is an arrangement under which operational control of an enterprise, which would otherwise be exercised by the directors or managers appointed, is vested by contract in a separate enterprise which performs the necessary managerial functions for a fee. In other words, it is a contract between two companies, whereby one company provides managerial and technical expertise to the second company of the agreement for a certain agreed period in return for monetary compensation. It allows the firm to benefit directly from the sale of their knowledge and expertise and also provides opportunities for earning revenues in related activities.
(5) Turnkey Contracts – Turnkey contracts are those contracts under which a firm agrees to fully design, construct and equip a manufacturing service facility and turn the profit over to the purchase. When it is ready for operation for a remuneration. These are common in IB in the supply of erection and commissioning of plants, construction projects and franchising agreements.
(6) Counter trade – Counter trade is a form of international trade in which certain export and import transactions are directly linked with each other and in which imports of goods are paid for by export of goods.
This is used as a strategy to increase exports. A counter trade may take a variety of forms such as barter arrangement, compensation arrangement, buy-back arrangement and counter-purchase arrangement.
Acc. to ‘Patrick’ – “Counter trade involves agreement between two parties to pay in goods and services.”
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