Question

“International business is more than international trade”. Comment.

Answer 1

International business refers to the business transactions that take place across national boundaries. It encompasses all international activities including manufacturing and movement of goods, services, capital, personnel, and intellectual property. On the other hand, international trade is an activity that is confined to just import and export of goods. It is itself a small part of international business. Therefore, we can say that international business is much bigger than international trade.

The following are some of the major operations that are a part of international business and help in distinguishing it from international trade.

(a) Import and export of services: Trading of services is an important constituent of international business. Services that are a part of international business include travel and tourism, entertainment, communication, transportation, construction, advertising, R&D, and banking.

(b) Licensing and franchising: International business includes activities related to licensing and franchising. Under licensing, a foreign firm is granted intellectual property rights by a home company so that the firm abroad can produce and sell goods under the home company’s trademarks, patents, or copyrights in exchange for a fee. Similarly, under franchising, a home country grants a foreign firm the right to produce and sell goods under a common brand name using the same operations support system in exchange for a fee.

(c)Foreign investment: It refers to the funds that are invested abroad for some returns. It is an important part of international business and involves two components, as follows.

(i) Direct investment: It refers to an investment made directly in the plants and machinery of a foreign company so as to undertake production by acquiring controlling rights.

(ii). Portfolio investment: It refers to an investment made in securities or by providing loans to a foreign company with an objective of earning profits in the form of dividends or interests on loans.