Understanding International Business International business is the business transactions between institutions, private individuals, individual companies, groups of companies, and governmental agencies across countries. The skills and knowledge needed to be successful in international business are different from doing business locally. At the basic level, domestic business involves transactions occurring within the boundaries of a single country, while international business transactions cross national boundaries. International business involves the use of more than one currency, forcing at least one party to convert its currency for another. At the operational level, the legal systems in the host country may be entirely different from the home country, not to mention the cultural and language differences. There are many reasons that drive companies to engage in international business. The common reasons are: • • • • •
Leverage of their core-competency Seek new market Obtain strategic resource Hedge against business cycle Be ahead of the competitors
Once a firm decides to enter a foreign market, it must then determine the best mode of entry. Depending on the level of control that the company wishes to have over its operations and the level of risk that it is willing to take, there are several different modes of entry. • Exporting and Importing Exporting is the selling of products made in one’s own country for use or resale in other countries. Importing is the buying of products made in other countries for use or resale in one’s own country. International investments. There are two forms of international investment. Foreign direct investments (FDI) are an investment to control property, assets, or companies located in host countries. Portfolio investments are financial investment aiming for financial return. Licensing Licensing is a contractual arrangement in which a firm in one country licenses the use of its intellectual property to a firm in another...
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