Course: INTB20121 International Business Environment
Tutor: Mumin Abubakre
International business is a term derived from international trade and used to describe all forms of business transactions that take place between two or more countries. Either these business transactions can be private based, semi-government based or government based. International trade involves the establishment of production facilities by producers in foreign countries (Buckley, 2005). It also incorporates all small firms that import or export very small quantities to only a single country as well as big global companies with strategic alliances and integrated operations all over the world.
International business has experienced growth from early twentieth century and this has been attributed by the liberalization of both investment and trade in the international market. Trade liberalization came about because of the introduction of the General Agreement on Tariffs, Trade (GATT), and World Trade Organization (WTO). Advanced technology has allowed the transfer of money electronically and made transport and communication efficient hence playing a big role in the liberalization of international business (Daniels & Radebaugh, 1997) South Africa is one of the countries in the world that provides the best environment for international business. This is attributed by the country’s good infrastructure, good health care services, advanced technology and other factors that attract foreign investors. The country has entered into trade agreements with the U.S, European Union and other countries all over the world to ensure that the products entering the country are duty free or are charged lower rates (Kauser & Shaw 2004).
Various Theories of International Business
A number of theories have been formulated to explain various issues concerning international business. The theories further compare the international business environment in India and South Africa. The absolute advantage theory
Adam Smith formulated the theory back in 1776. Smith had the view that each country has an absolute advantage over another one regarding the production of specific goods and services. This is attributed to the fact that some countries have the advantage of skilled labor, cheap labor, fertile land and the availability of cheap raw materials. Such countries are therefore capable of producing some particular products at a cheaper price. For example, South Africa finds absolute advantage in the extraction and exportation of platinum, gold diamonds and other minerals to other countries because of the availability of raw materials and cheap and skilled labor. On the other hand, India does not have the absolute advantage of these particular products because the country lacks the raw materials to produce them (Punnett & Ricks, 1997). Smith also had the view that a nation like South Africa that has the absolute advantage produces more products than other countries while using same resources. The theorist argues that quotas and tariffs should not be a hindrance to international business but the market forces should dictate trade. According to Smith, for trade business to be successful a nation should specialize in the production of goods and services it has absolute advantage on. South Africa is an example of this form of specialty because it majors in the exportation of minerals and imports consumable goods that can cost the country a lot of money if manufactured locally (Punnett & Ricks, 1997). On the other hand, India that has an absolute advantage in the exportation of crude petroleum strives to export its agricultural products like fish, bananas and charcoal. By exporting consumable goods, the people in India lead a low standard of living as compared to South Africa. Adam Smith’s view is that the wealth of a country is determined by people’s...