International business as a subject has become a complete discipline in itself. The process and degree of globalisation have made it essential for one and all to study international business.
There are many reasons as to why the students in business schools need to study about international business:
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1. World Market Place is full of Diversity:
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The nations are diverse in terms of culture, politics, legal practices, economics and technology. International Business, despite an extension of domestic business is significantly different and complex due to differences in ‘environmental dynamics’ and ‘operational nature’. The diversity makes international business riskier to domestic business. Hence it is necessary to identify and understand the prevalent conditions in a particular country in which investment is to be made or with which trade is to take place vis-a-vis your own country.
2. Globality:
The word globality was introduced at the 1999 World Economic Forum annual meeting in Davos, Switzerland. It refers to the results of the process of globalisation. International business comprises a large and growing portion of the world’s business. Global events affect all types of firms doing international business as well as domestic business.
Every firm’s management, whether involved in international business or not, is required to be aware of what is happening globally in its markets and its industry. No country can afford to neglect the foreign sector while drawing its economic policies.
Most of the public policy issues are often related to international trade, investment and finance. At the time of introduction of VAT (Value added tax) in India, one of the reasons given was that it was in force in 123 countries of the world.
3. Scope of International Business Transactions:
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All business transactions are risky. A successful entrepreneur is one who manages to avoid or at least minimize risk. The basket of risks associated with an international transaction is likely to be different than that of an Indian domestic transaction.
Not only the risks are different but efforts to minimize the risk also differ. Also to be kept in mind is that, this basket of risks is constantly fluctuating.
The risk characteristics will vary according to the type of transaction. International transactions are categorised under four groupings – exports and imports, sale of services, licensing, and foreign direct investments.
The franchise, joint venture and counter-trade are hybrids of one or more of the four broad categories. While pursuing international business, firms will have to decide which mode of transaction or operation to use.
4. Understanding External Environment:
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To do international business, not only the knowledge of business operations is necessary but a working knowledge of basic social sciences like politics, economics, anthropology, sociology, psychology and geography is also required to draw your own conclusions by studying external environment of the firm.
Political environment will tell us, as to how and why political leaders control, whether and how of international business. Legal environment (both national and international) will tell us about many kinds of laws by which business firms must operate. The cultural environment will tell us about attitudes, beliefs and opinions important to business people.
Economic environment will tell us about the economic system being followed by the host country, which may (or may not) be different from home country. It will also explain the variables (such as level of development, human resources, GDP and consumption patterns) that determine a firm’s ability to do business. Geography will tell us about location, quantity, and quality of the world’s resources.
5. Philosophy of Business:
Every business as part of its economic objectives always wants to grow. Domestic market is likely to saturate after a limit and then to grow further, geographical diversification outside the home market may be the only option.
It can be noticed that all the large enterprises in the developed countries are international in character. Now it is the turn of developing countries’ firms (during the last three years Tatas have acquired Corns, Tetley Tea, Jaguar and Land Rover).
6. Small and Mid-Size International Enterprises:
To compete globally it is not necessary to be only big. A large number of small and medium firms are also getting involved in international business. The size is always not a constraint. In fact, fastest export growth has been recorded only among very small businesses. The mid-size firms have appropriate balance of size and agility. The importance of small and medium enterprise (SME) sector varies by nation.
But in Taiwan and Korea they are a formidable force. Many of the Taiwanese small and medium industrial enterprises (SMIEs) are multinational in character. In years to come small and midsize is likely to grow rapidly.
In a country like India the role of SMEs cannot be overlooked. With the onset of liberalisation the mindset has really globalised. Many small businessmen procure their supplies from China, Taiwan, Thailand, Singapore, etc. which was a rare phenomenon a decade back.
Who knows it that sometimes you may start your own business and import goods/ equipment, compete with international firms and export to other country markets. Yes, this is possible and the advent of e-commerce has opened many opportunities for SMEs.
7. Pursuing Career Opportunities:
You may be working in an IT firm and your project group might include managers from Latin America, Europe or North America (as Tatas are recruiting summer training students from business schools from different continents). A basic understanding of international business will help you to know as to why the team was formed, what it was expected to perform and how you could interact effectively with the team members representing different cultures. If you are working in an international firm you must have good understanding of international business to better assess your career opportunities.
8. Updating Business Practices:
Study of international business is necessary to understand and keep updated about the best and the latest business techniques and tools developed outside one’s home market. To illustrate, Just-in-time (JIT) technique was developed by Japanese.
Human resource techniques – empowerment, total quality management, cross-functional teams – were first used by Japanese and European business firms like Honda and Volvo.
To keep pace with future competitors it is essential to study international business. In the aftermath of successful cross-border takeovers by Indian. Firms and Indians managing many MNCs, Indian entrepreneurial abilities are also being studied.
9. Growing importance of International Business Education:
International business is on the syllabus of business education in almost all the universities worldwide. Management education is getting specialised from general MBA to MIB (Masters in International Business).
The top schools of India have started MIB course. MIB students learn foreign languages, travel across continents and do their summer jobs to learn more and more of other countries’ business.
Placement with large business houses is almost assured. Study of international business will provide them understanding of modern day global business and global mindset. The goal of teaching international business is to sensitize future entrepreneurs to the field of international business and the ways to manage associated risks.
10. Complex International Transactions:
“In the past, complex international transactions were the domain of diplomats and international policy and business experts. Today a converging set of powerful economic, technological, demographic and geopolitical trends will demand that all citizens, not just the elite, have that kind of global fluency. Knowledge of the world is no longer a luxury, it is a necessity.”