International businesses are organizations or companies whose business activities take place beyond the geographical boundaries of the native country. This involves the international movements of goods & services, employees, capital, technology, and intellectual properties like know-how, trademarks, patents, and copyrights.
International business, also known as a global business, refers to carrying out business at a global level across the country’s boundary. These businesses emphasize the objectives of global outreach considering the resources spread across the globe.
International business facilitates the country’s specialization in producing and exporting the products or services that are most efficiently produced in that country.
Top 12 Reasons Why International Businesses Are Important
The following points highlight why international business is important for organizations:
Access to global talent
International businesses have a global talent pool which increases the chances of finding the best-in-class employees. Various languages, skill sets, and industry knowledge allow the international business to enter potential markets. These employees carry the experiences of their parent country and view business operations in their ways and bring unique approaches to solving problems.
Improves diversity in the workforce
Workforce diversity is achieved when the businesses hire employees from different countries, having variations in cultural background, ethnicity, and gender. Diversity is essential to improve worker engagement and business productivity and boost the business’s profit.
Every business aspires to expand its market share by selling its products and services. Expanding internationally opens up opportunities to reach out to newer markets. The global expansion provides unique benefits and opportunities irrespective of its position in the old market.
Global businesses benefit from the cost advantage by exporting their products to foreign nations. This cost advantage can be observed by how many companies dominate globally. For example, the company can reduce its cost of production in any country where it gets raw materials & labor at competitive rates, which dramatically benefits its business at a global level.
No competition for the product in the new market
It’s indeed an excellent opportunity to expand to more unique markets as its products might not be available in those markets. Therefore, the company has a production advantage that they can employ to maximize profits. Consequently, an international business can strive to establish a monopoly in the new market.
Differentiating features in the product
Expanding into an international market helps businesses promote their USP in a new less-competitive market. If any organization succeeds in unique product design and establishes new products & services, it can surely gain a competitive edge over the local players in the international business.
Covering up the loss in the domestic market
A business might be losing its market share in the domestic market due to a rise in competition or market saturation in the domestic market. Sometimes the products sold by the business may not appeal to the customers anymore. Going global can help companies to find new markets for growth.
Economic recession in the home country
The importance of international business is highlighted when the industry faces a recession in its own country. Most world-class global companies have their presence spread across multiple regions. This helps them in mitigating the economic slowdown in their parent country. Similar to the diversification of products, it’s essential that global businesses also practice market diversification for their company’s growth. This provides a safe harbor to the companies in case of a slowdown.
Demand growth in other markets
In the age of globalization, all nations are developing fast, yet certain countries are still in the initial phase of growth. Therefore, this gap in the level of development creates an opportunity for the rise in demand in those countries, and the global business can reach out to them to fulfill the increased demand. As demand increases in the new markets, the demand growth inevitably brings forth a chance for global outreach for new companies.
Excess capacity of production
One reason for the companies to move to international business is to use their excess production capacity judiciously by exporting goods at the international level. If the company’s production capacity is not fully utilized in the domestic market, the business needs to expand globally to reduce the losses and maintain its optimum production. Therefore the companies start selling their products to the International markets, which helps them generate revenue and utilize the enormous volume produced in the factories.
Economies of scale
The most crucial factor for the profit generation of any company is its ability and time taken to achieve economies of scale. When businesses grow, fixed costs increase; therefore, the impression of economies of scale starts operating. Fundamentally, the fixed price is reduced when the scale of manufacturing increases using the same resources. If the company implements this strategy judiciously, it gets a cost advantage over its competitors, improving its operation scale.
One of the importance of carrying out international business is the rise in purchasing power in targeted markets. The purchasing power is high in economically advanced and developed countries. If customers possess high purchasing power in any market, it’s evident that companies will target that market to increase their profitability.
Benefits of International Business
The different benefits that the employers can get by expanding globally are as follows:
Reduction in risks
The commercial and political risks are reduced when companies are involved in international business. The chances of business collapse and global market slowdown are reduced due to the spread of business activities across geographies.
When companies expand globally, the market size is increased, so the companies are not dependent on the product demand in a single country. International businesses grow their customer base, and the revenue generation is also increased parallelly.
International business also helps in cultural transformation. When any company operates in multiple countries, it generates a close cultural integration, and the local customs of one country are shared with people in different parts of the world.
Effects of business cycles are reduced
The level of the business cycle varies from country to country. Therefore, a company facing a recession in one nation can reduce its impacts through its profits from other countries. Eventually, this helps mitigate the effects of the business cycle on the company’s profit structure.
Division and specialization of labor
Global expansion helps the business in division and specialization of labor. The working population of one country learns new production methods and provides services for different country sectors, learning new skills in the process. International businesses greatly benefitted from the global workforce management trends, and they are explaining these trends on a worldwide scale.
Optimum utilization of global resources
The international business creates a channel for the flow of the raw materials & human resources from the countries where they are found in access supply to the countries where their supply is limited. This has also increased the global employment opportunities of a skilled workforce.
International business: Nature, Characteristics, Features
The nature of an international business includes the following factors:
- Import and export of goods.
- Export & import of services; also includes transferring intellectual property rights.
- The spread of licensing and franchising across different countries.
- Foreign investments include both direct and portfolio investments.
The following factors enumerate the characteristics of international business:
- Operations at a large scale: International businesses are conducted on a large scale globally. Their business activities are significant in size, including manufacturing, promotion & selling of their products. These businesses serve the demands of local as well as foreign markets.
- Earn through the foreign exchange: Since the currencies of different countries are involved in transactions in international businesses; thus international businesses act as an essential source for generating enough foreign exchange reserves for the nations.
- High-risk probability: The uncertainty related to international business is high. Global companies operate with large-scale resources, capital investment, workforce, and business activities spread at large distances.
- Multiple middlemen are involved in the processes: Due to the large size of International businesses, the scale of operations requires many intermediaries to carry out different functions. The essential services of these people help them to expand and grow.
- International restrictions: International businesses must face many limits to carry out their operations worldwide. Due to the variable regulations in the different countries, sometimes they are not allowed the inflow/outflow of goods, resources, and technology. International businesses have to face multiple foreign exchange barriers and trade blocks/barriers that are harmful to their operations.
- Intense competition: International businesses have to face a lot of competition from companies already established in the local country. The match can be quality, price, design advancement, and packing. They have to invest in advertising their products to confront the competition in the international market.
The main features of international business include:
- Involves many countries: International business can be carried out only when transactions occur across different countries.
- Legal obligations: The countries have specific laws related to foreign trade, which the global business needs to comply with, making the process and financial transactions complex.
- Heavy documentation: These businesses are subjected to the set rules and regulations; therefore, many documents must be maintained and shared with other parties.
- Time-consuming activities: The time between sending manufactured goods or services and receiving the payment is higher than the domestic business.
- Lack of Personal Contact: Since the customers and producers operate globally, there is a lack of direct & personal contact between them.
Risks in international business
Global expansion undoubtedly creates additional opportunities for business growth, but this growth often results in increased exposure to risks. The following risks can act as a barrier to the expansion of international business:
Businesses should undertake significant efforts in the planning stage to expand to the foreign market and maintain profitability. Faulty planning can increase the marketing, administration & product development expenses, and it can also violate employment laws in foreign countries. Some other factors are lack of sales in case the market is saturated, physical damages due to instability of the country, etc. Lack of accurate research results in the alienation of customers from the brand.
Operational risks arise due to failure in procedures, company policies, employee-related issues, systems failure, and fraud/criminal activities; these all can disrupt international business. A company expanding globally needs to be vigilant about its production costs to save time & expenses. If the company can control its expenditures, the production efficiency would be increased, which will ultimately help the global expansion.
Policies formulated by the governments can affect international business operations. There are chances that the government might be totalitarian in the foreign nations, which negatively affects the companies expanding globally. An unstable political situation in any operating nation can pose risks for global business.
Global payroll risks
Businesses expanding globally lack an understanding of local laws and statutory requirements. The continual amendments make it more challenging to keep track of all the regulations related to payroll management. Setting up payroll teams or partnering with payroll solutions like Multiplier can help you pay with 100% compliance and accuracy.
Violation of employment contracts
These risks are incurred when the organizations fail to fulfill the contractual employment liabilities mandated by the foreign countries. Multiplier helps you offload the cross-border employment-related risks by formulating a multilingual and inclusive contract complying with applicable regulations. With the help of the solutions provided by Multiplier, you are fully covered in handling the country-specific employees, labor, and compliance with the tax laws.
Technological advancements undoubtedly have many benefits, but disadvantages also come along. Some of the technological risks in present times are security lapses in electronic transactions, the high cost of upgrading to new technology, chances of failure, and the risk of technology being outdated in a short time.
Government policies and currency exchange rate steer international businesses to transfer funds to other countries. The devaluation and inflation of any currency affect business functions and can pose financial risks.
Risk related to taxes
The different nations have their tax policies for international businesses. The taxes paid by companies can be higher or lower compared to the parent nation; this can induce or reduce the financial risks.
Examples of international business
Some of the best examples of international business are as follows:
It is a multinational beverage corporation established by John Pemberton, a pharmacist, in 1886 in Atlanta, Georgia. Initially, it was recommended as a tonic for everyday ailments as it included a composition of cocaine and caffeine. This composition was then removed from the formulation in 1903. Coca-Cola emerged as a global brand known today due to the business leadership of Asa Griggs Candler and the financial support of future investors. Candler historically increased the company’s sales and expanded the production of the syrup factory in Canada.
Coca-Cola further remarketed and expanded in China, Germany, and India, and now it sells its products worldwide except in North Korea and Cuba. It has 900+ bottling and manufacturing set-ups spread worldwide; among them, major ones are located in Asia, Africa, and North America,
Steve Jobs, Ronald Wayne, and Steve Wozniak founded Apple Inc. in the 1970s, which is now considered one of the most influential global businesses. Apple is involved in designing, developing, and selling software, electronics, and online services worldwide. Presently Apple’s headquarter is in the United States, but its first international outlay was in Tokyo, Japan, in the year 2003, when the American markets got saturated.
Apple is engaged in selling products internationally, and it also has a vast supply chain of 43 countries that ship the parts to China for final production and assembly processes. Apple maintains a strong relationship with its inventory holders and suppliers; it focuses on sustainability, due to which it is designated as the world’s most successful company.
McDonald’s was established in 1948 by two brothers, Maurice and Richard McDonald. Initially, it was a barbecue restaurant offering drive-through services in San Bernardino, California, further converted into a burger and milkshake restaurant.
The McDonald brother’s main focus was developing an effective business system that moved towards self-service. They also emphasized repeatable processes based on heating lamps instead of dependent on waiters. Their model, which came to be known as “Speedee,” reduced costs, provided affordable products, and resulted in faster growth, and it later became the synonym for fast food. McDonald’s is one of the best fits for global business examples as it has been successful internationally due to its consistent features in the business model. Today, McDonald’s has around 38,000 restaurants spread across 120 countries.
Now under the Japanese holding company Nikkei, the Financial Times was previously a British daily newspaper. The Financial Times delivers unbiased and knowledgeable economic & investment information to empower the people and help companies make safe investment choices. The Financial Times had to face initial challenges when trying to expand to the international market. The Financial Times has a wide readership of more than 26 million readers every month, ranging from corporates to consumers.
The pressure to expand on the global level is increasing for the organizations. Companies from almost all the economic sectors coming from a wide range of industries, whether they may be small, medium, or large-sized companies, are planning to expand to offshore locations. The main target behind this motive is to access the growing markets of developing nations and take the production advantages that draw manufacturers and service providers to the regions of high commodity and human resource availability.
International businesses can use the Multiplier platform for managing global employment and international employees; while they plan to expand to untapped overseas markets. Multiplier, the leading global employment platform, seamlessly tackles all the hindrances while the business carries out international expansion. Multiplier supports you in employing an international team in minutes; you can contact the experts for guidance.