International Business: Strategies, Factors, and Market Advantages

Posted on Dec 11, 2024 in Economy

What is International Business?

International business encompasses any commercial transaction that is private, governmental, or between two or more countries.

Types of International Business

  • Sales
  • Investment
  • Transportation

Purpose of International Business

  • Expand sales: Accessing new markets to increase revenue.
  • Acquire resources: Obtaining raw materials, technology, or other resources not readily available domestically.
  • Minimize risks: Diversifying investments across countries with varying economic conditions.

Process of Internationalization as a Strategy

  1. Drive to international business: This can be a passive response to market conditions or an active search for opportunities.
  2. Internal management of operations: Companies handle transactions directly rather than relying on external partners.
  3. Mode of operations: This includes import/export, foreign production, and a wide range of production activities.
  4. Number of countries: Businesses may operate in one, several, or many countries.
  5. Degree of similarity between countries: This refers to the similarities or differences between the home country and the destination country.

Other Factors Influencing International Business

  1. Standardization vs. national sensitivity: Balancing global efficiency with local market needs.
  2. National competitiveness vs. company competitiveness: Achieving global efficiency while considering national factors.
  3. Sovereign relations: International conflicts or cooperation, such as treaties and agreements, can significantly impact businesses.

National Environment

Culture

Culture comprises learned rules that translate into attitudes, values, and beliefs within a nation. Cultural dynamics, such as cultural stabilizers, play a role. The nation serves as a reference point, and cultural formation occurs over time, often around 10 years, through choice or imposition. Language is a fundamental basis for understanding cultures and significantly affects businesses. Religion also plays a crucial role in shaping cultural practices.

Business Practices

Understanding the social system is vital. Key aspects include:

  • Performance orientation: Seeking social good.
  • Age groups: Recognizing the influence of different age demographics.
  • Family: Understanding the role of family in business and society.
  • Gender: Considering gender roles and their impact.
  • Occupation: Recognizing the influence of different professions.
  • Motivation: Balancing materialism with free time, and success with rewards.
  • Preferences: Understanding consumer preferences.
  • Relationships: Considering power distance (type of leadership) and individualism vs. collectivism.
  • Risk-taking: Assessing attitudes towards risk (favorable, unfavorable, or indifferent).
  • Information processing and tasks: Recognizing monochronic (one task at a time) vs. polychronic (handling multiple tasks) approaches.

Government

The government’s role is to integrate societies into a viable and functional unit. It strives to keep society together, which also affects international business.

Political Ideology

Political ideology encompasses the set of ideas, theories, and objectives that form a political program. Key types include:

  • Pluralism: Guarantees the coexistence of different political ideologies.
  • Totalitarianism: Does not allow for different political ideologies. This can be theocratic (religion-based) or secular (military or communist, often without individual guarantees).

Political Impact on Management Decisions

  • Political risk: This can increase or decrease depending on the views of leaders.
  • Social unrest: Internal instability can affect business operations.
  • External relations: International relations can create opportunities or challenges.
  • Government intervention: Government policies can significantly impact businesses.

Economic Environment

  • Exchange rate: This can be floating (within bands), rigid (with a black market), or free.
  • Trade agreements: Agreements between countries to facilitate trade.
  • Tariffs: Taxes on exports.
  • Tariff barriers: Quotas and subsidies.
  • GDP: The total value of goods and services produced in a country.
  • Per capita GDP: GDP divided by the number of inhabitants.
  • Economic system: This can be a free market, mixed, or state-controlled.

Economic Integration Processes

Tariffs restrain trade and most affect the population of the country imposing them. The World Trade Organization aims to reduce trade tariffs.

Types of Economic Integration

  • Free Trade Area (FTA): Agreements between countries to eliminate trade barriers among themselves.
  • Customs Union: An FTA where member countries set common tariffs for trade with third parties (e.g., MERCOSUR).
  • Common Market: A customs union with free mobility of factors of production, labor, and capital.
  • Economic Integration: Harmonization of fiscal and monetary policies, allowing residents to harmonize tax debt.
  • Political Integration: States bind together.

European Union (EU)

The EU has evolved through various stages: the European Coal and Steel Community, the European Economic Community, and the European Union. Key institutions include:

  • European Council: Generates proposals, monitors treaty compliance, and directs common policies.
  • Council of the EU: Composed of ministers from member countries.
  • European Parliament: Holds budgetary control, legislative oversight, and influences executive decisions.
  • European Court of Justice: Responsible for the interpretation and application of treaties.

Marketing Information System (MIS)

  • Internal records: All company databases, including sales, billing, orders, and contact information for import destinations.
  • Marketing intelligence: Designed to gather existing information, such as secondary data from the internet.
  • Market research: Supports all marketing decisions.

Competitive Advantage

Competitive advantage occurs when a company performs better than its competitors. The theory of comparative advantage suggests that if a country can produce a good (A) at a lower cost than another country, and that country can produce a different good (B) at a lower cost, it is optimal for the first country to export good A and import good B.

Competitive Advantage in the Market

Competitive advantage is achieved when a company has a better position than its rivals in securing clients and defending against competitive forces. The three principles of the market are:

  • Essence: Creating customer value that is superior to the competition.
  • Differential advantage: Product, price, promotion, and publicity.
  • Focus: Concentration on customer needs.

International Market Advantages

  • Comparative advantage: Difficult to lose, often related to cost advantages. These advantages do not require investment for sustainability and provide significant benefits.
  • Competitive advantage: Can be lost, often related to price advantages. These advantages require investment to maintain and develop.

Country Image

Associating products with a specific country can increase tourism and attract investments.