- Export – The transaction of goods and services (via. sales, barter, gift or grant) from home country to the host country is called Export.
- Import – The transaction of goods and services (via. sales, barter, gift or grant) to home country from host country is called Import.
- Acquiring natural resources
- Recovery of large expenditure made on research and development
- Capturing a large International Market System
- Earning Large Profit
- Maintaining Balance of Payment
Must Read: Infrastructure and development
Importance of International Business
- No country (be it developed or developing) produces all the commodities to meet its requirement as such it needs to port those commodities that are either not produced or produced in insufficient quantity in domestically to meet its requirements.
- At the same time, all the country tries to export all the commodities that are in excess of its domestic consumption.
- Maintaining the favorable balance of payment.
Maximization of corporate wealthCorporate wealth is the value of productive asset plus the present value of wealth created by those assets.Alternatively, corporate wealth quals to the sum of the total of debt and equity of a firm.
Minimization of costAcquiring the resources which are relatively cheaper helps reduce the cost of production.
Minimization of risk through
(A) Diversification of business
(B) Expansion of business
Approaches to International Business
- Ethnocentric– In this form of approach, the policies of a firm operating in the foreign country are based upon that of the home country.
- Polycentric– In this form of approach, the policies of a firm operating in the foreign country are based upon that of the host country in which it is operating.
- Geocentric– Between above two approaches, geocentric approach follows a real life situation, where there exist no distinction (or boundaries) of framing the policies in terms of either home or host country. This approach aims to fit the “right policy at the right place”.