International Business

Business across national borders: how it differs from domestic business, its benefits, the modes of entry, export and import procedures and documents, and the balance of trade.

Key ideas

• International business differs from domestic business in the nationality of buyers and sellers, less mobile factors, varied customers, and different currencies, laws and business systems.
• Its scope covers exports and imports of goods and services, licensing and franchising, and foreign investment.
• Nations gain foreign exchange, better use of resources, growth and jobs; firms gain profit, use of spare capacity and growth beyond a crowded home market.
• Modes of entry run from exporting (least investment and risk) through contract manufacturing, licensing and franchising to joint ventures and wholly owned subsidiaries (most control and risk).
• In licensing a firm lets a foreign firm use its patent, trademark or process for a royalty; franchising is the same idea for services.
• Exporting runs from enquiry, order, credit check and licence, through production, inspection, shipping and customs, to the bill of lading and payment.
• Importing runs from enquiry, licence and foreign exchange, through the order and letter of credit, to the arrival of goods and customs clearance.

Remember

Watch out

• Swapping the shipping bill (exports) and the bill of entry (imports).
• Subtracting exports from imports: the balance of trade is exports minus imports.
• Confusing the mate’s receipt with the bill of lading: the shipping company gives the bill of lading in exchange for the mate’s receipt.

Worked example