The definition of international business is all commercial transactions that take place between two or more nations. This can include private transactions, government transactions, investments, and transportation. Private companies partake in international business for profit while governments partake for political reasons.
In the 1960s, multinational businesses became an interest for economists.¹ Multinational corporations were treated as byproducts of the post-World War II era; international financial integration and improvements in communications technology led to the international expansion of corporations.¹ Multinational corporations are seen as truly “American-style” corporations, where companies expand across borders in order to increase already huge profits.¹ The industrial sectors were the first to expand internationally from America, which included the natural resource and manufacturing sectors.¹
There are definitive challenges to international business. The first is that there are usually cultural differences between the two countries doing business. Some countries protect their industries in order to keep them culturally significant to their population. Additionally, what might be an acceptable business practice in one country, such as bribery, may be frowned upon in other countries. Even the way that clients are greeted differs from country to country. Furthermore, international expansion usually means a redistribution of jobs and positions in order to decrease a company’s operating costs. When jobs and factories are outsourced, displaced employees will have to find new jobs. This is especially true with manufacturing, where companies outsource in order to take advantage of cheap labour costs. Also, the business laws of foreign countries are all different. What is legal in one country may be illegal in another country. An example might be minimum wage and working condition laws. America and developed nations have very high minimum wages in order for employees to live more comfortably while developing nations have low wages because living costs are lower.
There are also positives to international business. First, companies that expand internationally experience faster growth. Companies that open themselves up to foreign direct investment grow at a much quicker pace than those that stay closed. Also, imports are cheaper for countries that open themselves up to international business; the removal of tariffs and duties reduces importing costs, making many goods cheaper. Lastly, opening up borders to international business allows increased investment opportunities. Companies can move capital to whatever country offers the best investment opportunities. This prevents capital from being trapped in domestic markets where it might earn poor returns.
1. Taylor, G. D. The Evolution of International Business. Retrieved from http://eh.net/book_reviews/the-evolution-of-international-business-an-introduction/