5 years ago

International business in the fast changing complex environment  

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At this very juncture the size and complexity of international business is required to be comprehensively weighed. International business, in the true sense of the term, is totally different from domestic business. While the latter is confined to national boundaries, the former spreads wings abroad. The former involves more complexities that are related to intra-firm-transactions and to unfamiliar host-country-environment - regulatory, economic and financial, political and legal, socio-cultural and many others. 

As international business is normally carried on in an unfamiliar environment it is rather imperative to get acquainted with the various types of environment in which such businesses are transacted - regulatory environment dealing the type of trade, FDI (Foreign Direct Investment) regulations at the national and international levels as well as the economic integration schemes in different parts of the globe. Political, economic, legal as well as socio-cultural environment that differ from one country to the other influence such a business to a significant extent.

THE IMPORTANCE REVISITED: Truly, international marketing has emerged as targeted area of highest priority among the progressive nations - developed or developing - globally. International business has expanded at a jet speed in the current decade especially - reasons mainly being rapid growth in technology, coming up of supportive institutions, openness of the different economies as well as increase in competition. Even minnows like Myanmar are now making foray into the energy sector in particular. Not only this, a late-comer country like Bangladesh has emerged as a tough competitor in the field of ready-made-garments making full use of its competitive advantage (viz. a country has a comparative advantage over another if in producing a commodity it can do so at a relatively lower opportunity cost in terms of the foregone alternative commodities that could be produced) in the arena of cheap labour. The European Union's (EU) internal market is all about removing barriers to free movement of goods and services, people and capital. Organisations are also there to encourage the removal of barriers to free global trade.

Naturally, the challenge is to create exportable surplus (trade surplus referring to an excess of export receipts over import payments as compared against trade deficit which means an excess of import expenditures over export receipts measured on the current account and also known as merchandize trade deficit) and at the same time producing goods/rendering services at least comparative cost  -  so as to get a strong foothold on the international  market in the face of intense competition.

In fact, developing nations' external sector policy since the 1990s has evolved around three areas - (a) keeping the current account deficit and external debt-GDP (Gross Domestic Product) ratio at reasonably low levels; (b) maintenance of adequate foreign exchange reserves; and (c) changing the composition of foreign capital inflow in favour of stable items and reducing short-term loans. [Foreign exchange reserves means the total value of all gold currency and Special Drawing Right or SDR. SDR, a form of international financial assets, is often treated as paper gold, created by the International Monetary Fund in 1970 and designed to supplement gold and dollars in settling international balance of payments   accounts. Foreign exchange reserve is held by a country as both a reserve and a fund from which international payments can be made as precautionary measure. Putting a big portion of the reserve for development of infrastructure has even been suggested by many economists like Nobel Laureate Prof. Joseph Stiglitz.]

OPENNESS OF THE ECONOMIES GAINING GROUND: Openness, described as total foreign trade (exports plus imports) as a proportion of gross domestic product (GDP) and as such the degree of openness of an economy plays a dominant role. Openness of the goods market refers to free exchange of commodities across national boundaries showing and indicating greater interaction with the global market. Side by side, openness of the factor market also deserves attention - labour and capital have more freedom to choose between domestic and foreign assets. In fact, the MNCs [multi-national corporations] are moving their operations with greater ease around the world in search of lower costs For example, workers can move freely from one country of EU to another without facing much restrictions. Again, openness of the capital market has been another crucial area so far as international trade in financial assets is concerned. Investors today are more free to choose between domestic and foreign assets and progressive elimination of capital controls is a prominent feature of the ongoing globalisation [i.e. the increasing integration of national economies into expanding international markets] the world over. For example, Indian firms now have greater ability to raise finance abroad to meet the investment needs. It is also much easier for foreign investors to acquire assets in India [viz. company's shares; Government of India bonds, etc]. The international financial environment is, thus, the most crucial factor since the trade as well as investment involve different currencies as well as funds that are borrowed/lent in different currencies and in different segments of the international financial markets.

COMPETITION IS BOUND TO BE MORE INTENSE: International business essentially covers international transaction of economic resources as well as international production of goods and services and as such the broad forms of business internationalisation cover trade, technical collaboration and investment. Clearly, the heterogeneous environment influencing international trade is required to be scanned simultaneously with framing and implementing of strategies so as to fulfil the basic objective of maximising country's wealth - both on the part of domestic and international enterprises. For the latter this is more crucial because of the existence of far greater complexities - situations being totally different between an industrialised country and a less developing country.

Obviously, a lot depends on not only the financial strategies/the strategies that an international player adopts or should adopt, but also on the technological and production aspects, marketing aspects as well as human resources management aspects. 

Dr B K Mukhopadhyay is a

 Management Economist.

[email protected]


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