International trade is the exchange or trade of goods and services between different countries. This type of trade benefits and expands the global economy. The most commonly traded commodities are television sets, clothing, machinery, capital goods, food, raw materials, and so on.
International trade, which includes services such as foreign transportation, travel and tourism, banking, warehousing, communication, distribution, and advertising, has increased dramatically. Other significant developments include an increase in foreign investments and the production of foreign goods and services in a foreign country.
These foreign investments and productions enable companies to get closer to their international customers, allowing them to provide goods and services at a lower cost.
All of the activities mentioned above are components of international business. To summarize, international trade and production are two aspects of international business that are expanding on a global scale.
International Trade Motives
(1) Production
- It is impossible for every country to produce equally and cheaply.
- People consider international trade for that reason.
(2) Factors of production
- Factors of production include labor, capital, and raw materials, which are available at different rates in different countries.
(3) Cost of production
- IEach country should produce only those goods and services that it can produce efficiently.
- The remaining activities are outsourced to other countries at a lower cost.
(4) Resource distribution
- Natural resource scarcity frequently causes problems for businesses.
- The distribution of resources in the country is unequal.
The Scope of International Business
(1) Exports and Imports
- They include goods that are merchandise (tangible or have a physical existence).
- Exporting goods entails sending goods to other countries.
- Receiving goods from other countries is what import merchandise entails.
- They include the provision of services.
(2) Service trade
- It is also referred to as invisible trade.
- It includes the exchange of intangible or non-physical services.
- Services are both exported and imported.
- Tourism, hotel, transportation, training, research, and other services are included.
(3) Licensing and Franchising
- Permission is granted to organizations from other countries under this provision.
- It includes selling a specific company’s product.
- Patents are granted in exchange for a fee under its trademark. Pepsi and Coca-Cola, for example, are produced and sold in various countries around the world.
- Although franchising and licensing are similar, franchising is associated with services. As an example, consider Domino’s and Burger King.
(4) Foreign investment
It entails investing available funds in foreign companies in order to generate returns. There are two kinds of it:
- Direct investment, also known as foreign direct investment (FDI), is the investment of funds in plant and machinery for marketing and production. These investments are sometimes made jointly and are referred to as joint ventures.
- Portfolio investment is when one company invests in another company’s securities and earns income in the form of interest and dividends.
Benefits of International Business
(1) Income
- It aids organizations in earning foreign currency.
- Forex aids in the repayment of the costs of capital goods, technologies, fertilizers, and other foreign imports.
(2) Efficient resources
- Under international trade, countries produce what they can efficiently produce and leave the rest to nations that can work efficiently.
- This enables various nations to distribute activities and work efficiently in their respective areas.
(3) Growth and employment potentials
- International trade helps organizations and countries grow more quickly.
- Organizations that produce on a small scale may find it difficult to create jobs in the market.
- Initially, countries such as China, Japan, and South Korea treated the entire world as a single trading market.
- This aided them in creating jobs all over the world.
(4) Standard of living
- People in one country can enjoy goods and services from other countries.
- This assists them in raising their standard of living.
