International business

INTERNATIONAL BUSINESS

  International business is a term used to collectively describe all commercial transactions (private and governmental, sales, investments, logistics, and transportation) that take place between two or more nations. Usually, private companies undertake such transactions for profit; governments undertake them for profit and for political reasons. It refers to all those business activities which involves cross border transactions of goods, services, resources between two or more nations. Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services such as finance, banking, insurance, construction etc.

  A multinational enterprise (MNE) is a company that has a worldwide approach to markets and production or one with operations in more than a country. An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well known MNCs include fast food companies such as McDonald's and Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company and Toyota, consumer electronics companies like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national markets.The conduct of international operations depends on companies' objectives and the means with which they carry them out. The operations affect and are affected by the physical and societal factors and the competitive environment.

         Trade

  International trade is exchange of capital, goods, and services across international borders or territories. It refers to exports of goods and services by a firm to a foreign-based buyer (importer). In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. International trade is a major source of economic revenue for any nation that is considered a world power. Without international trade, nations would be limited to the goods and services produced within their own borders.

   International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Then trade in goods .and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of the factor of production and are thus embodying the respective factor. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor the United States is importing goods from China that were produced with Chinese labor.

  International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics.

Although identical principles apply to international, interregional, and interpersonal trade, there are two characteristics that distinguish the first from the other two. They relate to mobility factor and to the existence of national currencies. Land is, of course, totally immobile, while labour is a great deal more mobile among regions than among countries, because of the existence of national frontiers. Not only many nations do have their own languages, they have different traditions and lifestyles, which impede mobility. For example, workers in Scotland face much more severe adjustment problems if, in search of higher wages, they migrate to Switzerland than if they move to England. They not only need to understand one of the Swiss languages, they have to be prepared to change their diet rather drastically, not to mention legal restrictions on their mobility Outside economic unions, such as the EC, many nations restrict the rights of foreigners to work in their countries. Capital is highly mobile, and has become particularly so in recent years, as knowledge of world markets and the ability to communicate quickly and cheaply among them has risen. In the 1980s, for example, foreign direct investment grew at a much faster rate than did trade in goods and services. Trading nations mostly have their own currencies - dollars, pounds, yens etc. As a result, an extra element of uncertainty is involved for a firm exporting to another country, compared to exporting to another part of its own country. For example, a Welsh firm selling in England is paid in pounds sterling which are the currency unit in both Wales and England. But if it exports to the USA it will be paid in dollars, and there is an element of uncertainty about the rate at which dollars will exchange for pounds, when payment is received.

          Regulation of international trade

  Traditionally trade was regulated through bilateral treaties between two nations. For centuries under the belief in mercantilism most nations had high tariffs and many restrictions on international trade. In the 19th century, especially in the United Kingdom, a belief in free trade became paramount. This belief became the dominant thinking among western nations since then. In the years since the Second World War, controversial multilateral treaties like the General Agreement on Tariffs and Trade (GATT) and World Trade Organization have attempted to promote free trade while creating a globally regulated trade structure. These trade agreements have often resulted in discontent and protest with claims of unfair trade that is not beneficial to developing countries.

  Free trade is usually most strongly supported by the most economically powerful nations, though they often engage in selective protectionism for those industries which are strategically important such as the protective tariffs applied to agriculture by the United States and Europe. The Netherlands and the United Kingdom were both strong advocates of free trade when they were economically dominant, today the United States, the United Kingdom, Australia and Japan are its greatest proponents. However, many other countries (such as India, China and Russia) are increasingly becoming advocates of free trade as they become more economically powerful themselves. As tariff levels fall there is also an increasing willingness to negotiate non tariff measures, including foreign direct investment, procurement and trade facilitation. The latter looks at the transaction cost associated with meeting trade and customs procedures. Traditionally agricultural interests are usually in favour of free trade while manufacturing sectors often support protectionism. This has changed somewhat in recent years, however.

  The regulation of international trade is done through the World Trade Organization at the global level, and through several other regional arrangements such as MERCOSUR in South America, the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico, and the European Union between 27 independent states. The 2005 Buenos Aires talks on the planned establishment of the Free Trade Area of the Americas (FTAA) failed largely because of opposition from the populations of Latin American nations. At the same time there has been an increase in the number of customs unions and free-trade areas such as the European Community (EC), the European Free Trade Association, the Latin American Integration Association, and the Central American Common Market. While these unions do establish free trade between member countries, they discriminate against outsiders. The developing countries, in their attempt to achieve faster economic growth, are changing from being simply raw-material exporters to exporters of finished or semi-finished goods. At the same time the developed nations are taking advantage of technological specialization, so that trade in high-value finished manufactures is increasing between them.

  Risk in international trade

  Companies doing business across international borders face many of the same risks as would normally be evident in strictly domestic transactions. For example,

Buyer insolvency (purchaser cannot pay); Non-acceptance (buyer rejects goods as different from the agreed upon specifications); Credit risk (allowing the buyer to take possession of goods prior to payment); Regulatory risk (e.g., a change in rules that prevents the transaction); Intervention (governmental action to prevent a transaction being completed); Political risk (change in leadership interfering with transactions or prices); and War and other uncontrollable events.

  In addition, international trade also faces the risk of unfavorable exchange rate movements (and, the potential benefit of favorable movements).

           Forms of International Cooperation

  International cooperation takes a variety of forms—from informal discussion and the sharing of policy and programme information, to more formal operational and activity-based cooperation including joint management, technical cooperation, and other forms of responsibility sharing. Cooperation may be bilateral, regional, interregional, or international. It may occur between or among states, between states and organizations, or between organizations. Bilateral, regional, and inter-regional consultative processes are a key to the development of cooperative migration management and contribute to cooperation at the global level. There are many sectors where cooperation exists. The areas of trade, labour, development, health, data, and migration are examples.

           Bilateral Cooperation

  For many years, cooperation between governments in the management of migration has taken place through bilateral agreements. Early agreements were primarily in the area of labour migration between states facing labour shortages and those with a labour surplus. Many of these arrangements provided for non-discrimination with respect to conditions of employment, remuneration, and social security. In recent years, there has been increasing focus on bilateral agreements dealing with the return and readmission of persons without authorization to stay, sometimes including other forms of cooperation or assistance. Other bilateral cooperation arrangements have included management of common borders. For example, the US-Mexico and Canada-US Smart Border schemes, which include agreements on information sharing, and joint management.

         Regional Cooperation

  Regional arrangements for international cooperation have existed for decades. One of the first multilateral arrangements concerning the movement of persons was concluded by the Nordic states in 1954, establishing the Common Nordic Labour Market. During the 1990s, and continuing into this century, multilateral Regional Consultative Processes (RCPs) are emerging as an effective mechanism to carry forward cooperative efforts in regional or international migration management. Regional Consutative Processes offer participating states the opportunity to share experiences with other states of the same geographic region. They allow for discussion and information-sharing on issues, policies, and programmes of common interest, including consideration of the benefits of common approaches. The Bali Ministerial Conference on People Smuggling, Trafficking in Persons, and Related Transnational Crime addresses several areas of interest to its participating states: migrant smuggling and trafficking, information and intelligence sharing, cooperation in fraudulent document detection, cooperation on border and visa systems, return, and legislative development.

  The Inter-Governmental Consultations on Asylum, Refugee and Migration Policies in Europe, North America and Australia (IGC) is a group of like-minced countries with shared interests in numerous migration-related areas that include entry, border control, labour migration, refugees, asylum, technology, country of origin information, data, return, irregular migration, and smuggling/trafficking.

  Trends towards regional economic integration and political cooperation in many parts of the world increasingly include consideration of migration. Some regional bodies have highly developed policies with regard to movement between the member countries. Example: The European Union has introduced almost totally free movement for citizens of member States.

        Global Cooperation

  There is no global consensus on how to address she complexities of international migration. However, a number of significant global conferences where migration management principles have been discussed serve as markers or reference points.

Chapter X of me Cairo Declaration on Population and Development is devoted to migration, refugees, asylum-seekers, and displaced persons, offering a comprehensive overview of the challenges linked to the movement of persons. This, declaration was adopted by more than 180 States represented at the International Conference on Population and Development held in Cairo in September 1994. The 2001 Durban World Conference Against Racism, Racial Discrimination, Xenophobia and Related Intolerance; and tie 2002 Johannesburg World Summit on Social Development are two of the more recent conferences where concluding declarations include significant sections devoted to migration issues.

        Multilateral Cooperation in the Labour and Trade Sectors

GATS - The General Agreement on Trade in Services provides for the movement of natural persons as service providers based upon specific government commitments,

NAFTA - As of 2004, professionals from Canada, US, and Mexico in designated occupations may work in the other North American Free Trade Agreement countries without being subject to the numerical limits imposed on other foreign nationals.

MERCOSUR - The Southern Common Market Agreement is similar to the GATS. Provisions related to access to labour markets and right of entry and stay of foreigners are regulated by the individual member states.

APEC - The APEC Business Travel Card is intended to provide a balance between the integrity of national borders and the need to simplify procedures to boost competitiveness and trade amongst APEC member economies.

CSME - The Caribbean Community Single Market & Economy intends to provide an open market without cross-border restrictions and therefore seeks to facilitate the free movement of final products, goods, labour, and services.

The Labour Migration Ministerial Consultations for Countries of Origin in Asia is a forum for Asian labour-sending States to share experiences, discuss issues, and identify areas for activities.

       Cooperation in the Health Sector

  Health has long been a dimension of managed migration. Health and medical regulations are among the oldest border entry requirements and predate immigration laws. Traditional immigration countries developed health components as part of their regulatory immigration process early in the twentieth century.

  The International Health Regulations, adopted in 1971 by the World Health Organization and currently under revision, are the only international regulatory health instrument, and they are used as an international standard. This regulatory mechanism to enforce the International Health Regulations flows from the mandate of the World Health Organization and its authority over its member states. Other examples of health-related norms, policies, legislation, or implementation arrangements can be found in most migration cooperation mechanisms.

  The Commonwealth Code of Practice for the International Recruitment of Health Workers, adopted at a meeting of Commonwealth Health Ministers in Geneva in 2003, is a consensus approach to dealing with the problem of international recruitment of health workers,. This approach reflects the recent focus of the health community on the movement of health workers and their impact on source countries. The aim of the Cede of Practice is to discourage the targeted recruitment of health workers from countries experiencing shortages, while also seeking to promote the health workers' entitlement to basic rights and an adequate occupational environment it their countries of destination. While this is not a binding document, it is a good example of a consensus document with guiding principles.

       Technologies

  While most economists may say it is impossible to identity one issue that contributed more to globalization, it is technology. According to Moore’s Law, technology doubles its capacity and halves its cost every 18 months. Since computer programming is intellectual property, it is ideal for poorer countries to capitalize on, and to become the technical gurus of the world. India has become a software powerhouse in the past decade. It has the third largest concentration of software engineers in the world, yet the per capita income of India is only $453! And India has a very poor information technology (IT) infrastructure (1.8 personal computers installed with a population of 1 billion) and is one of the lowest Internet-enabled countries. Today, Eastern European countries are also becoming hot software development countries.

  The advances in technology also enhanced legal issues, namely intellectual property. While books and music are intellectual property, never has the world been exposed to intellectual property that could be easily copied. Some countries, like China, don’t accept the intellectual property concept and pirate software, music and books, selling them in open markets. Software that is normally sold for thousands of dollars can be purchased in shops for under $100. Microsoft lobbied the US and Chinese government to clean up this pirating. Hence, China was not admitted to the WTO until 15 November 1999, when China and the United States reached a bilateral agreement over the terms upon which China may become a member. The biggest stumbling block was software piracy. Piracy has always been an issue in the software industry. This piracy issue isn’t just in China. Many countries with a poorer population seem to disregard intellectual property.

       Legal and Financial Cooperation

   International contract are very  difficult to construct and to enforce. Contracts in one’s country are fairly easy to enforce, as the laws are pretty clear. Internationally, it is not so easy, as a country usually favors the resident entity.

A common contract clause used by international companies is:

Governing Law. All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. The venue for the arbitration shall be <independent city/country>. The law governing any and all disputes arising out of or relating to this Agreement shall be the law of the <countries of the parties> as deemed applicable by the arbitrator.

  The Institute of International Finance, Inc. (IIF), is the world’s only global association of financial institutions. Created in 1983 in response to the international debt crisis, the IIF has evolved to meet the changing needs of the financial community.

  The International Finance Corporation (IFC) promotes sustainable private sector investment in developing countries as a way to reduce poverty and improve people's lives.

  The International Finance Discussion Paper (IFDP) prepared from United States Federal Reserve Board Staff working papers.

  The World Bank Group is one of the world's largest sources of development assistance working in more than 100 developing economies, bringing a mix of finance and ideas to improve living standards and eliminate the worst forms of poverty.

         Global Monetary System

  Paul Volcker, Former Chairman Federal Reserve stated “A global economy requires a global currency.” Unfortunately, there is no universal global monetary or banking system. Each country has it’s own which creates a new industry – stabilizing currency for future purchases – rate forecasting services. For example, Japan Airlines (JAL) buys planes from Boeing, and places orders five years ahead of delivery. The valuation of the Yen compared to the USD will affect the final price of the purchase. So, to offset the fluctuation, JAL purchases “forward exchange contracts” from companies who will guarantee the price in the future. Obviously, this is a cost that is passed on to the consumers. Many countries restrict the ability of residents and non-residents to convert local currency into foreign currency, which makes international trade and investment more difficult. Hence to do business in these countries, means one needs to enter into “counter trade” whereby companies barter for goods, which can be sold in the open market.

A better approach would be to use gold as a global currency. It is the most stable form of currency and is not considered a “currency.” Hence it is not subject to the currency restrictions and banking laws.