International business is generally thought of as commercial transactions that take place in more than one country, or a company that can be found around the world on every continent. A global business works in many different ways, including importing and exporting, licensing agreements and direct investments.
Importing and Exporting
Companies that import or export materials or finished products are often conducting international business. Some businesses export finished products to consumers around the world. Other companies import finished products to sell to consumers in local markets. Additionally, some businesses import materials and supplies from other countries and then use the materials to produce a finished product. Regardless of how imported and exported materials and products are used, once the transaction is conducted across national borders, it becomes a form of international business.
When a company acquires legal rights from a business in a foreign country to sell its products or uses its registered trademarks and copyrights, this is international business. For example, a business in a foreign country signs a contract with Mattel, Inc. to sell its die-cast toy cars sold under the brand name Hot Wheels. This licensing agreement constitutes international business because it involves companies in different countries. Another common type of licensing agreement is a franchise contract, in which the corporate company helps people set up a store in a foreign country. McDonald's Corporation is a good example of this with restaurants in more than 100 countries around the world.
International business can also take the form of direct investments through joint ventures, alliances and wholly owned subsidiaries. Joint ventures involve two or more companies sharing ownership in a third company. The companies share risks and profits based on the proportion of initial investment each contributed to the venture.
In the situation of a wholly owned subsidiary in another country, the parent company often employs local consultants in the new market to help the business conform to the local environmental, economic structure and culture. Setting up a production plant to take advantage of cheaper labor markets is a common form of this type of international business. [
International business is also conducted through strategic alliances. For example, two or more companies may share resources in research and development for enhanced or new products. Often, in this form of business, one company can assist the second with cross-cultural training and management.