do you really know what an international business is? In recent years, the profession of International Business has boomed, since globalization is a fact. This new career that captivates thousands of young people around the world has become a window of access to the business world, so everyone should have at least the basics of what an international business is.
While it is often thought that mastering the international business industry only requires management and economics professionals, the obligations and needs of a multinational company are different .
International business is a new opportunity to eliminate borders between countries and establish organizational relationships, regardless of where you are located. Although almost all businesses interact with different agents and companies outside the country where they primarily operate, there are certain secrets you should know if you want to stand out in the industry.
In today’s article, learn what an international business is and what its characteristics are, as well as the details of an international business plan and its advantages and disadvantages. Finally, we will tell you why you should study international business and participate in this globalized business concept.
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what defines an international business?
International business types have been around since prehistoric times, and if you think about it in detail, you’ve probably studied it in school, when trade in goods was done over long distances. Even during the Roman Empire, merchants brought their goods to consumers all over the world.
It is worth noting that cultural customs and traditions are key in international negotiations. how so? Let’s look at an example with two of the strongest powers in the international business race.
In the United States, for example, competition, short-term results and personal relationships are not cultivated. The Japanese, on the other hand, make group decisions with long-term results; for them it is essential to develop friendships before negotiating.
In this way we can say that there is much more to international business than what we can see at first glance. Among the success factors that we can mention in the operations of international business forms, we include competitiveness, financial support between the parties and logistics.
This last aspect is of utmost importance because when the actors involved are located in different countries or regions, the realization and success of the international business becomes even more complicated.
It is very important to mention that it is essential that the company has full knowledge of the political situation, market diversity and risks of the country with which it is establishing the business, in order to study in detail if any specific situation will affect it or not and if it is reliable to establish the link.
That is why the knowledge and expertise of experts in the field is required in order not to fail in the attempt to generate links with other countries. In summary, how to do international business arises from a relationship that companies and individuals make, when exporting or importing products around the world.
areas of international business
1. Foreign trade
To understand well what an international business is, it is necessary to have a clear understanding of what foreign trade is. This concept refers to the conditions and forms in which it is presented in the process of negotiating the exchange of goods and services; exactly, it is the national laws and regulations to manage international trade.
It is subject to a variety of rules for product control, such as sanitary and safety standards, procedures, bureaucratic procedures, registrations and taxation (taxes, tariffs, etc.). Foreign trade also makes it possible to supplement domestic production when it is insufficient to meet local demand.
2. International trade
It consists of negotiations (imports, exports, direct investment, external financing, etc.) that take place around the world and in which different multinational companies are involved .
Characteristics of an international business plan
Foreign trade has the following basic characteristics:
It is trade outside the country’s borders, which may trade with one or more nations.
Trading countries have open economies, which means that they allow transactions with other countries, or at least have agreements with a particular country.
Countries interested in exchanging goods and/or services with others usually sign trade agreements or conventions that seek to facilitate the exchange process.
The inflow or outflow of products will generate a flow of foreign exchange. When trading countries have different currencies, the value of the currency in relation to the local currency is reflected in the exchange rate.
Exchange rate fluctuations can affect foreign trade flows between countries with different currencies.
There is usually a government agency in charge of controlling the entry and exit of goods into and out of a country. This agency is called Customs and is in charge of controlling the flow of goods in and out of a country across the border and the application of taxes as determined by law.
Elements of an international business plan
There are three operational focal points for making an international business plan:
Export and import of goods or merchandise.
If we talk about what an international business is, probably the first thing that comes to your mind is the export and import of goods. It is no secret that exporting and importing is the international operation most commonly applied by large and small companies, although in different proportions, logically.
Normally, large companies have a different participation in international operations, to which import and export are added. The most relevant thing is that exports and imports are important sources of income and expenses for all countries in the world and this is well exploited by companies.
When we talk about foreign investment we refer to the possessions that a company has in other countries with which they plan to generate higher profits with interest and dividends. There are two types of investments in the international business world that must be differentiated:
Direct investment. When we speak of a direct investment we refer to one that provides the investor with a controlling interest in a company in a foreign country. This participation does not necessarily have to be linked to the total control of the company; only a minority percentage of the investment is sufficient to start making decisions within the organization abroad.
Portfolio investment: This investment is a non-controlling interest in a company or the ownership of a loan to another party. This type of foreign portfolio investment is very important for most international businesses, as it allows you to earn short-term profits, which means extra monetary income over and above what you usually generate. You can control your numbers through this sales and income projection template in Excel.
Exporting and importing services
Although many people think that you can only import and export physical products, you can also generate revenue that comes from services. Some of the best examples to understand this type of companies that carry out some international business are the following:
Tourism and transportation. Generally, people who visit a place consume in establishments such as restaurants, hotels, recreational activities, among many more. This is how opening businesses in strategic places is also a way to start what is an international business.
Performance of services: There are certain franchises or large companies that generate income by way of rent. For example, industries such as Disney or McDonalds have branches around the world from which they receive fees for the use of the brand. This can hardly be seen in a start-up company.
Advantages and disadvantages of an international business
Advantages of an international business
great! You already know well what an international business is and how to build an international business plan; however, have you thought about what are the advantages of an international business? There are three general objectives that should motivate your learning:
Logically, the number of people and the amount of their purchasing power are greater in the whole world than in a single country, so companies can increase their market potential by seeking international markets.
An example to understand this first point is that it is not the same for a middle-class family in Latin America to buy products as it is for a middle-class family in the United States, considering that the United States is home to the headquarters of many well-known brands around the world. Their export implies a price increase, but at the same time it will allow many more people to consume their products.
Although a company can initially use resources from its own territory to expand abroad, once it starts its operations abroad, foreign resources, such as capital or skills, can be used to improve its domestic operations .
Another important aspect is the technology used in the world’s most developed countries. For example, it is no secret that Asian countries have the best technology companies and resources, which is why many companies around the world seek to open headquarters in these countries to be competitive in the global market for technology products.
In this way, we can say that one of the main advantages of an international business is the possibility of finding elements outside your territory to stand out and be competitive, both nationally and internationally. It is not an easy task and requires investment, but, in the long term, it is the best option.
When understanding what an international business is, it must be understood that there are differences in all countries with respect to economic cycles. By that we mean recessions and expansions.
This is why many companies seek to enter international business as a defense strategy against the possible advantages that competitors in other markets around the world may take advantage of and that may affect them in their home country. That is why, many times, when talking about what an international business is, it is necessary to mention the need to be competitive in the current market.
Disadvantages of an international business
Although, after knowing what an international business is and how it works, starting one is not so simple. There are certain disadvantages or complications that you should keep in mind so that you are not taken by surprise when you start diversifying your business in other countries.
The wealth that each nation has is different, some have much more than others which causes a disparity. It is important to consider that when establishing an international business you should consider that both the investment and the profits will be very varied, which is why it is essential to dedicate a lot of time to a good market study.
There is a regional diversity according to the wealth/population ratio. Each country or city has an average profit per citizen, which can have a negative influence on the business if you have not taken it into consideration.
Linguistic and cultural diversity is immense, there are about 100 cultural groups around the world. Also, the language barrier can be a difficulty to consider. Although it is said that learning English is essential, since it is the universal language, there are certain countries where you will have to make an extra effort if you really want to build good business relationships.
The size of the country and the diversity of its population: It is very difficult to find a perfect business that a whole country likes one hundred percent, and even more so if it is foreign. Setting up an international business implies knowing how to establish strategic positions that are convenient for the company.
Laws and regulations of a goodgood international business
Crossing borders also means changing laws and regulations on our products. Anticipating possible logistics costs in order to determine where the good international business is and where the mistake can make the difference between our internationalization strategy being successful or the opposite.
Thinking globally also means thinking that in the world there are many other languages to communicate in. It is true that English in the business world opens many doors today, but there are times when not mastering the local language can end up becoming a costly barrier to successful international business.
There are circumstances that we cannot control, such as the scarcity of natural resources in a territory or an unexpected change in their price. These unpredictable and uncontrollable changes must be managed and will lead to a longer window of time to achieve profitability.
what is an international business plan and how to put it together?
By definition, an international business plan is the most powerful tool that a company starting or operating in today’s globalized economy can use, since it is a document that in an orderly and systematic way, details the operational and financial aspects of a company.
According to Sergio Cardona, business expert and teacher of our online business plan from scratch course, dedicating a good amount of time to your business plan will help you get your venture on the right track. In addition, it will help you to evaluate the objectives you are progressively achieving.
what should an international business plan include? In our international business plan we must first set out the basis for creating a project, the objectives to be met and the means at our disposal to achieve them. It helps us to be clear about each step to follow, to meet each objective set and not to leave everything “up in the air”.
But it is not the only reason why we should consider making a comprehensive business plan: a good international business plan acts as the best possible business card.
A good international business plan consists of the following elements:
Product description: Why does this market need my product and how is it different from the rest, what is the distinctive value?
Competition: we must study our competitors. In this way we will be able to differentiate ourselves from them, improve their strengths and not fall into their mistakes.
Human Resources: behind the projects there are people whose success is largely thanks to them. Do not hesitate to take them into account from the beginning and present them in detail, with name and surname.
Financial analysis: we must detail the value of our company, where we are starting from and what returns we intend to achieve in the short, medium and long term.
Strategic alliances: it is very convenient not to approach the market alone, at some point we will need external support, evaluating possible alliances beforehand is a great advantage.
Marketing: calculate possible risks, entry barriers. How to reach the first positions in the market as quickly as possible and other difficulties that online marketing can solve.
why study International Business?
While it is true that in this article we have tried to explain well what an international business is and all that it implies, many times the best way to learn about this new business world is by studying related technical or university careers.
However, how do you know if international business is really your thing and if you could perform well in it? Here are some characteristics that anyone interested in studying International Business according to the University of Medellin should have:
Interest in learning about new cultures. Logically, when you work doing business in different countries, you are going to interact with different types of people who have different customs than yours. It is important to be flexible in order to establish appropriate relationships.
Ease in learning languages, and we are not only talking about English, since it is necessary to master at least two languages to graduate from your career. This will be your best tool to form and close international business deals.
Good soft skills. These will be very important for you to successfully manage all your interpersonal relationships.
Strategic vision: If you like to plan things and you think you have an entrepreneurial vision, without a doubt the international business career is a good option for you. Likewise, this will be essential to be able to create an international business plan.
Adaptability. When talking about what an international business is, we mentioned that, many times, you need to open branches in other countries. This implies that you will have to travel constantly, so it is necessary that your adaptation to change is good so that you can perform anywhere without problems.
You don’t have to meet all of these characteristics, you just need to identify with some of them to start considering international business as a great option for your future. Now, which are the best institutes or universities to learn about international business?
Here are some of the characteristics that your school should have in order for you to develop all your skills and succeed in the business world.
Good reputation in international business. You can be guided by the rankings in your country.
They offer possibilities for exchanges. Gaining the experience of traveling and getting to know different places while learning about international business will always be a plus.
International networking: If your school promotes networking with students from other parts of the world, this will be a great help for you when you graduate.
Employability: If your school has a good job bank, you will be able to find opportunities to learn about international business and how it works in the labor field more easily.
we have reached the end of this article! We hope you have learned what an international business is and how important they are nowadays for the development of a globalized economy. Remember that, like any career, being an expert in international business is a long process that you can achieve with a lot of effort and perseverance.