International Business

INTERNATIONAL
BUSINESS
International business consists of transactions that are
developed and carried out across two or more international
borders to satisfy the business objectives of individuals
and organizations. Technology has created
opportunities for business internationally in ways that
make boundaries of countries seamless in transacting business
at the click of a computer.
MAJOR FACTORS AFFECTING THE
GROWTH OF INTERNATIONAL
BUSINESS
International business has experienced an unusually
strong growth pattern since 2004. Several major factors
are involved in this growth. One major factor deals with
the surge in oil prices, a commodity in great demand by
many nations.
Another major factor affecting the growth of international
business has been the expansion of technology.
Computers and all their applications have deeply penetrated
international business, and using the Internet as an
integral tool of communication has been paramount in
promoting diversified international business opportunities.
A third major factor has been the decline in the value
of the U.S. dollar. When prices are lower for U.S. goods,
other nations rush to take advantage of the bargain prices.
EXPORTING AND IMPORTING
The primary activities that take place in international
business transactions are exporting and importing.
Exporting is the act of an individual or business in one
country selling goods and services to a buyer in another
country. Importing is the act of a buyer in one country
buying goods and services from an exporting organization
in another country.
For example, when an individual organization in
Country A sells goods to a buyer in Country B, the Country
A seller would receive the proceeds from the sale to
Company B, just as in a domestic sale between two companies
within the same borders.
The amount of the proceeds from the sale would be
the amount agreed upon by the two companies, less any
expenses incurred by Country A, the exporter. To calculate
the annual income, however, it is necessary to calculate
the balance of payments for a stipulated time, such as
a month or years. The balance of payments may include
gold, merchandise costs, services costs, interest and dividend
payments, travelers’ expenditures, and loan repayments.
Usually, trade between two countries does not involve
ownership interest in the other nation’s business firm.
Occasionally, however, one of the trading nations makes a
foreign direct investment in the other nation’s trading
firm with whom they are doing business.
A list of the items typically imported by the United
States would include machinery, transport equipment,
manufactured articles, crude materials, chemicals, food
and live animals, minerals and lubricants, beverages, and
tobacco.
In addition, almost all countries appear to have a
need for engaging in international business. The major
reason lies in the need to acquire sufficient quantities of
needed commodities in order to have a healthy balance of
needed items available. Virtually no country can produce
enough of every kind of material it needs by itself. So, if
Country A has plenty of a certain kind of raw material, it
can trade it to Country B in exchange for Country B’s
manufacturing capacity and know-how, which Country B
can trade to Country A, sometimes at lower prices.
Shortly after the 2004 U.S. presidential election, the
value of the U.S. dollar went down. The reduced value,
however, made U.S. prices abroad more attractive to buyers
throughout the world. The United States began experiencing
a serious trade deficit. It is worthy of taking note
that capital-intensive products (such as cars, trucks, construction
equipment, and industrial machinery) are manufactured
by countries with a strong industrial base.
Labor-intensive products (such as shoes and clothing)
are made in countries with low labor costs and relatively
modern productive plants, often found in Asian countries.

410 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION
International Business
GOVERNMENTAL INTERNATIONAL
TRADE POLICIES
Domestic sales are those made where both seller and buyer
are conducting business within the same borders. Domestic
business organizations of all types—such as retail,
wholesale, manufacturing, and agriculture—look to their
government to protect them against firms from other
nations taking away their customers and their sales.
A tariff is an example the kind of protective legislation
used by governments that seek to provide this kind of
protection. Suppose, for example, that $500 is the typical
price of an item imported by Country A. When the residents
of Country A learn they can buy the item from
within the bounds of Country A from a foreign source for
$500, they will tend to buy the lower-cost item, even if
the item must be purchased from a foreign source. Imposition
of a tariff by Country A would have the effect of a
tax on the items. It would raise the real cost to a figure
higher than the domestic cost.
Sometimes a country suffering from a protective tariff
will enact a tariff of its own on a product. In 1930, for
example, the U.S. Congress passed the Hawley-Smoot
Tariff Act. This placed protective tariffs on some of
imports. The legislation was popular among U.S. voters.
The legislative analysts determined it was a large mistake.
To correct the error, Congress reduced the price of
affected products by 50 percent.
CULTURAL DIFFERENCES
With most foreign countries, there are cultural differences
about which it is essential to question and to learn:
• Do men and women shake hands with each other?
• In business meetings, do participants “get right
down to business” or would that be considered
impolite?
• Should the American visitors’ clothing be approximately
the same as the foreign hosts?
• If the Americans bring their families, are there any
special rules about associating with the children in
that country?
General Motors plant sign in front of the General Motors plant in Silao, Mexico, March 12, 1996. © DANNY LEHMAN/CORBIS

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 411
International Federation of Accountants
• What sort of medical facilities are available for
Americans?
• What languages are used?
• What holidays are observed in the country?
• What special rules about traffic accidents exist?
• What is the situation regarding religious observances?
INTERNATIONAL TRADE
COMMISSION
The International Trade Commission is not technically a
part of the U.S. government but rather an independent
agency. Its principal task is to determine whether imports
are injuring any domestic industry. The commission analyzes
the manner in which the domestic industry relates to
the international industry. It also investigates and reports
on tariff and foreign trade matters. Upon request, it
reports to Congress and/or the president.
It studies the methods by which the international
laws operate. It investigates claims that are submitted
regarding conflicts of opinions within the dependent
trade’s areas.
The commission was organized in 1916. Its original
title was the U.S. Tariff Commission; it received its current
title in 1975. The commission is headed by six commissioners
who are appointed by the president with the
approval of the U.S. Senate.