Four Basic International Business Activities
International business is any business that largely takes places across national boundaries. While it’s important for business owners that deal with international markets to understand the regulations that govern these activities, it’s more important to understand the four basic types of international business activities that are most attractive to people entering this industry.
Import and export is an activity in which a company sends goods, products, and services to another country, or brings in goods, products, and services from another country. When businesses export their products, they manufacture those products in their home country and send them off to be sold in another country. Importing and exporting is usually an entry-level intro toward more complex international business activities, because it doesn’t require a massive amount of capital, and there are typically fewer regulations involved in the process.
Licensing has become one of the quickest ways for businesses to make a profit off proprietary technologies that are in demand. For example, Microsoft has more than 1,200 licensing agreements in the U.S. and throughout the world, and has granted 60,000 patents to its international partners. The value of licensing is that companies that have developed innovative technology or have created a new method of accomplishing a task can continue to reap the rewards of their forward-thinking approach, and to do so for many years. Licensing also limits the production costs of manufacturing products and services internationally because the licensor doesn’t need to worry about actually making those products or providing services. That’s a burden that the licensee must bear.
Foreign direct investment refers to a business’s investment in physical facilities, such as a manufacturing plant or factory in another country. Typically, this type of investment is made in countries that offer cheaper labor, lower tariffs, and lower regulations regarding foreign investment opportunities. U.S. companies can also buy controlling interest in a foreign company or merge with a foreign company, which is also considered a foreign direct investment. Foreign direct investment can benefit countries in emerging markets, such as China that need the foreign expertise, funding, and job opportunities that are generated by this type of activity.
U.S. businesses can also form strategic alliances with foreign businesses, in which they establish legal agreements to work together on different projects for financial gain. Although companies in a strategic alliance can pool resources and share the costs of manufacturing and distributing new products and services, they don’t form a new company. A joint venture, on the other hand, is an agreement between two or more companies to form a new company that is owned by both. One example of an international strategic alliance is the agreement that was made between Nokia and Microsoft to develop new mobile products by sharing their expertise and splitting the costs of developing new mobile technology.