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.

General Motors plant sign in front of the General Motors plant in Silao, Mexico, March 12, 1996. © DANNY LEHMAN/CORBIS

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.