International business is different from domestic business. Domestic business is limited to national frontiers, while international business spreads beyond them. International business involves many complexities that are related to intra-firm transactions and to unfamiliar host-country environment-regulatory, economic, and financial, political and legal, socio-cultural, ethical, and many others. Moreover, the very management function in international business differs from those in domestic business. These differences are visible mainly in the area of accounting and finance, personnel, marketing and production. International business includes international transaction of economic resources, international production of goods, and provision of services. The broad forms of internationalization of business are, therefore, trade, technical collaboration, and investment. The most significant participant in international business is the MNC. It operates simultaneously in many countries. Its different units are linked through common ownership and they respond to a common strategy, although the degree of integration varies from case to case.
International business did not emerge overnight, and has in fact, developed over several centuries. The earliest phase was manifested in trade. Then came the international production phase. The element of integration is the latest addition. Centuries ago, international business manifested itself in the trade of exotic goods. In the wake of the Industrial Revolution in England and other European countries, international production made a beginning but it was limited mainly to exploration of minerals and production of primary commodities. The purpose was to provide the Empire with necessary input and to find market abroad for the goods produced at home. However, it is only during the past three to four decades that MNCs have registered phenomenal growth and international trade to have expanded fast. The reasons for this are mainly rapid growth in technology, supportive institutions, openness of the different economies, and increased competition.
There have been several theories of international business. Porter developed the generis strategy theory of international business through the incorporation of the concept of configuration and coordination. The other approach, which has been developed by Prahalad and Hamel (1990) and Kay (1993) is known as competence-based strategy. It is the core competence or the distinctive capability of the firm that puts it in a superior position. Kay is of the view that core competence can be improved through better network of relationship within and outside the firm, improvement in the quality and features of the product and in communication links with the consumers, and, through improvement in the market position.
Considering the different nature of international business from that of domestic business, it is to be noted that the strategy for international business is very different from that of national level business. International business strategy involves the market as well as the product. As far as market strategy is concerned, a suitable market representing a sufficiently large demand for the product or having the least competition is selected. The ease with which the parent company can allocate resources is yet another factor that influences market selection. Also, a foreign market that has some kind of resemblance with its existing markets is preferred, as in this case, it will be easier for the firm to cope with the market demand. Sometimes, the strategy involves market segmentation. This means creation of various groups in a particular market in order to address the unique needs and expectations of specific sections of consumers. Segmentation if based on the principles that a particular society possesses persons of varying tastes. Apart from the market strategy, product strategy also needs formulation. In case of a product strategy, the emphasis lies on a single product vis-Ă -vis a multiple product strategy. Single product theory is advocated on the grounds of economies of scale, awareness of the consumers, and market leadership. Product differentiation, on the other hand, helps the firm reap oligopolistic advantages, although process of differentiation may lead to cost escalation. Thus, it is evident that combining product differentiation with cost containment, thereby, in expanding the market share is the best strategy.
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