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An international business is any firm that engages in international trade or investment. A

firm does not have to become a

multinational enterprise, investing directly in operations in other countries, to engage in

international business, although multinational enterprises are international businesses.
All a firm has to do is export or import products from other countries. As the world shifts
toward a truly integrated global economy, more firms, both large and small, are
becoming international business. What does this shift toward a global economy mean
for managers within an international business?

As their organizations increasingly engage in cross-border trade and investment, it

means managers need to recognize that the task of managing an international business
differs from that of managing a purely domestic business in many ways. At the most
fundamental level, the differences arise from the simple fact that countries are different
Countries differ in their cultures, political systems, economic systems, legal systems
and levels of economic development. Despite all the talk about the emerging global
village, and despite the trend toward globalization of markets and production,

Differences between countries require that an international business vary its practices
country by country. Marketing a product in Brazil may require a different approach than
marketing the product in Germany; managing U.S. workers might require different skills
than managing Japanese workers; maintaining close relations with a particular level of
government may be very important in Mexico and irrelevant in Great Britain; the
business strategy pursued in Canada might not work in South Korea; and so on.
Managers in an international business must not only be sensitive to these differences,
but they must also adopt the appropriate policies and strategies for coping with them.

A further way in which international business differs from domestic business is the
greater complexity of managing an international business. In addition to the problems
that arise from the differences between countries, a manager in an international
business is confronted with a range of other issues that the manager in a domestic
business never confronts.

An international business must decide where in the world to site its production activities
to minimize costs and to maximize value added. Then it must decide how best to
coordinate and control its globally dispersed production activities (which, as we shall
see later in the book, is not a trivial problem). An international business also must
decide which foreign markets to enter and which to avoid. It also must choose the
appropriate mode for entering a particular foreign country. Is it best to export its product
to the foreign country? Should the firm allow a local company to produce its product
under license in that country? Should the firm enter into a joint venture with a local firm
to produce its product in that country? Or should the firm set up a wholly owned
subsidiary to serve the market in that country? As we shall see, the choice of entry
mode is critical because it has major implications for the long-term health of the firm.

Conducting business transactions across national borders requires understanding the

rules governing the international trading and investment system. Managers in an
international business must also deal with government restrictions on international trade
and investment. They must find ways to work within the limits imposed by specific
governmental interventions. Nominally committed to free trade, they often intervene to
regulate cross-border trade and investment. Managers within international businesses
must develop strategies and policies for dealing with such interventions.

Cross-border transactions also require that money be converted from the firm¶s home
currency into a foreign currency and vice versa. Since currency exchange rates vary in
response to changing economic conditions, an international business must develop
policies for dealing with exchange rate movements. A firm that adopts a wrong policy
can lose large amounts of money, while a firm that adopts the right policy can increase
the profitability of its international transactions.

In sum, managing an international business is different from managing a purely

domestic business for at least four reasons:
(1) countries are different,
(2) the range- of problems confronted by a manager in an international business is
wider, and the problems themselves more complex than those confronted by a
manager in a domestic business,
(3) an international business must find ways to work within the limits imposed by
government intervention in the international trade and investment system, and
(4) International transactions involve converting money into different currencies.