Scope of International Business

International business is much broader than international trade. It includes not just the export and import of goods and services, but a variety of other ways in which firms operate internationally. The major forms are as follows.

1. Merchandise exports and imports — "Merchandise" means tangible goods — those that can be seen and touched. Merchandise exports means sending tangible goods abroad; merchandise imports means bringing tangible goods in from a foreign country. Also called trade in goods, this covers only tangible goods and excludes services.

2. Service exports and imports — This is trade in intangibles, and because services cannot be seen or touched it is also called invisible trade. A wide range of services is traded internationally, including: tourism and travel; boarding and lodging (hotels and restaurants); entertainment and recreation; transportation; professional services (training, recruitment, consultancy, research); communication (postal, telephone, fax, courier, audio-visual); construction and engineering; marketing (wholesaling, retailing, advertising, marketing research, warehousing); and educational and financial services (banking and insurance).

3. Licensing and franchising — Permitting another party in a foreign country to produce and sell goods under your trademarks, patents or copyrights in return for a fee is another way of doing international business. Under licensing, soft-drink brands are produced and sold worldwide by local bottlers. Franchising is similar but used for services — for example, fast-food chains that operate restaurants across the world through franchising.

4. Foreign investments — This means investing funds abroad in exchange for a financial return. It is of two types:

   • Direct investment (FDI) — the company directly invests in plant, machinery and property abroad to produce and market goods there. It gives the investor a controlling interest in the foreign company, and can take the form of a joint venture or, through 100 per cent investment, a wholly owned subsidiary with full control over operations.
   • Portfolio investment — the company invests in another company by acquiring shares or giving loans, earning income as dividends or interest. Here the investor does not get directly involved in production or marketing; it simply earns a return from shares, bonds, bills, notes or loans in the foreign country.

Box C — Tourism, transportation and business services dominate trade in services …