The world is a global village now. Every day we hear, watch and experience the hype about international products and services. Most of them have even become part of lives now. The technology has made this world a compact globe and the recent changes in the global political and social scenario, and technological advancements have allowed enterprises to cross the borders and extend their existence into various parts of the world. This is the point where the concept of national and international nature of the business comes into existence. Where both type of business models have their merits and demerits, many companies today are making attempts to acquire global presence.
National business is the primary focus of every enterprise. Capturing a market share in the local region is one of the key objectives of any business. Along with this objective, the mission, vision, policies and procedures, accounting standards, legal, cultural, social and political considerations also provide a domestic version of enterprise's operations. Where enterprise have a sole objective of acquiring domestic market share, even governments play vital role in strengthening their local business by either restricting or refraining the foreign entities. Such interventions by the governing bodies play a vital role in international trade.
Once national presence has been achieved, many enterprises opt for international model by either extending their operations or having strategic alliances with other countries. International business presents a rather complex structure where the international differences come into play during the transactions taking place between two different businesses operating in two different countries. While there are legal complications and other regulatory differences, political relations between host country and country of origin also play a vital role. Thorough consideration needs to be given to the political models, prevailing laws, accounting standards and other legislative clauses are equally important. Hence, there are many factors affecting the effectiveness of the operations of an international enterprise.
International trade is a centuries old phenomenon which has now taken various shapes. Companies who have began their existence in the business world with simple operations and singular products are now comprising of multiple ventures, situated at various locations and presenting a whole umbrella of products. Businesses have become more and more smart with every passing day and the most interesting term coined these days is International business. Companies have extended their presence into different regions of the world by forming strategic alliances with the local companies, by outsourcing their operations and brand names to them, investing their business and also by direct selling and purchasing with consideration of legal, political and social factors of both the countries.
Where national business emphasizes on maintaining a physical presence only in the host country, there are many benefits that such enterprises enjoy. Some of them are concentrated market efforts with easy access to local labor and specialized knowledge of local regulations and governing factors. Such market intelligence with narrowed focus allows the companies to exploit their local markets to the fullest extent. Along with merits, there are few demerits too such as failure to utilize and exploit vast markets all across the globe and access to rather cheap factors of productions available in other countries, not utilizing maximum benefits by not forming strategic alliances etc. (Griffin & Michael, 2010).
On the other hand, international businesses offer a wide range of benefits to its practitioners. Accessibility to foreign markets, economical factors of labor, technological advancements and competitive edge are some of the many advantages of international business. However, one cannot ignore the susceptibility of such businesses to legal, political, cultural and social forces governing such practices. In order to understand the functionality of both business models, it is important to understand their nature and the environment they operate in.
National business Vs International Business
The era of globalization has been upon us for decades -- has truly been growing for centuries, according to some perspectives -- to the point that almost any medium- to large-scale enterprise has some international aspect to their business. Supply chains in virtually all industries are international; from consumer retail products to business support services, advances in communications technologies and the economics of labor and materials make it advantageous if not necessary for most business to fulfill some of their needs through the use of foreign businesses. Simply having an international aspect to a business does not make a given organization an "international business," however -- the independent toy store that sells products from around the world is still only a national (or local) business. A truly international business has certain features of operation and scale that make it truly distinct and a more complex entity with many different considerations.
The most basic distinction between a national and an international business is that the former only operates only sells its products and services, and only engages in manufacturing/development/etc. In its home country, regardless of where materials are procured from, whereas the latter operates in multiple countries. A small retail chain carrying international products but only selling them in one country is a national business; a large retail chain with stores in multiple countries is an international business. This basic distinction is again the definitive delineation between national and international businesses, but it is far from the only difference these two types of businesses experience in their planning and operations.
Legal, social, political, and economic differences all impact international businesses in ways that are more complex and often more arduous than what is experienced by national businesses. National businesses need only maintain adherence to the laws of their home country, and to the social, political, and economic realities of one national and one population of employees and consumers. International businesses, on the other hand, need to ensure that they are fully compliant with the legal requirements not only in their home country but in all of the host countries in which they operate, and must also contend with social/cultural differences in terms of branding and marketing, population differences when it comes to employees and consumers, and much more varied political and economic situations as well. Not only are there more diverse and complex considerations for an international business from the outset, but the nature of global politics and the number of different nations with which an international businesses is directly involved means that changes in many of these aspects will occur on a faster and often a more extreme basis than for national businesses, with regime changes or economic upheavals in a specific country or region greatly impacting the capabilities of an international business (Griffin & Michael, 2010).
Doing business internationally provides many companies with a wealth of opportunities. These greater opportunities also come with greater risk exposures, however, and as a company grows its risks become more complex and difficult to handle. It is an understanding of these risks and opportunities that leads to an understanding of international business.
Imports and exports are rather the simplest form of international transactions. Such transactions mainly exist between countries with individual companies at the operating end and also in between companies themselves. Oil trade is one of the fundamental examples of such trade. Where Saudi Arabia and Middles Eastern countries are the main exporters of this commodity, its users are present all across the globe. Mostly transactions take place between the governments and oil companies who are involved in the extraction, refinement of crude oil and distribution of finished products (CNBC, 2012).
On the other hand, licensing and franchising is another form of business extension model adopted by many companies. Considering an example of McDonalds, it has its presence in more than 119 countries. Such vast extension with uniformity of product line and quality maintenance is rather difficult to control with a single management. This is where the concept of franchising and licensing comes in. McDonalds has managed to have strategic alliances with local enterprises that have adopted the original business model of McDonalds and have built extensive network of restaurants in their own countries. And, McDonalds as an enterprise gets to have lucrative profits in terms of licensing fee without going through the hassle of maintaining physical operations (McDonalds, 2012).
Third most common type of international business is foreign investment. Such business investment allows the enterprises to make investments into the ventures of foreign companies. There are specialized contracts governing and guiding the relations between the investor and the main business. By virtue of simplicity, the relation is of a stake holder where the investor has their share in certain areas of decision making and enjoys major profits in terms of shares and debentures revenues. Green energy has been acting as a major industry in past few years. China has managed to attract investments worth millions of dollars in past few years and Malaysia has been emerging as a major industry for green energy projects attracting many foreign investors (Walet & Cruz, 2012).
National and international businesses are two distinct models…