1. Why do companies engage in international business and what are the related modes of operating internationally?

Companies want to engage in international business first and for most to generate more revenue. New markets can not only increase the revenue but also the bottom line. Depending on the market, the cost may be lower and therefore profits can be higher. Developing countries are markets were the middle class is increasing and they want to buy products and services that are produced domestic and international.

When a company expands into additional markets they may also receive benefits from resources. Some multinational companies also search for products, services, and technology which is produced in foreign countries to assistant them in their organization. These resources can differentiate them from other competitors in the market and also enable larger profits from lower costs. Some countries may have for example, minerals, metals and land for agricultural production. Africa and parts of South Asia are two countries where these resources are attractive for the profits that these multinationals can make. Many countries do not have the equipment, manpower or experience to tap into these valuable resources. Therefore, new multinational companies can be a welcomed resource for the host country. Tapping into these resources can create jobs and revenue to grow the economy. The new and engage company in turn can receive tax breaks as well as a new revenue stream of their own.

Companies also expand internationally to offset risk. Some of the risks of selling or producing local is higher competition and also local economy risks, by keeping diversified when one market segment is seeing declining sales another segment may compensate and possibly recoup some if not all the loss.

Since companies exist to generate profits and increase their bottom lines, it is only natural that company would try and enter countries with better economic growth rates than their home country. Diversification into additional countries also helps with managing political, economic, and social risks. These types of risks vary from country to country so it is a smart business move to minimize risk by diversifying ones portfolio rather than being at the mercy of their local economy.

Companies who expand internationally will engage in different modes ofbusiness, such as product or service import or exporting that differ from those it is not familiar with domestically. One of the most common modes of global business is foreign trade. A company will import its vital products from the least expensive source, while it’s exporting its products to different countries in order to maximum amount of foreign exchange.

Licensing is another mode of international business. When a company lacks the knowledge and capital of a foreign country it may lease out its technology and proprietary advantages to be used for a fee to a local technology company. As compared to exporting this can take less resources and time for multinational company on foreign soil. This can also be a way for a company to penetrate a market that may have government restrictions and barriers of entry.