International exposure via business : Planned approach gives rich dividends

Dr BK Mukhopadhyay *

International marketing has emerged as targeted area of highest priority among the progressive nations globally. International business expanded at a jet speed in the current decade especially – reasons mainly being rapid growth in technology, coming up of supportive institutions, openness of the different economies as well as increase in competition.

Even minnows like Myanmar are now making foray into the energy sector in particular. Not only this, even a late comer country like Bangladesh has emerged to be our tough competitor in the field of ready-made-garments (for which sector even Russia is also now interested to learn) – making full use of its competitive advantage [viz. a country has a comparative advantage over another if in producing a commodity it can do so at a relatively lower opportunity cost in terms of the foregone alternative commodities that could be produced] in the arena of cheap labour.

In these days of trade war / protectionism / Brexit or not studying the nature of a region has emerged to be crucial. Examples are not far to seek – the EU’s internal market is all about removing barriers to free movement of goods and services, people and capital. Organizations are also there to encourage the removal of barriers to free global trade.

At this very juncture the size and complexity of international business is required to be comprehensively weighed. It is very clear that international business, in the true sense of the term, is totally different from domestic business. While the latter is confined to national boundaries, the former spreads wings abroad.

The former involves more complexities that are related to intra-firm-transactions and to unfamiliar host-country-environment – regulatory, economic and financial, political and legal, socio-cultural and many others.

As international business is normally carried on in an unfamiliar environment it is rather imperative to get acquainted with the various types of environment in which such businesses are transacted – regulatory environment dealing the type of trade, FDI [ Foreign Direct Investment – over sea’s investments by multinational corporations ] regulations at the national and international level as well as the economic integration schemes in different parts of the globe..

Political, economic, legal as well as socio-cultural environment that differ from one country to the other influence such a business to a significant extent.

The main task

Naturally, the challenge is to create exportable surplus [ trade surplus referring to an excess of expport receipts over import payments as compared against trade deficit which means an excess of import expenditures over export receipts measured on the current account and also known as merchandize trade deficit ] and at the same time producing goods / rendering services at least comparative cost – so as to get a strong foothold on the international market in the face if intense competition.

In fact, so far as developing economies are concerned external sector policy since the 1990’s has evolved around three areas –
(a) keeping the current account deficit and external debt-GDP [ Gross Domestic Product ] ratio at reasonably low levels;
(b) maintenance of adequate foreign exchange reserves [ the total value of all gold currency and SDR ( Special Drawing Right is a form of international financial assets, often treated as paper gold, created by the International Monetary Fund in 1970 and designed to supplement gold and dollars in settling international balance of payments accounts ) held by a country as both a reserve and a fund from which international payments can be made ] as precautionary measure [ the question of putting a big portion of which for development of infrastructure has even been suggested by the Nobel Laureate Prof. Joseph Stiglitz, among others ]; and
(c) changing the composition of foreign capital inflow in favour of stable items and reducing short term loans.

Openness of the economies has been gaining ground – described as total foreign trade [exports plus imports] as a proportion of G D P and as such the degree of openness of an economy plays the dominant role. Openness of the goods market refers to free exchange of commodities across national boundaries showing and indicating greater interaction with the global market.

Side by side, openness of the factor market also deserves attention – labour and capital have more freedom to choose between domestic and foreign asset. In fact the MNCs [Multi National Corporations] are moving their operations with greater ease around the world in search of lower costs For example, workers can move freely from one country of EU to another without facing much restrictions.

Again, openness of the capital market has been another crucial area so far as international trade in financial assets is concerned. Investors today are more free to choose between domestic and foreign assets and progressive elimination of capital controls is a prominent feature of the ongoing globalization [ i.e. the increasing integration of national economies into expanding international markets ] the world over.

It is also a matter of pride that firms having origin in developing economies now have greater ability to raise finance abroad to meet the investment needs. It is also comparatively easier for foreign investors to acquire assets in economies like India [viz. Company’s shares; Govt bonds, etc]. The international financial environment is, thus, the most crucial factor since the trade as well as investment involve different currencies as well as funds that are borrowed / lent in different currencies and in different segments of the international financial markets.

Developed or Developing : Spreading Wings Is The Main Challenge

The fact is that for both of the developed as well as the developing world marketing high is not only considered from the point of view of being an integral foreign exchange [ described as claims on a country by another held in the form of a currency of that country – the foreign exchange system enables one currency to be exchanged for ( converted into ) another and thus facilitating trade between countries ] spinner – if one knows the technique to explore then the resource is meant for one, of course in a transparent way also.

Reaping adequately from modernised, highly fluid and fast changing global business / commercial environment does depend on its available abundant natural / human / technological / financial resources as well as crucially on the very ability to undertake expanded task of adapting to befitting marketing strategies.

What is more, the very management functions in the sphere of international business differs widely from those engaged in domestic business – mainly visible in areas like accounting and finance, personnel, marketing and production.

For example, the multi-national companies operate in many countries simultaneously and the different units are linked through common ownership responding to common strategy [although the degree of integration varies from case to case]. During last five / six decades the MNCs have registered phenomenal growth. The trend is all set to continue provided the reputation risk factors are adequately taken care of.

Upshot: international business essentially covers international transaction of economic resources as well as international production of goods and services and as such the broad forms of business internationalization cover trade, technical collaboration and investment.

Clearly, the heterogeneous environment influencing international trade is required to be scanned simultaneously with framing and implementing strategies so as to fulfil the basic objective of maximizing country’s wealth – both on the part of domestic and international enterprises.

For the latter this is more crucial because of the existence of far greater complexities – on this score situations being totally different between an industrialized country and a less developing country [viz. they are, in general, different in the EU compared to those in other industrialized countries].

Obviously, a lot depends on not only the financial strategies / the strategies that an international player adopts or should adopt, but also on the technological and production, marketing as well as human resources management aspects.

* Dr BK Mukhopadhyay wrote this article for The Sangai Express
The writer is a noted management economist and international commentator on ongoing business and economic affairs, presently associated with management programme meant for the defence personnel.
He can be reached at m(DOT)bibhas(AT)gmail(DOT)com
This article was webcasted on January 27, 2019.

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