Scope and benefits

The scope of international business:

• Merchandise exports and imports: trade in goods, things you can see and touch.
• Service exports and imports: trade in services, such as tourism, transport and business services (these three make up most of it). Because services cannot be seen, this is called invisible trade.
• Licensing and franchising: allowing a firm in another country to use your patents, trademarks or way of doing business, in return for a fee.
• Foreign investment: investing money in another country.

Foreign investment is of two kinds:

• Direct investment (FDI): the investor puts money into plant and machinery abroad, or buys enough of a foreign company to get a controlling interest in it, and so takes part in running it.
• Portfolio investment: the investor buys shares or bonds of a foreign company only to earn dividends or interest, without any control.

Benefits to nations:

• Earning foreign exchange, needed to pay for imports.
• More efficient use of resources, as each country makes what it is best at.
• Better prospects for growth and employment: more demand from abroad means more production and more jobs.
• A higher standard of living, as people can buy goods from all over the world.

Benefits to firms:

• Higher profits, when prices abroad are higher.
• Better use of capacity: if local demand fills a factory for only 10 of its 12 working hours, orders from abroad can use the rest.
• Prospects for growth.
• A way out of intense competition in the home market.
• A wider business vision.