International business represents all commercial activities, such as transfer of goods, services, people, and capital across national borders. International business can occur in a large number of different formats.  Some of the most common formats are:

  • External trade –  exporting and importing goods from one country to another
  • Licensing /Franchising –  international agreements which allow the use of products, services, or knowledge from other countries or nations
  • Outsourcing – in the vast number of cases, that means producing specific goods in one country where the labor costs are extremely low, and selling them to other countries who market them at a considerably higher retail price

 Types of contracts / agreements in international business

There are two basic types of contracts/agreements in international business. The first type is a bilateral contract or agreement. That means that two countries sign a contract with each other about trading various kinds of goods, services, know-how, etc. The second type is a multilateral contract or agreement with the same goal as the previous type, but here we have more than two countries which sign the contract or agreement.

 Economic integration

Economic integration involves the process of integration of the area which includes the territories of several countries, with the main purpose to remove barriers for the transfer of goods, people, and capital. There are four steps of economic integration and they are sorted by gradation:

  1. Free trade agreement - between two or more countries to establish a free trade area where goods, services, people, and capital can be transferred across their common borders. In this kind of integration member countries do not pay tariffs on trade, but non – member countries pay a uniform tariff, which is called common external tariff. Some of the most famous free trade agreements in the world are NAFTA, CEFTA etc.
  2. Customs union - is a trade agreement between two or more countries where members have the same politics and non-members pay a common customs tariff in relation to imports from third countries.  We can explain a customs union as a free trade zone + common customs tariff. The most famous customs unions in the world are MERCOSUR, CARICOM etc.
  3. Common market - is a trade agreement between two or more countries where members, in addition to the free transfer of goods or services, allow the free transfer of factors of production - capital and labor. An example of a common market is EEC.
  4. Economic union - is also a trade agreement between two or more countries where members have a common market in which member states agree and harmonize their economic policies. In addition, they can implement a single economic policy. An example of an economic union is EU.
  5. Political union - is the final stage of integration. That means a common economic union plus a common defense and security policy. An example of this is the USA.

 The positive effects of International Business

There are many positive effects of International business, some of which are more visible than other. One of them is opportunity to improve business by exporting products around the world and making a larger profit, importing raw materials at a lower cost, and making your product or service more valuable with a lower price for final customers.

 

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