The simplest definition for international business is “cross-border economic activity”. It is a type of enterprise that has existed in various forms ever since different human populations first began trading items of value many thousands of years ago. Nowadays, the term refers not only to physical goods but also to services, capital, technology and human resources. The first point to make about this discipline is that it covers a very broad range of endeavours that have evolved hugely over time — explaining why historical analysis is so relevant to international business studies.
The second point to make is that some aspects of domestic business also apply in international business but are treated differently. Similarly, international business covers most if not all of the same topics as international management — but goes much further. Where international management focuses largely on individuals operating within a corporate setting, international business also incorporates the broader political, economic, social, technological, philosophical and environmental contexts within which companies operate. Indeed, it is this focus on the interactions between “macro” and “micro” level aspects that gives international business its distinctive philosophy and enduring attraction.
Philosophy and preliminary concepts
International business raises specific challenges that practitioners and academics ignore at their peril. Companies or individuals leaving a "home country” with which they are familiar can find it very difficult to adjust to a “host country” where the people and environment are foreign to them. There is no doubt that the process of globalisation has caused the world to shrink in recent years so that international differences are no longer as consequential as they once were. At the same time, it is unrealistic and even dangerous to assume that societies worldwide are converging to such an extent that there is no longer any need to study their economic, political and cultural differences (Chapter 3). The recognition that the world remains a complex and diverse place is best expressed through the distinction made between the terms “global” and “international”.
“Globalisation” is associated with the idea of a single world and therefore stresses similarities between communities, hence greater cosmopolitanism and tolerance for diversity. “International” business, on the other hand, starts by emphasising areas of divergence. There is a strong argument that this latter approach is more useful to learners since it respects the obstacles that practitioners will actually face. One such obstacle is the retreat to narrow nationalism and even xenophobia that is exemplified in certain recent political developments. Another is the ongoing perception that international business exacerbates inequality by benefiting certain constituencies while harming others (Chapter 4). The trend towards closer cross-border business relations is strong but not irreversible — learners will therefore benefit most if international business is taught in a way that helps them consider strategies for overcoming the market entry barriers they are highly likely to face during their careers (Chapter 6). This is complicated because strategies and behaviour that apply in one situation are often of little or no relevance in another. Hence this book’s central philosophy that helping learners develop a flexible mindset is more empowering than imparting any sense that there is just “one best way” of doing international business.
Companies and international business
Although individual enterprise does constitute one component of international business, the vast majority of the actions comprising this field are undertaken by companies, ranging from huge firms to small and medium-sized enterprises (SMEs) and even micro-firms that may be “born global” from the very outset.
The general terminology that this book uses to refer to companies with dealings outside of their home market is “multinational enterprises” MNEs. Other books may make reference to “multinational corporations” (MNC), “transnational corporations” (TNC) or global firms. Each of these terms designates a specific kind of company, however. MNE is a more neutral term and therefore preferable.
A firm that operates facilities in one single country but trades outside of its borders qualifies as an MNE. So does a firm whose configuration involves headquarters in one country and subsidiaries established elsewhere through foreign direct investment (FD1), which is when an MNE takes a stake in an operation physically located in a foreign country. These two activities — trade and FDI — are the main pillars of international business.
One of the most noteworthy strategies pursued by many MNEs in recent decades has involved having each of their subsidiaries worldwide specialise in a specific functional activity, reflecting the competitive advantages of the place where it is operating. The net effect of this management paradigm — a corporate implementation of the international division of labour principles that Adam Smith’s classical trade theory first applied to countries (Chapter 2) — is that international business today increasingly involves trade between an MNE’s different international subsidiaries and/ or with its foreign suppliers or vendors. Hence the importance of understanding how MNEs organise their relational networks, including the talents they nurture (Chapter 11) to keep up with the changes happening in the many different markets where they operate.