The commonly stated goal of a firm is to maximize its value and thereby multiple shareholders’ wealth. Since managers have discovered that they could gain a competitive edge by going globally, more and more companies today are performing internationally in order to achieve the above mentioned goal. Developing business in foreign markets can be distinctly different from local markets and that creates a number of serious difficulties and barriers for companies to go internationally. However, today, there is a tendency towards reducing or removing barriers; thereby, firms are encouraged to pursue international business, which creates opportunities for improving their cash flows. As a result, many firms have evolved into multinational corporations (MNCs), which are defined as firms that engage in international business.
At present, while thinking of business, even more of international business, the first image that comes up is a suspected by the society, limited by the government, a monster-size company called MNC, which strives to tap any possible coin from its resources. These high stake players along with smaller firms are now enjoying the consequences of globalization. As globalization intensifies, economies and, therefore, business become heavily interdependent, making international business operations an alluring source of profit.
However, what we see today is another part of a golden coin. We are witnessing the severest ever world-wide global economic crisis and the question is who is in charge for this: either inefficient financial markets or poor management of MNCs or their mutual interdependence? Though it is quite sophisticated to give a precise answer to the question because the crisis is still there, the purpose of this essay is to demonstrate that international business and financial markets are mutually dependent and both are responsible for the current crisis.
The above mentioned statement predetermined the structure of the work. First, the definition and forms of international business are discussed; this is followed by the description of financial markets. The theoretical base is then supported by real world examples leading to conclusion summarizing the while discussion. International Business International Business is the economic system of exchanging goods and services between specific entities, such as multinational companies (MNCs) which engage in business between multiple countries. (Businessdictionary.com)
Like consumption, production and sales of goods have also been globalized. Today MNCs are producing goods in countries other than parent, across the globe. The main reason behind this is lower costs of sales and higher revenues or profits which can be achieved in a foreign market than in a parent market. No product in today’s market can be classified with a single country of origin. For example the parts of IBM computers are produced in different countries such as China, Taiwan, Korea, US and etc. (Eun & Resnick, 2007). Today we can distinguish several forms of IB: export and import operations, foreign investment, licensing, franchising, management contract and etc.(Griffin &Pustay,2006) As we focus in this work on relation between IB and financial markets we should concentrate further on the first mentioned forms of International Business, namely export and import operations and foreign investments.
According to the definition from Investopedia, export is “a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade” (Investopedia, 2008). In contrary, import is a purchase of goods, produced in one country, with further use or resale of them on the territory of other country. The export and import trade plays an important role in the life of many countries.
Trade relations between different countries are based in particular of these operations. As far we are speaking about International Business, it’s obvious that in such kind of trade many things are depended from the financial markets of the countries, which are parties of this process. Other form of International business is foreign investments. Other words it means delivering capital from the resident of one country to the residents of other country for further use by them of this capital.