DEFINNITION OF INTERNATIONAL BUSINESS
International business is a business activity with activities that cross
national borders. The parties to the transaction can be individuals, companies,
groups of companies, government agencies. An example of international business
is buying raw materials from a country to be processed in another country, or
buying goods from a country to sell to another country, or building a factory in
another country to produce goods that will be sold to that country or to another
country. Another example is producing or buying goods or raw materials from
one's own country to sell to another country, or borrowing funds from banks in
another country to finance investments or operations in one's own country or in
another country. 2 International Business: Theory and Understanding As a
discipline, international business is a relatively new discipline, and it is very
dynamic. Therefore, various terms in international business are also often defined
differently. In this book, the definitions of various terms that are commonly used
in international business discussions are based on commonly used definitions.
One of the definitions of international business is as a business with activities that
cross national borders. It can be distinguished from foreign business, which is a
business activity by a company within a country outside its own country. An
Indonesian citizen who has a permanent residence visa abroad, for example in
Australia, and makes a living by opening a restaurant in Sydney is an example of an
overseas business. Meanwhile, domestic business is defined as business
activities among business people within a country.
A company that conducts international business activities is known as an
international company. International companies can be distinguished into
international companies that operate in only a few countries, and multinational
companies (MNC = multinational company, or MNE = multinational enterprise),
which is an international company that operates in many countries. There is also
the term transnational company, which is a company that operates in many
countries in the world with its headquarters not in the company's home country,
but in any country that the company considers appropriate as the location of its
headquarters. MNE international companies can be distinguished based on the
business strategy they take, namely as a multidomestic company, or a global
company. Multidomestic Company 3 International Business Dynamics is a
company that conducts international business activities with many affiliates in
various countries, each formulating its own business strategy based on the
different business environments faced in each country. Meanwhile, a global
company is a company that conducts international business with a strategy that
seeks to standardize and integrate its operations in the world in all its business
functions. The Importance of Studying International Business In general, the skills
and knowledge required to do international business are the same as to do
domestic business. However, although the basic concepts of international
business management are the same as domestic business management, there is
no doubt that the complexity of the skills and knowledge to ensure success in
international business is different from that of domestic business. This is because
international business is much more complex than domestic business. There are
many reasons why it is necessary to study international business, for students, for
business people, both domestic business people, let alone international business
people, and for government officials.
The first reason is that all businesses today, both domestic and
international businesses, cannot be separated from the influence of various
events in the world, as well as the influence of international companies. In
addition, it is also the fact that almost all large companies have or will have
international business activities, or will always be influenced by the state and
development of the world economy. Company leaders need 4 International
Business: Theory and Understanding to know the situation in international
business in order to be able to assess the opportunities and threats posed by the
international world. International business knowledge is needed by students if
they will work in foreign companies or those that are partly owned by foreign
companies, or companies that do international business, even if they are only in
domestic companies. Government officials need to study international business
to be able to issue policies and regulations that can enable countries to take
advantage of opportunities and face threats posed by the international world. The
second reason to study international business for students is that mastery of this
knowledge is necessary in order to remain competitive with competitors from
other countries in obtaining jobs.
With the enactment of the AEC (ASEAN Economic Community), more
prospective employees from ASEAN countries can work in Indonesia, and open
opportunities for Indonesian graduates to work in other ASEAN countries.
Graduates who have never studied or lack skills and knowledge about
international business will find it difficult to compete with those who do, so they
will most likely be excluded from the competition for quality jobs. Nowadays,
practically all universities in the world teach international business courses in
their curriculum, so that Indonesian graduates who do not master international
business will be less able to compete in getting good jobs, compared to
Indonesian graduates themselves and abroad who master international business.
The third reason is the fact that international business is a science that continues
to grow rapidly. Company leaders need to be able to keep up with the development
of the 5 International Business Dynamics of international business science and
technology, because knowledge and engineering are no longer a monopoly of a
country alone. For example, the concept of Total Quality Management and the
Just-In-Time system developed and practiced in Japan, has become a world
belonging. Company leaders who do not follow the development of world
management techniques will not be able to bring the company they lead to be able
to compete in the international world.
International Business Activities Initially, international business activities
were carried out in the form of exports and imports. Currently, various forms of
international business activities have been commonly carried out, and it is
expected that various forms of activities will continue to be developed.
International business activities today are usually carried out in the form of
international trade, international licensing, or international investment.
International trade can be in the form of export, which is the business of producing
products in one's own country and selling them to other countries, or import,
which is importing products from other countries and selling them to one's own
domestic market. Exports and imports of products are usually divided into two
categories, namely goods and services. Export and import of goods such as
clothing, footwear, palm oil, computers, cotton, cattle, sugar, and so on. Export
and import of services such as shipping services, aviation services, tourism
services, accounting services, and so on.
Another form of international business is international investment, which is
capital supplied by business people in one country to business people in other
countries. International investment is divided into two categories, namely foreign
direct investment 6 International Business: Theory and Understanding and
portfolio investment. Direct investment is a way of doing business with the aim of
actively managing and controlling a property, asset, or company located in
another country. Direct investment can also be made by establishing a new
company abroad. Portfolio investment is the purchase of foreign financial assets
(stocks, bonds, certificates of deposit) that do not aim to control the management
of the asset, but to profit from the transaction of buying and selling the asset. Other
forms of international business are licensing, franchising, and management
contracts. An international license is a contractual agreement in which a company
in a country grants the right to use its intellectual property (patent, logo, brand,
logo, copyright, or trade secret) to a company in another country with the payment
of a reward called a royalty. For example, PT GS Battery is the licensee of Yuasa
battery products from GS Yuasa Corporation, Japan. Franchising is a special form
of licensing, which occurs when a company grants the right to another company
abroad to use the entire way the company operates, including the brand, logo, in
return. Examples of international franchises are PT Rekso National Food is the
franchise holder of McDonald's in Indonesia, PT Fastfood Indonesia is the
franchise holder of Pizza Hut and also KFC in Indonesia. A management contract
is an agreement in the event that a company in a country agrees to operate a
facility or provide other management services to a company in another country,
often accompanied by a brand, the company logo of the 7 International Business
Dynamics in exchange for a mutually agreed upon return. An example of a
management contract is that various property companies have management
contracts with the Ritz-Carlton in the hotel business.
Various studies have been conducted to be able to further explain why
companies are interested in entering foreign markets. It is realized that
international business contains great risks, although it is estimated that the
returns obtained are also large. The benefits that are an incentive for a company
to do international business can be described below. 1. Increase profits and sales.
Every company always faces pressure to increase sales and profits from its
company, and if the domestic market is already a saturated market, then it is
logical for the company to try to find another market abroad. Sales can increase
by entering foreign markets, as many countries are experiencing high per capita
income and population growth, and many countries are also experiencing much
faster economic growth than domestic economies. Increased profits can be
obtained by increasing sales or lowering production costs, or both. Many markets
do not have as many competitors as the domestic market, so companies can
often obtain increased sales through more prices.
Prices higher than the domestic market can also be obtained in countries
with higher per capita income and living standards than in their own countries. The
increase in sales is also automatically obtained from the sum of domestic and
foreign markets. Reduction in production costs can be obtained through an
increase in economies of scale with increased sales, so this automatically lowers
production costs. Foreign direct investment can also lower production costs, both
through the comparative advantages possessed by the country in which the
investment is made, and by the incentives often provided by the country's
government that seeks to attract direct investment to their country. 2. Protect the
market, profits and sales. Often companies have to do international business to
protect their domestic market. This is done in various ways and for various
reasons, including: a. The need to follow the main consumers. Service companies
will open businesses abroad following their main consumers to prevent
competitors from gaining access to these main consumers through the foreign
market. Component companies also follow the international business activities of
their main consumers, in order to guarantee the availability of competitive supply
and take advantage of the markets opened by their consumers. b. Attacking the
domestic market of competitors.
Companies often open overseas businesses where the domestic market of
their main competitors is, with the intention of keeping busy the 9 International
Business Dynamics of those main competitors protecting their main markets, so
that they cannot concentrate on the company's domestic market. c. Using
overseas production to lower the cost of products. Companies are trying to obtain
supplies of products or components from abroad in order to reduce the
production cost of their products. Many countries offer the concept of export
processing zones or in-bond plants so that companies can use these facilities to
produce products with raw materials and components exported to the country
without being subject to import duties, provided that the finished products are
exported. In-bond plant is a special type of export processing zone in the event of
an agreement between two countries, so finished products exported to the
country of origin are also not subject to import duties. 3. Protect overseas markets.
Export markets are usually not sustainable, as many countries often try to attract
direct investment, especially for products that have achieved high sales in the
country. Various reasons encourage companies to switch from export mode to
direct investment, including lack of foreign exchange, the need to develop
downstream markets, and increasing protectionism. Many developing countries
are experiencing a shortage of foreign exchange, so they are trying to reduce
imports. This often forces companies to make direct investments in order to
protect the market for their products in the country.
Increased competition can also encourage companies to develop the 10
International Business: Theory and Understanding of the downstream market,
thus guaranteeing the market of its products at a reasonable price. Although the
concept of free trade continues to be promoted, most countries still argue that it
is better to be an exporter than an importer, better to meet their needs with
domestic production than with imports. This leaves the company with no other
choice but to invest directly in the country to protect its overseas markets. 4.
Ensuring the Availability of Raw Material Supply Not many developed countries are
blessed with abundant natural resources as a raw material supply for their
industries. These abundant natural resources are actually found in developing
countries. Therefore, to ensure the availability of these raw materials, many
companies are forced to invest abroad, especially in developing countries. 5.
Acquire Technology and Management Skills One of the main reasons why
companies from developed countries are investing more in other developed
countries is to acquire technology and management skills. This is often cheaper
than obtaining it through licensing or hiring directly. 6. Geographical
Diversification The demand for a product in a country generally experiences a
seasonal cycle. Therefore, many companies use international geographic
diversification strategies to stabilize their sales and revenue. 11 International
Business Dynamics 7. Meeting Management Ambitions for Expansion
Shareholders generally want a company that grows rapidly, so this encourages the
company's management to expand. The domestic market is often saturated, so
the foreign market is an option to be able to develop quickly. LESSONS FROM THE
HISTORY OF INTERNATIONAL BUSINESS Before and in the 20th Century
International business activities have long been carried out by the world's
inhabitants.
History shows how the rise of kingdoms, countries became advanced
because of international business. On the other hand, history also shows that the
collapse of a kingdom or country is also caused by the incompetence of the
country to manage its international business activities. The Roman Empire from
the beginning of the century was an early example of the development of a country
through its association with international business activities, and collapsed
because many countries that had previously joined Rome realized that there was
no longer any benefit in joining Rome. Rome succeeded in uniting many countries
politically with the enactment of the Treaty of Romana, namely the recognition of
each region of Rome's power and the concentration of power in Rome, the use of
the same currency in all areas controlled by Rome, the enactment and application
of the same laws in all areas controlled by Rome, the establishment of various
areas of trading so that business activities could develop in each region, and the
construction of a sophisticated communication system in his time that was able
to connect all Roman territories. The Roman Empire's theory and understanding
collapsed because corruption caused the elite groups in Rome to become
wealthy, while the people in the regions grew poorer, realizing that there was no
benefit for them to remain in the Roman Pact. The lesson learned from the history
of the Roman empire is that a country can develop economically through
international business activities. Another lesson is that a unitary state can only
exist if each region in the country benefits from being in that country. Another
lesson is that corruption by the elite in a country will destroy that country, even a
country that has developed in all fields. The rise of the Great Britain Emporium,
which displaced Spain and Portugal to emerge as superpowers in the early 19th to
mid-20th centuries, is another example of the need for a country to encourage its
international business. During that time, Britain was known as a country that
controlled the ocean with a navy that was much larger than all the navies of other
countries in the world at that time. The famous motto is that the sun never sets in
the emporium of the United Kingdom. This is because the British colonies are
spread all over the world, so that if one colony the sun sets, then in another colony
the sun rises, and so on throughout that time. How could the British empire
become such a great emporium? This was achieved through the power of arms to
control so many colonies around the world, systematic control of each colony, and
a world market open to intensive trade by Britain, supported by efficient
transportation. The collapse of the 13 emporium Great Britain occurred because
of uncontrolled spending on the spending of the rulers for personal gain, causing
Britain to be unable to finance the bureaucracy of controlling the colonies. The
lesson learned from the British emporium case is that international business can
move the country forward, but it needs to be supported by a strong government
and military power.
Another lesson is that a country that has successfully advanced with
international business activities can easily collapse if corruption spreads in the
country's government. The transformation of the Netherlands from the poorest
country in Europe to a wealthy country is another example in history of the
importance of international business. The establishment of V.O.C. (Vereenigde
Oostindische Companie), the East Indies Trade Office in 1602, a Dutch trading
company, which carried out international trade specifically for products from
Indonesia, succeeded in making V.O.C. a multinational company at that time, and
supported the prosperity of the Dutch state. Although V.O.C. went bankrupt due to
massive corruption by the company's management, the Dutch government took
over all V.O.C. activities and then even controlled the whole of Indonesia as its
colony. The colonization was successfully carried out by the Dutch because of the
power struggle among Indonesian leaders which was followed by a tactic known
as divide et empera (divide and dominate). All of Indonesia's natural resources at
that time, including its population, had been exploited to support Dutch
international trade activities, making the Netherlands a prosperous country until
now. 14 International Business: The Theory and Understanding of Indonesian
Independence has eliminated the opportunity for the Dutch to further utilize
Indonesia, which unfortunately for Indonesia is that the 350
years of colonialism have left the mental damage of the Indonesian
population especially in terms of self-confidence, which continues to be left to
this day. The lesson that can be learned from the V.O.C case and the Dutch
colonization of Indonesia is that international business has prospered companies
and countries, but corruption committed by company leaders will destroy the
company. Another lesson is that a country can be used by other countries to
prosper other countries, if the leaders of the countries used continue to compete
for power and enrich themselves. America's rise to become the strongest country
in the world today in everything starts with the end of World War II in 1945. By
participating in World War II after the war had been going on for a long time, the
United States managed to become one of the victorious countries that suffered
practically no damage to its infrastructure and economy. This is supported by the
economic development strategy of the United States by implementing the
Marshall Plan for Europe and the McArthur plan for Japan, which has rebuilt all the
countries in the world that have been destroyed by the world war. With these
measures, the USA is the largest country in international business. This is also
supported by the fact that the US dollar is the only currency that can be accepted
by every country in the world, which continues to this day. In addition, the
inclusion of USA values in the culture of every country in the world also supports
the success of USA's international business so that the 15 Dynamics of
International Business make the USA a country with the highest GDP (Gross
Domestic Product) in the world before being taken over by China today. The
lessons that can be learned from the American case prove that international
business can prosper a country, and this can only be achieved with the right
business strategy. Period From the Mid-20th Century to the Present Since the mid-
20th century until now, there has been a phenomenon of the revival of countries
that lost World War II, namely Japan and Germany becoming the countries with
the strongest economies in Asia and Europe, respectively. Such prosperity occurs
mainly due to the success of companies in the country in its international
business. Another phenomenon is the rise of China which began in 1980 to
develop its international business strategically with the concept
of China Incorporated which imitated the concept of Japan which
succeeded with the concept of Japan Incorporated, followed by South Korea with
Korea Incorporated. This concept is that in international business, a country must
view it as a strategic step to prosper its country, and this can only happen if the
companies in that country operate as a mutually supportive unit, thus making it a
competitive force of the country. The lesson that can be learned from this modern
case is that the economic development of a country can only be done through
international business. These international business activities can no longer be
carried out by the government or by the company itself, but are carried out by
companies with the implementation of the business strategy 16 International
Business: Proper international theory and understanding, and supported by
government policies that can increase the country's competitive advantage. In
addition to examples of successful countries prospering themselves through
international business, there are also examples of economic crises in the world,
such as the monetary crisis that became the economic crisis in Asia and Russia in
1998, the world financial crisis that began in 2008, and the European economic
crisis in 2012. All of them show that international business results in the
interdependence of countries in the world, so that crises in one country can easily
spread to other countries. History has taught several important things, namely the
importance of international business activities for a country, and that there is a
great interdependence between countries in the world. In addition, it has also
taught that a country's ability to achieve success and survive the negative cycle of
the world economy depends on the country's ability to develop its business
competitive advantages and pour it into an appropriate business strategy.
