Elements of International Business Sector

This article throws light upon the four main elements of international business sector. The elements are: 1. Import and Export of Goods and Services 2. Expansion in the Global Markets 3. Investment in Overseas Business Operations 4. Patents, Copyrights Trademarks.

International Business Sector: Element # 1. Import and Export of Goods and Services:

The import and export activities are part of the same trade cycle, what is the export for one country is the import for another country, they mutually satisfy each other’s needs. It is also an indicator of the economic development of a country.

The tendency world over is to increase it many folds by adopting universal policies aimed at globalization of the economy. The inherent desire of the countries is to create trade surpluses as far as possible and logical.

The so called developed countries started their journey on the road to trade development far ahead of the other countries most of which were under the colonial rule for some period of time in their past history, or they had segregated themselves from the overseas influences.

These were also the countries (developed) that created most of the inventions; saw their innovations in the products and applications. The consumerization of the “products and applications” was also first witnessed in these countries.

Thus when the wave of industrialization and commercialization swept the globe these very countries first experienced it and worked for development and perfection. The situation with the developing countries was different. These countries rich in mineral resources were at the most the supply source for the raw materials and markets for the finished goods.

The world order started changing after the Second World War, country after country attained independence. Their prime task at that time was to sustain the independence and then to move towards industrialization. Some countries moved fast and some slowly.

The imbalance that exists today between the developed and the developing nations is mainly due to this historic divide. The developing countries are coming out of their self-imposed protectionist policies to open market policies for reaping the benefits of global trade.

The net growth of the FT for the developed countries, is reaching high concentration point where growth is restricted to medium to high single digit, but for certain developing countries it is looking up, countries like China, Malaysia, Korea, Indonesia, Singapore, and Taiwan moved much faster as compared to other nations the growth is in double digit or at least high single digit till 1996-97 when countries like.

Indonesia, Malaysia, Philippines, the Republic of Korea and Thailand were most immediately affected by financial crisis that broke in mid-1997. Earlier to these crises they were also affected by the persistent recession in Japan. On the contrary China and India have shown steady growth in the foreign trade.

The Trade Activities:

The trade activities are confined to following heads:

A-Primary goods (fuels, minerals, ores etc.).

B-Agricultural products.

C-Manufactured goods (processed goods based on primary products).

D-Services.

E- Manpower.

F-Technology.

The developed countries dominate the trade in B, C, D and F. The developing countries dominate in A, B, and E. Both have common “B”. It is because many of the developing nations have emerged from being the deficient states to surplus states.

On the other hand the developed countries, with lesser population but excess of production export their harvests to the overseas markets that may include the developed, developing and the least developed countries.

“Service” sector has emerged as an important constituent of foreign trade. The operative area of this sector is between the producer and consumer, exporter and importer, sellers and buyers. In general these services act between the points of production and consumption. They facilitate the movement of goods between the seller and the buyer.

Though there is no end as to what can be included, but generally banking, insurance, transport (road, rail, air, and ocean), and telecommunication service are included in this sector. It employs more manpower than the manufacturing industry.

If products and materials are the hardware, the services are the software. Without the hardware software will lose importance and the vise-versa. Take the GDP of any developed country (USA, Japan, UK, Germany etc.), you will notice the contribution of the service sector far exceeds those of the manufacturing sector.

The ratio can be anything between 60:40 to 70:30 in favour of service sector. It looks very attractive but when you face the reality the situation suddenly changes. The said developed countries that account for 60 to 70 per cent of the global trade in service sector dominate this sector. On the other hand the share of the developing countries is as low as 5 to 10 per cent.

That is why when it was included in the WTO agenda for discussions; stiff opposition came from the developing nations. Some countries that lack the natural resources and are also deficient in the land availability, they show strength in the service sector, like Singapore (Global trading), Switzerland (Banking).

In merchandise trade, the role of commercial services is appreciable. In 1996 the total world exports in merchandise trade were US $ 5,150 million against which the service sector accounted for US $ 1,275 million, there was an increase of 3.5 % in both ($ 5,385 : 1,320) but in 1998 there was a drop of 2 % due to the recessionary tendencies in major world markets ($ 5,225 : $ 1,290).

According to the United Nations survey report on world imports and export of commercial services 1980-98, Western Europe accounted for almost half of the total world imports of services at 45.39%, followed by Asia at 24.49 %, North America (Canada and USA) accounted for 12.70 % of the total world imports.

The least figure was those of the African region at 2.92%. The situation of India is interesting, during a period of 1990 to 1998 the Indian share has been constantly increasing (1990: 0.73%, 1996: 0.88%, 1997: 0.95%, 1998: 1.09%.) as against say Canada which showed constant decrease (3.39,.80,2.82,2.70) respectively).

Similar is the position of Pakistan (0.23, 0.23, 0.19, and 0.16 respectively). If you consider the figures for the world imports percentage movement (90/95: 6.5%, 96: 6.0%, 97: 9.5%, 98: 4.0%) The performance of the Indian economy gives healthy signals to the world markets.

Manpower export has been the dominant service industry for the developing (and least developed) countries as they have very high percentage of technical and skilled manpower available in the domestic markets, which cannot absorb them due lack of opportunities.

The philosophy adopted by these countries is “Brain drain is better than brain in drain”. The Middle East has been the destination for the semi and skilled workers for a long time. This indirectly assists the respective nations to augment their scarce hard currency resources.

A least developed country offers the ready market for all the above A to F, but gradually starts taking over one after the other activities in its run for being labeled as the developing or even the developed nation. A case can be made out from the example of Vietnam.

Trade in Technology:

Understanding the Concept of Technology:

When we say technology what do we mean? Any technology has a product or application orientation. The purpose of the technology is to innovate on a known patent and convert it into some useful product and/or application for use by the industry or by the final consumer in the form of a product of “convenience”.

The accumulated knowledge of material, processing/production and delivery is termed as technology. As such a technology has, a set of material specifications, associated production layouts and facilities, a specified manufacturing process, a well-defined system of checks, streamlined documentation, packing methodology for delivery to the next user.

It has its life cycle. Also any technology is termed as the final word till the time it is replaced by another one. Like in the communication industry, the tubes that were replaced by the transistor, which were again replaced by the integrated circuits, which the microelectronic circuits have recently replaced.

The developed countries dominate the trade in technology.

It is influenced by the following factors:

1. Position in life cycle (of product and technology).

2. Availability of replacement.

3. Competitiveness of the technology.

4. Availability of the market.

5. Demand for the associated products and/or services.

6. Profitability in the event of sale.

7. Profitability in the event of continued association and dispersion.

The development of technology is time related activity (time required for reaching levels of perfection in application). Therefore when organizations tend to export technologies they base their costing package on the points mentioned above and the man-hours/years spent by them in perfecting it.

In the present context of globalization, many organizations face the question of either selling it or cooperating with others in different markets. This gives rise to newer concepts of international positioning of the technology for production and distribution.

Technology also has two segments one that is associated with intensive manual inputs is called the low or medium level of technology, and the one associated with least manual inputs is called the high level technology.

The markets for both are different or even one market may absorb both or one organization may offer both. In a highly generalized fashion one can safely say that high tech levels are associated with developed nations and low or medium tech are associated with developing nations. In the developmental (and absorption) phase both have time gap, this time gape is used by the technology exporters and/or importers for putting value to their technologies.

As compared to commodities and services trade the net returns on technology exports/imports are far higher. The returns are not only in the form of monetary gains but also in continued association with the importer/exporter and/or the markets.

This “continued association” later becomes the means of further business development and expansion. This indirect benefit is perhaps one of the hidden reasons for expansion of the global trade.

International Business Sector: Element # 2. Expansion in the Global Markets:

The “import and export” activities are the first but basic step towards global trade. The next one is expansion of business operations in the overseas countries. It involves manpower, money and operating under other country’s specific laws, and including activities like procurement, production, promotion and distribution for the global markets.

It is in the nature of any businessman or the corporation (corporations are but collection of specified persons besides other assets) to expand. This phenomenon of expansion is also one of the means of survival and consolidation of the business. The domestic markets are limited; once competition develops the market share tend to shrink.

There was a time when the Indian automobile market was dominated by just two brands/names for the passenger car segment (Ambassador & Fiat) and they enjoyed almost monopoly status for a very long time.

But with the arrival of Maruti Suzuki their market share started dropping and that of the Maruti started to increase by jumps and reached peak somewhere during 1996-97 when they also faced competition from the Koreans, Italians, Americans, Japanese and the Indians (Tata). The market share started to slide, that was the time Maruti took the exports seriously.

It will be interesting to note that the origin of the story was not India but Japan. Suzuki Motors facing the pinch of tough competition were looking for export markets for expansion of their business and they landed in India to start the Maruti Suzuki venture (similar projects were also started in Pakistan and assembling lines in some of the European countries).

The cold drink giants Pepsi & Coca-Cola are now found in most of the countries of the world. The Macdonald, Pizza hut etc. are the other examples. In footwear take the case of Nike, Bata, Reebok, Woodland etc.

They are also present in a number of countries for not only domestic markets but also for exports to world markets and back to the parent company. Nike outfits in China, Indonesia and Malaysia are the examples.

After the trade liberalization policies of the Indian Government during 1990-91 many MNCs have set up their bases in India to procure, produce, process and market a diversity of products ranging from pharmaceuticals to food products.

The Indian companies are also following in the same pattern. Take the case of Bajaj Scooter that sat up production units each in China and Indonesia to produce and market their two wheelers.

Tata Engineering has also done the same thing for their trucks and lighter commercial vehicles for markets like Sri Lanka, Bangladesh, Nigeria etc. Mittals starting with steel production based in India have setup/acquired similar projects in UK, USA, Khazakistan, and West Indies. Patents and copyrights are the two associated business that comes with the technological sales.

International Business Sector: Element # 3. Investment in Overseas Business Operations:

The business related activities done in the overseas markets involve higher level of risk us compared to domestic markets, but such risks do have rewards and the lure of such rewards propels the forward movement of the international trade.

Investment is one such activity, perhaps one of the most crucial of the international business expansion decision, and organizations taking this take longer time in understanding the markets concerned and the profile of the demand and supply position in those markets. The business risk factor in this case is highest as compared to commodity trade or even the technology trade.

The investment can be in any of the following forms:

Direct Investment in the capital (FDI),

Investment in the form of equipment/process supply,

Production sharing basis,

Investment for getting the export rights,

Investment for taking over the management, and 

Miscellaneous.

Whatever be the form the sole reason is to get suitable return. It is like getting the best value for your money. In Japan after the banking reforms when the local banks would give lesser interest rates on the personal savings, many overseas Japanese started putting their money in overseas banks or stocks for better returns.

The rupee is not yet fully convertible, but if and when it happens and the Indian situation becomes that of what was witnessed in Japan than many Indians would also follow same route. The basic idea is that the one who invests has the right to take appropriate return on his investment.

There are many cases especially in the developing countries, where due to very heavy and long bureaucratic processing, a number of foreign investors skip those markets and find more liberal markets for their investment.

China, Indonesia, Malaysia, Korea, Taiwan etc. are the examples where foreign investors were given red carpet welcome and the investors just flocked there skipping India. Whether it was a good decision or bad, only time will tell but the hard facts are that India is not yet the most favoured destination when it comes to direct foreign investment.

International Business Sector: Element # 4. Patents, Copyrights Trademarks:

International trade is a vast area of operation, where point of sale and purchase can be located thousands of miles apart where the laws, the language, the culture, and the people concerned are different with different conceptions and perceptions.

Then under such situations how can you protect your intellectual property (your patents, copyrights, brand etc.), or on the other hand how can you safeguard yourself against similar rights of your suppliers. Such matters are covered under WTO as well as individual country’s own laws relating to intellectual property, in any form.

Every product and service has certain legal binding and obligations that are transferred from the exporter to the importer at the time of transfer of title to the goods/services. The word “patent” refers to the exclusive rights of one person or an organization for certain performances that result into tangible products and services that may or may not have money values.

The products and associated processes are covered under patents. Each country has legally constituted body, which grants patent rights. The grant of patent right in one country does not mean it is applicable to all other countries. It is upto the patent holder to decide the list of the countries where he needs the protection.

Generally these countries are those where he intend to do business. The rights are time specific, meaning that the person and/or the organization can enjoy protection from illegal use for certain period after which it becomes the general property.

The time period is product or process specific and can extend from 10 to 15 years. It means anybody else who wants to use the patented process must pay specified amount to the patent holder.

“Copyright” refers to a text in print. The books and articles are covered under this legal protection. The news on TV and radio is also covered under similar protection.

“Trademark” refers to the specific name, logo, style, and anything else which identifies a product/ service to a particular product and manufacturer. Trademark and brand name are interchangeable identities.

A consumer who buys or imports goods for personal consumption, is protected from any legal complications, also if he imports/buy with an intention to export/resell it for profit but does not change the packing, brand, logo, and the name of the manufacturer; he is still safe from any legal complications. In these two examples the manufacturer/exporter provides the protection.

But if he (importer) starts manufacture and/or assembly of the same product with the explicit or implicit intention to sell/export it under the same brand name, logo, packing (not necessary), or under his own name, or under different name; without getting written permission from the patent or copyright holder, is liable to be taken to the court of law.

Music and software piracy, duplication in engineering goods, similar sounding and in appearance brand names and trademarks, etc., are the most glaring examples of infringement of the rights.

One has to be very careful in the international markets for protection and safeguards on matters relating to patents, copyrights and trademarks. As a manufacturer you must protect your interests in the markets of your interests and your customers in those markets.

Also as importer and/or distributor you have to protect yourself against any implicit or explicit infringement of the associated patent, copyrights or the trademarks.

What Can, And What Can Not Be Covered:

The list can be very exhaustive but let us consider the general view of what can be covered and what cannot be covered under the patent, copyrights, trademark/brand rights:

1. All the primary products are not covered under any rights of the exporters/suppliers and/or the importers/buyers. Food grains, ores, minerals, air, and water and all the living beings found in air, water, and soil are also without any patent, copyright, and trademark protection.

2. Any primary product that has been branded can be the subject for protection. Like, Basmati rice, MP wheat, Kudremukh iron ore etc.

3. All plants, trees and other vegetation which grow naturally, and those which require specific methods and climatic conditions (air, moisture, temperature, nutrients etc.) and can grow in specific regions do not attract protection rights, unless it is branded as a specific produce of nature.

4. All processes to convert above primary products into value added products for consumption or otherwise provided the process changes, internally the chemical (molecular structure) and physical properties (strength, elasticity, and hardness), and externally the unit price, colour, shape, dimensions, taste, unit weight, usage, storage and packing processes.

5. All processed products, inventions, innovations, new applications; writings and articles etc. can be covered under patents, copyright, trademark, and brand name as the case may be.