International business transactions are expanding every day in both developed and developing countries that are engaged in the transfer of goods and services across borders. The trend over the last two decades has seen an attempt to establish international norms of behavior and principles for the way that business is conducted throughout the world. But for these principles to have any impact they must be enshrined in law, international conventions, or be based on universal agreements in the form of voluntary codes.
This article offers a theoretical and practical analysis of principles of international business transactions. International business transactions are deals made between parties from two or more different nation-states. International business transactions can include sales of goods or services, leases, licenses, and investments.
The parties to international business transactions are usually multinational companies, but this is not always the case. Both individuals and small companies can participate in international business transactions. For example, small firms can export or import a small quantity of goods to only one country, or a very large global firm can have integrated operations and strategic alliances around the world. An important distinction should be made among the different types of international firms – there are independent subsidiaries which act essentially as domestic companies and global operations that are integrated subsidiaries, but very well connected with the parent company. And this is vital in understanding the firm’s strategy, organization and functional aspects, such as financial, administrative, operational aspects.
Principles of international business transactions and the means by which the law regulates international business transactions have changed accordingly to the structural changes in the world legal order itself. Today, business is international and there is a general expectation that this will continue for the foreseeable future. The growth of international business transactions in the last half of the twentieth century is due to both liberalization of trade and investment and the growth of technology. For instance, the General Agreement on Tariffs and Trade (GATT) negotiation rounds resulted in trade liberalization, and this was continued with the formation of the World Trade Organization (WTO) in 1995. In the meantime, worldwide capital movements were liberalized by most governments. Moreover, the European Union introduced the new European monetary unit, the euro, into circulation in January 2002. This impacted international business economically. In regard to the second point, technological development made global communication and transportation relatively easy and convenient.
The principles of international business transactions are different than the ones of domestic business transactions because the environment changes when a firm crosses international borders. Typically, an organization understands the domestic environment quite well, but is less familiar with the environment in other countries. In order to understand the foreign market, firms have to invest more time and resources and get exposure to the new framework. The economic environment can be very different from one nation to another. Countries are often divided into three main categories: the more developed, the less developed or third world countries, and the newly industrializing or emerging economies. Aside from the economic level, the education, infrastructure, and government control can affect all aspects of doing international business. And a foreign company must be sure it understands such environment to operate successfully.
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