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SAI INTERNATIONAL SCHOOL
CLASS-XI

Sub: Business Studies
Chapter 10: International Trade
Topic: Meaning, Reasons of International Trade and Domestic vs.

International trade
(LESSON NOTES - 47)
Meaning of International Business

Business transaction taking place within the geographical boundaries of a nation is known as
domestic or national business. It is also referred to as internal business or home trade.

Manufacturing and trade beyond the boundaries of one’s own country is known as international
business. International or external business can, therefore, be defined as those business activities
that take place across the national frontiers. It involves not only the international movements of
goods and services, but also of capital, personnel, technology and intellectual property like
patents, trademarks, know-how and copyrights.

It may be mentioned here that mostly people think of international business as international
trade. But this is not true. No doubt international trade, comprising exports and imports of goods,
has historically been an important component of international business. But of late, the scope of
international business has substantially expanded. International trade in services such as
international travel and tourism, transportation, communication, banking, warehousing,
distribution and advertising has considerably grown. The other equally important developments
are increased foreign investments and overseas production of goods and services. Companies
have started increasingly making investments into foreign countries and undertaking production
of goods and services in foreign countries to come closer to foreign customers and serve them
more effectively at lower costs. All these activities form part of international business. To
conclude, we can say that international business is a much broader term and is comprised of both
the trade and production of goods and services across frontiers.

Reason for International Business

The fundamental reason behind international business is that the countries cannot produce
equally well or cheaply all that they need. This is because of the unequal distribution of natural
resources among them or differences in their productivity levels. Availability of various factors
of production such as labour, capital and raw materials that are required for producing different
goods and services differ among nations. Moreover, labour productivity and production costs
differ among nations due to various socio-economic, geographical and political reasons.