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company, known as Direct Investment, i.e., FDI. It can be in the form of joint venture on PPP. A
company, if it so desires, can also set up a wholly owned subsidiary abroad by making 100 per cent
investment in foreign ventures, and thus acquiring full control over subsidiary’s operations in the foreign
market.

A portfolio investment, on the other hand, is an investment that a company makes into another
company by the way of acquiring shares or providing loans to the latter, and earns income by way of
dividends or interest on loans. Unlike foreign direct investments, the investor under portfolio
investment does not get directly involved into production and marketing operations. It simply earns an
income by investing in shares, bonds, bills, or notes in a foreign country or providing loans to foreign
business firms.

Benefits of International Business

Notwithstanding greater complexities and risks, international business is important to both nations and
business firms. It offers them several benefits. Growing realisation of these benefits over time has in fact
been a contributory factor to the expansion of trade and investment amongst nations, resulting in the
phenomenon of globalisation. Some of the benefits of international business to the nations and business
firms are discussed below.

Benefits to Countries

(i) Earning of foreign exchange: International business helps a country to earn foreign exchange which it
can later use for meeting its imports of capital goods, technology, petroleum products and fertilisers,
pharma-ceutical products and a host of other consumer products which otherwise might not be
available domestically.

(ii) More efficient use of resources: As stated earlier, international business operates on a simple
principle — produce what your country can produce more efficiently, and trade the surplus production
so generated with other countries to procure what they can produce more efficiently. When countries
trade on this principle, they end up producing much more than what they can when each of them
attempts to produce all the goods and services on its own. If such an enhanced pool of goods and
services is distributed equitably amongst nations, it benefits all the trading nations.

(iii) Improving growth prospects and employment potentials: Producing solely for the purposes of
domestic consumption severely restricts a country’s prospects for growth and employment. Many
countries, especially the developing ones, could not execute their plans to produce on a larger scale, and
thus create employment for people because their domestic market was not large enough to absorb all
that extra production. Later on a few countries such as Singapore, South Korea and China which saw
markets for their products in the foreign countries embarked upon the strategy ‘export and flourish’,
and soon became the star performers on the world map. This helped them not only in improving their
growth prospects, but also created opportunities for employment of people living in these countries.