Is there a difference between International Business and International Trade?

How are international trade and international business different?

Most people think that International Trade and International Business are one and the same thing. But this is not true. There is no doubt that international trade which includes the export and import of goods has always been the foremost component of international business. However, with the passage of time and with an increase in globalization, the scope of international business has expanded.

Besides trade of goods, trade in services such as banking, tourism, transportation, warehousing, etc. has also massively increased across borders. In addition, there are developments in foreign investments and overseas production too. Companies increasingly make investments in foreign countries and undertake the production of goods or services in foreign countries to tap foreign markets by being locally present there. All of these activities form part of international business. 

Thus, it shall not be wrong to say that international trade is a subset of international business. While international trade deals with the export and import of goods/services only, International Business comprises a broad range of foreign transactions such as the trade of goods and services across nations, foreign investments, and overseas production of goods & services.

Below are the main differences between these two terms:

1. Meaning

International trade is an exchange of goods/services among individuals and companies outside the domestic boundaries of a country.

International business refers to all kinds of business operations that take place between parties in different countries. It does not just comprise trade but also other operations such as the production of goods or provisioning of services in foreign countries.

2. Scope

As discussed earlier, international business is a much wider term than international trade. It not only includes international trade (i.e., export and import of goods & services) but also all other ways in which companies and individuals operate internationally.

3. Forms of operations

Some major forms of business operations that form part of international business are merchandise exports and imports, service exports and imports, licensing and franchising, investment of funds abroad, etc. As a way of entering into international business, many companies allow other parties in foreign nations to produce and sell their products by using their trademark or patent rights. This is done under a licensing or franchise agreement. Similarly, foreign direct investments (FDIs) are another most common way of getting into international business. Companies invest their funds directly into foreign companies to acquire a controlling interest in them and undertake production or marketing operations in such foreign countries. Such investments may also take the form of a joint venture or acquisition of wholly-owned subsidiaries. Unlike direct investments, many companies make portfolio investments too by way of acquiring shares of or giving loans to foreign companies in exchange for dividend and interest income. The main difference between direct and portfolio investments is that the investor does not get directly involved in production or marketing operations in the latter.

On the other hand, as stated earlier, international trade concerns itself with the export and import of goods and services.

4. Functions involved

Since international business extends its scope to doing business abroad, it shall involve related functions such as global manufacturing, supply chain, managerial, sales & packaging, marketing, and finance. 

On the contrary, international trade will involve only managerial functions and logistics. Production, manufacturing, and supply chain won’t be a part of it.

5. Type of transaction

When we talk of international business, commercial activities may be done between two or more nations at an individual, corporate, private, or government level. And it may be anything ranging from production, licensing, franchising, FDIs, joint ventures, portfolio investments, or acquisition of subsidiaries.

But when we talk of international trade, it only comprises transactions of export and import.

Summarizing the differences

International trade	International business
A subset of international business	All kinds of business operations that take place between parties in different countries
Export and import of goods/services	A broad range of foreign transactions such as the trade of goods and services across nations, franchising, foreign investments, and overseas production of goods & services
Narrower	Much broader
Only managerial functions and logistics	Global manufacturing, supply chain, managerial, sales & packaging, marketing, and finance.
Transactions of export and import	All foreign commercial activities at an individual, corporate, private, or government level

Need for international trade and business

Countries do not have access to all resources and they cannot produce all goods that are needed. The availability of inputs of production such as men, materials, and capital for producing different goods and services is not the same in every country. Therefore, there are countries that are in a better position to produce certain goods and services and at a lower cost than other countries. As a result, countries make those goods that they are most efficient at and procure the rest from other countries in the form of trade. This is the main reason why countries engage in international business. Besides this, international business offers numerous opportunities to firms for their growth, expansion, and increase in profits.

Final words

Although international trade and international business differ in their scope, yet both of them deal with business transactions done at a global level. On one hand, international business deals with all business activities and investments abroad, international trade is merely the export and import of goods and services. That is why these two terms are often used interchangeably considering the fact that international trade is nothing but a subset of international business.

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