Many a time we have heard people using the terms international trade and international business interchangeably. Though the two terms are very similar to each other and do mean business beyond borders, but both do carry different meanings. Therefore anyone and every one belonging to the commercial world should know and be aware of the differences between these two terms – international business and international trade.
Before we describe the differences between the two, let’s take a look at what these two terms mean.
International Business and International Trade: What They Are?
International Business is primarily referred to all the commercial dealings that take place between two or more nations. Any type of commercial transaction between two or more nations (at an individual, company, or government level) would come under the category of international business. It is the direct result of growing financial globalization and easing of barriers (economical and political) between countries.
When we talk about International Trade, we refer to all sorts of transactions that involve the exchange of goods and services between two or more nations. Such a trade helps nations to expand their markets. Moreover, it also gives countries access to goods and services that is not available domestically or is available at a higher price.
Differences Between International Business and International Trade
Following are the differences between these two terms:
International business means all monetary dealings between two or more nations. These transactions could be private and/or between the governments.
International trade, on the other hand, only refers to the exchange of goods and services between two or more nations. Thus in this perspective Business has a larger coverage as compared to Trade.
The mode here means how the transfer of wealth happens between the countries.
International business includes all types of modes. These modes could be import, export, tourism, transportation, direct and portfolio investment, licensing agreements, intellectual property like trademarks and patents, personnel, franchising contracts, turnkey operation, and management contracts.
In international trade, however, the mode of transaction is only import and export of goods and services. Here again, the Business has n number of transactional way whereas Trade has a very limited way of transactions between the two or more countries.
The objectives of international business are to expand sales, acquire resources, as well as minimize risk. In contrast, the objective of international trade is to expand sales volume or find a newer market for the products.
International business involves several types of business, including global manufacturing, managerial, supply chain, and management. International trade, on the other hand, includes only managerial functions. Global manufacturing and related functions are not part of the trade.
International business consists of all types of commercial transactions, be it private or government. These transactions could relate to sales of goods and services, investments, tourism, and more. However, when we define or refer to International Trade, it is only the transactions of exchange of goods and services.
The above discussions tell us clearly that the scope of international business is much wider and larger than international trade. We can say the other way that factually speaking international trade is part of international business.
The primary difference between international business and international trade is that the former involves all commercial transactions between countries while the latter only covers goods and services. Despite the differences between the two, it will not be wrong to use the two terms interchangeably sometimes. This is because international trade is part of international business.