International business may be defined simply as business transactions that take place across national borders. Any business transaction between parties from more than one country is a part of international business. The buying and selling of goods, product or services across the national boundaries of a country are known as international business.
A country trades with other countries, for various reasons. A country is not endowed with all types of resources. Here it cannot produce all the commodities that it needs. It exports those commodities which it can produce and imports those it cannot.
Territorial (specialization): Foreign trade arises for regional specialization. A country can produce those commodities at a lower cost for which it has certain specific advantages. It specializes in the production of those goods.
Comparative cost: Foreign arises for comparative cost advantage of producing certain commodities in a different country of the world. A country exports those commodities for which it has a comparative cost advantage and imports those for which it has not.
Availability of resources: A country is not endowed with all types of recourses. It exports those resources, which are available in surplus quantity in the country and imports those which it has not.
Foreign-exchange: Foreign exchange means foreign money. A country gets foreign exchange by exporting and spends up foreign money by importing.
Price difference: price differences between different between countries cause foreign trade. Where the price of a product is high businessman tried to export there.
State of Industrial Development: Many developing countries where industries have not been developed much find any other way but to import machinery, machine parts technical know-how etc. from the industrially developed countries. These imports are required for their industries development.
Extension of an export market: Many countries of the world want to extend and explore the export market for earning more and more foreign exchange. A developing country needs foreign exchange. So it provides export promotion measures to extend and explore the market for earning more foreign exchange.
Immobility of factors of production: factors of production like skilled labour, capital, and technical know-how etc. cannot move from one country to another freely. Free entry of these factors to different countries is not allowed.
Therefore the Countries particularly developing countries have to import these factors from the developed countries.