International Business
Conducting and managing international business operations is more complex than undertaking domestic business. Differences in the nationality of parties involved, relatively less mobility of factors of production, customer heterogeneity across markets, variations in business practices and political systems, varied business regulations and policies, use of different currencies are the key aspects that differentiate international businesses from domestic business. These, moreover, are the factors that make international business much more complex and a difficult activity.
Differences between International Business and Domestic Business
Scope:Scope of international business is quite wide. It includes not only merchandise exports, but also trade in services, licensing and franchising as well as foreign investments. Domestic business pertains to a limited territory. Though the firm has many business establishments in different locations all the trading activities are inside a single boundary.
Benefits:International business benefits both the nations and firms. Domestic business have lesser benefits when compared to the former.
- To the nations: Through international business nations gain by way of earning foreign exchange, more efficient use of domestic resources, greater prospects of growth and creation of employment opportunities. Domestic business as it is conducted locally there would be no much involvement of foreign currency. It can create employment opportunities too and the most important part is business since carried locally and always dealt with local resources the perfection in utilisation of the same resources would obviously reap the benefits.
- To the firms:The advantages to the firms carrying business globally include prospects for higher profits, greater utilization of production capacities, way out to intense competition in domestic market and improved business vision. Profits in domestic trade are always lesser when compared to the profits of the firms dealing transactions globally.
Modes of entry: A firm desirous of entering into international business has several options available to it. These range from exporting/importing to contract manufacturing abroad, licensing and franchising, joint ventures and setting up wholly owned subsidiaries abroad. Each entry mode has its own advantages and disadvantages which the firm needs to take into account while deciding as to which mode of entry it should prefer. Firms going for domestic trade does have the options but not too many as the former one.
To establish business internationally firms initially have to complete many formalities which obviously is a tedious task. But to start a business locally the process is always an easy task. It doesn’t require to process any difficult formalities.
Purvey: Providing goods and services as a business within a territory is much easier than doing the same globally. Restrictions such as custom procedures do not bother domestic entities but whereas globally operating firms need to follow complicated customs procedures and trade barriers like tariff etc.
Sharing of Technology: International business provides for sharing of the latest technology that is innovated in various firms across the globe which in consequence will improve the mode and quality of their production.
Political relations: International business obviously improve the political relations among the nations which gives rise to Cross-national cooperation and agreements. Nations co-operate more on transactional issues.
See Also:
- Domestic Trade: Domestic trade is the exchange of goods, services, or both within the confines of a national territory. They are always aimed at a single market. It always deal with only one set of competitive, economic, and…
- International Trade:
Trade that includes exchange of capital, goods, and services across nations is called International Trade. It is always a major source of economic revenue for any nation and in absence of the same nations…
- Many a people are involved in business but some of them don’t know the actual meaning of business. Because they are supposed to run their father’s or uncle’s business with due care, it does not matter whether they are familiar with this term or not. Their knowledge may be ample for domestic business but in case of an international business they must be acquainted of some differences. When business transactions are carried out among parties within a country’s borders is called domestic business. And when the business transactions occur between parties from more than one countries or cross border activities is termed as International business. The business transactions comprise of buying materials in one country and transport them off to another country for dealing out, shipping finished products from one country to another for retail sales, installing a new plant in a foreign country to take advantage of lower labour costs, or borrowing money from a bank in one country for the funding of operations in another. These business transactions are not associated with only one type of party it may involve transactions between private business owners, governmental agencies, individual companies, and groups of companies.
- International business can differ from domestic business for a number of other reasons including the following:
- The first difference involves the dissimilarity in currencies. Countries involved in business may use different currencies; it may force at least one party to switch its currency into another. In other words, one of the parties would have to follow the prevailing market currency exchange rate to make its business transactions viable.
- Next you may face the difference in legal systems of countries; it may compel one or more parties to adjust their practices to comply with local law. Occasionally, the consent of the legal systems may act as a barrier and be irreconcilable, creating complications for international managers.
- Difference in cultures is also considered as dissimilarity in domestic and international business. The cultures of the countries may vary according to the use of trading product and it may force each party to adjust its behavior to meet the expectation of the others. For example the difference in the use of pork and wine face different attitudes in western and Muslim cultures.
- Last is the difference in availability of resources by country. One country may be rich in natural resources but poor in skilled labor, while another may enjoy a productive, well-trained work force but lack natural resources. Thus, the way products are produce and the types of products that are produced vary among countries. Currently, this is the major difference noticed in the business between developed and third world countries.
- Before going to start an International business, people must be well-informed about cultures, legal, political and social differences among countries. They must choose the countries in which to sell their goods and from which to buy inputs with assurance and hoping that a good business is waiting ahead for them.
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