Advantages and Disadvantages of International Business

International Business cuts across all the commercial activities that promote the transfer of goods, services, ideas, technologies, and resources across national boundaries. It must be noted here that people assume that International Business is International Trade. However, this is incorrect. There is no confusion that International Trade consists of exports and imports of goods and services and has been an important factor in International Business. The definition of international Business has become more inclusive now, including international tourism and travel, banking, warehousing, banking and communication, transportation, advertising, and distribution. In conclusion, we can say that International Business is an umbrella term and consists of both the production and trade of goods and services across sectors.

Reasons for International Business

One of the principal reasons for International Business is that all nations cannot produce goods equally and cheaply. It is primarily due to the uneven distribution of natural resources and the capacity to produce goods. Factors like raw materials, capital, labor, infrastructure, investment, and technology widely differ among the countries. Factors affecting labor productivity could be geographical, political, and socio-economic.

Owing to these differences, it is not easy for countries to produce quality and cheap goods. However, some countries are placed in favorable positions that can produce cheap and quality products. This has forced other countries to engage in trade and what we refer to as International Business.

International Business and Domestic Business

International Business is more complex compared to Domestic Business. It is due to the nation's social, political, and economic environment. Domestic Business houses find extending their operations in a different country difficult. To succeed in international business operations, they need to adapt their product, pricing, promotion, and distribution strategies and transform their business plan to match the specific requirement of the respective foreign market.

Differences Between International Business and Domestic Business

Benefits of International Business

• Boost to Foreign Exchange

International business activity helps immensely boost its foreign reserve, and it helps in meeting the needs like pharmaceuticals items, technology, petroleum, capital goods, technology, and other goods which might be unavailable in the domestic market.

• Resources are Used Efficiently

One simple principle is followed in International Business: produce the goods more efficiently and those produced in surplus trade with other nations.

• Growth Prospects Improve, and Employment Potentials Increase

Production for just domestic needs restricts the growth of the nations and employment opportunities. This problem has been observed in developing nations, and there are not enough markets to consume the surplus product, but countries like China, South Korea, and Singapore moved ahead with the strategy of "trade and flourish," and soon they emerged as one of the world's most powerful economies. These countries with surplus exports have boosted their growth prospects and have created millions of employment opportunities.

• Enhance Standards of Living

Those countries that are surplus in trade have witnessed high standards of living due to increased income and growth. Their economy consumes more due to readily available goods present in the country.

Benefits to the Firms

• Higher Profit Opportunities

Businesses could be more profitable to the business firms when the prices of the goods are lower in the domestic market; they can easily sell their products in the international market where the price is high.

• Prospects for Growth

It becomes frustrating for enterprises when the demands for their products start saturating the domestic market, and they try to capture the international market. This is what Multinational companies of the developed economies have done. They have entered into the market of developing economies and realized that their product is in demand.

• Increased Capacity Utilisation

Many multinational firms have a surplus production unit capacity, and by planning overseas expansion and procuring orders from foreign countries, they can enhance their production scale capacity. This would, in turn, lower the production cost, and the profit margin would be maximum.

• Navigating From the Intense Domestic Competition

Intense competition in the domestic market becomes the driving force for companies to search for the international market to sell their products. When there is a tight competition in the domestic market, internationalization seems to be the perfect solution. It becomes the only way to attain growth.

Modes of Entry into the International Business

Here the word mode means the different ways the companies enter international Business. Some of the ways that companies adopt to enter the international businesses are:

• Exporting and Importing
• Contract Manufacturing
• Licensing and Franchising
• Joint Ventures
• Wholly owned subsidiaries

Exporting and Importing

• Exporting: Refers to supplying goods and services from the home country to a foreign country.
• Importing: Is the purchase of foreign products and bringing them to the home country.

Contract Manufacturing

It is referred to as a type of international business market activity in which an enterprise agrees with one or a few domestic manufacturers in foreign countries to get some components or goods produced per its specifications. Sometimes, contract manufacturing is called outsourcing, and it can assume three forms:

• Production of some components.
• Assembling of components to give the shape of final products.
• Entire manufacturing of the products.

Licensing and Franchising

Licensing is an agreement on a contract basis in which one enterprise gives permission to its technology, trade secrets, and patents to another foreign enterprise for a charge called royalty. The enterprise that gives such permission to another enterprise is called a licensor, and the other enterprise that receives such rights to use patents and technology is called a licensee.

In some situations, an exchange of technology, patents, and knowledge occurs between the two enterprises, called cross-licensing. The Franchising term is very similar to licensing. One main difference is that licensing is used in the production and marketing sense.

Advantages of International Business

1. Increase in Foreign Exchange Reserve: Those countries with surplus exports and high Foreign Exchange reserves.
2. Optimal Utilization of Resources: International Business fosters optimal utilization of resources. Every country uses its natural resources best to its interests. Those products are produced that are in demand in the international market.
3. Standard of Living: It has been observed that countries with surplus exports have significantly improved their people's standard of living.
4. Consumer Benefits: Consumers receive immense benefits from international Business. International Business allows different firms to enter the market and intensify competition. Intense competition lowers the prices and improves the quality of products since numerous firms sell the same product. The consumer has many choices to make.
5. Fostering the Process of Industrialisation: In international Business, different countries engage, and technology transfer occurs between developed and developing countries. The technical knowledge from developing countries is deployed to boost their industrial growth in their domestic market.
6. Division of Labour: International Business promotes specialization of products, and those exceptionally well are on the most advantageous side.
7. Cultural Development: Cultural exchange takes place between two diverse countries. It directly affects the pattern of eating, clothing, and way of living a life.
8. Tranquility, Peace, and Harmony: If countries are in Business together, they tend to keep their economic interest ahead, and there is less likely confrontation. Sometimes, it also in developing mutual trust between them.
9. Boosting Job Opportunities: It boosts employment in export-oriented countries and raises the standard of living.
10. Increase in Government Revenue: The Government taxes exporting and importing items, increasing their revenues.

Disadvantages of International Businesses

1. Intense Competition: Developed countries with their superior technology give intense competition in the domestic market product. Domestic players cannot survive the intense competition and shut down their operations.
2. Competition Among Nations: Immense desire to become a lead exporter in international trade leads to confrontation among the countries.
3. Colonization: International Business promotes overdependence on the essential product, and exporting countries exploit this condition.
4. Dumping Ground: Those products which are not able to be sold in other countries try to dump into the developing countries
5. Cultural Interference: Each country does not have the same culture, and these products and their items cause unwanted interference in the particular country's culture.