Compare and contrast international business with domestic business. Also explain the complexities of the international business?
INTERNATIONAL BUSINESS: International business consists of business transactions between parties from more than one country. The parties involved in such transactions may include private individuals, individual companies, groups of companies, or governmental agencies.
ACCORDING TO DENIAL AND LEE
“International business consists of all commercial transactions such as sales, investment and transportation that takes place between two or more countries.”
Thus, international business is any organization that engages in cross-border commercial transactions with individuals, private firms, or public sector organizations.
Examples of international business transactions include buying materials in one country and shipping them to another for processing or assembly, shipping finished products from one country to another for retail sale, building a plant in a foreign country to capitalize on lower labor costs, or borrowing money from a bank in one country to finance operations in another.
DOMESTIC BUSINESS: The business transactions that occur within the geographical limits of any country are known as the domestic business. It is a business entity whose commercial activities are carried on within the country. It is also known as internal trade or home trade.
DIFFERENCE BETWEEN INTERNATIONAL BUSINESS AND DOMESTIC BUSINESS
The following point shows the clear difference between the domestic business and the international business:
|BASIS OF DIFFERENCE||DOMESTIC BUSINESS||INTERNATIONAL BUSINESS|
|Scope of operations||Domestic business activities are carried on within the boundaries of the country. So it has narrow scope.||International business activities are carried on global level. So it has wide scope.|
|Business environment forces||The impact of political, legal, social, demographic, technological, economic environment is known to extent.||The impact of political, legal, social, demographic, technological, economic environment is very hard to forecast accurately.|
|Customers coverage||Domestic business has limited coverage of customer as the trade is limited to geographical boundaries.||International business covers wide segment of customers as there is opportunity to expand the business in various countries.|
|Language barriers||There is almost no language barrier prevails while dealing with the customers.||There are language barriers as customers of different countries have their own language.|
|Plan and strategy||The plans and strategies can be worked out for short term and also for the long term.||The long term plans helps the firm to sustain and survive in the international business environment. Strategic planning should be done.|
|Currency risk||There is no currency risk prevails in the domestic business as the business houses deals in single currency only.||Business houses have to face various currency risks as different countries have different currencies.|
|Capital requirement||The amount of funds required is less than required in the international business.||Large amount of funds are required to expand the business globally.|
|Government interference||In domestic business, the firms face interference of local government only.||In case of international business, the business houses have to consider the rules and policies and laws of the various countries’ government.|
|Benefits of economies of scale||Domestic business enjoys less economies of scale as compared to the international business.||International business facilitates the business houses to enjoy the large economies of scale by producing more and selling more to wide segment of customers.|
|Creation of monopoly||In domestic business, an enterprise may enjoy the status of monopolist.||In international business, there is no such situation of creating and enjoying the monopoly.|
|Organizational vision and mission||The vision and mission is narrow as it aims at the trading in single country.||The mission and vision is decided by keeping in view the trade environment and cultures of various countries hence it gives wide view.|
|Pricing strategy||The majority of the companies use cost plus margin pricing strategy or competitive pricing.||Companies use marginal cost pricing or transfer pricing or competitive pricing to succeed.|
|Competitive advantage||Domestic company enjoys the competitive advantage of specialization to a limited extent.||Global firm has so many competitors all around the world and earns more the competitive advantage of specialization.|
COMPLEXITIES OF INTERNATIONAL BUSINESS
There are various complexities and challenges prevail for the international or global firms which are as follows:
INTERNATIONAL COMPANY STRUCTURE:
To set up the business at the global level, it is necessary to decide about the organizational structure of the company. The promoters have to decide about whether the company will operate from the central headquarters or office representatives at different regions. The nature of organizational structure to be adopted or designed depends upon the nature of industry, product to be made available and size of the business.
Example: Coca Cola has multinational business structure. The company is organized its continental groups. Each group is overseen by a president. The central president manages presidents of smaller, country based or regional sub-divisions. The Coca Cola brand and product is controlled centrally around the world.
FOREIGN LAWS AND REGULATIONS:
A comprehensive understanding of the local laws and regulations governing your target markets is key to successful international business. May it be the tax implications or the trading laws, knowing and fulfilling are the legal requirements make a business to prosper at global level.
Example: Airbnb ran into trouble in 2014, with a crackdown on advertised rental properties falling outside local housing and tourism regulations. The company was forced to pay a €30,000 fine for a breach of local tourism laws in Barcelona.
Also the employment and labor requirements also differ by country. For instance, European countries stipulate that a minimum of 14-weeks maternity leave be offered to employees, while on the other hand, there is no such requirement for U.S. employers. With the complexity involved in foreign trade and employment laws, investing in knowledgeable and experienced corporate counsel can prove invaluable.
DIFFERENT TRADE PATTERNS:
International business has to deal with the business patterns among the various countries of the world.
It has to take into account these business policies of various countries which govern their imports and exports. These policies and practices impose certain constraints and restrictions on international business.
LOP SIDED DEVELOPMENT OF DEVELOPING COUNTRIES:
Developed counters are equipped with sophisticated, technologies capable of transforming raw materials into finished goods on a large scale. While developing countries on the other-hand lack technological knowledge and latest equipment. It leads to the lop sided development in the international business.
There is an increasing tendency among nations to form small groups of Economic Unions which help them to negotiate terms for the business with other countries. This also makes the international business complex.
NATIONAL POLICY FOR DEVELOPMENT:
The country desirous of achieving self-sufficiency, follows a strategy of importing capital goods equipped with latest and sophisticated technology and restricting imports of less important consumer goods with a view to lowering down its import bill.
Different countries have evolved different procedures, practices and documents in order to regulate the export trade. Some of these such as foreign exchange control regulations and others have been formulated after keeping in view the national objectives and have posed certain procedural problems to exporters and importers.
Domestic business is the very first step off getting involved in the trading activities. A successful domestic business firm can chose for becoming the global firm. But the competition level is more in case of international business. Also there is heavy expenditure on the research and development, marketing and personnel and operations management. To conclude it can be said that the international business is more prone to risks as compared to the domestic business. But more the risk more will be the benefit.
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