Sunday, October 25

Advantages and Disadvantages of International Business

Globalization has integrated national economies into a global market economy. One can even call them as a global village. As the markets expand, businesses have naturally bloomed. International business is an important part of a country’s economy. But is it a sustainable model of business? So here we look at the advantages and disadvantages of international business.

WHAT DOES INTERNATIONAL BUSINESS MEAN?

International business is commercial activities in relation to trade of goods, services, technology, ideas, infrastructure, and resources across national borders. This occurs on a global scale between two or more countries and creates the phenomenon of globalization. These activities or cross-border transactions may include capital, skill, and people for various purposes. There are several different means of international business. These include exports, imports, trade, the contractual agreements between foreign firms of different nations, etc.

Know More – Advantages and Disadvantages of Organizing a Firm as a Corporation

Advantages and Disadvantages of International Business

ADVANTAGES OF INTERNATIONAL BUSINESS

Profit Making

One of the most important advantages of international business is that it helps the company in profit-making. Going international with one’s business means there is an expansion of your business transactions to various countries and cities. So, this increases the prospects of overall growth in sales and increased profits. Additionally, with the advent of technology and the omnipresent quality of the internet, it is easier than ever to sustain an international sales force. As a result, it allows for the localization of an international business which creates more profits. 

According to the United States of America’s Central Intelligence Agency, data of exports and imports around the world in 2017 was estimated to be around $17.41 trillion and $16.02 trillion respectively. This clearly shows that international business is a well-sought out avenue that is giving positive results. 

Popularity and New Customers

International business has gained momentum over the years. It is a great tool to popularize one’s business. When there is an expansion of a business especially to different geographical areas, there is more visibility of the said business. In other words, the company and the brand itself gets amplified. If one has good acumen for international business, it can certainly pave the way for an increase in the growth of the business. For example, Airbnb, an online marketplace for people to list and book accommodations around the world, was founded in 2008 in San Francisco, USA. Now it has over 1,500,000 listings in more than 34,000 cities across the world due to its expansion internationally and with sound social media campaigns.

Good business fosters customer loyalty and it also helps in reaching new customers. Therefore, prospects increase for the business when the business is successful. And successful business relies on the popularity among existing customers.

Development

International business helps encourage industrialization in underdeveloped and developing countries. New industries and companies can grow in these countries with the help of foreign funding and aid. Technology plays a huge role in the further development of the industry as well as easier access to resources in these countries. The availability of better choices and quality of products benefits consumers of importing countries. Similarly, the standard of living of people of exporting countries increases due to the movement of surplus production to another country.

Foreign Investments

Growing a business internationally means access to foreign capital and investments. Sometimes, a business may not thrive due to limited local resources and funding. Expanding the business helps secure large concentrations of investment money from different corners of the world. One can do a thorough research of where their business can be a potential success and strategize accordingly.

Creating Employment Opportunities

International business translates to creating employment opportunities in the business market. A business can only be successful when the employees work efficiently. So access to talented employees and partners is of utmost importance. With an international business, chances of working with highly qualified individuals with different skill sets increase exponentially. 

DISADVANTAGES OF INTERNATIONAL BUSINESS

Competition

Competition among businesses is a major disadvantage of international business. Countries with the intention of exporting more commodities for profits can create rivalry amongst themselves. It is certainly counterproductive to the goal of globalization. Also, underdeveloped and developing countries may have a disadvantage over developed countries in terms of resources and funds. So they can’t compete against giants from developed countries like the United States of America, the United Kingdom, and Australia, etc. As a result, this adversely affects the global business growth rate. Similarly it could even disrupt international peace and harmony. 

Exploitation

International business can lead to corruption and exploitation of underdeveloped and developing countries. As each country has varied business and trade policies, it is possible for developing countries to sell their products and services to developing countries below the cost of production. This is a disadvantage to these countries because they are unable to offer competitive pricing in their desired locations resulting in poor business. Similarly, there are chances of exploitation in the hands of an unstable government in the form of bribes and strict restrictions on certain industries. Therefore, this creates an unfair advantage against domestic businesses. 

Advantages and Disadvantages of International Business

Adverse Effects on Local Industries

Another disadvantage of international business is that it has adverse effects on local or home industries. New and small businesses especially are threatened by the influx of international businesses. It is difficult for them to survive in the market with the added competition and unrestricted imports even forcing them to shut shop.

Moreover, there are also instances where businesses prefer selling their goods and services to other countries instead of their own only by looking at the profit margins. As a result, there is a shortage of the said goods in the home country.

Economic Risks

A major risk in international business is the economic aspect of it. Different countries have different economic policies, some stronger than the others. This creates clear disparities between them. Every nation’s economy has various strings attached to different aspects of activities like education, healthcare, technology, politics, infrastructure, etc. And each of these differ vastly from each other. So, for instance if there is an unexpected economic crisis in a country, the international business operating in that country can experience losses to their functioning. Businesses also have to be mindful of the foreign policies of each country. Currency exchange rates, inflation, and devaluation, taxes, changes in laws and regulations are just some of the aspects that every international business has to thoroughly research on. 

In conclusion, international businesses must thoroughly research and understand the various factors that could affect their business, both positively and negatively, and then assess their impact. 

Know More – Advantages and Disadvantages of E-Commerce

Pros and Cons of International Businesses

PROS

CONS

Profit Making

Competition

Popularity and New Customers

Exploitation

Development

Adverse Effects on Local Industries

Foreign Investments

Economic Risks

Creating Employment Opportunities