Major Difference between Domestic and International Business
Domestic Business and 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 Trade and Domestic Trade
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 utilization 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.
Market Fluctuations: Firms conducting trade internationally can withstand these situations and huge losses as their operations are wide spread. Though they face losses in one area they may get profits in other areas, this provides for stabilizing during seasonal market fluctuations. Firms carrying business locally have to face this situation which results in low profits and in some cases losses too.
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.
- Functions of Money
What are the functions of money. Functions of Money. Money performs four specific functions, each of which overcomes the difficulties of barter. The functions of money are to serve as: Unit of value, Medium of exchange, Standard of deferred payments
- Barter Exchange System
Prior to the introduction of money as it is known today, trade was carried out by barter, i.e. exchange of goods for goods. Due to the wasteful nature of barter, the amount of trade that could be carried out by this method of exchange was limited.
© 2009 Dilip Chandra
More by this Author
F. W. Taylor was an American mechanical engineer completed his degree in Mechanical Engineering from Stevens Institute of Technology in 1883. He is well known as the father of scientific management.
Henri Fayol was a French mining engineer and management theorist. He developed the theory of Scientific Management. Fayol listed and reviewed fourteen principles of management.
Risk management is defined as the logical development and carrying out of a plan to deal with potential losses. The risks can be financial risks, process risks, intangible risks, time risks, human risks, legal risks,...