International Business Advantages and Disadvantages
You may have a business in your home country, and we are sure you would want to grow your business. There are different ways to expand the business. If you have already reached the saturation point in the domestic market, you can explore the international markets and take your business outside the geographical boundaries of your country. Today, we will talk about one such interesting concept of international business. Let us move ahead and start by learning what exactly the international business is.
What is an International Business?
International business is the trade of services, products, capital, technology and knowledge across countries. The transactions happen across the border, and these transactions may not be limited to purchasing and selling products & services. These transactions also include the transaction of knowledge, workforce, capital and other soft services. The term came into use after the onset of globalization. Businesses are not just restricted to the local markets now, but they can leave a global footprint. International business also helps in getting better technology for the business. Apart from this, you can access cheaper labour and capital when you enter the international business. This is one part of international business, but another vital aspect of international business is the culture and language barrier. Some businesses operate in the same region and share similar languages, which helps them overcome the language barrier. Moreover, having staff in the new country can also help you deal with the cultural barrier associated with international business.
Let us now move on to the next section, where we have listed the advantages & disadvantages of international business. Check out the details now.
Advantages of International Business
In this section, we have covered all the advantages of international business.
- Influx of Forex – When you are involved in international business, it is assumed that you will sell the products in different countries. This means that you will earn forex. It is always a good thing not only for you but even for the economy. The forex can also help you in different ways, not only reducing the risk but also improving your efficiency and profits.
- Cheaper Labor – If you are involved in manufacturing and if you are into international business, then you can also take advantage of cheaper labour in the global market. This will help you reduce the cost of manufacturing, and in turn, it will improve your profits. You can also pass on the cost benefits to the end user to stay competitive.
- Resource Optimization – While running an international business, you can optimize your resources for maximum efficiency. You can do this by optimizing the raw material cost and reusing the resources in both countries.
- Reduced Domestic Risk – It is difficult to eliminate the macro-economic risks when you operate in a single country, but when you are into international business, you can reduce the macro-economic risk for yourself. You are operating in multiple regions, and the event of one region will most likely not impact the second region.
- Travel Opportunities – If you love to travel, then international business also gives you an opportunity to travel to multiple countries on a business visa. This type of business is a blessing for travel freaks. You can always take advantage of travel at a personal level. It is also easier to get visas when you have an international business.
- Contribution to the Economy – We mentioned earlier that you earn forex when managing an international business. This is beneficial for the economy. So, when running an international business, you contribute to the economy in the best possible way.
- New Customer Base – Your customer base is no longer restricted to a single country. With international business, your customer base expands, and you will have a new customer base. The new customer base also brings in new selling opportunities for you. Apart from focusing on customer retention, you can aggressively focus on acquiring new customers for the business.
Disadvantages of International Business
Let us now check out the disadvantages of international business.
- Competition – When you enter any country for business, you will face a lot of competition in the new country. The competition is from the local players in the market. They will have an established customer base which you need to penetrate. The easy way to do this is by building a USP. Like, offering better quality at the same price or offer products at a lower price. Make an exclusive product for that market to gather the customer’s attention.
- Currency Volatility – The currency market is very volatile these days and is expected to stay volatile for upcoming years. In such a case, you may compromise on profits if the currency of the country where you are doing business falls rapidly compared to the currency of the home country.
- Geopolitical Dynamics – Geopolitics can be a little problematic for your business. For example, during a clash between two countries, all the imports & exports from that country are suspended. Higher taxes are imposed on businesses in that country to discourage the same. This is where you expose yourself to the risk of global geopolitics.
- Market Research – You need to conduct thorough market research all over again. It is most likely that the market research of one country would not suit the narrative in the second country. Many businesses have made the mistake of selling products without understanding people and failed terribly.
- Tougher Regulations – The legalities and regulations vary from one country to another. The country where you initiate your business may have tougher regulations. This may make it hard to start a business. To deal with this, the best way is to seek consultation services and get the job done for yourself.
This was all about international business. It is certainly beneficial to start an international business and expand your boundaries. This way, you get a larger customer base and bigger opportunities. However, we always recommend seeking professional help before starting a venture to avoid any trouble. The professional help you receive will ensure that you are compliant before starting a business. This will also reduce the risk of losses for the business.
International Business FAQs
Q1. Why is international business important?
Ans: International business allows companies to expand their markets, access new customers, and tap into resources and talent available in different countries. It promotes economic growth, fosters global cooperation, and enhances cultural exchange.
Q2. What are the key challenges in international business?
Ans: Some of the key challenges in international business include cultural and language barriers, legal and regulatory differences, currency fluctuations, political instability, trade barriers, and logistics and supply chain complexities.
Q3. How do companies enter international markets?
Ans: Companies can enter international markets through various strategies, such as exporting, licensing, franchising, joint ventures, strategic alliances, and direct investment (setting up subsidiaries or acquiring existing companies in foreign markets).
Q4. How does international business impact the economy?
Ans: International business contributes to economic growth by creating job opportunities, attracting foreign investment, increasing exports, and stimulating innovation and competition. It also facilitates the transfer of knowledge, technology, and capital across borders.
Q5. How does international business affect cultural diversity?
Ans: International business promotes cultural diversity by encouraging interactions and collaborations between individuals from different countries and backgrounds. It fosters the exchange of ideas, values, and perspectives, leading to cultural enrichment and understanding.