Domestic and International Business Comparison and Contrast with Advantages and Disadvantages13/03/2020
Trade refers to the exchange of goods and services for money, which can be undertaken within the geographical limits of the countries or beyond the boundaries. The trade which takes place within the geographical boundaries of the country is called domestic business, whereas trade which occurs between two countries internationally, is called international business.
Entities engaged in international business often face more difficulties than the entities which conduct domestic business. Although international business enjoys large customer base as they operate in multiple countries. Here is an article which compiles the important differences between domestic and international business.
The business transaction that occurs within the geographical limits of the country is known as domestic business. It is a business entity whose commercial activities are performed within a nation. Alternately known as internal business or sometimes as home trade. The producer and customers of the firm both reside in the country. In a domestic trade, the buyer and seller belong to the same country and so the trade agreement is based on the practices, laws and customs that are followed in the country.
There are many privileges which a domestic business enjoys like low transaction cost, less period between production and sale of goods, low transportation cost, encourages small-scale enterprises, etc.
Advantage of Domestic Business
(i) Simpler Market Analysis
Understanding each target market’s preferences poses a challenge when operating in international markets. Firms may need to invest substantial resources in analyzing what customers from other countries are most likely to purchase, and how to market to them. This may require a significant investment of time in each country, whereas in the domestic environment, a firm can often predict customer preferences more easily. It likely is more familiar with competitors’ offerings and can more easily understand its own market niche.
(ii) Communication is a Breeze
In the domestic business environment, communication is typically easier than in international environments. Employees in the domestic environment are typically from the same culture and speak the same language fluently, although exceptions do of course exist. Close communication must be maintained between operations in different nations, which requires significant time and effort.
(iii) Streamlined Reporting
A business typically has one set of requirements to follow regarding accountability in the domestic environment. Different sets of regulations may apply when a firm operates in international environments. The firm must then follow local environmental and labor regulations, the laws of its home country pertaining to international business, and any global regulations that apply. It must follow the relevant tax laws for each place of business. Overseeing the firm’s international operations requires time and effort. Thus, a domestic firm may have the advantage of spending relatively little on oversight in comparison to an international firm.
Disadvantage of Domestic Business
(i) Greater Impact from Cyclical Changes
Predicting cyclical changes usually tends to be easier in the domestic business environment. This allows a firm to prepare appropriately to take advantage of economic upturns and stay afloat during downturns. However, cyclical changes tend to affect a domestic firm more intensely than an international firm, making it more vulnerable to the ups and downs of the domestic market. A firm that does business in different countries has other ways of generating profit when domestic market conditions are poor, although it may have difficulty accurately predicting the cyclical changes in each country.
(ii) Limited Market Size
The size of the target market in a domestic environment can present a disadvantage, as the size may be limited. Nestlé branched out from Switzerland into other countries in part because of the extremely limited size of its target market in its home country. Businesses eager to expand may find themselves confronted with the challenge of branching out beyond their domestic borders. Extending into a larger environment can present far greater opportunities for generating a profit, particularly if a firm is willing to diversify its offerings.
(iii) Access to Materials and Labor
In a domestic environment, access to materials and labor may be limited. A firm with international operations might more easily and cheaply procure the raw materials or component parts of its products. Likewise, it might produce products more cost-effectively by creating them where labor is cheaper. A domestic firm might need to follow stricter regulations regarding employee wages. However, providing domestic jobs can lead to greater public goodwill for the company in its domestic environment.
International Business is one whose manufacturing and trade occur beyond the borders of the home country. All the economic activities indulged in cross-border transactions comes under international or external business. It includes all the commercial activities like sales, investment, logistics, etc., in which two or more countries are involved.
The company conducting international business is known as a multinational or transnational company. These companies enjoy a large customer base from different countries, and it does not have to depend on a single country for resources. Further, the international business expands the trade and investment amongst countries.
However, there are several drawbacks which act as a barrier to entry in the international market like tariffs and quota, political, socio-cultural, economic and other factors that affect the international business.
Advantages of International Business
The advantages of international business are as follows:
- A Country can Consume those Goods which it cannot Produce
Commodities produced in India can be found in England and vice-versa. This helps England to enjoy those goods which he cannot produce in his country.
- The Productive Resources of the World are Utilised to the Best Advantage of the Country
Every country expects highest return from its resources and this lead to fall in price and better goods for consumption.
- Heavy Price Fluctuations are Controlled
If the price of any commodity goes up, the goods can be imported from abroad and its price can be brought down.
- Shortages in Times of Famine and Scarcity can be met from Imports from Other Countries
Surplus produce can be sent out to needy countries. Food scarcity in India and Europe in often met by surplus food-grains from the U.S.A.
- Countries Economically Backward but Rich in Resources may Develop their Industries
Indian people are opening industries with the idea of sending produced goods to foreign countries.
- International Business Promotes Peace and Friendship
No country however big it may be can claim to be self-sufficient. It will have to depend on other country for something. Free international business is essential for goodwill, peace and to meet any requirements of the nation.
Disadvantages of International Business
The dis-advantages of international business are as follows:
- The Worst Part of Foreign or International Business is the Destruction of Cottage and Home Industries
Indian industries need protection. If there will be no protection from the side of the government, Indian industries cannot prosper.
- Dependence on Foreign Business Creates Difficulties in Times of Need
In the past, India had to face great trouble and difficulty in getting ordinary and simple articles like medicine and tools during need or during the war.
- The Extreme Specialization which makes a Country Depend on One or Two Industries is Bad
Because if at any time the industry suffers the economic life of the people would be endangered.
- Countries which Sell Raw Materials and Buy Manufactured Goods in Return are always Loser and cannot Improve the Country Economy
The standard of living of the people cannot improve. International business under such conditions leads more to discontent and unrest than to peace and goodwill.
- International Business may Completely Exhaust a Country’s Natural Resources like Coal and Oil which are Irreplaceable
These goods are exported just for the sake of earning money and profit. But the country will have to suffer in the long run when their source will be dried up completely.
- Imports of Harmful Drugs and Luxuries Goods ruin the Health of the Nation
For this people blame international business which is not correct.
- International Business Rivalry Leads to Friction and War
Example of this kind it the last two world war. Commercial competition often brings strain relations between countries. Thus, it can be said that International Business is not unmixed blessing. But to measure advantages always outweigh the dis-advantages. At any rate, it is better if it is helpful in improving the economy of the country.
|DOMESTIC BUSINESS||INTERNATIONAL BUSINESS|
|Meaning||A business is said to be domestic, when its economic transactions are conducted within the geographical boundaries of the country.||International business is one which is engaged in economic transaction with several countries in the world.|
|Area of operation||Within the country||Whole world|
|Quality standards||Quite low||Very high|
|Deals in||Single currency||Multiple currencies|
|Nature of customers||Homogeneous||Heterogeneous|
|Business research||It can be conducted easily.||It is difficult to conduct research.|
|Mobility of factors of production||Free||Restricted|
Differences between Domestic and International Business
The most important differences between domestic and international business are classified as under:
- Domestic Business is defined as the business whose economic transaction is conducted within the geographical limits of the country. International Business refers to a business which is not restricted to a single country, i.e. a business which is engaged in the economic transaction with several countries in the world.
- The area of operation of the domestic business is limited, which is the home country. On the other hand, the area of operation of an international business is vast, i.e. it serves many countries at the same time.
- The quality standards of products and services provided by a domestic business is relatively low. Conversely, the quality standards of international business are very high which are set according to global standards.
- Domestic business deals in the currency of the country in which it operates. On the contrary, the international business deals in the multiple currencies.
- Domestic Business requires comparatively less capital investment as compared to international business.
- Domestic Business has few restrictions, as it is subject to rules, law taxation of a single country. As against this, international business is subject to rules, law taxation, tariff and quotas of many countries and therefore, it has to face many restrictions which are barriers in the international business.
- The nature of customers of a domestic business is more or less same. Unlike, international business wherein the nature of customers of every country it serves is different.
- Business Research can be conducted easily, in domestic business. As against this, in the case of international research, it is difficult to conduct business research as it is expensive and research reliability varies from country to country.
- In domestic business, factors of production are mobile whereas, in international business, the mobility of factors of production are restricted.
Carrying out the activities of international business and its management is far more difficult than conducting a domestic business. Due to changes in political, economic, socio-cultural environment across the nations, most business entities find it difficult to expand their business globally. To become a successful player in the international market firms need to plan their business strategies as per the requirement of the foreign market.