question_answer 22)

What is international business? How is it different from domestic business?

Answer:

Manufacturing and trade beyond the boundaries of one's own country is known as international business. International business is defined as those business activities that take place across the national frontiers. It involves not only the international movements of goods and services, but also of capital, personnel, technology and intellectual property like patents, trademarks, know-how and copyrights. Domestic and international businesses differ from each other in the following aspects (i) Nationality of Buyers and Sellers In the case of domestic business, both the buyers and sellers are from the same country but in international business buyers and sellers come from different countries and their languages, attitudes, social customs and business goals and practices are not identical as in case of domestic business. This makes relatively more difficult for them to interact with one another and finalize business transactions. (ii) Nationality of Other Stakeholders The other stakeholders such as employees, suppliers, shareholders/partners and general public associated with firms doing international business have different nationalities while in the case of domestic business all such factors belong to one country. Therefore, decision making in international business becomes much more complex due to wider set of values and aspirations of the stakeholders belonging to different nations. (iii) Mobility of Factors of Production The degree of mobility of factors like labour and capital is generally less between countries than within a country due to legal restrictions and variations in socio-cultural environments, geographic influences and economic conditions. (iv) Customer Heterogeneity Across Markets Since buyers in international markets hail from different countries, they differ in their socio-cultural background. Differences in their tastes, fashions, languages, beliefs and customs, attitudes and product preferences cause variations in not only their demand for different products and services, but also in variations in their communication patterns and purchase behaviors. Such variations greatly complicate the task of designing products and evolving strategies appropriate for customers in different countries. (v) Differences in Business Systems and Practices The differences in business systems and practices are considerably higher among countries than within a country as countries differ from one another in terms of their socio-economic development, availability, cost and efficiency of economic infrastructure and market support services, etc which make it necessary for firms interested in international business to adapt their production, finance, human resource and marketing plans as per the conditions prevailing in the international markets. (vi) Political System and Risks Political factors such as the type of government, political party system, political ideology, political risks, etc, have an impact on business operations. International business firms need to monitor political changes in the concerned countries and devise strategies to deal with diverse political risks. These firms also face discrimination as nations tend to favor products and services originating in their own countries to those coming from other countries while this is not a problem for business firms operating domestically. (vii) Differences in Business Regulations and Policies Every country has its own set of business laws and regulations. These laws, regulation and economic policies are more or less uniformly applicable within a country but they differ widely among nations. Tariff and taxation policies, import quota system, subsidies and other controls adopted by a nation are not the same as in other countries and often discriminate against foreign products, services and capital. (viii) Difference in Currency International business involves the use of different currencies while in domestic business all transactions are done in the same currency. International business firms have to keep exchange rate fluctuations into consideration in fixing prices of their products and hedging against foreign exchange risks.