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International business means taking business beyond the limits of a country. Or, in simple words, it means selling your product or service in other countries. Doing international business sounds attractive, but it is not an easy job. Immense capital and research are required to make a business global. Furthermore, globalizing business is not a guarantee of success. Therefore, it involves a great level of risk as well. If you are also planning to go global with your business, then you should carefully weigh the advantages and disadvantages of international business before making a final decision.
Advantages of International Business
The following are the advantages of doing international business:
Take advantage of new customers
One of the main goals of doing business globally is to reach more potential consumers. If a company sells products in its own country, there is a limit to the number of customers it can reach. But, an MNC can target clients from all over the world.
Companies that operate globally have more opportunities to increase their revenue than non-global companies. Such companies by making supplies to customers in other countries can substantially increase their volume and revenue. However, it depends on how well they can compete and penetrate the market.
Business risk propagation
Doing business internationally helps a company diversify or reduce its business risk. For example, if a company is facing hard times in its home country, it can still rely on overseas locations to earn revenue and continue production.
Recruitment of new talents
If you don’t have the right employees, no matter how good your product is, you may not be successful. Therefore, going global with your business gives you an opportunity to hire the best staff. You can also tap into local talent who are more familiar with clients in the target country than you are.
Optimal Use of Available Resources
Doing business globally helps reduce the waste of resources. This is because a company can take advantage of idle resources in the countries in which it operates.
More Choices for Consumers
In the foreign market, a consumer has the option of choosing between the product of the multinational or the national player. More companies operating in the market also increases competition. And eventually this helps the end user in the form of better quality products at competitive prices.
Reduce dead stock
If a company has a product that is less in demand in the home country, but is in demand in other countries, then it is profitable to sell those products there. For this, companies need to find countries where there is a healthy demand for their products.
Best brand image
When a company starts doing business outside of its home country, it automatically makes the brand more attractive in the home country. Similarly, people in foreign locations also perceive the brand as great as a foreign brand to them.
When a company starts selling abroad, it needs to produce more. This means that you need more raw materials and that too in bulk. A company will now be in a better position to negotiate with suppliers, asking them to lower their prices for bulk supply. Additionally, bulk production also makes a company more efficient in manufacturing the product.
Disadvantages of international business
The following are the disadvantages of doing international business:
High cost of opening and closing
Starting a business requires a lot of money. And starting a business in a foreign location requires even more money. If the business was not going well, then the company would have to shut it down as well. In many nations, closing a business can be costly and time consuming.
Foreign Rules and Regulations
Doing business in another country requires a company to follow many rules and regulations. The company also needs to carry a lot of paperwork. Also, each country has its own rules when it comes to taxes and employment. Complying with all the rules and regulations is not easy. But, a company can overcome this by hiring local tax experts and legal agencies.
Different countries have different languages and cultures. This makes it difficult for a foreign company to operate in that country. However, a company can overcome this barrier by hiring local talent, as well as understanding and respecting the culture of another country.
This is inherent and one of the biggest risks of doing international business. Since you are doing business in another country, you only make sales in that currency. But, when you repatriate money to your home country, fluctuations in the currency may reduce the actual amount. However, it can be overcome by entering into various derivative contracts.
Another type of exchange risk is at the time of listing the product abroad. The problem arises when the local currency is stronger than the currency of the target market. In this case, a company may have to reduce sales prices to offer competitive prices in the foreign market.
Destruction of domestic industry
Multinational companies can cause the bankruptcy of local companies. Multinationals are usually more powerful when it comes to money. They may resort to aggressive pricing to gain market share. And, in turn, this could drive local businesses out of business.
rivalry between countries
There are a few examples where an international deal has caused tension between nations. Such things happen mainly when a country exports much more to another country, or resorts to dumping.
This is also an inherent problem in international business. Before a company starts selling products, it must organize the logistics. Not all countries have the same infrastructure. Therefore, deciding on the best logistics could require a lot of consideration on the part of a business.
What else apart from the advantages and disadvantages of international business?
Along with the advantages and disadvantages of international business, you should also consider the following points when internationalizing your business:
- How much will the capital requirement be?
- What are the costs you should focus on?
- What are the crucial deadlines?
- Be aware of the tax, immigration, and compliance rules of the foreign country.
- Who to hire and how to adhere to employment standards?
- What if one needs to close operations abroad and how long would it take?