International business means taking the business beyond the boundary of a country. Or, in simple words, it means selling your product or service in other countries. Taking business internationally does sound appealing, but it is not an easy job. It requires immense capital and research to take a business globally. Moreover, taking business globally is no guarantee that it will be a success. Thus, it involves a huge level of risk as well. If you are also planning to take your business global, then you must carefully weigh the advantages and disadvantages of international business before making a final decision.
Advantages of International Business
Following are the advantage of doing international business:
- Advantages of International Business
- Disadvantages of International Business
- What More Apart from Advantages and Disadvantages of International Business
Tapping New Customers
One major objective of taking business globally is to get to more potential consumers. If a company sells goods in its own country, then there is a limit on the number of customers it can reach. But, an MNC can target customers all over the world.
Companies that operate globally have more opportunity to grow their revenues than non-global companies. By making supplies to customers in other countries, such companies can substantially increase their volume and revenue. It, however, depends on how well they are able to compete and penetrate the market.
Spreading Business Risk
Doing international business helps a company to diversify or reduce its business risk. For instance, if a company faces rough times in its home country, it can still count on foreign locations for revenues and keep continue the production.
Hiring New Talent
If you don’t have the right employees, no matter how good your product is, you may not get success. So, taking your business global gives you the chance to recruit the best staff. You can also tap the local talent who are more familiar with the target country customers than you are.
Optimum Use of Available Resources
Taking business global helps to lower the wastage of resources. This is because a business is able to tap the idle resources of the countries it is operating in.
More Choice to Consumers
In the foreign market, a consumer gets the option to choose from the product of an MNC or from a domestic player. More companies operating in the market also increase the competition. And this eventually helps the end-user in the form of better quality products and at competitive prices.
Reduce Dead Stock
If a business has a product that is less in demand in the home country but has a 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.
Betters Brand Image
When a company starts to do business outside of its home country, it automatically makes the brand more appealing in the home country. Similarly, people in foreign locations also perceive the brand as big as it is a foreign brand for them.
Economies of Scale
When a company starts selling overseas, it needs to produce more. This means it needs more raw materials, and that too in bulk. A company will now be in a better position to negotiate with the suppliers, asking them to lower their prices for bulk supply. Moreover, bulk production also makes a firm more efficient in manufacturing the product.
Disadvantages of International Business
Following are the disadvantages of doing international business:
Heavy Opening and Closing Cost
Starting a business requires a lot of money. And, starting a business in a foreign location requires even more money. If the business didn’t do well, the company would also have to shut it down. In many nations, shutting down a business could be costly and time-consuming.
Foreign Rules and Regulations
Doing business in another country requires a company to follow a lot of rules and regulations. The company also needs to carry a lot of paperwork. Moreover, every country has its own rules when it comes to tax and employment. Adhering to all rules and regulations is not easy. But, a company can overcome this by hiring local tax experts and law agencies.
Different countries have varying 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 the 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 back to your home country, the fluctuations in the currency may reduce the actual amount. One can, however, overcome it by entering various derivatives contracts.
Another type of currency risk is at the time of the pricing of the product in a foreign country. The problem arises when the home currency is strong than the currency of the target market. In this case, a company may have to reduce the selling prices to offer competitive prices in the foreign market.
Destruction of Home Industry
MNCs can result in local companies going out of business. Usually, MNCs are more powerful when it comes to money. They can resort to aggressive pricing to gain market share. And this, in turn, could drive local companies out of business.
Rivalry Among Countries
There are a few examples of when an international business has led to tension between the nations. Such things mainly take place when one country exports much more to another country or resorts to dumping.
This is also an inherent issue with international business. Before a company starts selling products, it needs to sort out the logistics. Not every country has the same infrastructure. So deciding on the best logistics could take a lot of consideration from a company.
What More Apart from Advantages and Disadvantages of International Business
Along with the advantages and disadvantages of international business, you also need to consider the following points when taking your business international:
- How much will be the capital requirement?
- What are the costs that you need to focus on?
- What are the crucial timelines?
- Consider the tax, immigration, and compliance rules of the foreign country.
- Who to hire and how to adhere to the employment regulations?
- What if one needs to close the foreign operations, and how much time would it take?