Management > International Business Management > Introduction to International Business > Advantages of International Business
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In today’s globalized world, international business has become an essential component of economic growth, technological innovation, and cultural exchange. Companies of all sizes and industries are expanding their operations across borders, driven by the potential benefits that international markets offer. From increased profit potential to knowledge sharing and risk diversification, the advantages of international business are numerous and far-reaching. This article explores these benefits in detail, highlighting how international business contributes to individual companies and the global economy.
Advantages of International Business
Low-cost production:
Cost reduction is another major advantage of international business, as companies can source resources, raw materials, and labour from countries with lower production costs. Outsourcing and offshoring allow businesses to optimize costs, enabling them to offer more competitive prices. A company can take advantage of low-cost production outside its domestic operations by identifying a nation where the labour is cost-effective and in abundant supply. For example, countries like China, India, the Philippines, and Mexico offer such low-cost production opportunities. Multinational companies due to wider &larger markets produce larger quantities, which provide the benefits of large-scale economies like reduced cost of production, availability of expertise, quality, etc.
Earning of Foreign Exchange:
International business helps a country to earn foreign exchange which can be used to import capital goods, technology, petroleum products, fertilizers, etc. India is a major exporter of IT services all over the world. The foreign exchange obtained is used for importing capital goods, technology, petroleum products, fertilizers, etc.
Access to a Broader Market
One of the most immediate advantages of international business is access to a wider customer base. Companies that expand beyond their home country can tap into demand from diverse markets, increasing their revenue potential. For instance, Coca-Cola has become a household name worldwide by catering to international customers with locally tailored products. Accessing a broader market enables companies to grow market share and establish a presence in regions with high demand, ultimately boosting brand recognition and profitability.
Increased Profit Potential
Entering international markets can significantly increase profit potential. When companies diversify across multiple countries, they create additional revenue streams that can offset fluctuations in domestic demand. McDonald’s, for example, generates a substantial portion of its revenue from international markets, ensuring stable income even when certain regions face economic challenges. International sales often represent a substantial growth opportunity for companies looking to maximize their financial performance.
Enhances Skill Level of Labour:
For export business high skilled and knowledge is required. Hence the special emphasis is given to training labours so that their skill level and knowledge level of enhances. It can also give an opportunity to specialize in a different area to serve that market. For example, Brazil specializes in coffee, Kenya in tea, Japan in automobiles & electronics, India in textile garments and IT, etc.
Support to Domestic Industry:
International Business firms provide opportunities for domestic companies. These opportunities comprise technology, management expertise, market intelligence, product developments, etc. For example, Japanese firms like Honda, Yamaha, and Suzuki & Kawasaki have a combined to form Joint Ventures with Indian companies to form a Hero Honda, Birla Yamaha, Maruti Suzuki & Kawasaki Bajaj to share the technology & the product development expertise.
Enhanced Reputation:
Successes in one country can influence success in other adjacent countries, which can raise the company’s profile in domestic as well as in the international market. It also increases the company’s credibility.
Diversification of Risk
International business allows companies to distribute their risk across various regions, reducing dependency on a single market. Economic recessions, political instability, or natural disasters in one country can impact sales and operations. However, companies with a presence in multiple countries can mitigate these risks by relying on stable markets. For example, Starbucks operates in over 80 countries, helping it to balance the risks associated with fluctuations in any single market.
Innovation and Knowledge Sharing
International business fosters innovation and the exchange of knowledge between countries. When companies expand globally, they gain exposure to new ideas, technologies, and business practices. This cross-border interaction accelerates innovation and helps companies develop products that meet diverse customer needs. The pharmaceutical and electronics industries, for instance, thrive on international research collaborations that lead to faster advancements and improved products.
Efficient Use of Resources:
Every country has some or other natural resources. Every country tries to use these resources in the best possible manner and gradually they become more efficient and specialized in using these resources than other countries. When countries produce through comparative advantage, wasteful duplication of resources is prevented. It also helps in environmental protection. It also provides countries with a better marketing advantage. External trade resources are used efficiently and all the countries get benefitted of specialization. For example, Japan may produce electronic goods more efficiently than India and India may produce agricultural goods more efficiently than Japan. Thus India can buy electronic goods from Japan and can sell agricultural goods to Japan. Companies involved in external trade increase their production capacity. With an increase in production capacity, these firms can get benefits of large production or economies of scale and reduce the cost of production.
Economies of Scale
As companies increase production volumes to meet global demand, they achieve economies of scale, reducing per-unit costs. Larger-scale production allows fixed costs, like research and development or production facilities, to be spread over more units. For example, Toyota’s international manufacturing operations enable it to produce vehicles at a large scale, making the brand more competitive and affordable in various markets. Economies of scale benefit not only the company but also the consumer, who enjoys lower prices.
Enhanced Brand Reputation and Global Recognition
Establishing an international presence can greatly enhance a company’s reputation and brand value. Operating globally signals that a company is credible and capable of meeting diverse consumer needs. This global recognition builds customer trust and loyalty, as customers tend to trust well-established, international brands. Companies like Starbucks and Amazon have become global icons by successfully expanding into multiple regions, reinforcing their reputation as reliable, high-quality brands.
Competitive Advantage
In a highly interconnected global economy, companies that engage in international business often gain a competitive advantage over those confined to domestic markets. Accessing new customer segments, understanding foreign market trends, and gaining experience in diverse regulatory environments contribute to a company’s ability to outperform competitors. For example, Huawei has positioned itself as a leading telecommunications brand through its extensive global reach, enabling it to stay competitive in an industry where rapid adaptation is critical.
Contribution to Economic Growth and Job Creation
External trade creates employment opportunities directly as well as indirectly. External trade results in an increase in production and due to increased production the demand for labour increases which creates employment opportunities. International business plays a crucial role in global economic development by creating jobs and stimulating local economies. Multinational corporations contribute to employment in the regions where they operate, providing income and opportunities for skill development. Companies like Unilever and Procter & Gamble create thousands of jobs worldwide and invest in local infrastructure and social initiatives, directly benefiting the economies of their host countries. Similarly, export-oriented industries provide employment opportunities such as forwarding agents, clearing agents, etc. This helps countries to bring down their unemployment rates.
Disposal of surplus goods
When the demand for the products saturates in the domestic markets then such firms can enhance their business by approaching international market. This is the main motivation for many MNCs in developed countries to enter the markets of developing countries. One of the advantages of international trade is that it provides an outlet to dispose of surplus goods that are unable to sell in the domestic market. Air France now mostly depends on the demand for air travel of the customers from countries other than France. This is factual in case of most of the MNCs like Toyota, Honda, Xerox & Coca-Cola.
Longer product lifespan
Every product has a life span. After some period, the demand for the product decreases in the market. Sales can dip for certain products domestically due to availability of better alternative or upgraded versions over time. Selling a product in the international market can extend the life of an existing product as emerging markets seek to buy the product. Therefore, MNCs shift from the country experiencing a recession to the country experiencing ‘boom’ conditions. This enables international firms to escape recessionary conditions.
Increased revenues
One of the top advantages of international business is that it increases the number of potential clients. Each country added to the client opens up a new pathway to business growth and increased revenues. Generally international business is more profitable than domestic business. When the prices in the domestic market are low then firms can sell at a high price in the international market in the countries where prices are high.
Increase in GDP of the Country:
International business boosts up the economic growth of a country. The firms of developing countries increase their production capacity to supply goods in foreign countries. Companies can obtain technical know-how and modern technology from developed countries. Increased production results in an increase in GDP of the country, which is the indicator of the economic growth of the country. The people living in developing and underdeveloped countries can use the products produced in other country and increase their standard of living. The International business particularly helped the Asian countries like Japan, Taiwan, Korea, Philippines, Singapore, Malaysia, India & the United Arab Emirates.
Better risk management:
One of the significant advantages of international business is market diversification. Only focusing only on the domestic market may expose the firm to increased risk from the saturation of the domestic market, availability of alternative, availability of upgraded version, downturns in the economy, political factors, environmental events, and other risk factors. Thus international business helps to mitigate potential risks in the market. By making the size of the market large with large supplies and extensive demand international business reduces trade fluctuations. It also enables different countries to sell their surplus products to other countries and earn foreign exchange. Multinationals which were operating in erstwhile USSR were affected only partly due to their safer operations in other countries. But the domestic companies of the then USSR collapsed entirely.
Promotes Efficiency in Production:
International trade promotes efficiency in production as countries will try to adopt better methods of production such as better technical know-how, use of efficient modern machinery. To able to gain a larger share in the market, the production cost should be low and quality should be high. Thus international trade helps in increasing the standards of the product. Thus the consumers get a good quality product to consume.
Greater Variety of Goods Available for Consumption at Lower Cost:
International trade brings in different varieties of a particular product from different destinations. This gives consumers a wider choice. As things are produced where they can be produced cheaply, it becomes cheaper to import from other countries where it can be produced cheaply through international trade.
Benefiting from Currency Exchange:
The advantage can be taken of the fluctuation in the value of the domestic currency can be taken to maximize profit. When the value of the domestic currency rises it is better to import and when it decreases it is better to export.
Fosters Peace and Goodwill:
International trade fosters peace, goodwill, and mutual understanding among nations. The economic interdependence of countries often leads to close cultural relationship and thus avoid war between them.
Cultural Exchange and Global Understanding
International business facilitates cultural exchange, promoting understanding and appreciation between nations. When companies operate globally, they not only introduce their own culture but also adopt elements of local cultures, fostering cross-cultural connections. For instance, Disney promotes global culture by incorporating diverse characters and themes into its movies, appealing to audiences worldwide. Similarly, Netflix offers a range of international films and series, promoting cultural exchange and awareness.
Conclusion
International business offers a range of advantages that contribute to the growth and sustainability of companies in today’s global economy. One of the most significant benefits is access to new markets. By expanding beyond domestic borders, companies can tap into diverse consumer bases, increasing their sales potential and diversifying their revenue streams. This access can be particularly beneficial in emerging markets, where demand for goods and services may be rapidly growing.
Additionally, international business allows firms to leverage economies of scale. By producing and selling in larger quantities, companies can reduce costs per unit, improving profitability. This scalability is often enhanced by the ability to source materials and labour from different regions, optimizing production processes and minimizing expenses. Innovation and knowledge transfer are also key advantages. Engaging with different markets exposes businesses to new ideas, technologies, and practices, fostering innovation. Companies can learn from diverse business environments, adapting successful strategies to their own operations. This cross-pollination of ideas can lead to the development of unique products and services that cater to various customer preferences. Moreover, international business enhances risk diversification. By operating in multiple countries, companies can reduce their dependence on any single market, mitigating risks associated with economic downturns, political instability, or changes in consumer behaviour. This diversification helps ensure more stable revenue streams and overall resilience. Furthermore, international business can improve a company’s competitive advantage. Accessing global talent pools and resources allows businesses to enhance their capabilities, driving efficiency and effectiveness. Companies can also position themselves strategically within global supply chains, gaining a competitive edge through optimized logistics and resource management.
In conclusion, the advantages of international business—access to new markets, economies of scale, innovation, risk diversification, and enhanced competitive positioning—are essential for growth and sustainability in a globalized world. Companies that effectively leverage these benefits are better equipped to navigate challenges, adapt to changing market conditions, and achieve long-term success in the international arena.
Related Topics:
Introduction to International Business
- Need of Study of International Business
- Scope of International Business
- Objectives of International Business
- Features of International Business
- Comparison of Domestic Business and International Business
- Disadvantages of International Business
- Factors Affecting International Business
- Drivers of International Business
- Forms of International Business
- Transformation of Business: Domestic to Global
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