Advantages of International Business

Management > International Business Management > Introduction to International Business > Advantages of International Trade

The advantages of international trade are

Low-cost production:

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.

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.

Generates Employment:

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 helps in generating more employment through the establishment of newer industries to cater to the demands of various countries.  Similarly, export-oriented industries provide employment opportunities such as forwarding agents, clearing agents, etc. This helps countries to bring down their unemployment rates.

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.

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.

Above advantages of international trade are driving factors for the boost in international trade.

Previous Topic: Comparative Study of Domestic Business and International Business

Next Topic: Disadvantages of International Business

Management > International Business Management > Introduction to International Business > Advantages of International Trade