Advantages of International Business
1. High Living Standard
Customers in various countries can buy more products with the same amount of money in the International Markets. In turn, it can also enhance the living standard of the people through enhanced purchasing power and by consuming high quality products.
2. Increased Socio-Economic Welfare
International business enhances the consumption level, and economic welfare of the trading countries.
3. Wider Markets
International business widens the market and increases the market size. Therefore, the companies need not depend on the demand for the product in one single country or customer’s taste and preferences.
4. Reduced effects of Business Cycle
The stages of business cycle vary from country to country. Therefore, MNC’s shift from the country experiencing a recession to the country experiencing the boom conditions. Thus, international business firms can escape from the recessionary conditions.
5. Reduced Risks
Both commercial and political risks are reduced for the companies engaged in international business due to spread in different countries.
6. Large Scale Economics
MNC due to the wider and larger markets produce larger quantities, which provide the benefit of large-scale economies like reduced cost of production, availability of expertise, etc.
7. Potential Untapped Markets
International business provides the chance of exploring and exploiting the potential markets which are untapped so far. These markets provides the opportunity of selling the product at a higher price than in domestic markets.
8. Provides the opportunities for and challenge to domestic business
International Business firms provides the opportunities to the domestic companies. These opportunities include technology, management expertise, market intelligence, etc.
9. Division of Labour and Specialisation
International business leads to division of labour and specialization. Brazil specializes in coffee, Kenya in tea, Japan in automobiles.
10. Economic Growth of the world
Specialisation, division of labour, enhancement of productivity, posing challenges, development to meet them, innovations and creations to meet the competition lead to ovrall economic growth of the world nations.
11. Optimum and proper utilization of world resources
International business provides for the flow of raw materials, natural resources and human resources from the countries where they are in excess supply to those countries which are in short supply or need most.
12. Cultural Transformation
International business benefits are not purely economical or commercial, they are even social and cultural. There is a close cultural transformation and integration.
13. Knitting the world into a closely interactive Traditional Village
International business ultimately knits the global economies, societies and countries into a closely interactive and traditional village where one is for all and all are for one.
Disadvantages of International Business
1. Political Factors
Political instability is the major factor that discourages the spread of international business.
2. Huge Foreign Indebtedness
The developing countries with less purchasing power are lured into a debt trap due to the operations of MNCs in these countries.
3. Exchange Instability
Currencies of countries are depreciated due to imbalances in the balance of payments, political instability and foreign indebtedness. This, in turn, leads to instability in the exchange rates of domestic currencies in terms of foreign currencies.
4. Entry Requirements
Domestic governments impose entry requirements to multinational.
5. Tariff Quotas and Trade Barriers
Governments of various countries impose tariffs, import and export barriers in order to protect the domestic business. Further these barriers are imposed based on the political and diplomatic relations between or among various governments.
6. Corruption
Corruption has become an international phenomenon. The higher rate bribes and kickbacks discourage the foreign investors to expand their operations.
7. Bureaucratic Practices of Government
Bureaucratic attitudes and practices of government delay sanctions, grants permission and licenses to foreign companies.
8. Technological Pirating
Copying the original technology, producing imitative products, imitating other areas of business operations were common in Japan . this practices invariably alarms the foreign companies against expansion.
9. Quality maintenance
International business firms have to meticulously maintain quality of the products based on quality norms of each country. The firms have to face severe consequences, if they fail to conform to the country standards.
10. High Cost
Internationalizing the domestic business involves market survey, product improvement, quality up gradation, managerial efficiency and the like. These activities need larger investments and involve higher cost and risk. Hence, most of the business houses refrain themselves from internationalizing their business.