ms-97 mba assignment july dec 2010 Question 1

1. Identify the Central Actors in International Business and discuss the differences between Domestic and International Business.

An international business is a business whose activities are carried out across national borders. This differs from a domestic business because a domestic business is a business whose activities are carried out within the borders of its geographical location.

A domestic company is one that confines its activities to the local market, be it city, state, or the country it is in. It deals, generally, with one currency, local customs and cultures, business laws of commerce, taxes and products and services of a local nature.

            The international company, on the other hand deals with businesses and governments in one or more foreign countries and is subject to treaties, tariffs. Currency rates of exchange, politics, cultural differences, taxes, fees, and penalties of each country it is doing business in. It may also be conducting business in it's home country, but the emphasis is on trading in the international marketplace.

 

Major Difference between Domestic and International Business

Conducting and managing international business operations is more complex than undertaking domestic business. Differences in the nationality of parties involved, relatively less mobility of factors of production, customer heterogeneity across markets, variations in business practices and political systems, varied business regulations and policies, use of different currencies are the key aspects that differentiate international businesses from domestic business. These, moreover, are the factors that make international business much more complex and a difficult activity.

Major Differences

Scope:

Scope of international business is quite wide. It includes not only merchandise exports, but also trade in services, licensing and franchising as well as foreign investments. Domestic business pertains to a limited territory. Though the firm has many business

 establishments in different locations all the trading activities are inside a single boundary.

Benefits:

International business benefits both the nations and firms. Domestic business have lesser benefits when compared to the former.

• To the nations: Through international business nations gain by way of earning foreign exchange, more efficient use of domestic resources, greater prospects of growth and creation of employment opportunities. Domestic business as it is conducted locally there would be no much involvement of foreign currency. It can create employment opportunities too and the most important part is business
•  since carried locally and always dealt with local resources the perfection in utilization of the same resources would obviously reap the benefits.
• To the firms: The advantages to the firms carrying business globally include prospects for higher profits, greater utilization of production capacities, way out to intense competition in domestic market and improved business vision. Profits in domestic trade are always lesser when compared to the profits of the firms dealing transactions globally.

Market Fluctuations:

Firms conducting trade internationally can withstand these situations and huge losses as their operations are wide spread. Though they face losses in one area they may get profits in other areas, this provides for stabilizing during seasonal market fluctuations. Firms carrying business locally have to face this situation which results in low profits and in some cases losses too.

Modes of entry:

A firm desirous of entering into international business has several options available to it. These range from exporting/importing to contract manufacturing.

abroad, licensing and franchising, joint ventures and setting up wholly owned subsidiaries abroad. Each entry mode has its own advantages and disadvantages which the firm needs to take into account while deciding as to which mode of entry it should prefer. Firms going for domestic trade does have the options but not too many as the former one.

To establish business internationally firms initially have to complete many formalities which obviously is a tedious task. But to start a business locally the process is always an easy task. It doesn't require to process any difficult formalities.

Purvey:

Providing goods and services as a business within a territory is much easier than doing the same globally. Restrictions such as custom procedures do not bother domestic entities but whereas globally operating firms need to follow complicated customs procedures and trade barriers like tariff etc.

Sharing of Technology:

International business provides for sharing of the latest technology that is innovated in various firms across the globe which in consequence will improve the mode and quality of their production.

Political relations:

International business obviously improves the political relations among the nations which give rise to Cross-national cooperation and agreements. Nations co-operate more on transactional issues.