International Business and Trade
Chapter 2 – Advantages and Disadvantages of International Business
Countries trade with each other because some of them can produce a given product which the other
country cannot, some of them have the biproduct that is needed to manufacture that product, and, may
have expertise but others do not have.
At the end of this lecture, students should be able to:
Enumerate advantages of international business.
Enumerate disadvantages of international business.
Enumerate steps in making an international business plan.
Identify the types of international business.
Advantages of international business are:
Wide market - the business organization ‘s markets are considered the entire world.
Minimal business risk - since the market is enormous there is no problem about buyers.
More human talent may be accessed because of your world - wide operation thus enabling the
firm to lower its managerial and labor cost.
Easier to develop your brand - a good quality product may easily be known world-wide because
your product has presence in many countries.
Attaining Economies of Scale production - your fixed cost may reduce substantially because of your
high-volume production.
Susceptibility to consumers taste and fashion - any change in consumer demand worldwide
especially on designs, style, prices, quality among others, the firm will have to follow otherwise it will loss
markets.
Disadvantages of international business are:
Foreign rules and regulations - since your operation is world-wide, you need to adhere to various
laws in countries where you operate.
Handling logistics - logistical problem can be one of the serious problems a firm may encounter due
to shipping delays and loss of shipments.
Speaking the language - communication problem can be problematic for your expats and even the
domestically hired may have some difficulty communicating with their bosses.
Coordinating time zones - coordinating with various offices world-wide becomes problematic due to
variation in time zone.
Foreign exchange rate - this affects the value of local branches profits due to fluctuation in exchange
caused by a rise in the value of the US dollar.
Mitigating credit risk - credit risk is justified because of the trend with regards to payment practices;
If you do not adopt such you will have a restricted sale.
It poses greater risk for unpaid international sales - the risk of having unpaid receivables is greater
for foreign accts than domestic.
Following Foreign Politics - the governments of your foreign buyers can order your importer not to
purchase your products because only of political differences with the government.
Gathering market research - if a local firm has business outside of the country it would be easier to
gather data through its businesses for use in business and market analysis.
What is an International Business Plan?
An International Business Plan is about the development of a business proposal on how to start a new
business venture in abroad. This may consist of a new business or a new product or service of an existing
business and this is applicable to all types of businesses.
Steps in creating an international business plan include the following:
Identify the business strategy goal - What do you want to achieve in opening a business abroad? Is
it to enlarge your market or obtain a good return for your business.
Decide on what product or service to market - You must decide what product or service you want
to sell in the international markets. Decide on this based on your assessment about the marketability of
the product or service you have in mind.
Conduct a feasibility study for such product - As in any business, before you start you need to
make a sort of determining its viability by conducting a project study or feasibility study. But since you
will be dealing with international business environment, environmental factors are somehow more
complicated.
Ascertain the level of competition in your target market - International markets are so competitive
before you engage business seize them up first if you can compete with them especially in price and
quality and of course the level of competence required from your managers.
Identify and plan especially on various strategies to adopt especially marketing strategy -
Formulate a strategic plan including development of tactics and strategies required for your plan.
Determine the needed organizational structure for your international business - Decide on your
organizational structure. Be sure that this one can generate higher productivity and minimize cost.
Types of International Businesses:
Exporting - selling finished products or unprocessed one including services abroad.
Licensing - is about giving permission to domestic firms abroad to process or produce your products
under your strict supervision using your own name and logo and formula.
Franchising - is a form of business arrangement between the owner of the franchise (franchisor) and
the one to franchise called the franchisee.
Foreign Direct Investment - these are foreign companies that invested in the domestic economy
some may own one hundred percent while most 40% and rest to local investors.