International Business vs. Domestic Business
The process of conducting and managing international business operations is very complex than undertaking domestic business. Due to variations in political, social, cultural and economic environments across countries, business organization has difficulty in extending their domestic business strategy to foreign markets. In order to be successful in the overseas markets, they have to adapt their product, pricing, promotion and distribution strategies and their business plans to suit the exact requirements of the target of foreign markets.
- Nationality of Buyers and Sellers: Nationality of the major participants (i.e., buyers and sellers) to the business deals differs from domestic to international businesses. Wit respect to domestic business, both the buyers and sellers belong to the same country. This leads us to a better understanding among each other and enter into business deals. But where as with international business the buyers and sellers belong to different countries. Owing to differences in their languages, attitudes, social customs, objectives and practices, it becomes comparatively more difficult for them to work together and finalise business deals.
- Nationality of Other Stakeholders: National and international businesses also differ with respect to the nationalities of the other stakeholders such as employees, suppliers, shareholders/partners and general public who interrelate with business firms. Where as with respect to domestic business all these factors belong to one country, and hence depict more consistency in their value systems and behaviour. Decision making in international business becomes even more complicated as the concerned business organization has to take into account a broader set of values and aspirations of the stakeholders belonging to different countries.
|Firms need to be Cognisant of Environmental Differences
It is to be kept in mind that conducting and managing international business is not an easy venture. It is more difficult to manage international business operations due to variations in the political, social, cultural and economic environments that differ from country to country. Simply being aware of these differences is not sufficient. One also needs to be sensitive and responsive to these changes by way of introducing adaptations in their marketing programmes and business strategies. It is, for instance, a well known fact that because of poor lower per capita income, consumers in most of the developing African and Asian countries are price sensitive and prefer to buy less expensive products. But consumers in the developed countries like Japan, United States, Canada, France, Germany and Switzerland have a marked preference for high quality and high priced products due to their better ability to pay. Business prudence, therefore, demands that the firms interested in marketing to these countries are aware of such differences among the countries, and design their strategies accordingly. It will be in the fitness of things if the firms interested in exporting to these countries produce less expensive products for the consumers in the African and Asian regions, and design and develop high quality products for consumers in Japan and most of the European and North American countries.
- Mobility of Factors of Production: The extent of mobility of factors like labour and capital is usually less amid other countries than within a country. Whilst these factors of movement can move liberally within the country, there exist many restrictions to their movement across different countries. Apart from legal restrictions, even the difference in socio-cultural environments, geographic influences and economic conditions contribute in a big way to their movement across countries. This is particularly true of the labour which finds it difficult to adapt to the climatic, economic and sociocultural conditions that differ from one country to another country.
- Customer Heterogeneity across Markets: Since buyers in international markets belong to different countries, they vary from their socio-cultural background. Differences in their tastes, fashions, languages, beliefs and customs, attitudes and product preferences is the root for variations in not only their demand for different products and services, but also with respect to variations in their communication patterns and purchase behaviour. It is in particular, due to the socio-cultural differences. For instance, while people in India use right-hand driven cars, Americans are familiar with cars fitted with steering, brakes, etc., on the left side. Such differences largely complicate the task of designing products and evolving strategies suitable for customers in different countries. Although to some extent customers within a country also differ in their tastes and preferences. These variations become more prominent when we compare customers across nations.
- Differences in Business Systems and Practices: The variations in business systems and practices are significantly much more among countries than within a country. Countries differ from one another in terms of their socio-economic development, accessibility, cost and efficiency of economic infrastructure and market support services, business customs and practices because of their socio-economic milieu and historical coincidences. These differences make it essential for firms interested in venturing into international markets to adapt their production, finance, human resource and marketing plans as per the conditions customary in the international markets.
- Political System and Risks: Political factors viz., type of government, political party system, political ideology, political risks, etc., have a deep impact on business operations. Since a business person is familiar with the political environment of his/her country, he/she can well adapt to it and predict its impact on business operations. But this is not so in international business. Political environment varies from one country to another. One has to initiate special efforts to understand the varying political environments and their business implications. Since there is a constant change in political environment one has to monitor political changes on an ongoing basis in the respective countries and plan strategies to deal with diverse political risks. The main problem with a foreign country's political environment is the tendency among countries to favour products and services belonging to their own countries compared to other countries. Where as this is problem is not seen in business firms operating domestically, it quite often results in a severe problem for the firms interested in exporting their goods and services to other countries or setting up their plants in the overseas market.
- Business Regulations and Policies: Attached with its socioeconomic environment and political philosophy, each country frames its business laws and regulations. Though these laws, regulations and economic policies are fairly uniform and applicable within a country but they differ extensively among nations. Tariff and taxation policies, import quota system, subsidies and other controls executed by a nation are not the same as in other countries and often discriminate against foreign products, services and capital.
- Currency Used in Business Transactions: Yet another important difference between domestic and international business is that the latter involves the use of different currencies. Since the exchange rate, i.e., the price of one currency expressed in relation to that of another country's currency, keeps varying it adds to the problems of international business firms in fixing prices of their products and prevarication against foreign exchange risks.