In the realm of commerce, it is important to understand the difference between domestic and international business. These two different forms of business involve diverse factors and considerations that require a detailed and comprehensive understanding.
The difference between Domestic and International Business is explained as follows:
Domestic business involves those economic transactions that take place inside the geographical borders of a country. In this form of business both the buyer and seller belong to the same country. Domestic business is called ‘Home Trade’ or ‘Internal Business’. It is relatively easier to conduct business research in domestic business when compared to firms from abroad, and the degree of risk is also much lower. The selling process, currency, taxation laws, type of customers, and other regulations are more or less uniform, which can significantly benefit any organisation.
International business involves those economic transactions that take place outside the geographical borders of a country. The buyer and seller do not belong to the same country in this business. Companies involved in international trade are known as ‘Transnational’ or ‘Multinational’ companies. It is much more challenging to conduct business research on international business firms when compared to domestic companies, and the degree of risk is also higher. The selling process, type of customers, currency, taxation laws and other regulations are different for the buyer and seller, which can be a hindrance for any organisation to conduct business.
Difference between Domestic and International Business
Domestic/Local and international enterprises, in both the public and private sectors, share the business objectives of functioning successfully to continue operations. Private companies seek to function profitably as well. Why, then, is international business different from domestic business? The answer lies in the differences across borders. Nation-states generally have unique government systems, currencies, laws and regulations, taxes and duties, and so on, as well as different cultures and practices. A person travelling from his home country to a foreign country needs to have the proper documents, to carry foreign currency, to be able to communicate in the foreign country, to be dressed properly and so on.
Doing business in a foreign country involves similar issues and is thus more complicated than doing business at home. The following table describes the clear difference between international and domestic/local business.
The major differences between Domestic and International Business are as follows:
Domestic business pertains to a limited territory. Though the company has many business establishments in various locations all the trading activities are inside a single boundary.
International business benefits both countries and companies.
Domestic businesses have lower benefits when compared to the former.
3) Buyer and Seller
The buyer and seller belong to foreign countries in international business.
Both the buyer and seller belong to the same nation in domestic business.
International businesses deal with various currencies since the buyer and seller are not from the same country.
Domestic businesses deal with the same currency as both the buyer and seller are from the same country.
5) Political Relations
International business improves the political relations among countries which gives rise to Cross-national cooperation and agreements.
Does not improve political relations globally, and subsequently does not give rise to cross-national cooperation and agreements.
6) Purvey (Deals in)
Globally operating firms need to follow complicated customs procedures and trade barriers like tariffs etc.
Providing goods and services as a business within a country is much easier than doing the same globally. Restrictions such as customs procedures do not bother domestic entities.
7) Sharing of Technology
International business provides for sharing of the latest technology that is innovated in various firms across the globe
Does not provide for sharing of technology, only adopts the technology.
8) Trade Restrictions
Will have to face restrictions in trade practices, licenses and government rules. Long distances and hence more transaction time.
In a few cases, restrictions exist due to area development, forest, land, etc.
Long distances and hence more transaction time.
Short distances. Quick business is possible.
10) Modes of Entry
A firm desirous of entering into international business has many options available to it. These range from exporting/importing to contract to manufacture abroad, licensing and franchising, joint ventures and setting up wholly owned subsidiaries abroad.
Firms going for domestic trade do have the options but not too many as the former one.
MNCs take advantage of location economies wherever cheaper resources are available.
No such advantage, once the plant is built, it cannot be easily shifted.
12) Cost Advantage
High volumes cost advantage.
Cost advantage, once a plant is built, it cannot be easily shifted.
MNCs have perfected principles, procedures and practices at the international level. MNCs take advantage of location economies wherever cheaper resources are available.
No such experience or exposure. Once the plant is built, it cannot be easily shifted.
14) Capital Investment
Capital investment is higher for businesses that are involved in international business.
Capital investment is lower for businesses that are involved in domestic business.
15) Market Fluctuations
Firms conducting trade internationally can withstand these situations and huge losses as their operations are widespread. Though they face losses in one area, they may get profits in other areas, this provides for stabilising during seasonal market fluctuations.
Companies carrying business locally have to face this situation which results in low profits and in some cases losses too.