Importance of International Business

The importance of international business is as follows:

Knitting the World into & Cities and countries into a close village
Cultural Transformation
Optimum and Proper Utilisation of World Resources
Economic Growth of the World at Large
Division of Labour and Specialisation
Provides the Opportunity for and Challenge to Domestic Business
Potential Untapped Markets
Large-Scale Economies
Reduced Risks
Reduced Effects of Business Cycles
Wider Market
Increased Socio-Economic Welfare
High Living Standards

1) Knitting the World into & Cities and countries into a close village

International business knits the global economies, societies and countries into a closely interactive traditional village where one is for all and all are for one.

2) Cultural Transformation

International business benefits are not purely economic or commercial; they are even social and cultural. These days, it is observed that the West is slowly tending towards the East and vice versa. It does mean that the good cultural factors and values of the East are accepted by the West and vice versa. Thus, there is a close cultural modification and integration.

3) Optimum and Proper Utilisation of World Resources

International business provides for the flow of natural resources, raw materials, and human resources from the countries where they are in excess supply to those nations where they are in short supply or need most.

For example, the flow of human resources from India, and consumer goods from the U.K., France, Italy and Germany to developing countries. This, in turn, helps in the optimum and suitable utilisation of world resources.

4) Economic Growth of the World at Large

Specialisation, enhancement of productivity, division of labour, posing challenges, development to meet them, innovations and creations to meet the competition lead to the overall economic growth of the world countries. International business particularly helped Asian countries like Japan, Taiwan, Korea, Philippines, Singapore, Malaysia and the United Arab Emirates.

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5) Division of Labour and Specialisation

International business leads to the specialisation & division of labour. For example, Brazil specialises in coffee, Kenya in tea, Japan in automobiles and electronics, India in textile garments, etc.

6) Provides the Opportunity for and Challenge to Domestic Business

International business companies provide opportunities to domestic companies. These opportunities include market intelligence, technology, management expertise, product development, etc.

For example, Japanese firms like Yamaha, Honda, Suzuki and Kawasaki have combined to form Joint Ventures with Indian companies to form Hero Honda, Birla Yamaha, Maruti Suzuki and Kawasaki Bajaj to share technology and product development expertise. Similarly, MNCs pose challenges to domestic businesses originally. Domestic companies develop themselves to meet these challenges.

For example, the entry of white goods MNCS LG and Samsung posed challenges to homegrown companies Godrej and Videocon in the Indian consumer durables market. But Godrej and Videocon have evolved and re-invented themselves to face up to the challenges.

7) Potential Untapped Markets

International business provides the opportunity to explore and exploit the potential markets which are untapped so far. These markets provide the chance to sell the product at a higher price than domestic markets.

For example, Bata sells shoes in the U.K. at £100 (around 78,000) whose price is around 1,200 in India.

8) Large-Scale Economies

Multinational companies due to wider and larger markets produce larger quantities, which provide the benefits of large-scale economies like reduced cost of production, availability of expertise, quality, etc.

9) Reduced Risks

Both commercial and political risks are reduced for the companies engaged in international business due to the spread in different nations. Multinationals which were operating in the erstwhile USSR were affected only partly due to their safer operations in other countries. However, the domestic firms of the USSR collapsed completely.

10) Reduced Effects of Business Cycles

The stages of business cycles differ from country to country. Therefore, MNCs shift from a country experiencing a recession to a country experiencing a “boom” condition. This enables international companies to escape recessionary conditions.

11) Wider Market

International business broadens the market and expands the market size. Therefore, the companies need not depend on the demand for the product in a single country or customers’ tastes and preferences in a single country. Due to the enhanced market Air France, now, mostly depends on the demand for air travel of customers from countries other than France. This is true in the case of most MNCs like Xerox, Honda, Toyota, and Coca-Cola.

12) Increased Socio-Economic Welfare

International business enhances the consumption level and economic welfare of the people of trading countries.

For example, the people of China are now enjoying a variety of products from diverse countries than before as China has been actively involved in international business like McDonald’s range of products, electronic products from Japan, Coca-Cola, and coffee from Brazil. Thus Chinese consumption levels and socio-economic welfare have enhanced.

13) High Living Standards

Comparative cost theory indicates that the countries which have the advantages of human resources, raw materials, natural resources and climatic conditions in producing particular goods can produce the products at lower cost and also of high quality. Customers in diverse countries can buy more products with the same amount of money. In turn, it can also improve the living standards of the people through enhanced purchasing power and by consuming high-quality products.

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