Benefits of International Business

Despite its greater complexity and risk, international business matters to both nations and firms, offering several benefits. Growing awareness of these benefits has itself fuelled the spread of trade and investment among nations — the phenomenon of globalisation.

Benefits to Countries

1. Earning of foreign exchange — International business helps a country earn foreign exchange, which it can then use to pay for imports of capital goods, technology, petroleum products, fertilisers, pharmaceuticals and many consumer products that may not be available at home.

2. More efficient use of resources — Following the principle "produce what you can make more efficiently and trade the surplus for what others make more efficiently," trading nations together end up producing far more than each could by trying to make everything alone. Shared out fairly, this larger pool benefits all the trading nations.

3. Improving growth prospects and employment potential — Producing only for domestic use severely limits growth and jobs, because the home market may be too small to absorb large-scale output. Countries such as Singapore, South Korea and China adopted an "export and flourish" strategy, saw foreign markets for their goods, and became star performers — improving both growth and employment.

4. Increased standard of living — Without international trade, people could not consume goods and services produced in other countries. Trade lets nations enjoy a wider range of products and thus a higher standard of living.

Benefits to Firms

1. Prospects for higher profits — Selling abroad can be more profitable than selling at home. When domestic prices are lower, firms can earn more by selling in countries where prices are higher.

2. Increased capacity utilisation — Many firms build production capacity beyond domestic demand. Winning foreign orders lets them use surplus capacity, and larger-scale production brings economies of scale, lowering unit cost and raising profit margins.

3. Prospects for growth — When home demand becomes saturated, firms can revive growth by entering overseas markets. This is exactly why many multinationals from developed countries moved into developing countries, where demand was rising fast. …