Q.What benefits do firms derive by entering into international business?

Firms gain: (1) higher profits from selling in markets where prices are better; (2) increased capacity utilisation and economies of scale from foreign orders; (3) fresh growth prospects when the home market is saturated; (4) a way out of intense domestic competition; and (5) an improved strategic business vision (to grow, become more competitive and diversify).

International business is worthwhile for firms despite its greater complexity and risk. The main benefits to firms are as follows.

1. Prospects for higher profits

• Selling abroad can be more profitable than selling at home.
• When domestic prices are lower, a firm can earn more by selling in countries where prices are higher.

2. Increased capacity utilisation

• Many firms build production capacity beyond what domestic demand needs.
• Winning foreign orders lets them use this 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.

4. Way out of intense domestic competition

• When competition at home is very intense, going international may be the only route to significant growth.
• A fiercely competitive home market pushes many firms to look abroad for markets.

5. Improved business vision

• For many companies, becoming international is part of their strategic vision.
• It is driven by the urge to grow, the need to become more competitive, to diversify, and to gain the strategic advantages of internationalisation.