International Business vs. Domestic Business

Conducting and managing international business is more complex than doing domestic business. Because political, social, cultural and economic environments vary across countries, firms find it hard to simply extend their domestic strategy to foreign markets. To succeed overseas, they must adapt their product, pricing, promotion and distribution strategies and overall business plans to the specific needs of each target market.

The key aspects on which domestic and international business differ are as follows.

1. Nationality of buyers and sellers — In domestic business, both buyers and sellers belong to the same country, making it easier to understand each other and close deals. In international business, they come from different countries, so differences in language, attitudes, social customs, goals and practices make it harder to interact and finalise transactions.

2. Nationality of other stakeholders — Employees, suppliers, shareholders/partners and the general public are all from one country in domestic business, giving more consistent values and behaviour. In international business the firm must weigh the values and aspirations of stakeholders from many nations, making decisions much more complex.

3. Mobility of factors of production — Factors like labour and capital move relatively freely within a country but face many restrictions across countries. Apart from legal barriers, differences in socio-cultural environment, geography and economic conditions hinder their movement — especially labour, which finds it hard to adjust to different climatic, economic and social conditions abroad.

4. Customer heterogeneity across markets — Buyers in international markets differ in tastes, fashions, languages, beliefs, customs, attitudes and product preferences, which changes both their demand and their communication and purchase behaviour. For instance, people in one country may prefer bicycles while another prefers motorbikes; India uses right-hand-driven cars whereas Americans drive left-hand-steering cars; consumers in some countries replace durables every two-to-three years while others use products until they wear out. Such variations complicate the task of designing products and strategies for each market.

5. Differences in business systems and practices — Business systems and practices vary far more between countries than within one, because nations differ in socio-economic development, the availability, cost and efficiency of infrastructure and support services, and in business customs shaped by history. Firms must therefore adapt their production, finance, HR and marketing plans to conditions abroad.

6. Political system and risks — Political factors — type of government, party system, ideology and political risks — strongly affect business. A businessperson understands the home political environment and can predict its impact, but must make special effort to understand and continuously monitor the differing political environments abroad. A common problem is a nation's tendency to favour its own products and services over foreign ones.

7. Business regulations and policies — Each country evolves its own laws and regulations. While these apply fairly uniformly within a country, they differ widely across nations. Tariffs, taxation, import quotas, subsidies and other controls are not the same everywhere and often discriminate against foreign products, services and capital.

8. Currency used in business transactions — International business uses different currencies. Because the exchange rate (the price of one currency in terms of another) keeps fluctuating, firms face added difficulty in fixing prices and in hedging against foreign-exchange risk.

Box B — Firms must be aware of environmental differences …