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Chapter: 11th Commerce : Chapter 25 : International Business

Advantages and Disadvantages of International Business

Countries across the world differ significantly in terms of natural resources, capital equipment, manpower, technology and land and so on.


Advantages of International Business


i. Geographical Specialization

Countries across the world differ significantly in terms of natural resources, capital equipment, manpower, technology and land and so on. Some countries  are rich in mineral resources hydro-electric power metallic resources, and so on while some other countries may possess advanced technique of manufacturing, efficient working population, capital equipment and so on. International business is required to exchange the surplus resources resulting from geographical specialisation for deficit resources in other countries


2. Optimum use of Natural Resources

International business operates on a simple principle that a country which can produce more efficiently and trade the surplus production with other countries has to procure what it cannot produce  more efficiently. This enables the countries to optimally utilize the scarce resources available with them


3. Economic Development.

International business helps the developing countries greatly in achieving rapid economic development by importing machinery, equipment, technology, talent, and so on. For example., China, India, Brazil and South Korea which were once slower in their economic development are achieving faster economic development due to international business. Even the developed countries like Japan, USA, UK, etc., have achieved remarkable economic progress through the import of raw materials and export of manufactured goods.


4. Generation of Employment.

International business generates employment  opportunities  by  assisting the expansion and growth of agricultural and industrial activities. It provides direct employment to those  people  who  are hired by export and import firms and generates indirect employment to number of intermediary firms like, clearing and forwarding agent, indent houses transport organizations, outsourcing agencies, etc.


5. Higher Standard of Living.

On  account  of  international  business,  the citizens of the country can buy more varieties of goods and services which cannot be produced cost effectively within the home country. This exchange of goods and services among the countries enhances the standard of living of people.


6. Price Equilisation

International business helps to stabilize the prices of various commodities which are fluctuating on a daily basis in the world market. Whenever the price of a commodity rises sharply in a particular country, the same commodity is imported from some other foreign countries to prevent  the sharp rise in prices in the home country. Thus international business prevents violent fluctuations of prices of various commodities and helps maintain prices of various commodities at stable level in each and every country.


7. Prospects for Higher Profit.

International business helps the firms which produce goods in excess to sell them at relatively higher price to various countries in the international market. This enables them to earn higher profit.


8. Capacity Utilisation.

International business enables the firms across the country to sell their goods and services on a large scale in the international market. As a result their machinery and equipments are used to their full capacity. In short very  prospect  of  selling  goods  in  international  market  besides  selling the goods in home market keeps the machineries, tools, equipment, and factory fully engaged all through the year.


9. International Peace.

International business makes countries across the world become inter-dependent while these countries are independent in their functioning. This facilitates the exchange of culture, ideas and mutual understanding. It develops and strengthens cultural and social relations among the people of different countries. All these collectively contribute to maintain international peace.


Disadvantages of International Business


1. Economic Dependence.

International trade is more likely to make the country too much dependent on imports from foreign countries. The former may not take any efforts to produce goods and services indigenously to substitute imported goods and thus becoming self sufficient. As a result the importing country may become economically slave to exporting country and end up becoming colony of the exporting country.


2. Inhibition of Growth of Home Industries.

International business may discourage the growth of indigenous industry. Unrestricted imports and severe competition from foreign companies may ruin the home industries altogether.


3. Import of Harmful Goods.

International business may lead to import of luxurious goods, spurious goods, dangerous goods, etc. It may harm the well-being of people.


4. Shortage of Essential Goods in Home Country.

Moreover the export of essential commodities out of the greed of earning more foreign exchange may result in absolute shortage of these goods at home country and people may have to buy these commodities at exorbitant price in the local market.


5. Misuse of Natural Resources.

Excessive export of scarce natural resources to various countries across the world may lead to faster depletion  of  the  resources in the exporting countries. This in turn  may bring about ecological disaster in the country from which it is exported.


6. Political Exploitation.

International business may create economic dependence among the countries which may threaten their political independence. The MNCs may influence the policy decision of the government to their favour. In due course of time they may dictate terms to administrators of nation by the sheer strength of their money power. For example Britishers came to many countries as mere traders and ultimately colonized those countries and ruled them for centuries.


7. Rivalry among the Nations.

Acute competition for exports may lead to rivalry among the nations. This may lead to conflict of interest among the countries and end up in wars among them.


8. Invasion of Culture.

International business may result in invasion of country’s culture. Younger generation is more likely to imitate foreign culture and buy goods and services beyond their means to gain acceptance in the affluent section  of society. This will ruin the conventional lifestyle of the society.


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11th Commerce : Chapter 25 : International Business : Advantages and Disadvantages of International Business |

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