Rationale Behind International Business
Countries across the world are not endowed with the natural resources of various types equally and equitably. In other words, the natural resources are unevenly spread across the various nations. As a result the countries having surplus resources have to exchange it for those resources which are not available in their home country. This uneven distribution of resources worldwide makes it necessary the exchange of goods among the countries through international business.
The availability of various factors of production namely, land, labour, capital and technology for producing goods and services differ among different countries. International business moves the surplus factor in one country over to another country where it is in short supply. Therefore international business is necessary.
Certain countries or some geographical areas of a certain country specialize in the productionofgoodsandservicesduetosome natural advantages like abundant availability of skilled labour, favorable climatic conditions, availability of natural resources, technical know-how, etc., For example, In India Coimbatore specilises in cottontextiles and producing textiles and machinery; Tirupur specialises in manufacturing hosiery products This specialisation paves way for large scale production of specialised items. International business transfers the abundant surplus to other countries which do not have these specialised goods or products
Production cost varies significantly among the countries due to difference in socio- economic, geographical, demographical, technical and political environments prevailing therein. As a result some countries are in a better position to produce some goods more economically and efficiently than other countries. This makes the firms engaged in international business import the goods available at lower prices from other countries and export the goods which bring them better prices to other countries.