Advantages and Disadvantages of International Business (2024)

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 differsignificantly in terms of natural resources, capital equipment, manpower,technology and land and so on. Some countriesare rich in mineral resources hydro-electric power metallic resources,and so on while some other countries may possess advanced technique ofmanufacturing, efficient working population, capital equipment and so on.International business is required to exchange the surplus resources resultingfrom geographical specialisation for deficit resources in other countries

2.Optimum use of Natural Resources

International business operates on asimple principle that a country which can produce more efficiently and tradethe surplus production with other countries has to procure what it cannotproduce more efficiently. This enablesthe countries to optimally utilize the scarce resources available with them

3.Economic Development.

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

4.Generation of Employment.

International business generatesemployment opportunities byassisting the expansion and growth of agricultural and industrialactivities. It provides direct employment to those peoplewho are hired by export andimport firms and generates indirect employment to number of intermediary firmslike, clearing and forwarding agent, indent houses transport organizations,outsourcing agencies, etc.

5.Higher Standard of Living.

Onaccount of internationalbusiness, the citizens of thecountry can buy more varieties of goods and services which cannot be producedcost effectively within the home country. This exchange of goods and servicesamong the countries enhances the standard of living of people.

6.Price Equilisation

International business helps tostabilize the prices of various commodities which are fluctuating on a dailybasis in the world market. Whenever the price of a commodity rises sharply in aparticular country, the same commodity is imported from some other foreigncountries to prevent the sharp rise inprices in the home country. Thus international business prevents violentfluctuations of prices of various commodities and helps maintain prices ofvarious commodities at stable level in each and every country.

7.Prospects for Higher Profit.

International business helps the firmswhich produce goods in excess to sell them at relatively higher price tovarious countries in the international market. This enables them to earn higherprofit.

8.Capacity Utilisation.

International business enables the firmsacross the country to sell their goods and services on a large scale in theinternational market. As a result their machinery and equipments are used totheir full capacity. In short veryprospect of sellinggoods in internationalmarket besides selling the goods in home market keeps themachineries, tools, equipment, and factory fully engaged all through the year.

9.International Peace.

International business makes countriesacross the world become inter-dependent while these countries are independent intheir functioning. This facilitates the exchange of culture, ideas and mutualunderstanding. It develops and strengthens cultural and social relations amongthe people of different countries. All these collectively contribute tomaintain international peace.

Disadvantages of InternationalBusiness

1.Economic Dependence.

International trade is more likely tomake the country too much dependent on imports from foreign countries. Theformer may not take any efforts to produce goods and services indigenously tosubstitute imported goods and thus becoming self sufficient. As a result theimporting country may become economically slave to exporting country and end upbecoming colony of the exporting country.

2.Inhibition of Growth of Home Industries.

International business may discouragethe growth of indigenous industry. Unrestricted imports and severe competition fromforeign companies may ruin the home industries altogether.

3.Import of Harmful Goods.

International business may lead toimport of luxurious goods, spurious goods, dangerous goods, etc. It may harmthe well-being of people.

4.Shortage of Essential Goods in Home Country.

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

5.Misuse of Natural Resources.

Excessive export of scarce naturalresources to various countries across the world may lead to fasterdepletion of theresources in the exporting countries. This in turn may bring about ecological disaster in thecountry from which it is exported.

6.Political Exploitation.

International business may createeconomic dependence among the countries which may threaten their politicalindependence. The MNCs may influence the policy decision of the government totheir favour. In due course of time they may dictate terms to administrators ofnation by the sheer strength of their money power. For example Britishers cameto many countries as mere traders and ultimately colonized those countries andruled them for centuries.

7.Rivalry among the Nations.

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

8.Invasion of Culture.

International business may result ininvasion of country’s culture. Younger generation is more likely to imitateforeign culture and buy goods and services beyond their means to gainacceptance in the affluent section ofsociety. 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 |