Importance Of International Business

A) Macro level benefits in national perspective

International business results in macro-economic effects for each economy. The imports and exports influence the employment, national income and technology. The direct and indirect benefits emanating from international business are listed below: 

1. Increase in national Income

A country’s export activity promotes industrial and trade activity that generates employment and income for various sections of society. The multiplier effect of income increases the level of output and growth rate of economy. Especially the export of wage-goods can help a developing country to break the vicious circle of poverty and raise the real income of the country. 

2. Efficiency

While exporting, the countries try to attain specialization in production of goods. In this process, there is optimum and efficient utilization of the resources. The limited domestic market may act as a deterrent to the growth of industry and a resultant under-utilization of resources. The international trade can help industry grow and achieve scale and experience economies. 

3. Employment generation

Exports constitute a significant portion of different nations and breed opportunities for more and gainful employment. In addition to reducing direct unemployment, foreign trade reduces underemployment, e.g. exports of Swiss watches engages the farmers in the watch industry during their free time resulting into gainful utilization of their skills. 

4. Increased linkages

The staple theory of economic growth recognizes that foreign trade results into increased backward and forward linkages with other sectors of the economy. The industrial and trade linkages cause the development of new industries and enhance efficiency of existing industries. 

5. Optimal utilization of resources

International business makes possible the utilization of agricultural resources as the farmers get a greater access to the overseas markets. This transforms even the subsistence sector into monetized sector raising the standards of living of rural populations. The strengths of Indian agriculture are likely to open new vistas of business opportunities in the days to come as the world trade is likely to become more liberalized as a result of WTO provisions. 

6. Educative effect

Exports and international business exposes the executives to overseas market which develops greater skills in them. This removes a great hindrance, often acknowledged as greater than scarcity of capital goods. The entrepreneurial and management expertise generally helps an economy grow faster, and traditional factors of production can be used more effectively. 

7. Promotes Foreign Direct Investment

The level of international business of a country often becomes a basis for the flow of foreign direct investment in a country. In today’s economic environment, it is difficult to grow in absence of FDI. Several economies have grown following the heavy investments from other parts of the world. 

8. Stimulates Competition

International business fosters healthy competition and helps in checking inefficient monopolies. It is established that growth of competitive economies is higher than the growth rate of protective economies. In recent times, the nations have realized the benefits of healthy competition. Several developing and erstwhile communist countries are promoting the same. Switching over to market-led growth which invokes substantially international operations in business, services and technology. 

9. Technology Sourcing

In today’s rapidly changing world, it is important to keep pace with the changing technology. This is possible only when there exist linkages with other national economies through international trade and business. The technology driven industries such as information technology telecommunications, automobiles derive immense synergy by their participation in trade across the world.  

B) Micro level effects of International Business

An individual firm can reap several benefits by resorting to international marketing and international business. 

1. Growth

By all standards, domestic markets have a limitation of growth potential. After a particular level, it is very difficult for a firm to achieve growth. So, it is left with the option of either product innovation or extending operations to other markets. The latter option is a better way of sustaining growth as the product life can increase significantly when it is sold into the world markets. 

2. Fighting Competition

As the protectionist measures by nations are being reduced, firms operating in domestic market only are facing increased levels of competition. Instead of utilizing their resources in fighting competitions, firms continue to look at markets in other countries to cope up with domestic competition. Hence, international business operations provide avenues for both survival and growth. 

3. Increased efficiency

By operating on global scale, a firm can select for its expansion lucrative opportunities. Also, it can reduce its product costs through global sourcing and utilize world level technology and talent for business operations. All this makes the business operations more efficient and as a result it can realize higher return per unit investment. This boosts up shareholder’s value and the company image. 

4. Scale economics

Higher level operations on account of international operations produce benefits of scale and thus enhance the profitability of firm. 

5. Innovation

By operating in large markets, companies can afford to invest in research and technology development. It is established that compared to traditional and mind set firms, innovation driven firms can compete effectively. 

6. Risk Cover

By operating on global scale, the fluctuations of demand levels in an individual country does not make much difference on the aggregate sales. Consequently, the uncertainties arising out of risk factors on the operations localized to a country are reduced. Even the financial risks, physical risks, politico-legal risks etc. can be managed more effectively by virtue of global operations.