1) Differences Between Domestic and International Business

Definition

 Domestic Business: Involves buying, selling, and producing goods and services within a single
country’s borders. Example: A clothing brand selling products only in Pakistan.
 International Business: Involves business transactions across different countries. Example: A
company exporting clothes from Pakistan to the USA and Europe.

Area of Operation

 Domestic Business: Limited to the home country and operates only within its geographical
boundaries.
 International Business: Operates across multiple countries, handling different markets and
regulations simultaneously.

Quality Standards

 Domestic Business: Products and services are made according to local standards, which may
be lower.
 International Business: Must meet global quality standards to compete in foreign markets.

Currency

 Domestic Business: Transactions occur in the local currency, making financial processes
simpler.
 International Business: Deals with different currencies, which involves currency exchange
and the risk of fluctuating exchange rates.

Capital Investment

 Domestic Business: Requires less capital as operations are smaller and confined to one
country.
 International Business: Needs more investment due to larger operations, transportation,
and compliance with international regulations.

Regulations and Restrictions

 Domestic Business: Subject to the laws, taxes, and rules of one country, making compliance
easier.
 International Business: Must follow the rules, taxes, tariffs, and trade policies of multiple
countries, which increases complexity.

2) Importance of International Business:

Earn Foreign Exchange:

Exports goods and services globally, earning foreign currency to pay for imports and strengthen the
home country's economy.
  Example: Pakistan exports textiles to Europe and USA, earning foreign currency that is used
to import essential items like oil and machinery.

Optimal Resource Utilization:

Uses global resources efficiently—leveraging technology and finance from rich countries and labor
and raw materials from developing countries.

 Example: Apple Inc. designs products in the USA, manufactures them in China (for lower
labor costs), and sells them worldwide.

Achieve Business Objectives:

Helps businesses reach their main goal of earning high profits through advanced technology, skilled
employees, and selling quality products worldwide.

 Example: Coca-Cola uses advanced technology and expert marketing to sell its beverages in
over 200 countries, earning high profits.

Improve Organizational Efficiency:

Increases efficiency through modern management practices, skilled workers, and regular training to
compete globally.

 Example: Toyota uses advanced production methods like Just-in-Time (JIT), improving
efficiency and reducing waste in global operations.

Government Benefits:

Receives financial support and tax benefits from governments due to its contribution to foreign
exchange earnings.

 Example: Tata Motors receives tax benefits from the Indian government for exporting
vehicles to international markets.

3) Scope of International Business:

Foreign Investments:

Foreign investment means investing money in businesses or assets in other countries to earn financial
returns. It helps companies expand their operations and access new markets. There are two main types:

 Direct Investment: When a company builds physical assets like factories or offices in
another country.
 Portfolio Investment: When a company invests in foreign financial assets like stocks
and bonds without controlling operations.
 Example: Toyota builds car factories in the USA, which is a direct investment. Apple
buying shares in European companies is a portfolio investment.

Exports and Imports of Merchandise:

This involves trading tangible goods (physical products) between countries.

  Exports: Selling goods produced in the home country to foreign markets.
 Imports: Buying goods from other countries to sell in the home market.

Example: India exports spices and textiles to Europe, while importing oil from Saudi Arabia.

Licensing and Franchising:

This allows companies to enter foreign markets by giving other businesses permission to use their brand,
technology, or products for a fee.

 Licensing: A company gives another company the right to produce and sell its products.
 Franchising: A company allows a foreign business to use its business model, brand, and
processes.

Example: McDonald’s allows local businesses to open franchises globally, and Coca-Cola licenses local
companies to bottle and sell its drinks.

Service Exports and Imports:

This refers to the exchange of intangible products (services) between countries. It includes industries like
tourism, banking, education, and IT services. This type of trade is also called invisible trade because
services cannot be physically seen or touched.

 Example: India exports IT services to USA and UK, while USA provides financial and
consulting services worldwide.

Benefiting from Currency Exchange:

Companies involved in international business can profit from differences in currency values. If a
company’s home currency is weak, its exports become cheaper and more attractive to foreign buyers.

 Example: If the Indian Rupee weakens, Indian textile exporters can sell their products more
competitively in foreign markets and earn more profit.

4) Globalization:

Globalization is the process of increasing interconnectedness and interdependence among countries

through the free flow of goods, services, information, technology, and people across borders. It breaks
down national barriers, creating a global economy and culture.

Example: When Apple designs products in the USA, manufactures them in China, and sells
them worldwide, it reflects globalization.

Features of Globalization:

Rapid Expansion of International Trade:

Globalization has led to a significant increase in the exchange of goods and services across countries.

Example: Countries like China export electronics worldwide, while the USA exports agricultural
products.
Internationalization of Products and Services by Large Firms:

Big companies offer their products and services in multiple countries.

Example: McDonald’s and Starbucks have outlets in various countries, adapting menus to local
tastes.

Growing Importance of Multinational Corporations (MNCs):

Large companies expand their operations to several countries, influencing global economies.

Example: Apple designs products in the USA, manufactures in China, and sells worldwide.

Globalization of Technology:

Technological advancements spread quickly across borders, improving productivity and connectivity.

Example: The spread of 5G technology from advanced countries to developing nations.

Advantages of Globalization:

Increased Economic Growth:

Globalization boosts a country’s economy by increasing trade and investment.

Example: Countries like China and India have experienced rapid economic growth due to global
trade and foreign investment.

Access to New Markets:

Businesses can expand and sell their products in international markets, increasing revenue.

Example: Coca-Cola operates in over 200 countries, reaching millions of consumers.

Technological Advancement:

Globalization allows countries to share and adopt advanced technologies.

Example: Developing countries now use advanced medical equipment and digital technology
developed in richer nations.

Cultural Exchange:

People experience and learn from different cultures, promoting tolerance and understanding.

Example: Western fast-food chains like McDonald’s serve local specialties in different countries,

5) Features of International business:

Large Scale Operations

International businesses operate on a large scale, meaning they produce and sell goods in many
countries. This helps companies reach more customers and increase profits.
Example: Coca-Cola sells its beverages in over 200 countries, making it a large-scale international
business.

Benefits to Participating Countries

Countries involved in international business enjoy various benefits like employment opportunities, better
technology, and increased trade.

Example: When Toyota sets up a factory in Pakistan, it provides jobs and improves the country's
technology and infrastructure.

Keen Competition

International business increases competition because companies from different countries compete to
offer better products and services.

Example: Samsung and Apple compete globally to sell the best smartphones, encouraging better quality
and innovation.

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Factor to enter into Global business:

When a company wants to enter a foreign market, it must decide how to do so. Several factors influence
this decision, which can be divided into External Factors (outside the company) and Internal Factors
(within the company). Here’s a simplified explanation with examples:

1) External Factors (Outside the Company)

Market Size:

If a country has a large population and a high demand for products, companies are more likely to invest
heavily and open their own offices or factories. Example: Apple has a fully-owned store in India because
of its large customer base.

Market Growth:

Companies prefer to invest in countries where the market is growing quickly. In saturated markets (like
the US or Europe), growth is slow, so businesses look for new markets with future potential.
Example: Many car companies are expanding in Africa because it’s a growing market with more car
buyers.

Government Regulations:

Some countries have strict rules about foreign companies. For example, in Gulf countries, foreign
businesses often need a local partner. Example: In the UAE, Indian companies work with local businesses
to sell their products.

Level of Competition

If many competitors are already in the market, companies may choose to invest more to stay
competitive.
Example: Global car brands like Toyota and Ford set up manufacturing plants in India to compete with
local car companies.

Physical Infrastructure

Good infrastructure (roads, transport, communication) makes it easier for companies to operate
smoothly.
Example: Singapore’s advanced transport system attracts many international businesses to set up offices
there.

2) Internal Factors (Within the Company)

Company Objectives

If a company’s goal is just to sell a few products, it may use simple methods like exporting. If it wants
long-term growth, it will invest more deeply. Example: A small Pakistani clothing brand might export
products to Europe without opening a physical store.

Availability of Company Resources

Entering foreign markets needs a lot of money and skilled workers. Bigger companies with more
resources can choose more complex entry methods. Example: Tata Group (India) has the money to open
factories abroad, while small businesses can only export.

Level of Commitment

If a company believes a foreign market has a lot of potential, it will commit more resources.
Example: Samsung built a huge factory in Vietnam because they see long-term profit opportunities.

International Experience

Companies with more experience in international markets are more comfortable using advanced entry
methods like joint ventures or wholly owned subsidiaries. Example: McDonald’s has experience in many
countries, so they easily open new restaurants worldwide.

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Modes of Entry into International Business

When a company wants to sell or buy products from another country, there are different ways to enter
international business. One of the easiest and most common ways is through Exporting and Importing.

1. Exporting and Importing

Exporting: Selling goods or services from your country to another country.

Example: Haldiram (India) sells sweets to Walmart stores in the USA.

Importing: Buying goods or services from another country to your home country.
Example: An Indian toy shop buys toys from a Chinese company.

Ways to Export and Import:

Direct Exporting/Importing:
The company directly deals with foreign buyers or suppliers and manages everything itself (like shipping
and payment). Example: A Pakistani textile company sells fabrics directly to a clothing store in France.

Indirect Exporting/Importing: The company uses a middleman (like an export agency) who handles all
the processes.
Example: An Indian spice brand uses a trading company to sell spices in Europe.

Types of Exports and Imports

Merchandise (Tangible Goods): These are physical products that can be seen and touched. This is called
Visible Trade.

Example: Exporting clothes, machinery, or food.

Example: Importing electronics from China to Pakistan.

Services (Intangible Goods): These are services that cannot be physically touched. This is called Invisible
Trade.

Example: An Indian software company provides IT support to US businesses.

Example: A Pakistani tourist agency offers services to visitors from other countries.

Advantages of Exporting and Importing

Easy to Start:

It is the simplest and fastest way to enter international business. Example: A small local perfume brand
can easily export to foreign customers online.

Less Investment:

You don’t need to spend a lot of money to export or import, unlike opening a physical store in another
country.
Example: A new clothing brand can sell abroad without building factories overseas.

Less Risk:

Since there’s no heavy investment in a foreign country, the risk is lower.

Example: If a Pakistani company exports furniture to Dubai, they only face small risks like delivery delays.

Access to Better Products and Technology:

Importing allows countries to access advanced technologies and high-quality goods. Example: Pakistan
imports advanced medical equipment from Germany for better healthcare.

Helps National Growth:

No country can produce everything on its own. Importing and exporting help countries grow and
improve.
Example: The UAE imports food because it cannot grow everything in its desert climate.

Better Control and Lower Risk:

Exporting gives businesses better control over their products without the high risks of setting up
factories abroad.
Example: Samsung exports phones globally while controlling quality from their main factories in South
Korea.