International business has many advantages and benefits for a Production or manufacturing company. With local markets being saturated, many companies think of expansion via international business. So the question which pops up is – What is the importance of international business and what are the benefits of International business? Let us discuss the same.
1) Market expansion
Everyone wants to expand their market share and to sell more and more products. The importance of International business lies in the fact that you get a new market to enter and to expand in. No matter what was your position in the old market, the new market is a new playing field for any company.
2) Non-availability of product in new market
A major advantage the company can have is that the product it produces is not available in the international market which the company is targeting. The firm, therefore, has a “production advantage” which it can use to maximum benefit. As a result, it is one of the benefits of the International business that the firm can establish a monopoly or a duopoly in the target market, thereby generating a lot of revenue.
3) Cost advantage
Many times, there is a cost advantage of exporting products to a different country. This cost advantage is apparent in the way China is operating in today’s business environment. The benefits of International business are huge to Chinese companies because their cost of production is very low. One of the major contributors is their low Labour cost due to which Chinese equipments are able to match any rates in the International market.
4) Product Differentiation
If your products are differentiated and the differentiation is possible only in one’s own country, then a company should definitely expand to International markets.
Furthermore, if a company is capable of product design and implementation as well as establishing new products and services, then this company has various benefits of International business already available. Expanding to international market sounds logical if you can differentiate your products from existing market products.
5) Economic recession in one’s own country
The Importance of International business is fourfold if a company is afraid of the recession in their own country. Companies like Mitsubishi, Daikin, Blue Star and others have presence across multiple countries and regions. This is so that they can mitigate the effects of a slow economy in their home country.
Just like diversification of products is important, diversification of markets can also benefit the company. Hence, one reason International business is considered important is because of the safety it provides to the company lest an economic downturn happens.
6) Loss of Domestic market share
Even if the external business environment is not down, there are other worse things that can happen to the company which increases the importance of International business. A company could be losing its domestic market share and it could find solace in a new international market. This will revive the company in a big way and give fresh revenue to the company which can help it fight in the local market as well.
There are 2 main reasons that such loss can happen in domestic market share.
- Due to Competition increasing and market becoming saturated.
- Due to the product of the company becoming obsolete in current market but being attractive in a new market (developed vs underdeveloped economy)
7) Growth in Demand in other markets
When South Africa belonged to the primitives and native tribes, there was no business being conducted. However, with globalization, we can see the growth and development of Ghana and Nigeria as well as other African cities. The growth of these cities and the flourishing commerce is another proof of the importance of International business.
As demand rises in new markets, the growth in demand automatically attracts new companies. If your company is the one to reach there on time, it will automatically grow its market share – which is what all companies want.
8) Excess capacity of Production
One reason for large companies to look towards international business is to utilize the excess production capacity of their manufacturing plants. Companies like Ultratech, Blue Star, Garment manufacturers, Chocolate manufacturers have huge production capacity. When you have such production potential, utilizing that potential is important.
As a result, many companies take the benefits of International business by utilizing their manufacturing potential and starting the sale of their brand in International markets. This helps the brand generate revenue and also push huge volumes out of their large factories.
9) Economies of Scale
Naturally, when we are talking of operations and growth, one factor which helps the profitability of the company to a great extent is Economies of scale. We have an excellent article on Economies of scale explained with examples.
With your business growing and you increasing your fixed costs, the concept of economies of scale sets in. Basically, the fixed cost goes down when the manufacturing goes up from the same assets. This benefits the company because the company gets a cost advantage over competitors. It also improves its own scale of operations.
10) Purchasing Power
One last reason for the Importance of doing International business is the purchasing power rising in target markets. The best example of this is Dubai which as a country has grown exponentially in the last several years and today is a huge tourist market. The purchasing power in Dubai is great and you will find showrooms of all top brands present in Dubai markets. Thus, if there is purchasing power of customers in a market, it makes logical sense that the brands will target that market as well.
Overall, there are many benefits to international business expansion and all the above points prove that if you have the capital and the potential to expand, then you should do so because there are many benefits associated with it.