University of Information Technology and Sciences

Assignment 1 Why International Companies differ from Domestic Companies

Course Title: International Business Course Code: BUS 341 Department: BBA Date of Submission: February 16, 2012

Prepared For:
Ayesha Binte Safiullah School of Business

Prepared By:
Samiul Islam Abir. ID 09310175

Why international companies differ from domestic companies?

The companies doing their business in two or more country are international companies and the companies doing business in a single country only are domestic companies. There are many differences between these two types of companies. These differences occur due to the difference across borders. Nation-states generally have unique government systems, laws and regulations, currencies, taxes and duties, and so on, as well as different cultures and practices. So,

What is Domestic Business: Domestic business is the exchange of goods, services, or both within the confines of a single national territory. It is always aimed at a single market and deals with only one set of competitive, economic, and market issues. The exchange is always with a single set of customers all the time, though the company may have several segments in a market. Domestic business may be sub-divided into Wholesale business, and Retail business. Wholesale is concerned with buying goods from manufacturers or dealers in large quantities and selling them in smaller quantities to others who may be subdealers, retailers or even consumers. Wholesale trade may be undertaken by wholesale merchants or wholesale commission agents. The wholesale merchant makes outright purchases from dealers or manufacturers or in wholesale commodity markets, and arrange their reselling to the best advantage on his own account. The wholesale commission agents act as selling agents of producers or dealers, arrange the sale of goods on best possible terms on behalf of the principal, and earn a commission for their services. Retail business is concerned with the sale of goods in small quantities to the actual users or consumers. It is generally carried on by a class of traders known as retailers. In actual practice, however, manufacturers and wholesalers may also undertake retail distribution of goods to bypass the intermediary retailers.

What is International Business: All commercial transactions- including sales, investments and transportation- that take place between two or more countries is called international business. These cross border business transactions may happen between governments or individuals. Trade that includes exchange of capital, goods, and services across nations is called International Trade. It is always a major source of economic revenue for any nation and in absence of the same nations would be limited to the goods and services produced within their own boundaries.

This system is often much costlier than local Business since it includes additional costs such as tariffs, and costs associated with country differences such as the legal systems or a different culture, financial policies etc. Industrialization, Globalization, and Outsourcing are the products of international trade system. International business grew over the last half of the twentieth century partly because of liberalization of both trade and investment, and partly because doing business internationally had become easier.

International Business vs. Domestic Business: International Business vs. Domestic Business Conducting and managing international business operations is more complex than undertaking domestic business. Because of variations in political, social, cultural and economic environments across countries, business firms find it difficult to extend their domestic business strategy to foreign markets. To be successful in the overseas markets, they need to adapt their product, pricing, promotion and distribution strategies and overall business plans to suit the specific requirements of the target foreign markets Key aspects in respect of which domestic and international businesses differ from each other are discussed below. Mobility of factors of production: The degree of mobility of factors like labor and capital is generally less between countries than within a country. While these factors of movement can move freely within the country, there exist various restrictions to their movement across nations. Apart from legal restrictions, even the variations in socio-cultural environments, geographic influences and economic conditions come in a big way in their movement across countries. Differences in business systems and practices:

Countries differ from one another in terms of their socio-economic development, availability, cost and efficiency of economic infrastructure and market support services, and business customs and practices due to their socio-economic milieu and historical coincidences. All such differences make it necessary for firms interested in entering into international markets to adapt their production, finance, human resource and marketing plans as per the conditions prevailing in the international markets.

Political system and risks: Political factors such as the type of government, political party system, political ideology, political risks, etc., have a profound impact on business operations. Since a business person is familiar with the political environment of his/her country, he/she can well understand it and predict its impact on business operations. But this is not the case with international business. Political environment differs from one country to another. One needs to make special efforts to understand the differing political environments and their business implications. A major problem with a foreign countrys political environment is a tendency among nations to favor products and services originating in their own countries to those coming from other countries. While this is not a problem for business firms operating domestically, it quite often becomes a severe problem for the firms interested in exporting their goods and services to other nations or setting up their plants in the overseas markets. Business regulations and policies: Coupled with its socio economic environment and political philosophy, each country evolves its own set of business laws and regulations. Though these laws, regulations and economic policies are more or less uniformly applicable within a country, they differ widely among nations. Tariff and taxation policies, import quota system, subsidies and other controls adopted by a nation are not the same as in other countries and often discriminate against foreign products, services and capital. Strategic planning: Strategic planning is the act of creating short- and long-term plans to take a company from where it is today to where its owners would like it to be. Strategic plans include growth strategies, human resource development strategies, marketing tactics and internal goal-setting. There are a number of differences in strategic planning for domestic and international companies, usually as a result of international businesses' larger scale and wider range of uncontrollable market variables. Understanding these differences can guide your strategic planning efforts as your small business grows to an international scale. Growth Strategies:

Growth strategies in strategic plans are likely to look much different between domestic and international businesses. Domestic companies' growth plans are more likely focused on creating new markets or increasing market share in domestic markets. Small domestic companies can only grow their geographic reach to the edge of their home country's borders, then they must focus on finding new business in areas they already serve. International companies' growth strategies, on the other hand, are more likely focused on penetrating new markets in previously untapped countries and regions of the world. Strategic HR Management: International HR development strategies must consider foreign outsourcing, the organizational structure of management between countries, the ethnic makeup of regional management and creating international work teams. Domestic companies in certain regions, meanwhile, may find it challenging to recruit culturally diverse employees, for example, which can cause legal issues and put companies at a disadvantage. Situational Analysis: Comprehensive strategic plans begin with a situational analysis -- a detailed look at current market conditions as well as a company's strengths and weaknesses. International businesses usually face multiple market conditions at once, adding depth to the equation. Consider a SWOT analysis (strengths, weaknesses, opportunities, threats) for example. Domestic companies only have to consider the strengths of single company, while international businesses have to analyze the strength of individual regional business units in addition to the company as a whole. The same goes for weaknesses. Domestic companies have to consider opportunities and threats in a single country. For international businesses, the same companies can be both domestic and foreign competitors, presenting additional risks. Multinational Strategic Planning: Domestic businesses can make do with a single, overarching strategic plan to guide their efforts. International businesses have to make a choice between developing a single, comprehensive strategic plan, different strategic plans for different markets or a combination of both. Cultural considerations can render a strategic plan that is highly effective in one country, but virtually useless in another. International companies consider all of the variables mentioned above -- their unique growth goals, the makeup of their regional management team and their situational analyses -- when determining how broad or narrow to make their strategic plans.

For those reasons International Company are differ from Domestic companies. Before going to start an International business, people must be well-informed about cultures, legal, political and social differences among countries. They must choose the countries in which to sell their goods and from which to buy inputs with assurance and hoping that a good business is waiting ahead for them.