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Thursday, 30 August 2018

International Business: Reasons to Trade

There are three major operating objectives that underlies the reasons of engaging in international business.

1. Expansion of sales
2. To acquire resources
3. To reduce risk
International business
International Business

Sales expansion
Sales Expansion

Expanding sales

As we know that today's market is a fully consumer market. A company's sales volume totally depends on the consumers. Obviously a company can find more potential consumers in the world than found in any single country. When a company decides to sell its products abroad,additional value is created but it should be important to keep in mind that cost of product should not increase disproportionately. Infact additional sales from abroad enable a company to reduce its fixed cost because scale of output increases. Therefore, lower cost will boost sales.

So expanding sales is a major objective to go for international markets. Many reputed companies derive more than half of its total sales from abroad e.g. Sony, Nestle etc.

To acquire resources

Nature has gifted every country different resources. All countries have not equal resources of all types. Countries have different resources given by nature, made by its human resources. To survive in international market, companies require updated technology and cheaper inputs so that cost of production can reduce. Further  following reasons may be noted which motivate company to search abroad the resources:

1. Non availability of resources required.
2. To adopt updated technology.
3  availability of resources at lower cost .

Many big companies have established R&D  (Research and Development) department abroad to tap the new resources.

To reduce the risk

By operating at international level, a country minimises its risk which may be faced at domestic level. Sometimes due to various factors, sales target is not achieved in domestic country. In this case a company which is operating at international level may set off its losses because perhaps it can sell more in another country. Further , international business protects companies from domestic threats.

Thanks for reading.

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