Differences between International and Domestic Trade
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Differences between International and Domestic Trade
International trade allows people around the world to experience products and services from different places around the world. It allows consumers to experience stuff they might never experience unless they travel. It gives traders and buyers both an advantage in the trading field and provides them with a lot of positive results from the trading process. Usually International trade exists because a country has a lot of resources that might go to waste if not use, a product that the market has a lot off will go to waste unless exported to another country and so international trading helps firms and countries to minimize their losses and allow different countries to get products they might need economically for their countries.
International trade allows consumers to depend on more than just domestically produced products and gives a boost to a countries economy however it also produces domestic difficulties for some domestic companies especially when an international product is released in the market and that product has an equivalent in the domestic market. Since recently people tend to prefer international products more domestic products could suffer loses if their precautions are not adequate for the market.
Contrast between International Business and Domestic Trade:
Domestic trade and international trade are always compared together, however while both are different with different targets and different markets they both complete each other. When domestic production is a lot in a certain product, internationalizing that certain product and exporting it to a different country usually solves the over production problem inside a country and that allows products inside the country to stay intact and allows for more exchange of products between countries thus allows the market needs to increase and the profit to increase. The differences between international trade and domestic trade can be précised in the following points;
In terms of scope international business provides a wider scope for companies and firms. It includes not only good exports but also services like franchising in foreign countries and so it`s scope reaches to various countries and nations. Alternatively, the domestic trade scope is bounded by the country the trading process occurs in and so it doesn`t include services and only include certain types of products.
Benefits on Nations:
International business provides countries with a lot of benefits. International business helps nations develop economically well because provides them with extra foreign money, thus, it provides with more capital for their economic status. Also it allows nations and countries to make perfect use of their domestic resources and helps the country provide more employment opportunities the people inside it. Alternatively, domestic business does provide job opportunities inside the country, but they are usually lower paid jobs if compared to the ones related to international business. Also, domestic business, doesn`t affect the economic status of a nation and so it doesn`t help it grown economical as much as international business does.
Benefits on Companies:
International business affect more than just countries, it also affects the companies that carry out the international trading process. Companies increase their profit, and employ their product capacity well in international business, that provides them with important and quick ways out of any competition inside the domestic market. Domestic trade, instead, doesn`t help companies increase their profits, it also doesn`t help them in terms of competition because inside a country the amount of competition between similar products increase.
Political Benefits on Countries:
International business obviously affects the political relations between countries, countries with better relations tend to trade more with each other than countries with cold relations. Politically, an exchange or an international trading process between two countries affects the situation of both countries and gives a vibe of an alliance forming between countries, on the other hand domestic trade cannot happen between two countries as it is the trade that happens only inside one country and cannot cross borders.
All the previous difference clearly show how important international trade is for a country. It also shows clearly that domestic trade although important for citizens inside a country it cannot alone help a country advance and grow economically. International trade affect companies, nations and people while on the on the hand domestic trade only affects companies and people, it has very little effect on the nation it exists in, except maybe in terms of internal product satisfaction.
Clarification about the Main Drives of International Trade:
There are several reasons behind a company`s decision to enter the international field and they can be summarized in 4 important factors: costs, market factors, technology and competition.
Companies that think about internationalization are usually divided into two types, importing and exporting companies. Import companies usually decide to internationalize their products to reduce manufacturing costs and so they outsource their business overseas. Export companies on the other hand require a large amount of money investment in plants and machinery and so to increase their profit they tend to try entering the international marketing in order to divide the costs for the machinery they need in a large number of units.
Companies tend to try the international market when they want to rival other companies in their market-share and when they want to retaliate against a company who entered their own home market. In that case they try and enter their competitors home market. They also try to compete with new products by sending a similar product to the market and that helps their brands grow.
Companies tend to think about internationalizing their product when they realize that their product is wanted in the global market. When consumers show a preference towards their product in other parts of the world companies take the risk and decide to try widening their market.
The final drive force behind international trade is the technology and the fast information circulation around the world. With the way information spreads through the internet marketing a product internationally is not a hard thing anymore and so that lessens the burden on companies and gives them a better opportunity to develop internationally.
Finally, international and domestic trade both have their own benefits, domestic trade focuses on the trading process inside one country while international trade focuses on the trading process between countries. The difference between both fields exists in their boundaries and their benefits to the economy of the country. Domestic trade usually keeps the country going however it does not affect its development, while on the other hand; international trade affects the economy of a country greatly because it gives a country more income and more currency flow. International trade is derived from a companies need to grow more and reach the global customer while domestic trade is derived from a citizen’s need to satisfy himself or herself from a single product. International trade can be done between companies in different countries while domestic trade cannot be done except between companies and people inside a single country. Companies decide to expand internationally because of different reasons that include, product cost, market type, competitors type and finally the type of available technology. All of which are factors that facilitate the internationalization process and helps companies grow into the international market.
Iacoviello, M. (n.d.). International Business Cycles with Domestic and Foreign Lenders. Retrieved from BC: https://www2.bc.edu/~iacoviel/research_files/IBC.pdf
Keller, W. (2010). The Evolution of Domestic Trade Flows When Foreign Trade is Liberalized:. Retrieved from Spot colorado: http://spot.colorado.edu/~kellerw/ED.pdf
Rajagopal. (2007). Dynamics of International Trade and Economy: An Inquiry Into Emerging Markets. Nova Science Publishers.
UOB. (n.d.). Introduction to International Trade . Retrieved from UOB: http://www.uob.com.sg/assets/pdfs/corporate/corporate/TradeTutorials_Introduction.pdf