Page 3 - L2

(iv) Increased standard of living: In the absence of international trade of goods and services, it would
not have been possible for the world community to consume goods and services produced in other
countries that the people in these countries are able to consume and enjoy a higher standard of living.

Benefits to Firms

(i) Prospects for higher profits: International business can be more profitable than the domestic
business. When the domestic prices are lower, business firms can earn more profits by selling their
products in countries where prices are high.

(ii) Increased capacity utilisation: Many firms setup production capacities for their products which are
in excess of demand in the domestic market. By planning overseas expansion and procuring orders from
foreign customers, they can think of making use of their surplus production capacities and also
improving the profitability of their operations. Production on a larger scale often leads to economies of
scale, which in turn lowers production cost and improves per unit profit margin.

(iii) Prospects for growth: Business firms find it quite frustrating when demand for their products starts
getting saturated in the domestic market. Such firms can considerably improve prospects of their
growth by plunging into overseas markets. This is precisely what has prompted many of the
multinationals from the developed countries to enter into markets of developing countries. While
demand in their home countries has got almost saturated, they realised their products were in demand
in the developing countries and demand was picking up quite fast.

(iv) Way out to intense competition in domestic market: When competition in the domestic market is
very intense, internationalisation seems to be the only way to achieve significant growth. Highly
competitive domestic market drives many companies to go international in search of markets for their
products. International business thus acts as a catalyst of growth for firms facing tough market
conditions on the domestic turf.

(v) Improved business vision: The growth of international business of many companies is essentially a
part of their business policies or strategic management. The vision to become international comes from
the urge to grow, the need to become more competitive, the need to diversify and to gain strategic
advantages of internationalisation.