Q.3:- What benefits do firms derive by entering into international trade. Comment.
Firms derive the following benefits by entering into international business
(i) Prospects for Higher Profits International business can be more profitable than the domestic business as business firms can earn more profits by selling their products in countries where price are high when the domestic prices are lower.
(ii) Increased Capacity Utilization Firms can make use of their surplus production capacities and also improving the profitability of their operations by going for overseas expansion and procuring orders from foreign customers. 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 can improve prospects of their growth by entering into overseas markets when demand for their products starts getting saturated in the domestic market.
(iv) Way out from Intense Competition in Domestic Market Internationalization is the only way to achieve significant growth when competition in the domestic market is very intense. Highly competitive domestic market induces many companies to go international in search of markets for their products.
(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 internationalization.