Long Answer
Medium difficulty • Structured explanation
Question 1
Long FormAnalyse the key differences between domestic business and international business. Why is international business considered more complex?
- In domestic business, both buyers and sellers belong to the same country, share the same language and business practices, and operate under a single legal framework; in international business, parties come from different countries with diverse cultures, legal systems, and business norms.
- Mobility of factors of production like labour and capital is relatively higher within a country than across national borders due to legal restrictions, cultural barriers, and economic differences, adding operational complexity to international business.
- International markets are heterogeneous — customers differ in tastes, preferences, customs, and buying behaviours across countries — whereas domestic markets tend to be comparatively more homogeneous.
- International business involves multiple currencies with fluctuating exchange rates, exposing firms to foreign exchange risks that are absent in domestic business transactions conducted in a single currency.
- Each country has its own political environment, tariff and taxation policies, import quotas, subsidies, and business regulations, requiring international firms to navigate multiple, sometimes conflicting, regulatory frameworks simultaneously.