Every company dreams of becoming big so that it can expand its operations not only in the domestic market but also internationally. International operations in simple words happen when the company has set up marketing offices or manufacturing plants in foreign countries to market their products in those countries. In order to have a better understanding of this concept, one should look at some of the advantages and disadvantages of international operations –
Advantages of International Operations
Increase in Business
The first and foremost advantage of international operations is that it helps the company in the increase in business because when the firm decides to operate and sell its products in a particular foreign country then the whole country is its potential market which can be captured by the company and if it’s successful than the company can have an advantage of operating in two countries and hence higher sales leading to higher profit for the company.
Brand Value
Once the company has international operations it automatically leads to an increase in brand value of the company domestically because it’s all about perception and when people see that company is operating in many countries and not in the domestic market only then they have more confidence and patronage towards the company’s products. In simple words just like a football player who has played in international matches will command more value in club teams of the domestic circuit in the same way companies having international operations will have more value in the eyes of consumers of the domestic market.
Economics of Scale
Another benefit of international operations is that it helps the company in reducing expenses due to economics of scale because due to increase in production firms save money as more production means less cost price per unit besides company has access to cheap raw material and labor of foreign country also which again leads to cost-saving for the company.
Disadvantages of International Operations
No Guarantee of Success
The biggest drawback of international operations is that while it is easy to think that company will be able to take benefits of international operations but in reality, there are many problems associated with international operations which not all companies can handle properly leading to failure in international operations and thus incurring losses. In simple words just like playing in international matches does not guarantee that player will be successful in a domestic club team in the same way there is no guarantee that international operations will be successful only.
Exchange Rate related Issues
Another problem with international operations is that it gives the problem of dealing in two currencies one is the domestic currency and the other is the foreign currency of the market in which the firm is having its international operations and thus exposing the company to exchange risk which is in addition to business and financial risk associated with the business. In simple words, in the case of international operations, there is additional exchange risk apart from other risks associated with doing business.
Laws and Cultural Issues
In case of international operations companies have to deal with foreign countries laws and regulations in addition to the domestic laws and regulations which puts extra pressure on the company besides there are many cultural issues also and consumers, as well as employees, will have to be treated differently in international markets as compared to domestic markets which again is not an easy task and may lead to problems for the company.
As one can see from the above that international operations have pros as well as cons and that is the reason why any company thinking about going for international operations should carefully read the above points and then only should take any decision regarding whether to do international operations or not.