Question

Compare the differences between conducting business internationally versus domestically. What additional challenges does an international financial manager face compared to their domestic counterpart? (500 WORD APPROX)

Answer 1

Trade refers to the exchange of goods and services for revenue, which can be conducted within the country's geographical limits or outside its borders. Trade taking place within the country;s territorial borders is called Domestic business, while trade occuring abroad between two countries is called Internationally or foreign business.

The differences between conducting business internationally versus domestically are classified as under :

1) Meaning : Domestic Business is defined as those business whose economic transaction is conducted within the geographical limits/areas of the country.
International Business refers to a business which is not restricted to a single country, i.e. a business which is engaged in the economic transaction with several countries across the world.

2) Areas Of Operations : The area of operation of the domestic business is limited, means within the home country.
  However, the area of operation of an international business is vast, i.e. it serves many countries at the same time.

3) Quality Standards : The quality standards of products and services provided by a domestic business is relatively low.
Conversely, the quality standards of international business are very high which are set according to global standards requirements.

4) Deals In currency : Domestic business deals in the currency of the country in which it operates.
On the other hand, the international business deals in the multiple currencies.

5) Capital Investments : Domestic Business requires comparatively less capital investment as compared to international business.

6) Restriction by Laws : Domestic Business has few restrictions, as it is subject to rules, law taxation of a single country.
As against this, international business is subject to rules, law taxation, tariff and quotas of many countries and therefore, it has to face many restrictions which are barriers in the international business.

7) Nature of Customers : The nature of customers of a domestic business is more or less same.
where, international business wherein the nature of customers of every country it serves is different.

8) Business research : Business Research can be conducted easily, in domestic business.
However, in the case of international research, it is difficult to conduct business research as it is expensive and research reliability varies from country to country.

9) Mobility : In domestic business, factors of production are mobile
whereas, in international business, the mobility of factors of production are restricted.

Additional challenges, which an international financial manager face compared to their domestic counterpart of business activity :-
Carrying out the international business operations and its managements is much harder than running a domestic company. Many business companies find it difficult to grow their business internationally due to shifts in political, economic, socio cultural climate around the nations.
Following are the major types of additionally challenges that face n affecting into international business :

A) Foreign Laws: While businesses going global shall have a comprehensive understanding of the local laws and rules that prevail in that country. From tax implications to trading norms, legal requirements are different for every country. Proper team with expert knowledge and experience on laws and regulation of countries where businesses are stepping into being globalized shall be in place to avoid any prosecution or penalties of that state.

B) Accounting: Accounting is very critical when it to multinational business liable to pay corporate tax in the countries they operate. Different tax implications, tax rates, and various compliance requirements make the accounting a challenge in an international operation.

C) Tax Liabilities: Company is liable to pay tax on its income in the country of its operations and sometimes also its resident country. Paying multiple taxes can burden the company with double taxation reducing its overall revenue. However, Company can mitigate its risk of multiple layers of taxation by having good knowledge in tax concepts such as Tax Treaties between the Countries, DTAA, etc can lower the burden of business that needs not to pay double taxes.

D) Pricing: Price quoted for products and services that are served abroad can be another significant challenge while doing business overseas. The company shall ensure to keep its cost-competitive along with ensuring its profits. Pricing is a crucial factor in positioning its brands.

E) Payment Methods: Business working abroad shall determine the acceptable payment method along with its accuracy and security, which is a key challenging factor for any business as payment is the key-category of any running business. Payment methods that are acceptable in the home country are not necessarily acceptable abroad.
However, the business can decide amongst the several methods of accepting the payment.

F) Currency Fluctuations: Fluctuation in the currency rate is one of the challenges to be considered by the business operating abroad. Exchange Rates shall be monitored throughout as major fluctuations can affect the expense and profits. Therefore companies to avoid such situations can make a sale and pay the cost in the same currencies to balance the rate of expenses and income.

G) Cultural Differences: Communication skill is very efficient for business strategy, either operating in the home country or abroad. However, the difference in cultures and languages across the world is a major challenge faced. The company shall focus on developing core cultural and communication skills. Effective Communications with clients, customers, colleagues is essential for international success. Non-Verbal communications also play a crucial role in successful business operations.

H) Political risk: International business has to deal with political instability and uncertainties as a major challenge and threat. Business shall do the risk assessment of the economic and political environment before entering into any market. Business face issues such as corrupt practices, unstable policies, etc in emerging markets. Ever-changing business regulations and policies can negatively affect the working of the business.

For Business planning to go across borders, there are many problems surrounding international business. These obstacles should be tackled to solve the risks an company faces of setbacks or hurdles.