The global market is increasingly becoming more intertwined requiring firms to engage in
business with firms from other countries. Many opportunities are waiting for firms that decide to
engage in international trade. A study has shown that 62% of CFOs buy materials or services
from foreign companies and 73% reported that they engage in some form of trade activity in
foreign countries which shows a huge increase from the past years (Evans, 2021).
Firms that want to capitalize on these opportunities need a solid international business strategy.
Every opportunity has its own risk that needs to be analyzed and mitigated properly. There are
three major benefits to engaging in international business namely new customers, lower costs,
and diversification of the market (Kennedy, 2020). Some risks need to be considered including
foreign exchange risk and political risk (Beers, 2021).
The growth of a firm is affected by the size of the market it operates in and when the firm moves
to a global market the possibility for growth expands as well. This is especially true for firms that
expand into large markets like China and India. This will provide new customers for the firm to
grow its revenue and minimize cost per product. Furthermore, the firm gets access to cheaper
raw materials and labor (Kennedy, 2020). This is only true for firms moving from developed
countries to developing countries.
Many firms are choosing to offshore to reduce costs but that comes at the cost of rising
unemployment in their country. This may not be a long-term goal for firms as the cost of
resources and labor is increasing even in developing countries. The last advantage is
diversification of the market to reduce the risk associated with operating in a single market
(Kennedy, 2020). If that market or country faces economic or political challenges the business
may take significant losses and go bankrupt. Hence, operating in multiple countries and markets
allows firms to take some losses in some places and cover those losses with the profits gained in
other places.
However, there is some risk that should be considered like foreign exchange risk and political
risk. Foreign exchange risk is associated with fluctuations of currency that may result in a higher
cost or reduced profit (Beers, 2021). In some cases, it's a profitable thing, especially for exporters
where their local currency has devaluated or the foreign currency has appreciated. The bigger
risk is the political risk where government instability or government interference affects the
business with firms from other countries. Many opportunities are waiting for firms that decide to
engage in international trade. A study has shown that 62% of CFOs buy materials or services
from foreign companies and 73% reported that they engage in some form of trade activity in
foreign countries which shows a huge increase from the past years (Evans, 2021).
Firms that want to capitalize on these opportunities need a solid international business strategy.
Every opportunity has its own risk that needs to be analyzed and mitigated properly. There are
three major benefits to engaging in international business namely new customers, lower costs,
and diversification of the market (Kennedy, 2020). Some risks need to be considered including
foreign exchange risk and political risk (Beers, 2021).
The growth of a firm is affected by the size of the market it operates in and when the firm moves
to a global market the possibility for growth expands as well. This is especially true for firms that
expand into large markets like China and India. This will provide new customers for the firm to
grow its revenue and minimize cost per product. Furthermore, the firm gets access to cheaper
raw materials and labor (Kennedy, 2020). This is only true for firms moving from developed
countries to developing countries.
Many firms are choosing to offshore to reduce costs but that comes at the cost of rising
unemployment in their country. This may not be a long-term goal for firms as the cost of
resources and labor is increasing even in developing countries. The last advantage is
diversification of the market to reduce the risk associated with operating in a single market
(Kennedy, 2020). If that market or country faces economic or political challenges the business
may take significant losses and go bankrupt. Hence, operating in multiple countries and markets
allows firms to take some losses in some places and cover those losses with the profits gained in
other places.
However, there is some risk that should be considered like foreign exchange risk and political
risk. Foreign exchange risk is associated with fluctuations of currency that may result in a higher
cost or reduced profit (Beers, 2021). In some cases, it's a profitable thing, especially for exporters
where their local currency has devaluated or the foreign currency has appreciated. The bigger
risk is the political risk where government instability or government interference affects the
