DIFFERENCE BETWEEN DOMESTIC AND

INTERNATIONAL
UNIT 1 SECTION
BUSINESS
2
Unit 1, section 2: Difference between
INTERNATIONAL BUSINESSdomestic and international business

The essence of business is the production of goods and services for sale to
consumers with a view to making profit. Wealth creation or profit
maximisation is the main reason why an entrepreneur will take the risk of
combining the other factors of production to create any good or service to
satisfy consumers’ needs. For economic rationality, the only difference
between a charitable organisation and a business entity is the issue of profit
maximisation, or wealth creation. In this Section, we are going to analyse
businesses that only operate within their home or national boundaries, and
those who venture onto the international market or other host or foreign
countries

By the end of this Section, you should be able to:

 describe what a business organisation is
 describe the nature and characteristics of domestic business
 differentiate international business from domestic business
 analyse the factors influencing both international and domestic business.

What is a Business Entity?

A Business Entity is any arrangement by an entrepreneur to combine the
three remaining factors of production, namely land, labour, and capital for
the creation of goods and services for sale to consumers at a profit. A
business entity may, therefore, be defined as any trade, business, profession,
or vocation the purpose of which is to create goods and services for eventual
sale to actual or potential buyers.

A business organisation can, therefore, be defined as any arrangement set up

by an individual or a group of individuals, the government or its agencies
for the purpose of providing goods and services to satisfy the needs of
consumers for a profit.

There are two basic types of business organisations, namely private and
public enterprises. Private businesses are owned and managed by private
individuals, and they include sole proprietorships, partnerships, private
limited liability companies, and cooperative societies.

Public enterprises are those types of business organisations that are wholly
owned, controlled, and managed by the government. These business
organisations are owned either by a local, regional, state, or federal
government. Their major objective is to provide social services to the
public, ostensibly at a reduced cost. They are often associated with such
names as authority, corporation, board, and commissions.

What are the Characteristics of Domestic Business?

The characteristics of domestic business are that:
 They are mostly wholly owned by private citizens or nationals

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Unit 1, section 2: Difference between domestic and international business BUSINESS

 The sources of their raw materials, operations, products, markets,

suppliers, and customers are confined within their national boundaries.
 The sources of any capital injection for the business are raised locally.
 They hardly employ any expatriate staff
 All transactions are carried out using the local currency

What are the Characteristics of International Business?

The characteristics of international business are that:
They have all the characteristics of domestic business, plus an international
division
The sources of their raw materials, production facilities, markets, are all
strewn around the globe.
They are frequently engaged in Wholly-owned, Joint Ventures, or
Partnerships enterprises, or the granting of copyrights, licenses, patents, and
franchise with their host countries.
Because they are conglomerates, they employ nationals of different
countries and maintain an elaborate organisational structure with a skeletal
Headquarters Staff.

Differences between Domestic Business and International

Business
The main differences between domestic business and international business
are that:
 Language: In domestic business, the same or similar languages are
used; but in international business, the use or employment of different
languages become quite imperative or inevitable
 Currency: In domestic business, the same currency is used. But in
international business, different currencies come into play leading
invariably to currency translations.
 Mobility of Factors of Production: With domestic business, there
are no restrictions on the free mobility of factors of production.
However, with international business, there are heavy limitations on the
movement of the factors of production.
 National Boundaries: With domestic business, all trade is carried on
within the same national frontiers or boundaries. But international
business is carried on across international boundaries.
 Taxation: Domestic business is subject to only the taxation regime in
the home country. But international business is subject to the various tax
regimes in all its international branches
 Trade Restrictions: There are no trade restrictions as far as domestic
business is concerned. But when it comes to international business, there
are all sorts of trade restrictions including tariffs, import / export quotas
etc.

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BUSINESS Unit 1, section 2: Difference between domestic and international business

Factors Affecting Domestic Business

Factors affecting domestic business include:
 Limited sources of capital for business expansion and growth
 Limited sources of raw materials, which are mostly locally based
 Limited market opportunities for business expansion and growth
 Lack of the economies of large scale production
 Unlimited liability of capital providers in case of any eventualities
 Lack of continuity of business upon owner’s death
 Too much extended family interference in business operations for
financial assistance
 Employment of Local staff with limited knowledge and experiences
 Inadequate transport and communication facilities or infrastructure
within the economy to boost trade
 Lack of state-of-the-art technology and equipment to support operations
 Dumping of foreign goods on the local market to stifle competition

Factors Affecting International Business

Factors affecting international business include:
 Exchange rate fluctuations in host countries
 Trade restrictions on foreign companies
 Language barriers to easy communication
 Different political and legal systems in host countries
 Protection of local infant industries by host governments
 Embargoes placed on sources of raw materials or the sale of finished
products
 Huge transport costs facing foreign firms
 Double taxation regimes against multi-national companies

Summary
Dear student, so soon we have come to the end of Section 2 of Unit 1. To
recap what we said from the beginning, we looked at what constitute a
business entity, the type of domestic and international enterprises. We also
looked at their characteristics and differences between them. We concluded
by looking at the factors or forces militating against their operations. Thanks
for your keen interest so far!

Please, refer to other texts in the references provided for further information
on the meaning and importance of this topic. Put down any important notes
you come across in the blank sheet provided below for face-to-face
discussions with your course lecturer.

Now assess your understanding of this Section by answering the following

Self-Assessment Questions [SAQs]. Good luck!

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Unit 1, section 2: Difference between domestic and international business BUSINESS

Activity 1.2
 What is meant by a business entity?
 What is meant by domestic business?
 What are the characteristics of domestic business?
 What is meant by international business?
 What are the characteristics of international business?
 What are the differences between domestic and international business?
 What factors influence the smooth operations of domestic business?
 What factors influence the smooth operations of international business?

Did you score all? That’s great! Keep it up

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