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Question

Explain the problems of international business.


Solution

International business suffers from some specific problems which are explained below:

a. Difference in languages and problem of distance: Each country has its own language in which its traders wish to prepare their trade documents right from trade enquiry or the letter of quotation to the payment documents. This works as a serious barrier between the traders of the different countries. Moreover, the distance between the trading countries increases the cost of transportation of goods, making the price high and also creating a risk of fraud, etc. as the traders may not have face to face contact between them.

b. Import-export restrictions: At times many countries put certain restrictions on their foreign trade to make their Balance of Payment (BOP) favourable. They impose heavy tariffs or import duties, volume restrictions on both of their imports as well as their exports. This hampers the smooth conduct of International trade.

c. Lack of proper information about the foreign market: In most of the cases new traders do not have adequate information about foreign markets whatever information is provided by different agencies are either inadequate or does not fulfil their requirements. Thus, they fail to have clarity about the opportunities available to them for exports and imports.

d. Heavy documentation: International Trade requires so many legal formalities and many documents, which makes the trade procedure very cumbersome as well complex. Therefore most of the small traders trade only through third parties rather than going directly and have to pay commission to them which reduce, their profit margins, increase the cost of transactions.

e. Payment problems: There may arise payment problem between traders of both countries as they both want to transact in their own currency and fluctuations in foreign exchange may also add on to the problem of payment and due to this risk may also arise for both the traders.

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