What benefits do firms derive by entering into international business?
Firms derive several benefits by entering into international business:
Prospects for higher profits is a major benefit as international business can be more profitable than domestic business. When domestic prices are lower, business firms can earn more profits by selling their products in countries where prices are high.
Firms can also import goods at lower prices from other countries, which helps them reduce costs and access products not readily available domestically.
Prospects for growth becomes significant when demand for products starts getting saturated in the domestic market. Such firms can considerably improve their growth prospects by entering overseas markets. Many multinationals from developed countries have entered developing countries' markets after their home country demand got saturated.
International business provides a way out of intense competition in domestic market. When competition is very intense domestically, internationalisation becomes the only way to achieve significant growth. It acts as a catalyst of growth for firms facing tough market conditions on the domestic turf.
Explanation
The textbook explicitly lists four main benefits to firms from international business: (i) Prospects for higher profits - firms can sell in markets where prices are higher; (ii) Ability to import at lower prices; (iii) Prospects for growth - especially when domestic markets are saturated; and (iv) Escape from intense domestic competition. The answer covers all these points with proper paragraph breaks and bold key terms as required for a 5-mark long answer.