The nature of international trade is quite different from that of domestic trade and it involves several hurdles and challenges.
The basic differences between the two forms of trade are summarized
below:
1. Based on the scale:
The scale of international trade is much larger than that of domestic trade as it involves more countries, more variety of goods, more procedures, more and stricter rules, etc.
2. Based on currencies and modes of payment:
- In domestic trade, financial transactions take place only in domestic currency and payment is transferred from one bank to another in the same country.
- On the other hand, international trade involves several currencies and exchange rates. It also involves converting the currency at a determined exchange rate into an internationally acceptable currency.
- Payment is also to be made in internationally acceptable currency.
- Moreover, in international trade, the procedures are more rigorous and they involve several permissions, clearances and duties. Buyers have to obtain letter of credit from their respective banks for assurance of payment to sellers.
3. Based on language, culture and society:
Transactions in domestic trade take place within a familiar social, cultural and language set-up whereas in international trade these are very different.
Hence traders have to be more careful so that they do not fall into ‘ controversies or hurt sentiments and even to avoid legal offences.
4. Based on transport cost:
- The transport cost in international trade is much higher than the transport cost in domestic trade.
- Moreover, taxes are to be paid for each country that the goods cross. This is not the case in domestic trade and so international trade is costlier.
5. Based on degree of competition:
- Although in domestic market there are many producers but the nature of factors of production and technology in a country are more or less same. Hence, the producers cannot produce goods with a very wide range and distinction.
- In international trade, producers/traders use products and processes of their own countries which are quite different from one another. As a result, we can see a wide range of products that too quite different from each other.
- The producers of various countries compete against each other in international market.
- For example, when the production and sale of foreign cars was not allowed in India, the competition among Indian car manufacturers was not very high as compared to today. Today, various manufactures belonging to several countries compete with Indian companies in terms of their car models, finishing, features, price, etc.
- Foreign car makers make continuous efforts to increase their share in the Indian car market.
- Thus, there is lesser competition in domestic trade as compared to international trade.
6. Based on consumer satisfaction:
- It is not very difficult to satisfy consumers in domestic market because the trader is more or less aware about the social set-up, level of awareness and education, information, preferences, values, tolerance level, etc. of the people. Moreover, these conditions are quite similar within the country.
- ‘This helps the producer to produce as per the demand of consumers and meet their expectations.
- In international trade, these aspects are different in different countries of the world. Hence, it is quite difficult to predict requirements of customers at international level and satisfy them.
7. Based on administrative and legal systems:
- In domestic’ trade, the traders very well know the administrative and legal systems and procedures and so they face relatively lesser difficulties in undertaking trading activity.
- In case of international trade all these things are quite different. These things create several problems for the traders to trade.
- It is almost impossible for a trader to trade without understanding the tax system, the system of obtaining licenses’, permissions as well as the-legal systems of various countries of the world. Moreover, all these processes are quite expensive too.
