The aspect of trade whether locally or internationally is the same. This is because trade involves the exchange of goods and services. However, there are several factors that stand out when it comes to domestic trade and international trade. In this article, we are going to look at the difference between foreign and domestic trade.
1. Scope
In domestic trade, the scope is limited to certain geographical position. This means that the trading activities are limited to a single boundary. However, in international trade, the scope is wide as trading activities can take place in different boundaries.
2. Immobility of factors of production
Among the four factors of production, labor and capital tend to challenging in terms of movement. Unlike in domestic trade where there are few restrictions of movement, in international trade it is very difficult for these two factors to be mobile. In domestic trade, labor is distributed according to opportunities available. This is because wages tend to be on the same level only standards of living differ from one place to another. In the case of international trade, wages and check population differ from one country to another. On the hand, capital moves freely in the same country as opposed to different countries.
3. Different currencies
When it comes to domestic trade, the currency being used is the same thus making transactions to be easy and simple. In international trade, each country has its own currency. This makes international trade to be very dynamic and complex. Exchange rates for currencies also become quite challenging as they differ from one economy to the other.
4. Different cultures
Understanding the culture of a nation is very key to doing trade. This is because culture defines and encompasses what a society can do ranging from customs to business practices. In domestic trade, it is very easy to understand the culture around since you are already familiar with it. However, it is very important to have good knowledge of the culture of the foreign market that you seek to venture in to. This way, you will be prepared on what to expect from a certain region and be able to fit in more smoothly. It is also very important to respect the culture of that country and flow with it other than to try change how things are done.
5. Different political and legal systems
Each country has its own political and legal systems. Unlike in domestic trade where the political and legal system encompasses the whole country, in international trade the systems differ from one country to another. Therefore, it is very important to understand the political and legal systems of foreign countries when doing international trade. This is because each government has different rules and policies when it comes to foreign firms as well as products. It is very key to abide by the policies of that particular country to ensure that there are no long term negative implications to your firm that can affect your business. It is also advisable to get legal counsel of that particular country so that you are fully aware of how the policies in place can affect your business if not implemented.
