Why do companies participate in international business transactions?

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The simple answer is that, in this day and age, it is neither practical nor profitable to avoid doing so. The current global economy is in such a state that you would be very hard pressed to observe a business transaction involving a service or product that is 100% domestic....

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The simple answer is that, in this day and age, it is neither practical nor profitable to avoid doing so. The current global economy is in such a state that you would be very hard pressed to observe a business transaction involving a service or product that is 100% domestic. As a consumer, most of the products you consume come from abroad. Even if we're speaking on terms of manufacturing, raw materials are often imported from abroad.

International trade can keep prices down and maintain a wide variety of choices in terms of products for consumers. In the age of the internet, and with the ease of using it to shop, the boons of international trade have never been more obvious. Frankly, if a company has so much as a web page, they are engaging in at least a minor form of international trade.

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Companies participate in international business transactions because they think that they can improve their profitability by doing so.  There are at least two major ways in which they think they can improve profitability.

First, they might think that they can lower costs by participating in such transactions.  Many firms know that they can find lower labor costs in countries such as China.  This makes it worthwhile for them to, for example, use suppliers in China rather than in the US.

Second, they may want to penetrate foreign markets.  They may want to do so as a way of increasing the size of their market and the amount of goods and services that they can sell.  Firms might enter into relationships with foreign firms, then, as a way of gaining access to the foreign market.

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