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FOREIGN TRADE — Economics STD 12 Commerce — Question

Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsFOREIGN TRADE5 Marks
Question
Explain the difference between $($Domestic$)$ Internal Trade and $($International$)$ Foreign Trade.
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Answer

Form and challenges of foreign trade are different from Internal Trade.
  • The differences between them are as below.
$(1)$ Size:
  • The size of foreign trade is bigger than that of internal trade.
  • Many countries, many products, services, laws, systems are related to it.
  • Internal trade can be in the form of retail or wholesale business.
  • Foreign trade is mainly in bulk quantity.
$(2)$ Different currency and mode of payment:
  • In internal trade, payment is made in the same currency.
  • Payment is made through bank from one bank to another bank of the country.
  • This is a simple process.
  • In foreign trade currency of one's own country is to be converted in to internally accepted currency.
  • Rates of foreign exchange should be known.
  • Permission too is to be taken as per the concerned country.
  • One who is in the business of foreign trade has to obtain letter of credit certificate from his bank.
  • Problems of foreign currency and foreign exchange sometimes arise in doing so.
$(3)$ Regarding Language, Culture, and Society:
  • Internal trade is comparatively easy because language, culture and society are the same.
  • While in foreign trade the language of each country, its culture, and social structure are different.
  • Business is carried out considering all such factors.
  • Products are sold according to the life style of the concerned country.
  • Packing is done according to international standard and international quality should be maintained.
$(4)$ Difference in transportation Expense:
  • Due to long geographical distance transportation cost in foreign trade is more as compared to internal trade.
  • Local taxes are less in internal trade.
  • Compared to this on the boundary of every country higher taxes are paid in foreign trade.
$(5)$ Difference in Degree of competition:
  • Degree of competition is higher in foreign trade than internal trade.
  • There may be many producers of the same product but as the factors and technology in one country is the same, or common so the degree of differentiation in product is less.
  • The producer does not to face much competition.
  • While under foreign trade due to differentiation in technology the product has to face keen competition in the market and attempt is made to gain more market share. e.g. When there were no foreign cars in India only handful local companies manufactured cars and the degree of competition was not high.
  • Today imported cars are allowed in India. Various car manufacturing companies attract customers in the market through new models, new advertisement etc.
  • Keen competition is observed in the market.
$(6)$ Consumer Satisfaction:
  • Under internal trade it is easier to satisfy consumer than under foreign trade.
  • It is bit easy to sale the product in the same country where society, education, life-style, selection, values of the people are more or less the same and product is manufactured considering all the above factors.
  • Under foreign trade the main difference is that in each country these factors differ much.
  • It is difficult to satisfy them and one has to manufacture the product according to their expectations.
  • In short under internal trade consumer’s behaviour can be judged while it is difficult to forecast consumer's behaviour in foreign trade.
  • Risk factor is less in internal trade in comparison to foreign trade.
$(7)$ Difference in Administrative and legal system:
  • Trader knows government financial policy, fiscal policy, industrial policy and administrative policy of the country as they are similar all over the nation.
  • So it is easy for traders under internal trade while under foreign trade every country has different tax structure, license policy and economic policy.
  • Without knowing them fully it is not possible for trader to trade.
  • It is not easy to get information in this regard.
  • In short under internal trade measures and weight are similar.
  • Trader knows legal factors also.
  • Restriction in internal trade is less.
  • Trade procedure is less complex and less expensive.
  • Under foreign trade restrictions on import-export are more complicated and more expensive.
$(8)$ Other:
  • Under internal trade difference in availability of natural resources is comparatively less as a result difference in production cost also is sinking.
  • In foreign trade as this difference is more, there is much difference in production cost.
  • Foreign trade is more sensitive to political changes. Means of production are also not changing very fast.

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