The nature and challenges of foreign trade are different from domestic trade and the hurdles are higher and hence it is important to know the difference between them. Some of the points of difference are as follows:
(1) Difference on the basis of size: Since foreign trade involves many countries, goods and services, laws, methods etc., the size of foreign trade is many times larger than internal trade.
(2) Different Currencies and Modes of Payment : Payments in internal trade are made in the currency of the home country. Also, payment has to be made from one bank to another bank in one’s own country. But in foreign trade one has to convert one’s own country’s currency into an accepted international currency. Exchange rates must be known, permissions must be obtained as per the laws of that country. Also, importers and exporters have to obtain a letter of credit from their home country’s bank for payment.
(3) Differences in language, culture and society : Exchange in internal trade takes place in a common language, culture and social system. But in foreign trade, because the language, culture, society etc. are different in every country, the trade has to be done in such a way that the sentiments of any people are not hurt. Each country has to sell products that suit the lifestyle,
(4) Difference in transport costs: Foreign trade has higher transport costs as compared to internal trade. Also there are many types of taxes to be paid at the border of each country which are higher as compared to internal trade.
(5) Difference in degree of competition : Even if there are several producers of a good in internal trade, they cannot compete much on the basis of assortment and differentiation of goods because of similar means of production, technology etc. But in foreign trade every manufacturer competes on the basis of assortment and differentiation. Also, to sell one type of product in a country, the producers of that country and the producers of other countries compete for market share. For example, when India did not have foreign vehicles (cars), there was competition among the country’s manufacturers, but the scale was not the same as it is today where new models, new attractions, new advertisements etc. are seen every day. Today foreign car manufacturing companies try to increase their share in the Indian market.
(6) Differences in customer satisfaction : In the same country society, education, awareness, information, Customer satisfaction to a seller due to the same standards of preferences, values, tolerances etc. Estimates are easily obtained and products manufactured, sold and advertised accordingly. But in foreign trade there is a big difference in such matters from country to country. So the seller has to work harder to satisfy the customers of each country.
In other words, insider trading can predict customer behavior. While in foreign trade, this kind of prediction cannot be done easily.
(7) Difference in administrative and legal system : Administrative and legal system of own country As traders know, they have less difficulties in doing business. But in foreign trade It is almost impossible to do business without knowing the taxation, legal, licensing systems of each country is The process of obtaining information about other countries’ policies is tedious and expensive.
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