International business

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Unit 3 ­ International Business
Why does a business seek international markets?
Product or market conditions that may prompt a business to trade
As soon as people specialise in a particular activity rather than try to
meet all of their own needs, they must trade
International trade is the exchange of goods and services across
international boundaries
The process of specialisation and division of labour leads to far greater
output and consumption than self-sufficient individuals and families
could achieve
Individual providers of service activities such as hairdressing are likely
to trade within a small area
New markets
Multiple markets
Global sourcing
Limited growth
Domestic markets
Foreign competition
Improved infrastructure
Trade liberalisation
Trade barriers
Trading blocs
Reasons to trade internationally:
o Selling more can bring more revenue and profit
o Where there are high costs of research and development, selling
to multiple markets speeds progress towards breakeven point
o If a home market is saturated or competition is fierce,
exporting can be an attractive way to increase sales
o As products move through their life cycle, sales will in many
cases eventually diminish
o A new, overseas market could offset the impact of a declining
domestic market
o Just as businesses increasingly sell overseas, they are also able
to source materials, components and services from beyond their
own national boundaries
o Outsourcing is buying in products and services rather than
undertaking work within the company. This means that a
business can focus on what it does best and use other people
for the rest of the work
What market conditions encourage international trade:
o Improvements in infrastructure
o Improved communications
o National differences disappearing
o Home markets may be saturated
o Declining home market

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Sell in multiple markets
o Government schemes in place
o Source materials
o More variety of suppliers
o Outsourcing/off shoring
o Increased trade liberalisation
Selling in multiple markets spreads risks:
o Difficulties in a market become less threatening when it is one
of several markets as the supplier is no longer dependent on a
single market
o Sometimes a home market sees increasing competition from
overseas suppliers, motivating home producers to look for new
markets where they can compete
o The risk in exporting can…read more

Page 3

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It encourages trade liberalisation by operating a system
of trade rules and by providing a forum for the
negotiation of trade disputes
Promotes peace
Trade rises incomes
System encourages good government
o Trade liberalisation and WTO have made it easier for b/s to
export and to compete in foreign markets
o Advantages:
Economic growth can increase
Encourages specialisation & improved efficiency
through comparative advantage
Customers may benefit from improved choice and lower
Improved international trade
o Disadvantages:
× Countries can become over dependent on…read more

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Both China & India have more than a billion inhabitants, roughly a fifth of
the world´s population each, and both increased their rates of economic
growth significantly
Both countries have seen rapid industrialisation -> consequence: the
benefits of growth are not shared equally; income distribution has become
more uneven.…read more

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Rapid income growth in China, combined with the uneven income
distribution, has created some affluent consumers with a
growing taste for luxuries
o While there affluent Indians, the size of the Indian market for
luxuries has remained relatively small.…read more

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A business will want to know how competitive an industry
is in a potential large market
Where a market is already intensely competitive, profit
margins are likely to be squeezed - > this will make the
market less attractive unless the business is
confident that it has a competitive advantage to put
ahead of rivals
Comparative advantage and specialisation:
Absolute advantage:
Refers to the ability to produce more of a good or
service than competitors, using the same amount of
A simple and…read more

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CSR obliges businesses to consider more than just profit, to
take account of the interests of workers, suppliers,
customers and the wider community as well as stakeholders
They are generally expected to respect the environment, to
treat people fairly and to "give something back" to the local
Some businesses treat CSR as a public relations exercise,
giving more priority to looking good than to doing well.…read more

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A tax on imported goods. This adds to the price of
imports, shifting the supply curve upwards
o Tariffs are a tax on imports. The higher the taxes
the more expensive imports become.…read more

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Globalisation is broadly defined as the growing integration
and interdependence of nations
The increased freedom & capacity of individuals & firms to
undertake economic transactions with residents of other
countries and operate on a global scale
One measure of the impact of globalisation is the reduction of
Global strategy needs to be considered by any business which
sells products to overseas customers
Mergers & takeovers:
Some businesses have grown relatively slowly, preferring to
expand by internal growth
The alternative of external growth, which entails…read more

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× Differences in consumer needs, wants and usage
patterns for products
× Differences in consumer response to marketing mix
× Differences in brand and product development and the
competitive environment
× Differences in the legal environment, some of which may
conflict with those of the market
Global market niches:
The existence of FC in most productive activities encourages
businesses to make and sell large quantities so that their FC can
be spread across more units, AC will fall & prices can be
attractive…read more



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