Unit 3 - 3.3.1

HideShow resource information
  • Created by: Georgia
  • Created on: 11-01-13 07:55
Preview of Unit 3 - 3.3.1

First 539 words of the document:

3.3.1 ­ Why does a business seek international markets?
Why do firms trade internationally?
- To expand (saturated domestic market)
- Better quality labour and raw materials
- Cheaper raw materials and labour
- Spotted a market abroad
- Legislation and tariffs/exchange rates
- Globalisation (improved transport and communications)
Why might firms wish to trade internationally?
- Extending the product life cycle, decline in one country so move to another to gain revenue
- Distinctive competence, a company which has a unique strength e.g. what they are good at
- Global sourcing, found something abroad which gives them an advantage of economies of scale
- Limited growth in domestic markets, home market is saturated or people aren't interested in the
product anymore
- Foreign competition in home markets, too much competition in home country (e.g. EUfree trade) so
move to sell in foreign markets
- Improvements in transportation and communication links, easier and cheaper for firms to trade
internationally as it is easier to monitor foreign sales
- The market is growing or has growth potential
- Organisations have left the market leaving an unfilled gap and demand for products
- The entrant has a real perceived advantage
- Existing firms are complacent
- A business is able to use it's existing reputation to gain a foot hold
Why is international trade increasing?
- Trade blocs, the EU and WTO (world trade organisation)
- Reduction of international trade barriers
The WTO (world trade organization):
153 countries from round the world who agree to comply with regulations set by the organization in return for
fair and free trade
- Reduced trade barriers between countries to make trading easier and cheaper
- Gradually making countries remove tariffs so it is free to trade
- Trying to remove quotas so countries are able to import as much as they want
The EU (European union):
Community of countries in Europe which have free movement of people, goods, services and capital
- No tariffs and quotas between member countries
- Free trade between all members so access to a larger market
UK economic arguments FOR EU expansion:
· EU enlargement = increased market for UK exporters to EU countries
· UK firms can sell in EU countries with no import taxes and custom duties
· Total EU markets 500 millions (UK 60 million)
· Provides competitive advantage over US firms (300 million)
· Freedom of movement of workers so cheaper labour for UK
UK economic arguments AGAINST EU expansion:
· EU enlargement = increased competition for UK firms against EU firms
· UK firms must follow the laws set by the EU
· UK wages lower due to competition from EU workers for jobs
The Euro:
The official currency of the EU used by most countries with the exception of the UK
- UK didn't join as the European central bank sets the one interest rate
- UK concerned the rate would be too high or low (wanted control over their interest rate)

Other pages in this set

Page 2

Preview of page 2

Here's a taster:

Advantages of the Euro:
· Lower costs as one price used throughout the EU
· Lower costs as no exchange rate charges
· Easier to trade with other EU members
· Easier to compare costs of suppliers from different EU countries
· No risks of losing out from exchange rate fluctuations
Disadvantages of the Euro:
· More competition from EU firms
· Consumers in Europe can compare prices and will usually buy the cheapest
· Interest rates set by ECB may not suit all countries…read more


No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all resources »