Why Does A Business Seek International Markets?

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Unit 3 ­ International Business
3.3.1 ­ Why Does a Business Seek International Markets?
Product or Market Conditions that may prompt a Business to trade Internationally
Roseanne Theyara
International Trade ­ The exchange of goods and services across international
boundaries.
More revenue and profit.
The first and most obvious reason to sell internationally is that selling more can
bring more revenue and profit.
Where there are high costs of research and development, selling to multiple
markets speeds progress towards breakeven point.
Extending the product life cycle through selling in new markets or of selling product
innovations in multiple markets.
The product life cycle ­ Refers to the phases which many products go through
between their first introduction to the market and the eventual decline in sales.
These phases include development, introduction to the market, growth, maturity
and decline.
The length of the product life cycle varies hugely from one product to another.
Technical change is always going to be important in bringing a product to the end of
its life but changes in fashions and tastes can also bring about a very rapid decline in
sales.
As products move through their life cycle, sales will in many cases eventually
diminish.
Extending the product life cycle can work. Improvements and subtle changes in the
product may help to keep its market. But if tastes or fashions are involved, the
decline phase of the product life cycle may be surprisingly swift.
A new market may provide sales growth that would be impossible to achieve in the
domestic market through minor product changes.
Businesses will often sell old products or services to new markets. This can be
mainly because the product has become mature in the domestic market, and
demand is declining.
E.g. ­ Mobile Phones have reached market saturation in western economies, but are
still new to places such as Africa.
Global sourcing.
Global sourcing is the strategic procurement of goods and services beyond a firm's
domestic market.
Just as businesses increasingly sell overseas, they are also able to source materials,
components and serviced from beyond their own national boundaries.
The supply chain starts with the purchasing of the inputs, follows through the
process of creating the product, moving the product to the point of sale and
finalising the payment process. For each input there will be alternatives.
Outsourcing ­ Buying necessary inputs from independent suppliers, in the same
country. It can apply to components, or complete products, or services.
Offshoring ­ When outsourcing of operations or services moves away from a home
country.

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Unit 3 ­ International Business
3.3.1 ­ Why Does a Business Seek International Markets?
Product or Market Conditions that may prompt a Business to trade Internationally
Roseanne Theyara
It is sometimes possible for an entire manufacturing process to be located in one
place, but often, inputs come from a range of locations.
Costs of production will usually be different, depending on where production
takes place.…read more

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Unit 3 ­ International Business
3.3.1 ­ Why Does a Business Seek International Markets?
Product or Market Conditions that may prompt a Business to trade Internationally
Roseanne Theyara
Advances in transport and air travel have made it possible for business people to
move much more easily around the planet. It is not just people who need to move
from place to place, but also objects.
The shipping container has revolutionised global trade by dramatically cutting the
costs of shipping goods and reducing transit times.…read more

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Unit 3 ­ International Business
3.3.1 ­ Why Does a Business Seek International Markets?
Product or Market Conditions that may prompt a Business to trade Internationally
Roseanne Theyara
Increasing trade liberalisation.
Trade liberalisation ­ Refers to the process of limiting and reducing barriers to
trade so that economies ultimately move closer to free trade.
Placing an import tax (tariff) on products reaching the country was a significant
source of income when governments were inefficient at taxing their own people.…read more

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Unit 3 ­ International Business
3.3.1 ­ Why Does a Business Seek International Markets?
Product or Market Conditions that may prompt a Business to trade Internationally
Roseanne Theyara
E.g. ­ NAFTA, the North American Free Trade Area is a good example. It comprises
Canada, the USA and Mexico. It has opened up new markets for many businesses.
Consumers in Canada and the US have had the benefit of highly competitive imports
from Mexico. NAFTA has created jobs in all three countries.…read more

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Unit 3 ­ International Business
3.3.1 ­ Why Does a Business Seek International Markets?
Product or Market Conditions that may prompt a Business to trade Internationally
Roseanne Theyara
Increased competition provides incentives both to cut costs (enhancing productive
efficiency) and to meet customer needs more effectively (allocative efficiency).
× Getting agreement between 27 governments can be difficult. Compromises have to
be made and inevitably, not all governments like all aspects of EU policy.…read more

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