Reasons For Trading Internationally
Reasons for trading internationally
Increasing Market Share
- Market Share is the percentage of total sales of one particular product that comes from an individual business!
Market Saturation in developed countries so companies will move to less economically developed countries to penetrate their market
Market Penetration expanding market share so that companies can reach a larger number of customers
Extending the Product Lifecycle, this can be done by keeping up with compettition and maturing the product so that the reputation and the brand allow the product lifecycle to continue. However if tastes and fashions change then the certainty of prolonguing a product lifecycle is unfortunate and decline in sales is inevitable.
Spreading the Risk if a company starts new ventures or continues their current business in another country then it allows them to have more oppertunities to increase their profits. If there is low demand for a product in one country there is no reason to suggest it will be the same in others. This is because there are different tastes and demands in different countries
Growth of Imports
- Outsourcing- Buying necessary inputs from independant suppliers, either in the same country or overseas. It can apply to components, or complete products, or business services such as IT. Cheaper labour costs of production, these can be passed on to consumers, reducing price of goods, increasing the demand for the goods.
- To cut costs of production some businesses will set up joint venture this is where companies set up with existing companies to penetrate a market and spread the risks of their business. For example companies who are wanting to trade in China will set up joint ventures with chinease companies so they can become established in the chinease economy.
Benefits Of Growing Imports
Benefits of Growing Imports
- More consumer choice
- Better quality products
- Cheper Raw Materials
- Cheaper Labour Costs
- Savings to be passed on to consumers- Giving them spending power
- Allows companies to access other markets
- Story of globalisation- new export possibilities and cheaper imports
Shipping containers cut the costs of shipping goods and reduce transit times. It has eliminated the labour intensive loading and unloading of cargo. This allows companies to choose the cheapest location for making a particular item, yet still shift production from one place to another as costs and exchange rates constantly change.
Air Freight prices have fallen so goods with little mass but high value can benefit from this method of transportation. It helps close the gap between production and final sale.
Computerised data handling has made it easier and cheaper to track goods in transit.
Global Trade Liberalisation
is limiting and reducing the barriers to trade so that economies can ultimately move closer to free trade!
Economies of Scale
as output grows, businesses can produce at lower average cost than before. They can usually cut prices and enlarge markets. Economies of Scale come from a verity of sources:
- Bigger machines that reduce unit costs (technical economies)
- Cheaper Loans (financial economies)
What makes economic growth happen?
- There must be INVESTMENT in productive capacity and INFRASTRUCTURE. Investment in capital equipment increases PRODUCTIVITY.
- New and better technologies are needed. This may require investment in HUMAN CAPITAL as well- skills and capabilities of the workforce.
- There has to be a market for the output- e.g one that can compete on price and quality.
Investment : Spending that will generate income in the future. Could entail building factories and buying machinery.
Infrastructure : Includes all transport and communication facilities as well as the provision of basic services such as energy and water supplies.
Productivity : Means output per unit of an input, usually labour but also capital. Labour productivity is increased by adding more and better capital equipment to the production process.
Human Capital : refers to the knowledge and skills that people acquire through education, training and experience.
International Capital Movements have played a big part of providing the finance for investment at every level. FOREIGN DIRECT INVESTMENT allows both new activities and relocation of existing production.
TRADING BLOCS - such as the EU - have created large markets within which trade is easier for member countries.
The objective is free trade between Canada, Mexico and the USA. It is aimed to create a common market, as has the EU