Topic 1 - product/market conditions that may prompt a business to trade internationally

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The Benefits of Globalisation

  • Increased competition => local producers more efficient => local prices fall => incomes go further
  • opportunity => best ideas used globally e.g. aids medicine => increase health around the world
  • MNC's open in country => more employment, training, entrepreneurs can learn from them
  • More channels for exports => less substistence farming + boost living standards
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International trade + how it affects us

International trade => world economy 

In this world economy:

  • supply/demand/prices affect world events
  • world events affect supplly/demand/prices


political change in asia => minimum wage introduced => price up, demand down, suppliers may stop supplying

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Why trade takes place

  • countries specialise => get things they don't specialise in from countries that do specialise in these things
  • Variety + choice => gives people access to goods/services their country doesn't have
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How economies develop

Primary sector (agriculture) gets smaller

Secondary sector (manufacture) grows

Gradually tertiary sector (services) becomes dominant

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Effects of trade liberalisation


  • government loses money from taxes if tariffs removed
  • unlimited imports => wastage
  • taxes within country increase to make up for removed tariffs
  • unemployment increases as businesses move manufacture abroad


  • domestic businesses = more competitive abroad (b/c no longer extra cost of tariffs)
  • international trade = less complicated
  • cheaper to export => greater access to foreign markets
  • international trade = more profitable = businessed do more of it
  • encourages domestic firms to be efficient b/c foreign firms more competitive 
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Higher tariff = less coming into country

lower tariff = on products country wants.

We never block imports b/c:

  • other country could retaliate
  • we like variety and choice from imports
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 Lower quota = less coming in

higher quota = on products country wants.

E.G. Bra wars = china sent bras to UK. Marks & Spencers suffered so quota put on Chinese bras

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Push factors (out of domestic market)

Market Saturation

  • impossible to expand sale in the market
  • want to expand sales, so sell abroad

Competitive Domestic Market

  • increase market share with competitive domestic market = expense, needs constant marketing + innovation
  • international market = access to new customers and get market share elsewhere

Competition From Imports

  • import products = low labour costs = low price = competitive advantage
  • international market = way to increase profits + make up for low profit margin in domestic

The product is in mature stage of product life cycle

  • product about to go to decline stage in domestic market
  • Sell in new markets to extend product life cycle. Could be in mature stage in domestic market and introductory stage in another market
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Pull Factors (into international market)

Potential for increased sales/profits

  • access to new markets in emerging economies have huge potential of sales, profits + growth
  • shareholder approach business: enter new market => satisfy motive of gaining profits

Economies of Scale and Competitive advantage

  • international trade usually = business growth => more likely to achieve economies of scale
  • economies of scale = lower costs = lower prices for customer = competitive advantage

Risk Spreading

  • if sales in 1 market drop, the sales in international market may still be stable/increasing
  • wider spread risk = safer business


  • may bring savings on labour, raw materials or lower costs through tax breaks/ low tariffs
  • applies to services + manufacture

Trade Blocs

  • entering market within trade bloc gives better access to other member countries
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Trade Blocs

Free Trade Area:

  • no restrictions between members
  • members have own policies towards non members

Customs Union:

  • no restrictions between members
  • members have common policy towards non members
  • doesn't allow free movement of capital and labor among member countries

Single/Common Market:

  • no restrictions between members
  • members have common policy towards non members
  • allows free movement of capital and labor among member countries
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Benefits + Drawbacks of Trading Bloc


  • access to other markets without penalized exports
  • import without tariffs from member countries
  • higher chance of economies of scale
  • spread risk
  • greater competition encourages efficiency


  • domestic industries aren't protected from member countries
  • more competition
  • reaching agreememnt between member states = long time and difficult
  • new rules/regulations may not suit business
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Why international trade is increasing

  • Trade liberalisation

  • FDI increased (production more likely to be sent abroad now + then exported out)

  • Political change (collapse of soviet empire = opened up areas for international trade)

  • Transport + communication with other countries is easier
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Ways of expanding markets

  • To sell to emerging economy's to middle class => simply sell identical product in the emerging economy
  • To sell to emerging economy's poorer citizens whose income is slowly growing => backwards innovation i.e. sell a lower cost version. 
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Why innovative products should be sold in multiple

  • Innovation = expensive

  • Selling in more markets = more revenue from the poduct and faster

  • Average costs are lowered b/c fixed costs spread over a larger output
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