Unit 3: International Business

Topic 1 – Trading Internationally

Why does a business seek international markets?

• Reasons to trade internationally

  • Extending product life cycle

  • Selling product innovations in multiple (country) markets

  • Domestic country competition

  • Economies of scale

  • Increasing GDP in developing countries

  • Tax breaks

  • Cheap labour

  • Gap in the market

  • Bigger customer base

  • Hard to expand in current market – market saturation

• Extending the product life cycle

  • “The phase of which many products go through between their first introduction to the market and eventual decline in sales that may lead to production ceasing”

  • Extending the product life cycle can help products from going into decline

  • Improvements or small changes in the product could help it keep its market

  • However, changes in taste/fashions can lead to products going into decline quickly

  • New markets may provide sales growth that would be impossible to achieve in the domestic market through minor changes

• Innovation

  • “New product development or an improvement in the design of an existing product”

  • Some products are also replaced by improvements in technology/innovations e.g. computers & mobiles

  • An international market increases the incentives to keep researching the potential innovations and reduce risks

Why have imports grown?

• The Supply Chain

  • “The sequence of processes which starts with acquiring the most basic inputs and ends with delivery of the product to the customer”

  • Production can be in-house but it can also be contracted out

  • Outsourcing – Purchasing inputs from independent suppliers either in the same country or overseas. It can be components, complete products or services

• Production

  • Different production locations can be used for each stage in the supply chain

  • Cost of production will depend on where production takes place

  • Sometimes a business will build their own factory abroad, by establishing a joint venture

  • Joint Venture – Business in a collaborative relationship with a local producer

• Benefits of imports

  • When items are available in the domestic economy

    • Raw materials

    • Agricultural products e.g. Pineapple

    • Manufacturers with local skills not in the UK

• Cheaper elsewhere

  • Japanese electronics

  • More competition

  • Raises standard of living

• Communication

  • Advances in technology has made it easier to organise and coordinate business operations around the world

  • Cost of telecommunications has dropped in recent years which would encourage trade

  • Able to participate in conference calls or use mobile phones

  • Computers and broadband have enabled information to be communicated quickly

• Transport

  • Advances in transport and air travel means people move more freely around the world

  • Shipping containers have cut costs of shipping goods and reduced transport times

  • Air freight prices have fallen enough for some perishable products to be exported

  • Computerised data handling makes it easier and cheaper to trade goods in transit

Trade liberalisations

• Trade liberalisations

  • Governments take interest in imports in their countries

    • Restrict availability of items, such as harmful products (drugs/weapons)

    • Stop imports which compete with domestic industries

• Import tax is a source of income for the government

• Embargoes (total bans) or quotas (fixed max quantities of imports) are also used

• Trade agreements

  • Restrictions on trade have declined

  • Many countries now have trade agreements

  • …