Unit 3: International Business

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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


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