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

• 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

International trade => world economy 

In this world economy:

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

e.g. 

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

• 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

Primary sector (agriculture) gets smaller

Secondary sector (manufacture) grows

Gradually tertiary sector (services) becomes dominant

Negative:

• 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

Positive:

• 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 

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

 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

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

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

Offshoring

• 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

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

Benefits:

• 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

Drawbacks:

• 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

• 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

• 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. 

• 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