Chapter 2 Global economy PART 3

Foreign Policy Tool, Addiction to Product Line, Cost Reduction and Increase of Profit, Cheaper Supplies, Use of Excess Capacity in Demand, Reduction of Risk

Why Countries Engage in International Trade?

Use of Excess Capacity in Demand

The inadequate domestic demand pushes business organization to expand their market base outside the national territory. This is usually done by the firms and companies that have the resources and capital to operate in transnational market.

Cost Reduction and Increase of Profit

A market leader for a particular good or service may garner a lower production cost by increasing its market globally rather than domestically. This enables a firm to increase its profit while reducing its operating costs.

Cheaper Supplies

A country imports goods from other countries because of inexpensive raw materials and supplies used for production.

Addiction to Product Line

Economies usually aim for a variety of products and services available in the market. It offers consumers to choose and buy products that are competitive in price, degree of importance, and will offer higher satisfaction.

Reduction of Risk

Importing products is seen as an alternative to countries that are vulnerable to supply shortage. These countries that have high volume of imported goods are economies that confront the demand and supply condition of the local market.

Foreign Policy Tool

The membership of a country to regional market integration and economic relationships is part of its foreign policy. Enhancing the economic and political affiliation of a country is very important in sustaining its international status in a global market

Transnational Corporations

It is a business organization that operates and competes in regional and global markets.

Transnational Corporations

It invests in research, technology, production, distribution, and facilities across different countries

Products and Services, Ideas, Capital and Investment, Technology and People

What are the Role of TNCs in the 21st Century?

Why are TNCs so Powerful

Huge financial capital and assets.

Why are TNCs so Powerful

Global production networks (different parts made in different countries)

Why are TNCs so Powerful/

Control large market shares.

Why are TNCs so Powerful.

Lead in innovation and technology.