International Trade, European Union and Globalisation

Define International Trade

International Trade is the exchange of capital, goods and services between countries. In most countries, such trade represents a significant share of gross domestic product (GDP)

What is the reason for international trade

• Countries trade with each other when, individually, they do not have the resources, or capacity to satisfy their own population’s needs and wants  

• Every country has different natural, human and capital resources 

• Countries focus upon producing those goods and services at which they are most efficient and then trade surpluses in these goods and services with other countries for the resources that they need 

• Trade provides consumers with a wider range of goods and services to choose from  

• Some countries can produce goods cheaper than others e.g. due to specialisation, better capital, availability of labour or natural resources  

How can businesses benefit from international trade

• Lower costs  

• Spread risk  

• Proximity to raw materials  

• Specialist skills 

• New markets  

• Tax advantages  

Whar are the key drivers in the increase in international trade

• An increase in consumer knowledge and expectations 

• Greater cooperations between countries and organisations  

• Technological changes and advancements 

• Transportation advancements 

Define Free Trade

Free trade means international trade conducted without existence of barriers to trade, such as tariffs and quotas

Define Single Market

A single market is like a free trade area in that there are no tariffs, quotas or taxes in trade but also where there is free movement of goods, services, capital and people, and a common external tariff on goods entering the single market. An example is the EU or NAFTA. 

Define Protectionism and give examples

Protectionism is an economic policy of restraining trade between countries through the imposition of barriers to trade, such as tariffs or quotas. 

• Tariffs – Taxes placed on imported goods that are not applied to domestic goods 

• Consumers face a high price 

• However, domestic industries are protected from overseas competition  

• Quotas – A physical limit on the volume of imports entering a country  

• Embargo – Total ban on certain imported products  

• Government Legislation – Countries might employ measures such as complex legal forms, health and safety inspections and specific product specifications  

• Domestic Subsidies – Government payments to domestic businesses to help reduce production costs and improve competitiveness  

Define globalisation

Globalisation is the growing interdependence of the world’s economies, cultures, and populations, brought about by cross border trade in goods and services, technology, as well as flows of investment, people and information.

What factors have led to increased globalisation

• Communication technologies  

Uses of the internet, e-commerce and mobile technology has made int quicker and easier to communicate with businesses and customers in other countries  

• Liberalisation of trade 

The World Trade Organisation has assisted in the reduction or removal of trade barriers and there have been more trade agreements around the world  

• Cost of transportation  

Improved transportation services such as shipping and airlines have made this possible 

Improved infrastructure such as roads and the internet has also made globalisation easier  

• Consumer Tastes  

Demand for a wider range of goods and services partly as a result of a more multicultural society and greater exposure to world travel 

Define glocalisation

Glocalisation describes when a global brand is altered to meet local needs. This may mean a business has to adapt their products, marketing activities and working practices to reflect local needs.  

What are the advantages and disadvantages of operating in global markets

Advantages

• Larger target market 

• Economies of scale  

• Access to materials, technologies and expertise  

• Spread risk  

• Reduced seasonality  

• Brand recognition  

Disadvantages

• Language and cultural differences 

• Diseconomies of scale  

• Risk of brand dilution  

• Potential to damage reputations/ethics 

• Fluctuating exchange rates 

• Logistics  

• Intellectual property

Define multinational company

A multinational company has facilities and other assets in at least one country other than its home countries. A multinational company generally has offices and/or factories in different countries, and a centralised head office where they can coordinate global management.