business c3 handout 1

• International trade


  Buying and selling of exports and imports between countries
• Imports


  Goods and services bought by UK residents and firms from foreign firms
• Exports


  Goods and services sold to consumers or businesses outside the domestic market
• Reasons for international trade

  • Countries have different natural, human and capital resources
  • Countries specialise in goods/services they are most efficient at
  • Countries may have a surplus to trade
  • Imports may be cheaper, better quality, more available or more appealing than domestic goods
  • Importing is essential when no local alternatives exist
• Comparative advantage


  Trade encourages a country to specialise in producing only those goods and services which it can produce more effectively and efficiently than others
• Benefits of international trade

  • More choice for consumers
  • Increased competition
  • Encourages efficiency, innovation, design and new technology
• Reasons for expansion of international trade

  • Consumer expectations
  • Efforts of the World Trade Organisation to remove barriers
  • Technological changes
  • Falling transport costs and increased containerisation
  • Cross-border deregulation and trading blocs
• Free trade


  International trade conducted without barriers such as tariffs and quotas
• Protectionism


  Measures to reduce the number of imports coming into a country, such as tariffs and quotas
• Tariffs


  A tax on imported goods, increasing their price and making them less competitive
• Quotas


  Physical restrictions on the number of goods coming into a market
• Voluntary export restraint (VER)

  Quotas imposed by exporting countries to avoid worse terms from tariffs or quotas
• Non-competitive purchasing by governments

  Governments only buying from domestic producers, even if at higher prices
• Embargos


  Complete or partial prohibition of commerce and trade with a particular country
• Reasons for protectionism


  • To protect domestic industries
  • To protect domestic employment
  • To prevent dumping
• Trading bloc


  A group of countries within a geographical region that seek to protect themselves from imports of non-members
• Single market


  A type of trading bloc that may involve free movement of labour and capital, and harmonised legislation and policies
• Positive effects of free trade to a business

  • Importers can access best technologies and products, and choose cheaper/higher quality suppliers
  • Exporters can increase sales and economies of scale without tariffs/quotas
• Negative effects of free trade to a business

  • Small domestic businesses may struggle to compete with imported goods
  • Foreign goods may substitute domestic goods, causing local industry collapse
  • Competition can squeeze profit margins
• Positive effects of protectionism to a business

  • It can deter unfair practices like dumping
  • Domestic businesses can grow and expand capabilities when protected from competition
  • Protectionism can create jobs for domestic workers
• Negative effects of protectionism to a business

  • Increased prices discourage consumers from buying imports
  • Tariffs discourage foreign investment
  • Businesses may have to pay more for higher quality foreign imports
• How free trade and protectionism affect stakeholders

  • Shareholders - free trade can increase profits, protectionism can protect businesses
  • Customers - free trade increases choice and competition, protectionism increases prices
  • Employees - free trade can increase job security, protectionism can protect jobs
  • Suppliers - free trade disadvantages UK suppliers, protectionism benefits them
• Benefits of expanding to international markets

  • Increase sales and profit margins
  • Spread risks across markets
  • Access new potential markets
  • Benefit from brand awareness
  • Achieve economies of scale
  • Greater choice of production locations
  • Gain innovation from international experience
• Problems of expanding to international markets

  • Adapting products to local cultures, currencies and buying habits
  • Cultural differences impacting how goods are sold
  • Exchange rate fluctuations
  • Distribution and logistics challenges
  • Legal and regulatory differences
  • Language barriers
• Globalisation


  Deeper economic integration between countries and regions, including expansion of trade, financial flows, production shifts, and labour migration
• Factors contributing to globalisation

  • Improved communication technology
  • Deregulation and reduced trade barriers
  • Cheaper transport and logistics
• The entry of countries into the global trading system including China and the former countries of the Soviet bloc
• Globalisation


  • Increasing inter-dependence of economies
  • Most of the world's countries are dependent on each other for their macroeconomic health
  • Newly industrialising countries are winning a growing share of world trade and their economies are growing faster than in richer developed nations
• Factors contributing to Globalisation

  • Improved communication technology
  • Deregulation of markets and reductions in barriers to trade
  • Cheaper and faster transport
  • Consumer tastes
• Globalisation in action


  • iPhone production and distribution
• Global markets


  Consumers and/or possible consumers in all areas of the world, rather than being concentrated within one country or region
• Developing markets / Emerging Market Economies (EMEs)


  Countries in the process of rapid economic growth and industrialisation, with faster long-term growth than most developed economies, but many inhabitants still live in poverty
• BRIC's refers to Brazil, Russia, India and China and these countries are particularly significant for global businesses because of their scale and growth rate
• Emerging markets

  • Large untapped markets for many Western businesses
  • Growing middle class with more disposable income
• Strategies to achieve global growth

  • International trade
  • Franchising
  • Acquisition
  • Joint Venture
  • Internal growth
  • Global branding
  • Identifying target markets
• Advantages of strategies to achieve global growth

  • International trade: Relatively cheap way to sell on a global scale
  • Franchising: Quick growth, benefit from franchisee's market knowledge and expertise
  • Acquisition: Benefit from established customer base and brand, fast access to resources
  • Joint Venture: Shared costs and risks, shared expertise and resources
  • Internal growth: Safer, proven model, asset/product led approach