International Trade

Strategic Analysis Why should we bother with international trade? Provides consumers with what they want Consumers want the goods produced by other countries Consumers overseas might be willing to pay more for the product = higher profit Some goods cannot be produced in some countries (eg bananas, gold, coffee) – climate changes Less industrial countries have unskilled labour and no money for machinery, so they produce high levels of agricultural products BUT – a lot of countries import goods as they are cheaper – usually from CHINA! Business in Context – Pg 60 International Trade

Strategic Analysis Opportunities for international trade? Access to larger markets – this is a good way for the “domestic” market to expand if the product is in decline at “home” Increased Sales which could lead to... Higher profits $$$$$$$ Economies of Scale (due to business growth) International Trade

Strategic Analysis Threats to international trade? Increased competition – lots of similar companies might exist in the new country More expenses for marketing, production and distribution Over capacity of the product Failure of weaker competitors International Trade

Strategic Analysis What are the benefits to consumers? More choice – wider range of products Lower prices – suppliers have to reduce prices due to increased competition Better quality of products – to give customers what they want Better customer service – to try to attract more customers International Trade

Strategic Analysis What are the problems of entering new markets abroad? Can you just decide to take your products overseas? Lack of knowledge – customs, trade barriers, restrictions of sale Lack of contacts in the new market to give advice and guidance (on legal matters!) Cultures and tastes may differ Costs of selling abroad might be higher Language problems International Trade

Strategic Analysis Exchange Rates Definition: “The price of one country’s currency in relation to another country’s currency” So, if you had 1HK$ = 10pKr What is 1HK $ worth? 10 pKr Or... 1pKr = 0.1 HK$ International Trade

Strategic Analysis The effects of falling Exchange Rates If an exchange rate falls, it is Depreciated or Devalued How do you think this could affect a business if they import or export? So, where 1HK$ = 10R If a product costs 10HK$ to sell, how much will it cost the consumer in Pakistan? 100R If the value of the $ fell to $1 = 5R... 50R Is this good or bad news for the consumer? GOOD – your goods are cheaper to buy International Trade

Strategic Analysis The effects of falling Exchange Rates So, what if the fall in exchange rate worked the other way for imports? What about importing to Honk Kong? A product made in Pakistan will now cost 100R would cost 10HK$ before If the exchange rate fell to 1HK$ = 5R, the produce will cost... 20HK$ The price of imports will rise International Trade

Strategic Analysis pesos 2 If the rand rose, this would not help Kallis. A rise in exchange rates will cause the price of exports to rise. Kallis’s products will cost more so this might mean fewer sales. International Trade Activity 10.2 (page 63)

Strategic Analysis Tariffs Import Duties/changes on goods entering the country This increases the price of the goods, so customers won’t want to buy them They will now buy domestic products Subsidies Money for home producers so that they can sell at a lower price Customers might buy them if they are priced lower than competitor products BARRIERS TO TRADE

Strategic Analysis QUOTAS “Quantitative restrictions” Only allowed to bring in a certain amount to the country NON TARIFF BARRIERS Non financial barriers Eg: Contracts given to home countries even if they are not the cheapest (eg, RWC) Setting standards that make it easier for the home country to provide BARRIERS TO TRADE

Strategic Analysis EXCHANGE CONTROLS Government might limit the amount of foreign currency a company can have to buy them from abroad eg – if you wanted £100,000 to by in some rugby shirts for the RWC, the government might only let you have £50,000 to buy them, so that you will buy the remainder in NZ So, all barriers to Trade will: Enable home producers to increase their sales Enables employment in the home country Hopefully increased profits for the home business BUT  - less competition = less choice = higher prices BARRIERS TO TRADE