Chapter 23 – International Trading Environment

UNIT 7

Chapter 23 – International Trading Environment

What we’ll be covering

International TradeExports and ImportsBalance of Trade/PaymentsWhy Countries ImportWhy Countries ExportSignificance of International TradeFree Trade and ProtectionismBarriers to TradeChanges in International EconomyIreland’s Opportunities in Developed and Developing

MarketsIreland’s Challenges in Developed and Developing MarketsRole of ICT in International TradeGovernment help for Irish Exporters

International Trade

Firms buying and selling goods and services across national boundaries

The level of world trade has grown rapidly in recent decades and has brought increased wealth to many countries

Exports and Imports

This involves trading between different countries e.g. Dunnes Stores imports fruit from South Africa Waterford Crystal exports glassware to USA

Visible Exports Ireland sells products to foreign countries. Dell sells computers to Middle East.

Invisible Exports Ireland sells services to foreign countries. British tourists stay in a Dublin hotel.

Visible Imports Ireland buys products from foreign countries. Dunnes Stores buys fruit from South Africa.

Invisible Imports Ireland buys services from foreign countries. Irish family stays in a hotel in Paris.

Balance of Trade/Payments

The Balance of Trade/Payments measures how successful a country is at international trade.

Balance of Trade = Visible Exports - Visible Imports

Balance of Payments = Total Exports - Total Imports

Why Countries Import

1. Lack of Natural ResourcesA country may not have resources it needs.Ireland does not have enough oil and must import from Saudi

Arabia.2. Unsuitable ClimateA country may not have correct weather to grow certain crops.Ireland imports coffee and bananas to combat this.3. Lack of SkillsSome countries are highly skilled at making certain products.Ireland imports Swiss watches as they are such a high standard.4. Bigger Choice for ConsumersThis gives consumers more of a choice about what they buy.Ireland still buys potatoes from other countries to give more

choices.

Why Countries Export

1. SurvivalTo make money businesses may need to export to bigger

countries.Irish aircraft manufacturer can only survive if it exports.2. Increase Sales and ProfitsBusiness will sell to foreign countries to increase sales

and profits.U2 sell their CDs all over the world.3. DiversificationThis spreads the risk of a business failing by selling to

other countries so that if one economy fails the other countries can keep the company going.

Even though Ireland is in a downturn, Bailey’s sales abroad can keep the company in profit.

Significance of International Trade

1. Allows businesses to sell to billions of customers worldwide.

2. Gives economies of scale to businesses.3. Allows Irish businesses to receive foreign

currency which can be used for importing.4. Increased sales cause businesses to hire more

employees which decreases unemployment and provides government with more money from tax.

5. Irish businesses face competition from foreign firms which forces them to keeps costs low. Ryanair keeps costs low to compete with foreign airlines.

Free Trade and Protectionism

Free Trade means that countries can buy and sell with each other without any barriers or restrictions.

All the countries in the EU practise this.Protectionism means that countries try

to stop foreign imports with barriers to trade.

Barriers to Trade

1. TariffA tariff is a tax that a country adds to the price of

foreign imports2. QuotaA country puts a limit on the amount of foreign imports

it will allow.3. EmbargoThis is a complete ban on all foreign imports (or imports

from specific country) into the country.The USA has a trade embargo with Cuba4. SubsidyThis is money that a government gives to its own

domestic businesses to allow them to sell more cheaply.

Changes in International Economy

1. GlobalisationThis is an increasing number of global businesses,

which operate throughout the world.Examples include Coca- Cola, McDonaldsTheir businesses sell the same product all over the

world but make their products in various locations.This provides opportunities for Irish businesses as

these global businesses buy their materials from Irish ones if they set up here.

However, they can also be a threat to Irish businesses with extra competition that could wipe them out.

Changes in International Economy

2. Improved Information and Communications TechnologyMany businesses use internet for

international trade and can sell their products online without having to set up shops.

This means the smallest Irish businesses can engage in international trade.

Changes in International Economy

3. Increasing Number of Trading BlocsThese are groups of countries that agree to

freely buy and sell to each other without any barriers to trade.

However, they may impose tariffs on imports coming from non-member countries.

An example is the North American Free Trade Agreement (NAFTA) which consists of Canada, the USA and Mexico. Another example is the EU, the largest trading bloc in the world which gives Ireland access to over 500 million people.

Changes in International Economy

4. Deregulation of International TradeThis is the process of removing all the barriers to

trade that prevent free trade between countries.The World Trade Organisation (WTO) consists of

over 150 countries which holds negotiations between countries to try to remove barriers to trade and to sort out other trade problems.

This presents Irish businesses with opportunities to increase their sales.

It is also a threat, however, as more competition exists with fewer restrictions.

Changes in International Economy

5. New MarketsFormer communist countries are now starting to

grow, develop and are importing and exporting a lot more which provides opportunities to Irish businesses.

Ireland now faces competition from low wage economies such as the Philippines.

A major new market is China which has the largest population on the planet. The government their recently has allowed international trade. This provides opportunities to Irish businesses but also creates threats to Irish manufacturers.

Ireland’s Opportunities in Developed and Developing Markets

1. Increased SalesIrish membership of EU allows Irish businesses to sell to more

people.The WTO has also removed many worldwide trade barriers

which allowed more freer international commerce.2. Lower CostsEconomies of scale is caused due to Irish exporters needing to

make more products.3. DiversificationAllows Irish businesses to spread their risk by selling elsewhere.4. Earn Foreign CurrencyIrish businesses receive foreign currency when exporting which

can be used to pay for imports.A yoghurt manufacturer in Ireland can export to USA and use

the dollars received to buy fruit from Florida.

Ireland’s Opportunities in Developed and Developing Markets

5. Overcome Trade Barriers Irish businesses can set up branches in other countries to overcome

barriers to trade. If an Irish manufacturer sets up a plant in Mexico, all products there

can be freely sold to the USA and Canada as they are all NAFTA members.

6. English As English is the international language of business, Irish people can

converse with other businesses worldwide.7. Educated Workers As we have a well-educated workforce we have opportunities to

invent new products to export all over the world. Our biggest ‘knowledge based’ exports are medicines and computers8. Green Image Ireland has a good image around the world as a clean and green

country which makes it easier to sell to other countries and attract foreign tourists which brings in billions of euro.

Ireland’s Challenges in Developed and Developing Markets

1. Foreign LanguagesMany foreign customers deal in their own language which

poses communication problems which leads to brand names, websites and other things being changed which costs time and money.

KFC accidently translated its slogan “finger-lickin’ good” into “eat your fingers off” in Chinese

2. Exchange Rate ChangesIf the euro increases in value foreigners will buy less and

our exports will fall.If the euro decreases then the price of foreign materials

increases and so this increases the costs of Irish businesses.

Ireland’s Challenges to Developed and Developing Markets

3. Distribution ProblemsIreland is only one of 3 EU countries without a land

link to other EU countries.This makes it more difficult to transport goods.Goods can only be sent by plane or ship and must

adhere to timetables and weather whereas other countries can just load their goods into a lorry.

4. Cultural DifferencesUp until recently we were homogenous (white and

catholic) and it is therefore a challenge to learn cultural norms of trading partners.

Revlon tried to launch a camellia flower perfume in Brazil without realising that they are funeral flowers over there.

Ireland’s Challenges to Developed and Developing Markets

5. Competition from Low- Wage EconomiesAlmost impossible for Irish manufacturers to

compete with countries with very low wages as they are much cheaper.

Irish businesses must develop products that low wage countries don’t have the skills to make.

6. Payment ProblemsIf a foreign customer does not pay, there may be

little the Irish business can do to recoup its money due to different legal systems.

Role of ICT in International Trade

1. Increased SalesInternet allows businesses to engage in e-commerce where

businesses can advertise and sell their products online.Sites such as EBAY allow small businesses to sell products

online too.2. AdvertisingBusinesses can use websites such as MSN or Yahoo to

advertise their products which can be used to reach millions of people.

3. Faster and Cheaper CommunicationsEmail allows businesses to send messages quickly and

cheaply.

Role of ICT in International Trade

4. Decision- MakingThe internet has information on millions of

topics which enables business people to make better informed decisions when it comes to foreign markets.

5. Reduced costsVideo-conferencing makes international trade

easier as CEO does not have to travel overseas for meetings which helps time and costs.

Government help for Irish Exporters

Enterprise IrelandProvides market research on business opportunities in

foreign countries.Gives low cost loans to Irish businesses to help export.Gives them grants to help export.Trains them in exporting.Gives them advice on everything to do with foreign

trade.Currently running a campaign in UK to get Britain to

use Irish building firms and materials for 2012 Olympic Games.

Government help for Irish Exporters

Department of Enterprise, Trade and Employment Gives advice on documents used in foreign trade and

regulations. Provides Export Credit Insurance which promises to pay

exporter if foreign customers don’t

Diplomatic Services Lobbies foreign government and companies to trade with

Ireland. When mad cow disease broke out, many countries banned

Irish Beef but diplomats explained that Ireland was not affected.

Help to organise trade missions where Irish businesses go abroad to make foreign contacts.

Largest ever trade mission to China was led by May McAleese in 2003 where they won business contracts worth over €40 million

Helps to organise trade fairs where Ireland puts on exhibitions of its products in a foreign country.