Why do businesses seek international trade ? (3.1)

Question 1

What are the product related reasons why businesses want to trade internationally ?

Answer 1

• The product has reached the end of its life cycle, so they use selling the product in another country as a way of extending the product life cycle.
• The business and its products have out grown their own markets because they have become saturated with similar products or competition is too fierce.
• To take advantages of outsourcing (getting lower cost firms to make your products) or global sourcing (buying from a cheaper supplier).

Question 2

What are the strategic related reasons why businesses want to trade internationally ?

Answer 2

• To spread risk (geographical diversification) by selling in different nations.
• Develop a global brand / corporate presence around the world.
• To take advantage of much larger and fast growing markets.

Question 3

what are the home and foreign market related reasons why businesses want to trade internationally ?

Answer 3

• Benefits of improvements in transport and communication – makes operating in other nations easier.
• To avoid protectionist measures(ex: tariffs) set imports by nations – by building your factory inside the nation.
• Benefits of lower corporation tax levels or ‘tax holidays’ offered by host nations.
• Take advantage of lower production costs in nation who have comparative advantage.
• Allow the company to achieve massive economies of scale. (Bulk buying)
• To take advantage of trade liberalisation - where more and more nations are opening up their markets to foreign competition(ex India). This is because of: a) the role of the WTO b) The growth of trading bloc’s such as the EU.