International Trading Environment

1. International Trading Environment

2. What is Home/Domestic Trade? • Buying and selling of goods & services in our own country.

3. Open Economy (2010 Q 3. (a)) • Is a country that imports & exports goods & services. • Ireland is a Small Open Economy. • We export approx 80% of what we produce. • Open economies have a wide choice of raw materials & finished products.

4. What is International Trade? Import Export

5. What is International Trade? • Importing: buying goods & services from other countries. • Exporting: selling goods & services to other countries.

6. Who are our main Trading Partners?

7. What are imports? • Goods and services that we buy from other countries. • Money leaves Ireland.

8. Why do we import? • To obtain natural resources that are not available in Ireland. Eg. oil • We have an unsuitable climate for certain foods such as bananas, coffee….. • To avail of services not in Ireland. Eg. pop groups, foreign holidays, watch making. • To have variey and choice of goods & services.

9. Visible Imports • Goods which are bought from other countries. • Money leaves the country • Eg. citrus fruit, wine, cars……..

10. Invisible Imports • Services that are bought from other countries. • Money leaves the country. • Eg. • Irish person on holidy in USA • BEP in concert in Dublin • French horse winning Irish Grand National

11. What is Import Substitution? • Buying Irish goods instead of foreign goods. • Eg. buying Irish potatoes instead of Spanish potatoes.

12. What are Exports? • Irish goods and services that we sell to foreign countries. • Money comes into the country.

13. Why do we export? • To obtain foreign currency needed to buy our imports. • Ireland is a small country so we need a wider market such as EU, USA etc. • Diversification means less dependency on one market if a country is in recession. • Selling more means more jobs are created.

14. Visible Exports • Irish goods that are sold to foreign countries. • Money comes into the country. • Eg. Irish beef sold abroad. • Tullamore Dew sold to UK • Waterford Crystal sold to US.

15. Invisible Exports • Irish services that are sold to foreign countries. • Money comes into the country. • Eg. • Westlife playing in Wembly. • US citizen on holidy on Ireland. • Irish horse winning the English Grand National.

16. What is the Balance of Trade? (TV) • Visible Exports – Visible Imports

17. What is the Balance of Invisible Trade? • Invisible Exports – Invisible Imports

18. What is the Balance of Payments? • Total Exports – Total Imports

19. Balance of Trade/Payments can be……. • Surplus: Exports greater than Imports • Deficit: Imports greater than Exports • Balanced: Exports = Imports

20. Benefits of a Balance of Payments Surplus • More money coming into the country. • This money can be used to pay off some of our debt or reduce tax. • More money and jobs and a better standard of living for Irish people.

21. What problems will a Balance of Payments deficit cause? • Too much money leaving the country. • Government will have to raise taxes of borrow. • Irish people will loose their jobs.

22. How can a Balance of Payments Deficit be reduced? • Import substiution: Buy Irish! • Government Agencies such as An Bord Trachtala, Failte Ireland and An Bord Bia can promote Irish exports.

23. Free Trade • Countries can buy and sell without any trade barriers or restricitions eg. customs duties being imposed. • The 27 countries of the EU enjoy free trade. • Note Norway & Sweden members of.....

24. Protectionism • Countries try to stop foreign imports. • Countries try to help their own businesses export. • They do this by using trade barriers. • Eg. Tariff, quota, embargo, subsidy.

25. Trade Barriers 1. Tariff • Is a tax that a coutry adds on to imports. • Eg. customs duty/import duty. • This makes imports dearer & less attractive to consumers.

26. 2. Quota • Countries put a limit on the amount of a good that can be imported. • Consumers then must by from indigenous businesses. • The EU has a quota on the no. of Chinese garments it will allow into the EU.

27. 3. Embargo • Countries puts a complete ban on goods being imported from a certain country. • Consumers have no choice but to buy home produce. • The USA has a trade embargo with Cuba. • During apartheid Ireland had a trade embargo with South Africa.

28. 4. Subsidy • Is a direct payment to a producer. • It reduces the cost of production. • It makes exports cheaper. • It boosts employment. • It improves the balance of trade. • Eg. Irish farmers obtain direct farm payment from the EU.

29. Exam Question Distinguish between Grant & Subsidy 2003 SQ no. 7.

30. Impact of the Changes in the International Economy 10, 06, 00 1. Globalsation: • Businesses that treat the world as one big market are on the increase. Eg. Coca-Cola, McDonalds, Sony, toyota. • Opportunity:Ireland can attract TNC’s. • Challenge: Irish businesses need to compete on the world stage.

31. 2. Improved ICT • Many business are trading on the internet. • Small businesses can now compete on the world stage. • Reduction in costs due to no shops being required, lower transport costs. • Quicker decision making. • However, Irish firms face competition from foreign firms selling on the interne.

32. 3. Increase number of trading blocs • A trading bloc is a group of countries that agree to buy & sell from each other without trade barriers, but may impose barriers to non members. • Eg. North American Free Trade Agreement(NAFTA) Usa, Canada & Mexico • Eg. European Union (EU). • Opp: Ireland is the only English speaking…. • Challenge: Increased competition from EU co.’s

33. 4. Deregulation • Removal of trade barriers & government rules & regulations that prevent free trade. • World Trade Organisation: Is a group of over 150 countries that negotiate in “trade rounds”. • The aim is to increase world trade. • Applies to goods & services. • Good for Irish business as they can increase sales. • Threat for Irish business due to competition.

34. 5. New/Emerging Markets • Former communist countries are beginning to develop. Eg. Poland, Russia, Latvia…. • China is now allowing international trade. • This allows Irish business to increase sales. • However there is a threat of TNC’s relocating to low wage countries.

35. 6. Influence of powerful TNC’s • TNC’s volume of trade has increased so much that the may be more powerful than some countries in which they operate. • Small firms find it difficult to compete with TNC’s. • TNC’s will locate in the most cost effective country. • They may try to influence the economic policies of some countries. • While Ireland benefits from TNC’s……………..

36. 7. Global recession • The banking crisis has triggered a worldwide down turn in economic activity. • The credit crunch means that there is less money available for bconsumers to spend & businesses to borrow. • Opp: Reduce waste & cut costs. • Challenge: Job losses, bankruptcy.

37. Exam Question • What are the opportunities & challenges for Ireland in developed & developing markets? • What are the opportunities & challenges for Ireland in international trade? • Question 3 07, 06, 99

38. Opportunities • 1. Increased Sales: • Ireland is a member of the EU with access to over 500 million consumers. • Deregulation due to the WTO has also allowed Ireland to export all around the world with fewer barriers and regulations.

39. 2. Economies of Scale • Irish exporters must mass produce to satisfy international demand. • The more they produce the cheaper the cost per unit. • International trade helps Irish business become more efficient & competitive.

40. 3. English Speaking/Educated & Green • Ireland is the only English speaking country using the Euro. • Ireland has an educated workforce. • This makes Ireland attractive to TNC’s that want access to the EU market. • Our green image attract tourists & makes it easier to export food products.

41. Other opportunities • Diversification • Earn foreign currency • Irish firms become TNC’s • Ireland attract TNC’s

42. Challenges • 1. Competition from low wage economies: • TNC’s will locate in the most cost effective countries. • Emerging former eastern bloc countries such as Poland have lower wage rates & are attracting TNC’s. • There is also more competition…………….

43. 2. Foreign language: • Although English is the international language of business, consumers want to use their own language. • Ads may become lost in translation. • Eg. KFC “finger-lickin good” translated into Chinese as “eat your finger off”. • Jif changed to Cif due to difficulty with J….

44. 3. Exchange Rates: • If the euro increases in value exports become dearer and imports become cheaper. (happening now with €1 = £0.90). • If the value of the euro decreases in value then exports become cheaper and imports become dearer. This will make raw materials such as oil more expensive.

45. Other problems connected with foreign trade. • Transport • Insurance • Safety standards • Payment • Cultural differences

46. Role of ICT in International Trade 1. Increase sales: • e-commerce is using the internet to sell products all around the world either through websites or e-bay. 2. Advertising: • Using MSN or Yahoo to advertise golbally.

47. 3. Faster & cheaper communications • E-mail is faster than “ snail mail”. • Businesses can e-mail documents worldwide for a flat monthly fee. • EDI: Electronic Data Interchange, sending standardised documents to other firms that you deal with regularly.

48. 4. Decision-making • WWW is a vast library of information. • Managers can access information it needs about trading partners. • More informed decisions can be made

49. 5. Reduced Costs • Video-conferencing allows virtual face-to-face meetings without travel. • Live pictures & sound are sent via the internet or satellite. • This reduces cost as no flights or accommodation is needed. • e-banking reduces fees….

50. Government help for exporters • Enterprise Ireland provide: • Market research in foreign countries. • Low cost loans to exporters. • Grants to experters. • Training & advice on international trade such as labelling, documents & payment.