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International Trade International Trade refers to business carried out between firms situated in different countries. If Irish firms purchase goods and services from other countries, it is referred to as importing. If they sell goods to other countries, it is referred to as exporting.
Reasons for International Trade • Natural Resources • Necessary Products • Raw Materials • Climate • Skilled Workmanship • Choice • Small Home Market • Foreign Currency
Balance of Trade The balance of trade measures the total exports of physical goods against the total import of physical goods. • Visible trade: The trade of physical goods. E.g. Cars, bananas • Surplus: If total exports exceed total imports, there is a balance of trade surplus. • Deficit: If total imports exceed total exports there is a balance of trade deficit. • Import Substitution: This policy would help to ensure that the balance of trade remains in surplus all the time. It involves consumers and businesses purchasing Irish made goods in place of imported goods.
Irelands balance of trade • “Ireland reported a trade surplus equivalent to 4153 Million EUR in October of 2010. Exports remain the primary engine for Ireland's growth. Ireland has achieved the highest trade surplus relative to GDP in the EU. Ireland exports mainly agri-food, cattle, beef, dairy products, zinc, lead and aluminium. Ireland’s major imports are: data processing equipment, chemicals, petroleum and petroleum products, textiles and clothing. European Union is by far its largest trading partner, accounting for about 74% of exports and 60% of imports. Other major partners are U.S. and China.”
Balance of Payments This measures the total exports against the total imports of a country during a particular period. • Visible and Invisible: It includes both visible trade, i.e. physical goods, and invisible trade. • Invisible Exports: Invisible exports refer to foreign money coming into Ireland from services, e.g. tourists coming to Ireland or ESB International carrying out electrical work abroad. • Invisible Imports: Invisible imports refer to Irish money being spent abroad on services, e.g. Irish people holidaying abroad or Irish people travelling to Britain with BA. • Surplus V Deficit.
Irelands balance of payments Current account surplus over €3bn in 3rd Quarter “The Balance of Payments current account surplus in the third quarter of 2012 was €3,049m - similar to the surplus in the second quarter of 2012 and significantly higher than the surplus in the third quarter of 2011- see Table 1. The merchandise surplus of €9,465m in the quarter fell from a surplus of €10,004m in the second quarter of 2012 and the invisibles deficit of €6,416m fell from a deficit of €6,769m. The services surplus continues to increase and at €1,551m was higher than in any previous quarter while net income outflows at €7,400m were similar to the previous quarter.”
Barriers to Trade/Protectionism Some countries attempt to protect their home trade by creating barriers to free trade with other countries. • Tax: Taxes have the effect of making imported goods more expensive. Such taxes are illegal on trade within the EU. • Quotas: This is where a limit is put on the quantity of certain goods that can be imported into a country. • Embargo: An embargo is a total ban on the importation of certain goods into a country. • Bureaucracy: The devising of complex importation procedures, difficult levels of documentation etc. • Transport costs: The cost of transport to some countries can also act as a barrier to trade.
Changing nature of the International Economy Deregulation • Removal of barriers: this refers to the opening up of all areas of business to free competition. • Equal footing: deregulation is good for business as firms can now compete on foreign markets on an equal footing. • Competition: Deregulation also means that Irish firms will face greater competition on the home market.
Deregulation in Ireland Thursday, April 22, 2010 THE ENERGY regulator will deregulate the domestic electricity market when ESB’s market share falls to 60 per cent, it said yesterday. In a report published yesterday, the Commission for Energy Regulation (CER) said ESB would also have to commit to a plan to rebrand its supply business before the market would be deregulated, allowing ESB to compete with independent suppliers.
Changing nature of the International Economy Privatisation • State ownership: The move away from state ownership and the end to state monopolies has meant that some firms have faced competition for the first time.
Changing nature of the International Economy Privatisation • Public Procurement: The creation of a single market has meant that all state contracts must go to tender throughout the EU.
Changing nature of the International Economy Transnationals • Increased number: There has been an increase in the amount of transnational firms operating around the world. They are attracted to various countries through generous grants and incentives. • Control Costs: As free trade increases throughout the world, these firms are better able to fight of competition and keep their costs down. • New markets: The new and developing markets of Eastern Europe and Asia may offer a cheap labour/high quality option to transnationals currently operating in Ireland.
Changing nature of the International Economy Information and Communications Technology (ICT) • Modern Development: Technology, particularly the Internet, has revolutionised trade. Firms can now operate global businesses from their own headquarters. • Instant Communication: Communication is instant, information is readily available to clients and potential clients all over the world, and sales can be made and orders dispatched over the computer
Changing nature of the International Economy Emergence of New Markets • New Markets: The collapse of communism and the emergence of new markets in Eastern Europe, Asia and South America have opened up new opportunities for international trade. • Low Costs: These new countries are beginning to produce their own goods of high quality but at a much lower cost. These goods when exported will seriously challenge Irish products.
Changing nature of the International Economy Globalisation • One Market: Increasingly, firms have begun to treat the world as one single market. This is referred to as ‘globalisation’ and the world is referred to as a ‘global market’. • Standard product: In many cases the products on sale are exactly the same in each country. Prices may vary depending on the competition in each market as well as other relevant factors.
Opportunities and Challenges for Irish Business Opportunities • Free Trade: Irish firms have unrestricted access to international markets. • Proximity: Ireland’s proximity to the European mainland and its well developed transportation links facilitate international trade. • Language: a large proportion of Ireland’s trade is with other English-speaking countries. English is also a second language for most of our European trading partners. • Skilled Workforce: a highly skilled workforce is available within Ireland to assist firms in international trade.
Opportunities and Challenges for Irish Business Opportunities • Increased Sales: International trade gives firms the opportunity to increase their sales and thereby benefit from lower costs and economies of scale. • Technology: Developments in technology make it easier for Irish firms to do business abroad. Advertising, marketing, transport and receiving payment have all been simplified by the Internet and other computerised systems. • International Image: Ireland’s image abroad as an environmentally clean and safe country will assist Irish firms selling abroad, particularly those in the food industry.
Opportunites • http://www.rte.ie/news/2009/0427/google-business.html • http://www.finfacts.ie/irishfinancenews/article_1018555.shtml
Opportunities and Challenges for Irish Business Challenges • Competition: Irish firms will face much greater competition, and firms that are not cost-effective and efficient may be eliminated. • Distribution Costs: Irish firms will be at a cost disadvantage because of our location as an island nation on the fringe of Europe. • Language skills: Firms may have to recruit staff with particular language skills if they wish to trade in certain foreign markets. • Securing Payment: Firms may experience difficulty when trying to get paid for the goods from firms operating in certain countries.
Opportunities and Challenges for Irish Business Challenges • Low Wage Operators: Irish firms will have to compete against the low wage operators of some Far Eastern countries. • Market Requirements: Operating in new markets, especially those outside the EU, brings with it the need to be familiar with different documentation, cultures and traditions with different rules and regulations. • Currency Fluctuations: Trading with firms situated outside the Eurozone will leave Irish firms exposed to the risk of currency fluctuations.
Challenges • http://www.propertyweek.com/news/ireland-shaken-by-dell-poland-move/3131136.article
Why the importance on World Trade? • The world economy went into a deep depression in the 1930s, as many countries closed their barriers to trade with other states. This led to: • Mass unemployment • Social upheaval • Rise of fascism and the Second World War
How to prevent this happening again? • Global powers set up trading blocs and bodies to support international trade • International Monetary Fund • World Bank • World Trade Organisation • All countries encouraged to join these organisations, or face exclusion from benefits of free world trade
World Trade Organisation The WTO’s main role is to encourage the development of free trade and to work towards an increase in global free trade. Objectives: • To promote free trade by encouraging member countries to remove or reduce barriers to trade that exist between them. • To ensure that no member country discriminates against any other member country by offering them less favourable trading conditions. • To work towards the eventual abolition of tariffs and subsidies within all areas of business. • To ensure free trade exists in the trade of services as well as the trade in goods.
