Chapter 23 – International
Trading Environment
UNIT 7
What we’ll be covering
International Trade
Exports and Imports
Balance of Trade/Payments
Why Countries Import
Why Countries Export
Significance of International Trade
Free Trade and Protectionism
Barriers to Trade
Changes in International Economy
Ireland’s Opportunities in Developed and Developing
Markets
 Ireland’s Challenges in Developed and Developing Markets
 Role of ICT in International Trade
 Government help for Irish Exporters
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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 Resources
 A country may not have resources it needs.
 Ireland does not have enough oil and must import from
Saudi Arabia.
2. Unsuitable Climate
 A country may not have correct weather to grow certain crops.
 Ireland imports coffee and bananas to combat this.
3. Lack of Skills
 Some countries are highly skilled at making certain products.
 Ireland imports Swiss watches as they are such a high
standard.
4. Bigger Choice for Consumers
 This 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. Survival
 To make money businesses may need to export to bigger
countries.
 Irish aircraft manufacturer can only survive if it exports.
2. Increase Sales and Profits
 Business will sell to foreign countries to increase sales and
profits.
 U2 sell their CDs all over the world.
3. Diversification
 This 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
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5.
Allows businesses to sell to billions of
customers worldwide.
Gives economies of scale to businesses.
Allows Irish businesses to receive foreign
currency which can be used for importing.
Increased sales cause businesses to hire more
employees which decreases unemployment and
provides government with more money from tax.
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. Tariff
 A tariff is a tax that a country adds to the price of foreign
imports
2. Quota
 A country puts a limit on the amount of foreign imports
it will allow.
3. Embargo
 This is a complete ban on all foreign imports (or imports
from specific country) into the country.
 The USA has a trade embargo with Cuba
4. Subsidy
 This is money that a government gives to its own
domestic businesses to allow them to sell more cheaply.
Changes in International Economy
1. Globalisation
 This is an increasing number of global businesses,
which operate throughout the world.
 Examples include Coca-Cola, McDonalds
 Their 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 Technology
 Many 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 Blocs
 These 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 Trade
 This 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 Markets
 Former 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 Sales
 Irish 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 Costs
 Economies of scale is caused due to Irish exporters needing to
make more products.
3. Diversification
 Allows Irish businesses to spread their risk by selling
elsewhere.
4. Earn Foreign Currency
 Irish 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
computers
8. 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 Languages
 Many 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 Changes
 If 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 Problems
 Ireland 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 Differences
 Up 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 Economies
 Almost 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 Problems
 If 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 Sales
 Internet 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. Advertising
 Businesses 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 Communications
 Email allows businesses to send messages quickly and
cheaply.
Role of ICT in International Trade
4. Decision-Making
 The internet has information on millions of topics
which enables business people to make better
informed decisions when it comes to foreign
markets.
5. Reduced costs
 Video-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 Ireland
 Provides 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.