International trade

Group 4

The importance of international trade

International trade is the exchange of capital, goods and services between countries. Import: is the purchase of goods or service made overseas for example cars, cosmetic, machines, wine etc Export: is the sale of domestic-made goods or services overseas for example rice, coffee, clothes, rubber, petroleum etc.

Why international trade is important?

Without it, Vietnam would be much poorer. Fuel Specialized machines or materials High-technology devices: cell phone, laptop Transportation: car, motorcycle

Those are vital things for our daily life and production. Some we produce not so efficiently, some were not able to generate.

The reasons for International trade

Are actually an Extension of the reason for national trade Jack of all trades, master of none

Instead of being self-sufficient and doing everything by ourselves, it makes sense to specialize

Reasons why exporting to overseas markets is so attracting for individual company

New market segments are represented by overseas market Saturation of domestic market

Reduce its dependence upon one geographical market

The nature of a firms product may require an organization to become active in an overseas market

Commercial buyers of products operating in a number of overseas countries may require their suppliers to be able to cater for their needs across national boundaries

Some goods and services are highly specialized and the domestic market is to small to allow economies of scale to be exploited
Economy of scale also result from extending the use of brands in overseas market

Goods and services are traded to exploit the concept of comparative cost advantage The removal of many restrictions on international trade Increasing household disposable incomes results in greater consumption of many categories of luxuries, such as overseas travel, which can only be provided by overseas suppliers Cultural convergence that has resulted from improved communications.

Labor cost and International competiveness

Globalization: process of exploiting cheap labor in less developed and developing countries When productivity is taken into account: much of difference disappears Low or unskilled workers in developed countries are in competition with equivalent workers less developed and developing countries

Generally, in developed and developing countries there is a lack of highly skilled workers. Developed countries must promote both productivity improvements in industry and worker training and education

Determinants of international competiveness

Rule of law rather than arbitrary power Physical infrastructure especially transport links Availability of capital for investment Scientific and technological infrastructure Vigorous domestic competition Innovation Minimum of Government control over enterprise

Absolute advantage : a country has an absolute advantage in the production of a good if it can produce more of the good with a fixed amount of resources to produce a product than the other country Comparative advantage is the advantage in the production of a product enjoyed by one country over another when that product can be produced at a lower opportunity cost Opportunity cost of a product is the alternative products that must be sacrificed to facilitate its production

Concentrate on producing what they are good at and export the surplus Import from other countries those goods that other countries are better able to produce than themselves

2 nations called A and B

CARS (number) Country A: 100 Country B: 20 Total: 120 WHEAT (units) Country A: 50 Country B: 80 130

A: Each car produced involves an opportunity cost of HALF a unit of wheat. Each unit of wheat involves foregoing 2 cars

B Each car involves foregoing 4 units of wheat; each unit of wheat involves foregoing A QUARTER of a Car

Specialized productions
Cars (number) Country A: 200 Country B: 0 Total: 200 Wheat (unit) Country A: 0 Country B: 160 160

Exporting Global E-commerce Licensing/franchising Management contracting Overseas production Acquisition and merges