Why Trade Internationally?
Why Trade Internationally?
Access to Larger Markets
- International trade allows businesses to expand beyond their domestic markets, opening up a much larger customer base.
- Tapping into international markets can lead to an increase in sales and ultimately higher profits.
- In extreme cases, a business might find that their product or service is not viable at home but has a significant demand internationally.
Diversifying Risk
- Trading internationally can help businesses mitigate risks associated with their domestic markets. This might include economic downturns, political instability or natural disasters.
- Commercial activities in various countries are less likely to all experience the same setbacks at once, thus providing a level of risk diversification.
Access to Resources
- Some countries are rich in natural or human resources that can be advantageous for certain businesses, such as minerals, crops or skilled labour.
- International trade can allow companies to access these scarce resources at possibly lower costs.
Achieve Competitive Advantage
- Trading internationally can open up opportunities for businesses to gain competitive advantages.
- For instance, a business could obtain unique high quality products, industrial processes, or knowledge from abroad that may not be available or are of lower quality at home.
- This can help them out-perform their domestic competitors.
Benefit from Economies of Scale
- Companies that trade internationally often can increase their production quantity as they serve a larger market.
- This could lead to economies of scale, lowering per unit cost and potentially leading to increased profitability.
Take Advantage of International Trade Agreements
- Countries often have trade agreements in place that reduce or eliminate tariffs, import quotas, export restraints, or other trade barriers, making international trade more attractive.
- Companies can leverage these trade agreements for their benefit.
Profit from Seasonality of Products
- International trade allows businesses to sell their products all year round, taking advantage of different seasonal patterns around the globe.
- For instance, farmers can sell their fresh fruits and vegetables to countries currently experiencing the corresponding production-season.