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International Trading Environment

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Title: Chapter 20 Author: Rachel Last modified by: Caroline McHale Created Date: 11/16/2008 1:15:03 PM Document presentation format: On-screen Show (4:3) – PowerPoint PPT presentation

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Title: 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?
COUNTRY CURRENCY LANGUAGE
USA Dollar English
Britain Sterling English
Europe Euro others Various
Japan (importing) Yen Japanese
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.
  • OpportunityIreland can attract TNCs.
  • 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 TNCs relocating to
    low wage countries.

35
6. Influence of powerful TNCs
  • TNCs 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
    TNCs.
  • TNCs will locate in the most cost effective
    country.
  • They may try to influence the economic policies
    of some countries.
  • While Ireland benefits from TNCs..

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 TNCs 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 TNCs
  • Ireland attract TNCs

42
Challenges
  • 1. Competition from low wage economies
  • TNCs will locate in the most cost effective
    countries.
  • Emerging former eastern bloc countries such as
    Poland have lower wage rates are attracting
    TNCs.
  • 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.

51
Department of Enterprise, Trade Employment.
  • Gives advice on documents used regulations to
    be followed when exporting.
  • Provide Export Credit Insurance
  • This is where the government pay the Irish
    exporter if a foreign customer does not pay.

52
Exam Questions
  • Short
  • 10 Q 3 Ex rate
  • 07 Q 6 Trading Bloc
  • 06 Q 10 Bal of Trade..
  • 02 Q 6 Ex rate
  • 02 Q 9 Deregulation
  • Long
  • 10 Q 3 (b) Changes in Int
  • 07 Q 3 (a) Opp of Int Tr
  • 06 Q 3 (c) Change in Int
  • 04 Q 3 (c) Opp of Int Tr
  • 00 Q 3 (c) Change in Int
  • 99 Q 3 (a) Opp chall of international trade
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