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Three main drivers of international trade
International trade has the capability of developing a country’s economy and is restricted to the exchange of goods and services. The concept is driven by a number of factors. Increased customer base and market share are some of the main potential drivers of international trade since they eliminate over-reliance on a single market (NSW government, 2011). Reduced costs are another key driver of increased international marketing; this is since it provides a channel of access to cheap resources and labor from developing nations.
Reduced costs enable marketers to dispose of their products at lower prices enabling those with disposable income from various markets to buy more goods and services. Improvement in communication technology is also a potential driver of international trade. Technological changes such as the use of the internet and mobile phones assist in opening up new international sectors and enables easy coordination of international marketing campaigns (Pink, 2001).
Increased customer base
International marketing provides an increased customer base to organizations allowing for the sale of more products and services. This assists in improving an organization’s profitability and, at the same time, contributes towards the creation of employment opportunities within developing countries. A wide customer base provides options to marketers hence reducing the risks associated with focusing on one market. Companies with a globally recognized brand have limitless opportunities within the foreign markets; they have the ability to capture customer loyalty since consumers are normally drawn towards brands they trust and clearly recognize. The development of customer networks within foreign supply chains enables easy negotiation of better deals (NSW government, 2011).
The threat to international trade today
Exchange rates and Tariffs are some of the biggest threats to international trade. Major differences exist in the nature of currencies used by countries; each currency usually has its own value. The value of each country’s currency is never set and hence fluctuates depending on various factors within the country’s economy. In the year 2009, one U.S. dollar had the buying power of around 31.5 Russian rubles.
This meant that a can of soft drink in the United States was bought at one U.S. dollar while in Russia, a can of soft drink from a vending machine required the equivalent of one U.S. dollar in Russia’s currency, i.e., 31.5 rubles. This makes spending to be more expensive in Russia than in the United States; due to such differences, countries are forced to have a stock of hard currency to enable easy participation in the international economy (World Trade Organization, 2012).
I agree with your definition of international trade, Tony, as being the exchange of goods and services across country borders made possible by regional trade agreements. However, I would like to inform you that despite trade agreements being one of the driving factors to international trade, at times, it presents some shortcomings. For the majority of trade relationships, there is always the existence of trade imbalances. This means that in most instances, one country may buy more than it sells to another country.
Kelly, I agree with your explanation of the globalization of the market and technology. Indeed globalization has brought about many adjustments to international trade policies allowing solid relationships amongst countries. It is also true the issue of transport infrastructure and technology has a dramatic impact on the speed and movement of goods and services within the global marketplace. However, you should note that technological progress has also played a big role in the decline of manufacturing jobs in countries due to global outsourcing.
NSW government, (2011). Trade and Investment; Introduction to international Marketing. Web.
Pink, D. H. (2001). Why the world is flat. [Electronic version]. Web.
World Trade Organization. (2012). Understanding the WTO: Members and observers. Web.