International trade is the exchange of capital, products and services across borders. Advantages of international trade include greater utilization of resources, importing products that cannot be produced locally, and increasing the variety of choice to consumers. However, international trade may be associated with disadvantages as well such as loss of local jobs and high level of dependency on foreign markets.
Significance of international trade to UK business organizations can be explained by referring to the concept of comparative advantage. According to the concept trade between two countries can be made in a mutually beneficial manner, if each country has comparative advantage to manufacture products to be traded.
Countries are interdependent, which means they rely on each other to support their economies. They need other countries to buy their exports to have money to buy resources that are not produced in their country. Also it is so that countries can specialize in producing a good or service and know that the goods that they do not have can be imported from other countries that specialize in that good.
Countries have a lot of expenses (health services, military, wages etc.) and taxes rarely cover all of these, so they need to borrow to offset the deficit. Also if a country wants to prosper, they need money to improve life conditions of their inhabitants. When the life conditions improve, the citizen will be able to pay the money back in a virtuous circle.
There are many things that are important about international trade, economic integration and global markets. Without international trade, businesses wouldn’t be as profitable and economies would suffer. Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country’s current account in the balance of payments.
Below are some reasons as to why such things as international trade are so important to UK businesses.
? Broadens Horizons and Markets
If a company based in the UK was to only sell and trade their products domestically, never marketing or pushing their product to consumers in other countries, the country would completely limit its potential. They may always gain a steady trade from UK consumers, but they wouldn’t be able to grow as much as if the company traded with eight other countries, for example.
This is why international trade is so important for companies and the economy – it increases traffic, customer figures and sales.
? Production Costs
By trading in other countries, the company also opens itself up to lower production costs. For example, a TV manufacturer in Australia may discover that its product could be created for substantially less in a factory in Greece. This not only saves the company money, but it helps the consumer as the TV can be sold for less. Furthermore, Greece’s economy is helped thanks to the TV company paying the factory to create its product.
If it wasn’t for other countries, we wouldn’t be able to get our hands on many of the materials we need to make products we use every day – especially in the food industry. Colder countries, such as the UK, rely on hotter countries for fruits such as bananas and mangoes, and those hotter countries rely on places such as the UK for such items as potatoes.
? Maximum utilization of resources.
International trade helps a country to utilize its resources to the maximum limit. If a country does not take up imports, then its resource unexploited. Thus it helps to eliminate the wastage of resource.
? Benefit to consumer.
Imports and exports of different counties provide opportunities to the consumer to buy and consume those goods which can’t be produced in their own country. Then therefore get diversity in choice.
Without international trade or economic integration of food trade, all countries would have a very scarce choice.