AN OVERVIEW OF INTERNATIONAL TRADE

Why Companies Engage in International Trade Companies engage in international trade for three primary reasons:

• expand their sales;

• acquire resources;

• diversify their sources of sales and supplies.

Expand Sales. Companies' sales are dependent on two factors: the consumers' interest in their products or services and the consumers' willingness and ability to buy them. The number of people and the amount of their purchasing power are higher for the world as a whole than for a single country, so companies may increase their sales by defining certain markets in international terms.

Ordinarily, higher sales mean higher profits, assuming each unit sold has the same Tag Heuer Carrera Replica markup. Profits per unit of sales may even increase as sales increase. Increased sales are thus a major motive for a company's expansion into international trade. Many of the world's largest companies derive over half of their sales from outside their home country. These companies (with their home country in parentheses) include BASF (Germany), Electrolux (Sweden), Gillette (the United States), Michelin (France), Nestle (Switzerland), Philips (the Netherlands), and Sony (Japan). However, smaller companies also may depend on foreign sales.The National Association of Manufacturers classifies about 150, 000 U. S. companies as small, that is, having 400 or fewer employees and total annual sales of less than $70 million. Together, these small companies account for over 20 percent of U. S. manufactured exports. Many small companies also depend on sales of components to large companies, which in turn sell finished products abroad.

Acquire Resources. Manufacturers and distributors seek out products, services, and components produced in foreign countries. They also look for foreign capital and technologies they can use at home. Sometimes they do this to reduce their costs; for example, Disney relies on cheap manufacturing bases in China to supply clothing to its souvenir outlets. The potential benefits of this practice are obvious: Either the profit margin may be increased or the cost savings may be passed on to consumers, who will in turn buy more products, thus producing increased profits through greater sales volume. Sometimes a company buys abroad in order to acquire a service not readily available Replica Audemar Piguet within the company's home country. Such a strategy may enable a company to improve its product quality and/or to differentiate itself from its competitors — in either case potentially increasing its market share and profits.

Diversify Sources of Sales and Supplies. To help avoid wild swings in sales and profits, companies may seek out foreign markets and sources of supplies. Many companies take advantage of the fact that the timing of business cycles — recessions and expansions — differs among countries; that is, sales decrease in a country that is in a recession and increase in one that is expanding economically. In addition, by obtaining supplies of the same product or component from different countries, companies may be able to avoid the full impact of price swings or shortages in any one country.

Increase in Global Competition. The pressures of increased foreign competition can persuade a company to expand its business into international markets. It can do this more easily because of the technological, governmental, and institutional developments just discussed. Today, companies can respond rapidly to many foreign sales opportunities. They can shift production quickly among countries because of their experience in foreign markets and because goods can be transported efficiently from most places. Companies also can distribute component and/or product manufacturing among countries to take advantage of cost differences.

Article Source: http://www.holidaysoftheyear.com

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