THE IMPORTANCE OF INTERNATIONAL TRADE (1.1) International trade: is the exchange of goods and services between the countries over the world.
Import is the purchasing goods or services overseas.
Export is the sale of goods or services made overseas.
For individual company, the reasons for exporting to overseas are: a. It represents the potential markets. b. Domestic market is saturated. c. Reduce the dependence upon one geographical market. d. The requirements of the firm’s product to attack overseas market. e. Companies need to be able to sell product to an overseas market, if they want to be the suppliers of large companies over the world. f. Domestic market too small for the exploiting of the economies of scale. g. Economies of scale result from extending the use of brands in overseas market
From the perspective of national economies, there are four other reasons: a. Goods and services are traded to exploit the concept of comparative cost advantage. b. Many restrictions on international trade are removed. c. The increasing of income in greater consumption of many categories of luxuries like overseas travel, etc. d. Cultural convergence that has resulted from improved communications.
Labor costs: the cost of labor in less developed and developing countries are lower than in developed countries. There is a fact that the unskilled worker s in developed countries will compete with the equivalent workers in less developed and developing countries. Therefore, developed countries need to improve their workforce the competitive advantages.
International competitiveness: is more important than labor costs and productivity.
The following items are considered: * Rule of law * Physical infrastructure especially transport links * Capital for investment * Scientific and technological infrastructure