The Importance of International Trade in the Modern World

The importance of international trade within the world economic system is caused by important factors and practicability of international exchange of goods and services.

There are some factors predetermining the necessity of international trade. They are:

• Emergence of the world market.

• Unevenness of development of individual industries in different countries. Products of the most developed industries, which can't be realized at the internal market, is transported abroad. In other words, both the sales requirements at foreign markets and the need in receiving certain goods from outside, appear.

• Tendency to unlimited expansion of the production. Since the capacity of domestic market is limited by solvent demand of population, production is overgrowing the limits of domestic market and businesspeople of every country are struggling for foreign markets.

• Tendency to get higher income in connection with the usage of low-paid manpower and raw materials from developing countries.

International trade is especially important, because there is no country in the world, which can exist without foreign trade. They are all depended on international trade, but their level of dependency is different. It's determined as the ratio of half value volume of foreign trade turnover (export + import) to GDP. According to this indicator, all countries can be divided into 3 groups: high dependent (45 - 93%), medium dependent (14-44%) and low dependent (2,7 -13%).

International trade is rational, when it provides some benefits, which can be received on three levels: national level, the level of domestic international firm and also on customers' one.

Due to taking part in the international trade, countries gain:

• the opportunity to export those goods, production of which takes more national resources, which country has in relatively large numbers;

• the opportunity to import those goods, which can't be produced in their country because of the lack of needed resources;

• economies of scale effect in production, specialized on more narrow set of goods.

There are two points of view on benefits from international trade for home international firms. The first point of view concerns the export opportunities, the second one - the import ones.

From the point of view of export activity, enterprises obtain benefits at the expense of:

• using excess capacity, which is hold by companies, but are not desirable by domestic demand;

• getting greater profits. Because of the difference between the foreign trade competitiveness environment and the national one, the producer can sell goods there with higher income;

• considerable volumes foreign sales, which make natural producers less dependent on domestic economic conditions;

• reduction of production costs, connected with: fixed costs, covered by the expense of bigger volume of outputs; effectiveness rising due to experience, gained during manufacture of large batch of produce; bulk purchases of materials and their transportation by large batches;

• distribution of risk. Producer can reduce the fluctuations of demand by organizing the production distribution on foreign markets, due to of countries' economic activity being in different phases, and some goods being on different stages of the life cycle;

• knowledge and best practices, received by firms in the functioning process on foreign markets.

From the point of view of import activity, enterprises obtain benefits at the expense of:

• avoiding limits of the domestic market by reducing production costs or by upgrading quality of production;

• getting cheap high-quality materials, components, technologies to be used in its production;

• using excess capacity of trade distribution network;

• expansion of commodity line due to which a firm can increase its supply of product line;

• possibilities of distribution of operative risks, as by expanding the suppliers range, the company will be less depended on a singular supplier.

In their turn, consumers obtain benefits from cheaper prices, increasing of quantity and diversification of goods, which leads to higher standard of well-being.

 
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