Unit 6
International Environment
International trade environment refers to the sum total of external forces where the international trading organisation operates. Such trading environment is influenced by both domestic environment of the country where the firm located and also by the global environment where it provides services/sell products. The figure 1 shows elements of international trading environment-
Figure 1: Elements of international trading environment
Political environment refers to the existing political system, governance etc. that prevails in the world. Their stability, values, beliefs, support all these influence on the sustainability, growth and expansion of international trade in different parts of the world.
Legal environment refers to the set of rules, regulations, acts, legal system formulated to control and regulate the global trade. The stakeholders of international trade must follow such rules and regulation others penalty or other punishment will be imposed on international trading firms.
2. Economic Environment
It consist of different economic factors like economic conditions, economic policies, economic system, phases of trade cycle, international organisations, international agreements which issue different guidelines, rules and regulations for smooth conduct of international trade. WTO, IMF, World Bank, UNCTAD, etc. supervise the activities and trends of international trade.
3. Cultural environment
The cultural environment of international trade is highly volatile and influences their decision making, problem solving, exchanging information and ideas etc. The trading organisations should plan their promotion policies depending on the values, beliefs, social life style, food habits, preferences etc. of the global customers.
4. Technological environment
The technological environment helps to easily access the customers of every knock and corner of the globe, collect material information and deliver the service/ product without delay. Technological environment promotes e-commerce business, international banking and insurance services, telecommunication services, fast transport of cargo by airways etc. It helps the customers to consume imported goods with reasonable price.
Features of international trading environment
Key takeaways-
1) International trade environment refers to the sum total of external forces where the international trading organisation operates. Such trading environment is influenced by both domestic environment of the country where the firm located and also by the global environment where it provides services/sell products.
During the last few years international trade patterns have been characterized first by a cyclical pattern: anaemic growth in 2012-2014, a downturn in 2015 and 2016 followed by a rebound in 2017 and 2018. Some of trends in international trade are highlighted below-
International trade is forced to tend that shape the global, cultural and economic environment. It constantly influences the trade environment to bring changes among the stakeholders.
2. Cooperation among countries:
Recently the countries constantly cooperate with each other through forming trade agreements and groups. They are constantly focussing on reduction of trade barriers and assisting each other to promote international trade among each other’s.
3. Liberalisation of cross border trade:
The countries participating in trade agreements to liberalise trade among them through free transfer of technology, fund flow, know how, human resources etc. Consumers are also able to consume variety of products due to free flow of goods and services.
4. Growth in emerging markets:
The emerging markets like India, China, Brazil and other parts of Asia, South America grow positively and greatly influences on the international market. It is witnessing that the economic powers is shifting from USA and Europe to Asia due to rapid expansion of international trade.
5. Growth of trading in services:
Advancement of technology promotes the services of banking, insurance, logistic, telecommunication, marketing etc. in the international market. The customers can easily access these services from different parts of the globe.
6. Growth in supply chain:
The supply chain system is growing rapidly due to increase in trading partners. Huge investments are made by countries to use the services of artificial intelligence in supply chain.
Key takeaways-
1) During the last few years international trade patterns have been characterized first by a cyclical pattern: anaemic growth in 2012-2014, a downturn in 2015 and 2016 followed by a rebound in 2017 and 2018.
The importance/role of international trade in the economic growth are-
International trade is a powerful enabler of economic development. By connecting global markets to developing-country producers and consumers, trade – both through exports and imports – provides a critical channel for the flow of finance, technology and services needed to further improve productive capacity in agriculture, industry and services. These are needed in turn for structural transformation of economies. A fundamental factor behind their rapid economic growth has been their ability to strengthen competitive productive and export capacities, first in traditional agricultural and textiles/clothing sectors and then in labour-intensive manufactures which shifted at times swiftly into high technology manufactures such as electronics.
2. Income channel
The impact of trade on national income can be called the “income channel”. Trade can raise the economy’s income-generating opportunities via, inter alia, a “vent for surplus”. Through the income channel, participation in international trade affects a wide range of development outcomes by influencing relative prices in the domestic economy. Income changes may affect the incentives facing particular groups when deciding whether or not to enter the formal labour force, which could generate significant impact on social inclusion, for example, as regards gender equality.
3. Reduce the cost of goods and services
Trade can reduce the cost of goods and services that are not domestically available at reasonable prices, and increase quality and variety of such goods and services in the marketplace. A better and greater variety of imported input factors (e.g. fuel and raw materials, intermediate goods and machinery equipment) lowers production costs and may enable production which otherwise would not be feasible in the country. Improved access to essential goods and services such as medicines and vaccines, medical equipment, food, energy and environment-related goods generates direct developmental gains for consumers, as well as improves the cost-effectiveness of a given public expenditure on, for example, health care.
4. Inclusive economic development and poverty reduction
Inclusive economic development and poverty reduction should be pursued as a deliberate objective of increasing participation in international trade. Trade already makes up a significant portion of the economies of the least developed countries (LDCs). The reduction in poverty in LDCs lagged far behind that in developing countries as a whole. The rate of poverty in LDCs in recent years remains significantly high – in many cases over 40 per cent of the population – compared to other developing countries whose rates range between around 10 per cent to less than 2 per cent.
5. Enhances the economic environment
Participation in international trade enhances the economic environment which is favourable to achieving broader development goals such as poverty reduction, employment, food security, gender inclusiveness, health and environmental sustainability. The development-enabling role of trade, or for that matter the role of inclusive economic growth as a whole, is however not adequately reflected in the current United Nations Millennium Development Goals.
6. Benefits from free trade agreements (FTA)
The new generation of FTAs, often referred to as deeper integration arrangements, encompass areas such as government procurement, investment, transfer of technology, intellectual property rights, environment, dedicated dispute settlement mechanisms, competition policies and mutual recognition agreements. This can benefit countries that have capacity to implement such deeper integration commitments.
7. Market access
It allows the countries to access the international market by forming groups and by participating in different trade agreements to remove or reduce the tariff and nob-tariff barriers.
8. Bridging trade and development
International trade interconnects trade and development of a particular region. Promotion of trade in a country increases the inflow of funds which strengthen their financial position and also improve their image in the world market. It also promotes economic development of the country.
Key takeaways-
1) International trade is a powerful enabler of economic development.
2) Trade can reduce the cost of goods and services that are not domestically available at reasonable prices, and increase quality and variety of such goods and services in the marketplace.
3) Participation in international trade enhances the economic environment which is favourable to achieving broader development goals such as poverty reduction, employment, food security, gender inclusiveness, health and environmental sustainability.
References-
