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Advantages and Disadvantages of International Trade:

The main advantages of international trade to a country are as follows: (i) Economy in the Use of Productive Resources: Each country tries to produce those goods in which it is best suited. As the resources of each country are fully exploited, there is thus a great economy in the use of productive resources. (ii) Wider Range of Commodities: International trade makes it possible for each country to enjoy wider range of commodities than what is otherwise open to it. The commodities which can be produced at home at relatively higher cost can be brought from the cheaper market from abroad and the resources of the country thus saved can be better employed for the production of other commodities in which it is comparatively better fitted. (iii) Scarcity of Commodities: If at any time there is shortage of food or scarcity of other essential commodities in the country, they can be easily imported from other countries and thus the country can be saved from shortage of commodities and low standard of living. (iv) Promotes Competition: International trade promotes competition among different countries. The producers in home country, being afraid of the foreign competition, keep the prices of their products at reasonable level. (v) Speedy Industrialization: International trade enables a backward country to acquire skill, machinery; and other capita! equipment from industrially advanced countries for speeding up industrialization. (vi) Fall of Prices: A country can export her surplus products to a country which is in need of them. The home prices are, thus, prevented from falling. (vii) Extension of Means of Transport: When goods are exchanged from one county to another, it leads to an extension of the means of communication and transport. (viii) Economic Inter-Dependence: International trade offers facilities to the citizens of every country to come in contact with one another. |t makes them realize that no country in the world is self-sufficient. It thus pro motes peace and goodwill among nations.

International trade has its own demerits/disadvantages. These, in brief are as follows: (i) Exhaustion of Resources: In order to earn present export advantages a country may exploit her limited natural resources beyond proper limits. This may lead to exhaustion of essential material resources like iron, coal, oil, etc. The future generation thus stands at a disadvantage. (ii) Effect on Domestic Industries: If no restrictions are placed on the foreign trade, it may ruin the domestic industries and cause widespread distress among the people. (iii) Effect on Consumption Habits: Sometimes it so happens that the traders in order to make profits import commodities which are very harmful and injurious to the people For instance, if opium, wine, etc., are imported, it will adversely affect the health and morale of the people. (iv) Times of Emergency: If each country specializes in the production of those commodities in which it has comparative advantage over other countries, it may prove very dangerous rather fatal during times of

emergency tike war. The country may not be able to get essential supplies Thus the whole economy may be crippled. (v) Provides Foothold to the Foreigners: Foreign trade provides foothold to the foreigners in the country. It is in fact a pretext for a thorough political and economic subjugation of the weak by the powerful country Pakistan and India cannot forget as to how the Britishers came under the garb of traders here. We cannot deny this fact that international trade has certain evil consequences but if it is properly controlled, it can prove very beneficial for all the countries of the world.


Why do so many entrepreneurs find success in franchising? Franchising is a business model that involves purchasing a license to operate a specific, established venture that typically includes using well-known trademarks, signage, products, software and a pre-proven business system to support your ultimate success. A recent study on franchising prepared by PricewaterhouseCoopers on behalf of the International Franchise Association states that "...franchising is a critical engine of economic growth in the United States powering local communities across the country. "There are more than 900,000 franchised businesses in the country operating in many lines of business, including automotive, commercial and residential services, quick-service and full-service restaurants, retail food, lodging, real estate, retail products and services, business services and personal services." The Competitive Advantage of Nations" On Competition, Chapter 6 Michael E. Porter National prosperity is created, not inherited. It does not grow out of a country's natural endowments, its labor pool, its interest rates, or its currency's value, as classical economics insists. A nations competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world's best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers. In a world of increasing global competition, nations have become more, not less, important. As the basis for competition has shifted more and more to the creation and assimilation of knowledge, the role of the nation has grown. Competitive advantage is created and sustained

through a highly localized process. Differences in national values, culture, economic structures, institutions, and histories all contribute to competitive success. There are striking differences in the patterns of competitiveness in every country; no nation can or will be competitive in every or even most industries. Ultimately, nations succeed in particular industries because their home environment is the most forward-looking, dynamic, and challenging.

The Need Of International Trade?

International trade is needed so that all countries can avail themselves of the things that they need (and want), and that are not available in their own country. The most common example is oil, which is needed throughout the world, but it is limited to particular areas, and so is traded internationally. International trade accounts for a huge part of a country's gross domestic product (GDP) and is a vital source of revenue for all countries, particularly those that are developing, though it is the nations that have the strongest international trade, and who have prospered by it, that have become the driving force behind world economy. It is usually accepted that the benefits of international trade, and therefore, the reasons why it is needed are: It enhances domestic competiveness; it increases sales and profits; it takes advantage of international trade technology; it extends the sales potential of existing products; it maintains cost competiveness in the domestic market; it increases the potential for business expansion; it achieves a global market share; it reduces the dependency on markets that already exist; and it stabilizes seasonal market fluctuations. International trade is no new phenomena; the Silk Route is a very famous trading route that was used to transport silk and spices in the 14th and 15th centuries. The 18th century saw Clippers, which were ships designed for speed, being used to transport all manner of things from tea from China, and spices from the Dutch East Indies. Sugar, cotton and other goods were also traded internationally to the delight of both those producing them, and those receiving them, but the most sinister trading happened in a much darker period of history: Slaves also became a commodity to be traded internationally; the very negative repercussions of which can still be seen today.

are two major types of international business

here are two major types of international business. These are the trade and investments. Trade which is also referred to as commerce is the exchange of products and goods that are carried from one nation to another. In the old days, transporting these goods was very difficult which restricted this certain type of international process. However, with the improvement of

transportation networks, todays trading process takes place even with the neighboring continents. One fundamental advantage of foreign trade is described in the principle of the comparative advantage. This principle states that a country can still gain from trading certain products even if its trading partner can create those products more cheaply. The comparative advantage occurs when each trading partner has a product that will make a better price in another state than it will at home. The other major type of international business is the investment. Investment is normally defined as that act of spending or saving money for future financial profit. It includes the importing of durable goods such as cars from another country. There is also the direct foreign investment which is carried out in different forms. This includes the wholly owned auxiliary and joint ventures. Other minor types of international business are management contracts, licensing, and franchising. Purposes for international business also vary from the entity whose managing it. Normally, most private companies commence such transactions in the international business for profit gain. On the other hand, government typically carries out these transactions for political reasons.

National Competitive Advantage

Increasingly, corporate strategies have to be seen in a global context. Even if an organization does not plan to import or to export directly, management has to look at an international business environment, in which actions of competitors, buyers, sellers, new entrants of providers of substitutes may influence the domestic market. Information technology is reinforcing this trend. Michael Porter introduced a model that allows analyzing why some nations are more competitive than others are, and why some industries within nations are more competitive than others are, in his book The Competitive Advantage of Nations. This model of determining factors of national advantage has become known as Porters Diamond. It suggests that the national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale. This home base provides basic factors, which support or hinder organizations from building advantages in global competition. Porter distinguishes four determinants: Factor Conditions The situation in a country regarding production factors, like skilled labor, infrastructure, etc., which are relevant for competition in particular industries. These factors can be grouped into human resources (qualification level, cost of labor, commitment etc.), material resources (natural resources, vegetation, space etc.), knowledge resources, capital resources, and infrastructure. They also include factors like quality of research on universities, deregulation of labor markets, or liquidity of national stock markets. These national factors often provide initial advantages, which are subsequently built upon. Each country has its own particular set of factor conditions; hence, in each country will develop those industries for

which the particular set of factor conditions is optimal. This explains the existence of so-called low-costcountries (low costs of labor), agricultural countries (large countries with fertile soil), or the start-up culture in the United States (well developed venture capital market). Porter points out that these factors are not necessarily nature-made or inherited. They may develop and change. Political initiatives, technological progress or socio-cultural changes, for instance, may shape national factor conditions. A good example is the discussion on the ethics of genetic engineering and cloning that will influence knowledge capital in this field in North America and Europe. Home Demand Conditions Describes the state of home demand for products and services produced in a country. Home demand conditions influence the shaping of particular factor conditions. They have impact on the pace and direction of innovation and product development. According to Porter, home demand is determined by three major characteristics: their mixture (the mix of customers needs and wants), their scope and growth rate, and the mechanisms that transmit domestic preferences to foreign markets. Porter states that a country can achieve national advantages in an industry or market segment, if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors. Normally, home markets have a much higher influence on an organization's ability to recognize customers' needs than foreign markets do. Related and Supporting Industries The existence or non-existence of internationally competitive supplying industries and supporting industries. One internationally successful industry may lead to advantages in other related or supporting industries. Competitive supplying industries will reinforce innovation and internationalization in industries at later stages in the value system. Besides suppliers, related industries are of importance. These are industries that can use and coordinate particular activities in the value chain together, or that are concerned with complementary products (e.g. hardware and software). A typical example is the shoe and leather industry in Italy. Italy is not only successful with shoes and leather, but with related products and services such as leather working machinery, design, etc. Firm Strategy, Structure, and Rivalry The conditions in a country that determine how companies are established, are organized and are managed, and that determine the characteristics of domestic competition Here, cultural aspects play an important role. In different nations, factors like management structures, working morale, or interactions between companies are shaped differently. This will provide advantages and disadvantages for particular industries. Typical corporate objectives in relation to patterns of commitment among workforce are of special importance. They are heavily influenced by structures of ownership and control. Family-business based industries that are dominated by owner-managers will behave differently than publicly quoted companies. Porter argues that domestic rivalry and the search for competitive advantage within a nation can help provide organizations with bases for achieving such advantage on a more global scale.

absolute advantage
In economics, principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources. Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input. Since absolute advantage is determined by a simple comparison of labor productivity, it is possible for a party to have no absolute advantage in anything; in that case, according to the theory of absolute advantage, no trade will occur with the other party.[8] It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost.

comparative advantage
Multinational corporations are continually seeking sources of comparative advantage by investing in developing countries. Sometimes, they are initially willing to pay a high price for that advantage. For example, U.S. tobacco companies create strong incentives for local farmers in developing countries to grow tobacco instead of crops used for domestic food production by offering underwritten loans, subsidies for startup costs, and a guaranteed demand for their tobacco crops. The following questions pertain to the foundations of modern trade theory and comparative cost of production and pricing decisions:

Barriers of imtermatiomal trade

Free trade refers to the elimination of barriers to international trade. The most common barriers to trade are tariffs, quotas, and nontariff barriers. A tariff is a tax on imports, which is collected by the federal government and which raises the price of the good to the consumer. Also known as duties or import duties, tariffs usually aim first to limit imports and second to raise revenue. A quota is a limit on the amount of a certain type of good that may be imported into the country. A quota can be either voluntary or legally enforced.

A tariff is a tax on imported goods, while a quota is a limit on the amount of goods that may be imported. Both tariffs and quotas raise the price of and lower the demand for the goods to which they apply. Nontariff barriers, such as regulations calling for a certain percentage of locally produced content in the product, also have the same effect, but not as directly.


You may wonder why a nation would ever choose to use a quota when a tariff has the added advantage of raising revenue. The major reason is that quotas allow the nation that uses them to decide the quantity to be imported and let the price go where it will. A tariff adjusts the price, but leaves the post-tariff quantity to market forces. Therefore, it is less predictable and precise than a quota. The effect of tariffs and quotas is the same: to limit imports and protect domestic producers from foreign competition. A tariff raises the price of the foreign good beyond the market equilibrium price, which decreases the demand for and, eventually, the supply of the foreign good. A quota limits the supply to a certain quantity, which raises the price beyond the market equilibrium level and thus decreases demand. Tariffs come in different forms, mostly depending on the motivation, or rather the stated motivation. (The actual motivation is always to limit imports.) For instance, a tariff may be levied in order to bring the price of the imported good up to the level of the domestically produced good. This so-called scientific tariffwhich to an economist is anything buthas the stated goal of equalizing the price and, therefore, leveling the playing field, between foreign and domestic producers. In this game, the consumer loses.

Social and Cultural Differences

With 20 different languages, difference in language as well as cultural rules, values, attitudes and behavior makes it difficult to the potential entrepreneur. Feelings of exasperation, aggravation, annoyance, uncertainty and anxiety remain. In some cases, people are aware that they are experiencing feelings of alienation, while in other cases, the process occurs under the surface. Language is an issue that plays a part of the adjustment process. Although English speakers often assume that other cultures will automatically cater to their needs, learning at least Creole/Krio the language of the host culture can effectively combat cultural disorientation.

Economics Differences
There is not a noticeable difference in economic differences as seen in the social and cultural differences. Though rich in minerals, the majority of diamond and gold production has been smuggled abroad. The economic infrastructure nearly collapsed due to corruption, neglect, and war-related disruptions. An estimated $103 million (2001 est.) in Economic Aid was given to help boost the economy.

Legal Differences
In the United States you have the right to sue, but it becomes a different story when you look further down South. You could win bout any case as long as the price is; just knowing the right people is the key. For example you want to set up a mining and export business, but have enough money to make the Chairman of the Government Gold and Diamond Office (GGDSO) smug, though you don't either requirements of having a back account and office, he'll look the other way, and keep asking when he gets a little pressure.

Political Differences
The government controls everything, though they claim to have a democratically elected, no business will start before "visiting" the "elders". Without greasing the palms of every top official involved, you will be up for delays in processing and have a real example myself with purchasing licenses for a mining and wholesale trade, it still isn't finalized. The fees especially for foreigners who have no connections is discouraging as in addition to all the legal fees, still have to make a "gift" to those in charge so things will flow easily.

Coping techniques for cultural adaptation and adjustment include stress release and stress management. If you consider doing business in Sierra Leone or any other country for that matter, just need to be aware of the culture of origin and find ways to deal with stress. Have the right connections especially for a business like precious stones and metals, to keep the people who matter content.