Advantages and disadvantages of international trade

Contents

Advantages and disadvantages of international trade. 1

Advantages. 1

Minimization of costs, maximization of earnings – Optimization of the supply chain. 1

Variation of available products. 2

Disadvantages of international trade. 2

Monopolies, oligopolies, and creation of barriers on local markets. 2

Destruction of customer experience. 3

References. 3

Advantages

Minimization of costs, maximization of earnings – Optimization of the supply chain

There are fixed costs and variable costs that are assigned to the activities made within a productive area because of the availability of resources and the production advantages in the place, a complete utilization of the advantages can be employed when international trade is put into play; international play allows the competitors to utilize the natural and social competitive advantages that other countries have creating optimal product costs for the companies, these optimal product costs are translated into reduced costs for the retail clients which create a benefit for all the involved members of the supply chain. The acquisition of different materials that are not local creates an opportunity to lower production costs, not only are the final product production costs being lowered but also the costs associated with the obtaining of raw material which is then utilized to create cheaper products for society.

Some countries have the advantage of having weathers that benefit the plantation of different seeds that produce bigger quantities, these advantages allow the companies to produce bigger quantities at a reduced price which is then translated into benefits to the clients. Another advantage of having an international play in the market is having a low-cost workforce compared to different sites, because of the socio-cultural state of a nation, the cost of the workforce can be lower than the labor cost assigned in a certain country, this lowered cost can come handy when an optimization of costs is being made. Having a workforce from other parts of the world can also help to create efficient solutions o several problems because of a new perspective of the situation being generated according to the socio-cultural surroundings of the place.

An example of a company utilizing international trade to lower costs is Coca Cola, Coca-cola is a company that produces soda consumed in different places over the world, because of the variety of places where the product is exported, an optimal supply chain must be made, to obtain the optimal operational conditions the company has place different productive plants on the appropriate places to lower production and transportation costs. A great example of the utilization of this concept is the different plants located around Mexico because Mexico is a huge consumer of the product coca-cola (daily average of 2.2 liters of coca-cola in Chiapas Mexico) a plant has to be made within the area, the profits are being both maximized because of the selling of the product in the region and the optimized costs are being made because of the reduced transportation costs and productions costs given by both the low costs on the water in the area and transportation to retail stores and wholesalers.

The reduction of prices and the optimization of processes allow the companies to make investments in things that will make a better impact on the client’s perception of the product generating better quality products for the consumers involved in the supply chain. The production of goods at a lower price will have a benefit over clients because of the convenience of acquiring products that have a higher quality with a reduced price.

Variation of available products

Several products not available locally can be obtained using international trade, international trade allows customers to enjoy several products that are not native to the region because of the exchange of goods. International trade allows people to enjoy the benefits of cultural foods, products, and services from other regions that would not be available if it were not because of international trade. International trade allows people to enjoy the benefits of culture from other parts of the world and the benefit of constantly obtaining better services based on the progress that other countries do on the offered services.

International trade gives people around the world a taste of things without the need of having to visit certain places, this creates a situation where availability creates a market where there are a lot of things to choose from. This variation of a product creates better lifestyles which can improve the wealth of people or the happiness of the consumers.

An example of this is “la costeña”, la costeña is a company founded in Mexico which sells are equally distributed between Mexico and USA, la costeña sells canned food with the taste of Mexican food, they intend to share the taste of the Mexican food through the distribution of canned food throughout the world. These products create satisfaction for the consumer as they are getting a cultural product from the country Mexico without having to visit the country at all.

Disadvantages of international trade

Monopolies, oligopolies, and creation of barriers on local markets

Because of the new competitors around the world with emerging technologies, the competition becomes harsher creating toxic environments for the local markets that do not have the capital invested to create competitive products as other global competitors. Economies of scale create barriers to small companies because of how the reduction of costs on companies with high infrastructure generates lower prices, the big companies by having control of the market with the control of prices have the power to destroy local markets and become dominant over the competition within an area. Even though some countries might impose tariffs on the production of goods, the selling of them, and the offering of certain services, the damage within a local market might still be high because of the huge competition that it might bring.

Generating lower income flows to a certain area because of the influence of higher power companies might cause a decrement in the average individual wealth within an area causing a reduction of satisfaction of the consumer.

An example of this the oligopoly Coca-cola – Pepsi in Mexico, these 2 competitors do not allow any other local competitors to compete for the market because of the low prices they have, and the market share they hold, Big cola faces a challenge of maintaining their sales on the float because of the harsh competition caused by the power that these companies have over the market.

Destruction of customer experience

Global trade can cause the destruction of the illusion of uniqueness on certain products being sold in different parts of the world, by commercializing and selling unique products throughout the world with cultural properties, the uniqueness of certain products can be diminished, the services that are given with a cultural or social factor can be undervalued because of its presence on a global scale.

An example of this is the crafts from the Huicholes in Mexico, the crafts these people used to have big sales because of the cultural aspect that they held and how they were manually produced, because of the presence of emerging technologies to industrialize the production of these crafts, the value and the consumption of the manual crafts have been reduced causing the Huichol communities to seek to different alternatives to earn resources.