International Trade (Junior Cert Business Studies): Revision Notes
Globalisation of Trade
What is globalisation?
Globalisation describes how countries around the world have become increasingly connected and dependent on each other. This process involves the sharing of products, services, ideas, technology and information across national borders. Through globalisation, the world effectively operates as one large, interconnected marketplace.
Globalisation is the process of increasing interconnectedness and interdependence among countries, economies, cultures and societies around the world through the exchange of goods, services and ideas.
The advancement of technology and the removal of trade barriers have made international commerce much easier than it was in the past. This has transformed how businesses operate, allowing them to reach new markets, work with partners globally, and adapt to changes in the worldwide economy.
Understanding international trade
International trade forms the foundation of globalisation. When countries exchange products and services with each other, they create economic relationships that benefit all parties involved.
International trade is the exchange of goods and services between different countries.
This type of trade has become essential for modern economies, especially for smaller countries like Ireland that cannot produce everything their citizens need domestically.
Small countries like Ireland are particularly dependent on international trade because they lack the resources and market size to be completely self-sufficient. This interdependence creates both opportunities and vulnerabilities in the global economy.
Benefits and challenges of international trade
International trade creates both opportunities and difficulties for countries like Ireland. Understanding these competing forces helps explain why governments must carefully balance their trade policies.
Benefits of international trade
International trade brings several advantages to the Irish economy:
- Increased revenue: When Irish companies sell their products abroad, they generate income that flows back into the country
- Greater consumer choice: Irish shoppers can access a much wider variety of goods and services from around the world
- Access to essential materials: Businesses can obtain raw materials that Ireland doesn't produce naturally, such as oil for energy production
- Market expansion: Many Irish companies find the domestic market too small to support their growth, so international sales become essential for survival and expansion
- Job creation: Increased production for export markets leads to more employment opportunities and improved living standards
- Innovation and quality improvements: Competition from foreign companies encourages Irish businesses to develop better products, reduce prices and improve their services
Challenges of international trade
However, international trade also presents several difficulties:
- Intense competition: Irish companies often struggle to compete against large multinational corporations with greater resources
- Transport difficulties: As an island nation, Ireland faces higher and more complex transport costs when moving goods internationally
- Language barriers: Different languages around the world require companies to translate advertisements and packaging, employing specialist staff and increasing costs
- Currency fluctuations: Changes in exchange rates can unexpectedly increase costs for businesses trading internationally
- Credit risk: It can be more difficult to assess the creditworthiness of foreign customers, potentially leading to bad debt problems
- Market disruption: Lower-priced imported goods can harm the sales and profits of Irish businesses, sometimes threatening their survival
The challenges faced by island nations like Ireland highlight how geography continues to influence trade patterns even in our globally connected world. These natural barriers require creative solutions and often higher investment in logistics and communication.
The impact of global businesses on countries
Many large companies today operate as multinational corporations (MNCs), which produce different parts of their products in various locations worldwide. For example, a car manufacturer might design engines in one country, assemble vehicles in another, and produce spare parts in a third location.
When these global businesses establish offices or manufacturing facilities in a country, they create both positive and negative effects for the local economy.
Benefits of global businesses
Global companies can bring significant advantages to host countries:
- Employment opportunities: These businesses create both direct jobs (in their own operations) and indirect employment (in supporting industries), often leading to improved living standards for local communities
- Tax contributions: Global businesses pay taxes in the countries where they operate, providing revenue for government services
- Technology transfer: Previously imported products may now be manufactured locally through a process called import substitution, which improves the country's trade balance
- Cultural exchange: International businesses introduce new tastes, cultural influences and ideas to local markets
Import substitution occurs when a country begins producing goods locally that were previously imported, replacing foreign products with domestic production.
Challenges of global businesses
However, global companies also create certain problems:
- Lack of loyalty: These businesses have no long-term commitment to local communities and may relocate operations if conditions change, leaving unemployment and social problems behind
- Environmental impact: The production and transport of goods contributes to pollution and CO₂ emissions, harming the environment
- Economic dependency: A downturn in one part of a global company's operations can affect all the countries where it operates
- Resource depletion: The drive for economic growth may put excessive pressure on natural resources and contribute to climate change
Real-World Example: Business Relocation
In 2015, audio equipment manufacturer Bose closed its Carrickmacross factory and moved operations to Malaysia and Mexico, resulting in 140 job losses in Monaghan. This demonstrates how global companies can quickly relocate operations, leaving local communities to deal with the economic consequences.
Types of global businesses
Globalisation has encouraged the growth of different types of international companies:
- Transnational corporations (TNCs)
- Multinational corporations (MNCs)
- Global businesses
These companies operate across multiple countries, maintaining a worldwide customer base and supply chain. They often adapt their products to suit local markets while maintaining their global brand identity. Examples include Kerry Group, CRH, and Ryanair from Ireland.
Positive and negative impacts of global businesses
The presence of global businesses creates a complex mix of benefits and drawbacks that governments must carefully consider.
Positive impacts:
- Job creation: Companies operating internationally create employment opportunities and contribute to skills development in various sectors across the Irish economy
- Quality of life improvements: Globalisation has led to better living standards, healthcare, education and infrastructure in many parts of the world
Negative impacts:
- Footloose nature: Multinational companies can be "footloose," meaning they have no loyalty to particular areas and may close operations and relocate if economic conditions change or company performance declines
- Environmental damage: Globalisation can harm the environment through increased pollution and excessive use of natural resources, as the pursuit of economic growth may prioritise profits over environmental protection
The term "footloose" in economics refers to businesses that are not tied to specific locations and can easily move their operations. This mobility gives them significant bargaining power with governments but creates uncertainty for local communities and workers.
Ireland and globalisation
Ireland represents an excellent example of a small, open globalised economy. Many multinational companies including Apple, Microsoft, Meta (Facebook) and Boston Scientific have chosen to establish significant operations in Ireland.
Why global companies choose Ireland
Several factors make Ireland attractive to international businesses:
Foreign investment advantages:
- Ireland offers a favourable business environment with a skilled, English-speaking workforce
- The country maintains competitive corporate tax rates that attract international investment
- This foreign investment has led to the establishment of numerous international companies, creating substantial employment opportunities
European Union membership:
- Ireland's EU membership has further integrated the country into the global economy
- Through EU trade agreements and partnerships, Irish businesses gain access to larger markets
- The country benefits from economic cooperation with other member states
Tourism industry growth:
- Globalisation has significantly contributed to Ireland's tourism sector development
- Improved global connectivity and travel networks make it easier for visitors from around the world to reach Ireland
- This supports local businesses and promotes cultural exchange
The Industrial Development Authority (IDA) Ireland serves as the government agency responsible for attracting foreign investment into the country. Major technology companies like Google, Apple, and Pfizer have established their European headquarters in Ireland, taking advantage of the country's strategic location and business-friendly environment.
World Trade Organisation (WTO)
The World Trade Organisation plays a crucial role in managing global commerce. This international organisation establishes and oversees the rules governing trade between nations.
The WTO works to create a more open and transparent trading system that benefits all member countries. Its main objectives include:
- Facilitating trade negotiations between countries to reduce barriers and improve commerce
- Settling trade disputes when disagreements arise between member nations
- Ensuring smooth trade flows by making international commerce as predictable and free-flowing as possible
The WTO helps create a framework where countries can trade fairly and resolve conflicts peacefully, supporting the continued growth of global commerce.
Key Points to Remember:
- Globalisation connects countries worldwide through the exchange of goods, services, ideas and technology, creating an interconnected global marketplace
- International trade brings both benefits and challenges - while it increases choice, revenue and employment opportunities, it also creates competition pressures and transport difficulties
- Global businesses have mixed effects - they create jobs and bring investment but can also be footloose and harm the environment
- Ireland benefits significantly from globalisation through foreign investment, EU membership advantages, and tourism growth
- The World Trade Organisation facilitates global commerce by establishing trade rules, resolving disputes, and promoting free trade between nations