Have you ever wondered what is international trade? Trade is generally exchanging of goods and services between people, international trade is the same thing but the exchange of goods between two different countries with the more complex procedure of documentation and rules and regulations at the international level.
The purpose of trade is to get benefit from the products producing all over the world which one country is unable to make due to lack of resources and abilities. International trade allows the people to get benefited from the goods present all over the globe with good quality. With time economist has made trade theories for better understanding of global trade. These theories help in understanding what is actually happening in international trade.
List of the 7 trade theories in international business
- Mercantilism; this theory was in use back in 16th and 18th century
- Absolute Cost Advantage Theory
- Comparative Cost Advantage Theory
- H-O Theory- Hecksher Ohlin Theory
- National Competitive Theory
- Product Life Cycles Theory
- Global Strategic Rivalry Theory
These trade theories have helped the economist, government, and industries to do trade healthy and successfully.
Types of international trade
- Entrepot trade
- Import trade
- Export trade
Let’s jump into the detail of these types for a better understanding of the trade.
Entrepot trade is a specific and different type of trade that includes both the import and export of products at a time. It may be new to you but this is very productive and beneficial for the countries involved in the trade for the betterment of their businesses and countries. In Entrepot trade services and goods are being imported from one country and further exported to another to get benefits. Or we can say that the imported goods and services are not to be used or sold in the importing country, they just add some value to the imported product and export that product further to another country.
For example, Jordan import rubber from India and process it to bring few changes and then export it to Japan is known as the Entrepot trade. Entrepot is a combination of two types of trade import trade and export trade, the gain of the entrepot is to eliminate the need for ships to travel the entire distance of the shipping route. The ships would promote their goods to the entrepot and the entrepot could in return sell them to any other deliver, putting off the big dangers associated with a long-distance tour within the beyond.
Benefits of Entrepot trade:
- Entrepot trade is helpful for a country that lacks a direct connection with any other country.
- Absence of connection due to any conflict between any two countries
- Further improvement in quality of product
- More good quality products are available in the local/domestic market
- Products can be exported at higher to another country
When a country is unable to produce certain goods due to lack of resources or excessive wastage of natural resources, they get that product or service from another country to fulfill the need of people is considered as import trade. In import business, more goods from the global market are available in local/domestic market meeting the need of people. Import business has made easy for the people to get benefitted from the facilities available around the globe. Imported products are usually of better quality than the products locally.
For example when it is expensive for Jordan to produce medical equipment and some other food products locally using its resources, then it might not be a wise step to do so. It could be harmful to the economy of the country, so importing the products which can be imported at a low price than producing locally; it is suggested to do so.
Benefits of import business
- Due to import business, more products are available in the local market which was difficult to produce in own country.
- When people get involved in the import business they can earn a good margin from the sale of those products.
- Imported products are a surety of quality products.
- New products can be available in the market with better features.
- Better use of natural resources instead of wasting on the product which is difficult and expensive to produce locally.
When there is surplus production of goods or enough natural resources are available to produce well at a cheaper price locally, then sending those products for sale purposes in the international market is known as export trade. In export business products are exposed to larger market place targeting more number of people is highly beneficial to make the trade business successful. Do good market research to find the best product that can fit in the foreign market. Quality of product should have to be good enough to sell your product in the international market place and you will have to face less seasonal sale issue because of the diversity in need of people in different countries all over the world.
For example; you are selling winter coats in 2 different countries at a time having an opposite season, your product will keep selling due to need throughout a year in different parts of the world.
Benefits of export business
- Exposure to a larger marketplace
- Less seasonal crisis
- The product can be sold at a higher price
- Can receive payment faster
- Export business is highly beneficial for smaller companies
- Less effort is required after the approval procedure
International trade benefits
We cannot neglect the international trade benefits upon looking at the development of a country. International trade directly or indirectly helps in the improvement of the economic condition of a country.
- Exchange of goods between countries allows the people to consume the better products at reasonable prices.
- With international trade, businesses can get benefits from exposure to the larger marketplace with demand throughout the year, because in the local market business may have to face the issue of seasonal sales leading to a loss in the off-season.
- Products that are not possible to produce locally due to lack of resources can be imported at a reasonable price to fulfill the need of people.
- More products can be produced locally due to higher comparisons between goods and more awareness.
- People can buy quality products at a lower price due to the comparison available between the goods in the market.
- When there is surplus production on food products, export is the only way to avoid waste locally by exporting them.
- Due to international trade currency exchange between countries helps in the development of the country.
- International trade promotes the availability of better quality products in the local market.
- International trade allows the optimal use of natural resources by producing the good which can be easily produced by using the natural resources without any wastage.
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