Why and how a country conducts international trade plus problems (barriers) encountered

  

Date Posted: 12/19/2012 1:39:11 PM

Posted By: sashoo  Membership Level: Silver  Total Points: 382

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Circumstances under which a country is forced to enter into International Trade.

This simply refers to what forces a country to think about international activities.
1. Unfavourable balance of trade. This will make a country to improve its export activities.
2. Opportunities abroad i.e. if a country’s commodities are requested aboard.
3. Due to product obsolescence i.e. if the produce losses value in the domestic market then the country have to think about exporting it to other countries.
4. Surplus Output.

How a Country can enter into International Trade.

Refers to channels used by a country dealing in international activities. They include:-
1. Direct exporting: - This is where local companies sell commodities to abroad customers. Goods therefore pass the country to other counties.
2. Indirect Exporting: - This is where manufacturing companies’ sells goods to middlemen like wholesalers, agent at home and these middlemen sell goods to client abroad.
3. Overseas Manufacturing: - This is where multinational companies establish manufacturing firms abroad. These firms are normally referred to as subsidiary of multinational

Problems encountered in International Trade.
1. Unfavourable government policies in the abroad market like strict prohibitions.
2. Difficulties in obtaining necessary documents and license by the business people.
3. Problem of foreign currency mostly because of instability of some currency.
4. A need to communicate using a foreign language.
5. Finding trustworthy overseas agent to handle the products.
6. It may not be easy to find potential buyers in abroad market.
7. Different countries may use different units of measurement hence conversion is time consuming.

Barriers to International Trade.
1. Distance between counties of the world.
2. Lack of proper communication due to language barrier.
3. The government may restrict import on the following grounds:-
(a) to protect home industries from foreign competition.
(b) to avoid entry of harmful items into a country.
(c) to encourage specialization at home.
(d) to improve the balance of payment position of a country.
(e) to make the country self reliant.
(f) to make the country to develop its natural resources.
(g) to encourage foreign investors to set

up industries in the country.

Methods used by the government to restrict imports
1. Custom Duties
It is imposed by the government on imported goods i.e. to make them more expensive than the local goods.

2. Quota Systems.
This is where the government fixes the number and amount of goods to be imported for a certain period of time e.g. manufacturing organizations are allowed to import 50% of their raw materials and purchase 50% from local companies with the aim of boosting the activities of the infant local industries.

3. Total Ban.
This is where the government stop importation of goods like dangerous drugs, political literature, etc., that are harmful to the people.

4. Licences.
This is where the central bank issues import licences on behalf of the government in order to control imports.

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