Businesses no longer trade only in their home country. Globalisation has linked markets worldwide, so a firm in one country can buy materials, sell products and even set up factories almost anywhere.
Why businesses trade internationally
Firms trade across borders to:
- Reach more customers — bigger markets mean more sales.
- Buy cheaper or better materials not available at home.
- Lower production costs by making goods where labour or resources are cheaper.
- Spread risk across several countries rather than relying on one.
Imports and exports
Two key terms:
- Exports — goods and services a country sells to other countries.
- Imports — goods and services a country buys from other countries.
A UK tea packer that sells abroad is exporting; when it buys tea leaves from overseas, it is importing.
Multinationals
A multinational company (MNC) is a business with operations in more than one country. It might design in one nation, manufacture in another and sell worldwide. Benefits to host countries include jobs and investment; concerns include local firms being outcompeted and profits leaving the country.
Exchange rates in outline
An exchange rate is the price of one currency in terms of another, such as how many dollars a pound buys. Rates move up and down, affecting trade:
| If the pound is strong (high) | If the pound is weak (low) |
|---|---|
| Imports become cheaper | Imports become dearer |
| Exports look more expensive abroad | Exports look cheaper abroad |
So a weaker pound can help UK exporters (their goods seem cheaper overseas) but raises the cost of imported materials. Exchange rate changes are a risk that international firms must watch and plan for.