Unit 43-LO2 Illustrate the advantages of trading blocs for firms-BTEC-HND-Level 4 & 5

Course: Pearson BTEC Levels 4 and 5 Higher Nationals in Business

The world has undergone some major changes in the last century and one of these changes is a steady decline in international barriers to trade. As this trend continues, firms will be able to establish more blocks with other countries which can create benefits for all parties involved. In this article, we will explore the advantages of trading blocs for firms by looking at how they can help them achieve different goals such as long-term economic growth or increase business profitability.

The first advantage that trading blocs provide for firms is their ability to negotiate lower tariffs on imports and exports between each other’s markets. This means that companies are able to purchase goods at cheaper prices because they are being traded within an area where there are no customs taxes or duties applied, allowing consumers access to cheaper goods.

For example, South Africa is the largest economy in the Southern African Customs Union (SACU) and it has an agreement in place with Botswana, Lesotho, Namibia, and Swaziland that states all of these countries can trade freely amongst each other without paying any fees or taxes for value-added tax.

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Also Read: Determine the importing and exporting process and the practicalities involved

The context for international trade and trade blocs:

What is international trade?

International trade is the process of merchants moving goods and services between countries. Trade is usually performed to get a better price for one’s products, or to import goods not domestically available, but may also be seen as a diplomatic action. Trading partners can include any regional partner -can be both developed and developing economies- and companies from any sector -e.g., agricultural products manufacturers, machinery suppliers, apparel producers.

It operates in many forms: trading commodities such as natural resources like lumber or manufacturing goods (merchandise) across borders which has some import tariffs placed on it by the customs authority of the importing country; upgrading less competitive national industries into ones that become internationally competitive; bringing unskilled workers to take up jobs abroad; encouraging immigration for permanent settlement; and in a narrow sense, importing and exporting.

International trade theories: country similarity, product life-cycle, global strategic rivalry, and Porter’s national competitive advantage

International trade theory is an ever-changing and evolving field of study. Countries around the world are constantly trying to one-up each other in the export arena, and they’re in a constant rush to find new markets every day. In this scenario, traditional theories of international trade that were developed during the 1950s are proving themselves less applicable than ever before.
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One such theory that updated theories have emerged from is a strategic rivalry. This theory argues specifically for experienced foreign dependency–when dependence on a given country abroad increases over time as the usage of their product or service increases–to be a major determinant of exports. This means that states will tend to export more products or services to countries with whom they have investments but do not use as much.

Types of trade blocs and regional trade agreements and their role in facilitating SME trade

Trade blocs and regional trade agreements are necessary for enabling SMEs (small and medium-sized enterprises) to enter global supply chains. They create gateways for these firms by removing barriers to fair access through lowering tariffs on products crossing borders, reducing tariff disparity, strengthening regulatory coherence, enhancing transparency in rules of origin requirements, ensuring equal treatment of foreign investors vis-à-vis national companies, promoting the legal framework and underpinning trade facilitation among partner countries.

These organizations also provide forums to reduce disagreements; establish dispute settlement mechanisms that lend stability in commerce, and help identify solutions such as Free Trade Areas or Regional Customs Unions.

Grants, subsidies, and special arrangements for SMEs

A set of government grants and subsidies, as well as special arrangements (e.g., priority infrastructure and resources) for SMEs, are being implemented in China in an attempt to deal with the massive economic shifts that have resulted from China’s shifting focus from manufacturing to services.

The Chinese government has played a key role in regulating its economy via production, investment, taxes, and other factors since President Xi Jinping came into power in 2012. In December 2014, for instance, Beijing announced plans to provide subsidies totaling $7.5 billion yuan ($1.14 billion), grants worth 181 million yuan ($30 million), and 75 special research funds for small-sized high-tech firms by 2020 to help them develop products geared towards the country’s 10 key sectors.

Trade controls and tariffs

Trade controls and tariffs are rules that control the flow of goods through trade. A fee is imposed on goods entering or exiting a country to ensure that the purchased amount matches up with what it has produced. If a country has a positive balance, it imposes higher charges on its exports, in order to address its trade deficit (i.e., importing more than is producing). If countries have negative balances, they impose lower charges on their imports which help balance out what they need to export for revenue generation.

The context for importing and exporting for SMEs

SMEs should realize that import and export processes require careful planning and detail in order to ensure that all of the necessities are taken care of; luckily, these are issues that can be solved with the help of a professional logistics service.

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Importing and exporting is a complex process because it requires so many different documents from customs departments, border inspection offices, embassies, airports, etc. Once shipping has been completed you will need to be ready for local duties like picking up goods at port or airport. Picking up your shipment might seem like an easy task but it’s actually quite complicated when you factor in some security measures required by various countries.

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