International Competition

Definition

International competition refers to the rivalry and challenges that arise when businesses, industries, or countries compete with one another in the global marketplace. It involves the struggle to gain a greater share of international markets, attract foreign investment, and maintain a competitive edge in the production and trade of goods and services across national borders.

5 Must Know Facts For Your Next Test

1. International competition drives countries and businesses to improve productivity, innovate, and specialize in order to maintain a competitive edge in the global market.
2. Reducing trade barriers, such as tariffs and quotas, can increase international competition by allowing more countries and businesses to participate in global trade.
3. Comparative advantage plays a crucial role in international competition, as countries and businesses can focus on producing and exporting goods and services where they have the most efficient and cost-effective production methods.
4. Increased international competition can lead to lower consumer prices, a wider variety of products, and higher-quality goods and services as businesses strive to meet the demands of global consumers.
5. Governments often implement policies, such as subsidies or trade agreements, to support domestic industries and businesses in the face of intense international competition.

Review Questions

• Explain how international competition can drive innovation and productivity improvements in a country or industry.
  • International competition forces countries and businesses to constantly strive for greater efficiency, productivity, and innovation in order to maintain a competitive edge in the global marketplace. The need to outperform foreign rivals incentivizes investments in research and development, the adoption of new technologies, and the implementation of more streamlined production processes. This, in turn, can lead to the development of higher-quality, more affordable goods and services that are better able to meet the demands of international consumers.
• Describe how reducing trade barriers can increase international competition and the potential benefits for consumers.
  • Lowering trade barriers, such as tariffs and quotas, allows more countries and businesses to participate in global trade, leading to increased international competition. This competition can drive down consumer prices, as businesses strive to offer the most competitive prices and products to attract customers. Additionally, a wider variety of goods and services become available to consumers, providing them with more choice and the ability to find products that better meet their needs and preferences. The increased competition can also spur businesses to improve the quality of their offerings, further benefiting consumers.
• Evaluate the role of government policies in supporting domestic industries and businesses in the face of intense international competition, and discuss the potential trade-offs involved.
  • Governments often implement policies, such as subsidies or trade agreements, to support domestic industries and businesses in the face of intense international competition. While these policies can help protect domestic jobs and industries, they can also have unintended consequences, such as distorting market signals, leading to inefficient resource allocation, and potentially triggering retaliatory actions from other countries. Governments must carefully weigh the potential benefits of supporting domestic industries against the costs and potential negative impacts on consumers, the broader economy, and international trade relations. Striking the right balance between supporting domestic competitiveness and maintaining open, fair, and efficient global markets is a complex challenge that policymakers must continually navigate.

Related terms

Globalization: The process of increased interconnectedness and interdependence of the world's economies, cultures, and populations, driven by international trade, investment, and the exchange of ideas and technologies.

Comparative Advantage: The ability of a country or business to produce a good or service at a lower opportunity cost compared to another country or business, which allows them to specialize and trade more efficiently.

Trade Barriers: Policies or regulations implemented by governments to restrict or impede the free flow of goods and services between countries, such as tariffs, quotas, or non-tariff barriers.