Question

Why is it important to understand the various forms of market systems within International Business?

Answer 1

A market system is the network of buyers, sellers and other actors who come together in a given product or service to trade in. A market system may be product-specific (coffee, mangoes, dairy) or a cross-cutting sector (finance, labor, business development). The strength of a market system depends on how well the participants are getting funding, starting businesses and adopting new technologies and best practices.

There are a variety of different market systems operating in market economies, depending on the sector and the enterprises within that industry. It is crucial for small business owners to consider what type of market system they function in when making pricing and production decisions, or when deciding whether to enter or leave a given industry.

The idea of comparative advantage means a country has an advantage in terms of access to affordable land, energy, labor, and capital over other nations. In other words, a country is going to export certain products or services that use abundant growth factors. Therefore, firms with sufficient capital may seek another country that is abundant in land or labor, or firms may seek international investment when their home market is saturated.

Participation in international business enables countries to leverage advanced skills and ample growth factors to supply goods and services to the international marketplace. This has the benefit of increasing the variety of goods and services on the market. International business also enhances domestic competition and brings new prospects for foreign markets. Global competition helps enterprises to become more creative and resource efficient.