Business – 6.1 External influences – International | e-Consult
6.1 External influences – International (1 questions)
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An FTA typically reduces or eliminates tariffs on imported raw materials and components, which directly lowers the variable cost of production. The business may also benefit from:
- Economies of scale – access to larger markets can increase output, spreading fixed costs over more units.
- Reduced compliance costs – harmonised standards simplify procedures and reduce administrative expenses.
- Increased competition – while lower costs can improve profitability, the firm may face stronger foreign competitors, pressuring profit margins.
Overall, the net impact on the cost structure depends on the balance between cost savings from reduced tariffs and any additional pressures from heightened competition.