Drivers of global business, trade incentives and free trade agreements: WACE BME Unit 3
“Explain the factors driving global business development, incentives for international trade, the role of free trade agreements, home-grown and home-developed products in global markets, and the role of ethics in global business decisions”
Businesses expand overseas because of limited home markets, growing foreign demand, economies of scale, technology and diversification. Governments support exporters (Austrade, export grants), and free trade agreements such as AANZFTA and ChAFTA cut tariffs and quotas. Home-grown products can trade on their origin, and ethical decisions about suppliers, the environment and marketing protect reputation and meet legal duties.
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What this dot point is asking
Unit 3's Environments content looks at the forces outside a business that push and pull it into international markets. You need to explain what drives global business development, the incentives and agreements that encourage trade, how home-grown products compete overseas, and why ethics matters in global decisions. Check your school's course outline for the exact syllabus wording.
The answer
Factors driving global business development
- Saturated or small domestic markets: Australia's population limits growth at home.
- Growing overseas demand: especially in Asian economies with rising incomes.
- Economies of scale: larger volumes lower cost per unit.
- Technology: e-commerce, digital marketing and cheaper communication make selling overseas easier.
- Lower production costs: access to cheaper labour or materials overseas.
- Diversification: spreading risk across several markets.
- Globalisation: reduced trade barriers and integrated supply chains.
Incentives for international trade
- Government support: Austrade advice and market intelligence; Export Market Development Grants that reimburse part of eligible export promotion costs; Export Finance Australia for finance and guarantees.
- Trade missions and networks that connect businesses with overseas buyers.
Free trade agreements
A free trade agreement reduces or removes tariffs and quotas and sets rules for trade and investment between member countries. Australia's agreements include AANZFTA (ASEAN-Australia-New Zealand), ChAFTA (China), agreements with Japan, Korea and the United Kingdom, and regional agreements such as the CPTPP and RCEP.
- Benefits: cheaper access to partner markets, more certainty, simpler rules.
- Limitations: more import competition at home, complex rules of origin, non-tariff barriers remain.
Home-grown and home-developed products
Australian products can compete on their origin: "clean and green" food, wine, beef, skincare, education services and technology. Country of origin can be a strength (quality, safety) but products may need adapting to local tastes, laws and cultures.
Ethics in global business decisions
Global decisions raise ethical questions: labour conditions in overseas suppliers, environmental impacts, bribery and corruption, honesty in marketing, and respect for local communities. Ethical decisions protect reputation and trust, and some are legal requirements (for example modern slavery reporting for large entities).
An Australian macadamia producer considers exporting to South Korea.
- Drivers: limited growth at home, strong Korean demand for healthy snacks.
- Incentives: Austrade market research; possible export grant support.
- FTA: the Korea-Australia Free Trade Agreement lowers tariffs, improving price competitiveness.
- Home-grown advantage: macadamias are native to Australia, supporting a premium "authentic Australian" brand.
- Ethics: honest labelling of origin and fair treatment of seasonal workers on the farm.
Listing drivers without explaining them in the business's context.
Assuming FTAs remove all barriers. Non-tariff barriers remain.
Treating ethics as only legal compliance. Ethics goes beyond the law.
Practice questions
Original practice questions graded from foundation to exam level, each with a full worked solution. Try them before revealing the solution.
foundation3 marksOutline three factors that might drive an Australian winery to begin exporting.Show worked solution →
- Limited domestic growth: the Australian wine market is mature, so sales growth is limited at home.
- Overseas demand: rising middle-class demand for premium wine in Asian markets.
- Trade agreements and support: lower tariffs under free trade agreements and export assistance from Austrade.
Marking guide: 1 mark per relevant factor explained.
core4 marksExplain how a free trade agreement can benefit an Australian exporter, and identify one limitation.Show worked solution →
Benefits. Reduced or removed tariffs make the exporter's product cheaper in the partner market, improving price competitiveness. FTAs may also reduce quotas and simplify customs and product standards, lowering costs and time to market, and give greater certainty for long-term investment.
Limitation. The exporter faces more competition in its home market as partner countries' products also enter with lower tariffs, and rules of origin paperwork can be complex. FTAs also do not remove non-tariff barriers such as cultural preferences or political tensions.
Marking guide: 2 marks for explained benefits, 1 mark for a limitation, 1 mark for use of terminology.
exam8 marksDiscuss the role of ethics in the global business decisions of an Australian clothing company that manufactures overseas.Show worked solution →
A strong response:
- Defines ethics in business: acting in ways that are morally right beyond legal requirements.
- Explains ethical issues in overseas manufacturing: wages and working conditions in supplier factories, child and forced labour risks, workplace safety, environmental impacts (water use, dyes, waste), and honesty in marketing claims such as "sustainable".
- Discusses why ethics matters: reputation and consumer trust, pressure from investors and activists, legal obligations (the Modern Slavery Act 2018 requires large entities to report on modern slavery risks in their supply chains), and long-term supplier relationships.
- Considers trade-offs: ethical sourcing can raise costs and reduce price competitiveness, but may create a competitive advantage with ethically minded customers.
- Uses an example of supplier auditing, transparency reporting or certification.
- Reaches a judgement on how ethics should guide the company's decisions.
Marking guide: 1 mark for definition, 3 marks for issues, 2 marks for why ethics matters including a legal link, 1 mark for trade-offs, 1 mark for a judgement.