International procurement is the process of companies bidding for contracts for goods and services from around the world, resulting in lower costs, stimulating the global economy, and increasing the consumer base. Currency valuation and product specialization are key concepts in economics that contribute to the appeal of this type of procurement.
In a global economy, international procurement is a term used to describe the process that enables companies from around the world to bid for contracts for goods and services. The concept gained popularity as shipping and transportation costs decreased due to an influx of cheap and readily available fuel. The globalization of large corporations has allowed them to reap the benefits of lower labor and material costs while still selling the same quality and quantity of products.
There are three main benefits to international procurement: lower costs, stimulating a global economy, and increasing the consumer base. The lower costs that can be achieved through purchasing services or goods from other counties result from currency valuation and product specialization effects. Both are key concepts in economics.
In international procurement, industrialized nations buy goods from lower dollar countries, making money in the currency exchange. This rate varies over time, but the multiplier remains fairly static. The ability to buy more for a dollar in another country is a major driver of the appeal of this type of procurement.
Product specialization is the basic concept that some items have a lower cost of production, based on the natural or human resources available in different locations. Specialization in this sector allows a particular national economy to offer that product or service at a lower cost than other economies, resulting in more customers and greater economic opportunities. Typical examples of this include products that originate in one country or region, but are more expensive to produce in another.
To build a global economy, each nation must have a contribution or basket of goods that it can offer to potential customers. If a country is limited to only the goods it can produce domestically, then it must invest large public expenditures to meet every need or leave those needs unmet. A country without natural oil can build an oil drilling rig, but would be unable to use it. Ideally, market forces attract customers to the lower prices and higher quality of products supplied by different nations.
The hidden benefit of international procurement is the growth of the customer base. As more goods and services are purchased from other countries, the wealth of those economies increases. This creates the ability to increase spending, enabling customers and businesses to buy goods and services. Effectively growing your customer base then encourages more spending and growth, fueling the business cycle.
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