2.1 - Growing the Business (2.1.3 Globalisation set 3 of 4) Flashcards
2.1.3 - Business and globalisation
2.1.3 - Define the term ‘Globalisation’.
The ever-increasing integration of the world’s local, regional and national economies into a single international market.
2.1.3 - What are the advantages of globalisation?
+ New market opportunities; globalisation has enabled businesses to enter markets around the world, expanding their production and helping the business to grow.
+ Access to technology and resources; as businesses can import goods from around the world which may mean they can access technology which makes them more efficient or helps to develop new products which are perhaps lower in cost and of better quality because you can access businesses who specialise in that area
+Economic growth and prosperity; businesses who are growing contribute to a stronger economy by providing employment and help to sustain demand for goods and services which local businesses can benefit from
+ Potentially lower costs; because businesses can access more markets they can source lower priced materials which may mean they can lower their prices which improves availability for customers and helps to improve living standards
+ Increased location oportunities; businesses can choose to locate in a wider range of places, eg closer to suppliers, or centrally to their global customer base as travel, communication and distribution of goods and services are much easier.
2.1.3 - What are the disadvantages of globalisation?
- Threats from foreign competition; because competitors can be from abraod where they may specialise, it can be more difficult to compete, which can lead to local industries being eliminated, which means loss of employment for locals and as a result less spending in that economy.
- Need for localisation/adapting the marketing mix; businesses will need to adapt their marketing mix to cater to local customers, tastes etc, this can be expensive in the short term.
2.1.3 - Explain the difference between imports and exports?
- An import is the purchase of a good or service from a foreign business that leads to a flow of funds out of the UK. The UK buyer will have to change pounds into the seller’s currency to make the transaction.
- An export is the sale of a good or service to a foreign buyer that leads to a flow of funds into the UK. The foreign buyer will have to change their currency into pounds to complete the purchase.
2.1.3 - Explain the effect on imports and exports when the pound is strengthening?
Hint: SPICED
+ Imports: become cheaper for UK businesses, meaning their costs are lower, which means businesses can potentially lower their selling prices to be more competive in an international market
- Exports: become more expensive for foriegn buyers as UK exports are now more expensive around the world as more of the local currency is needed to convert to pounds. This means exporters global sales may fall.
The extent of the effect will depend on how much of the sales are reliant on overseas markets and how much of the materials are imported.
2.1.3 - Explain the effect on imports and exports when the pound is weakening?
Hint: SPICED
+ Imports: become more expensive for UK businesses, meaning their costs are higher, which means businesses may find it more diffiuclt to compete in the global market and may have to raise prices to cover the increase in costs.
- Exports: become cheaper for foriegn buyers as UK exports are now more competitively priced around the world as less of the local currency is needed to be exchanged for pounds. This means exporters global sales may rise.
The extent of the effect will depend on how much of the sales are reliant on overseas markets and how much of the materials are imported.
2.1.3 - Define the term ‘Multinational’.
A large company with facilities and markets around the world.
2.1.3 - Idenitfy and describe 5 types of trade barriers that governments can impose.
- Tariffs; a tax placed on imports
- Non tariff barriers; such as quality standards
- Trade blocs; trade blocs are created when the governments of certain countries agree to act together to promote trade among themselves. This gives the countries preferential tretament
- Quotas; physical limits on the number of products that can be imported
- Subsidies; grants/amounts given to businesses to help them compete
2.1.3 - Define the term ‘tariff’ and explain the purpose of a tariff.
-A tariff is a tax placed on an import which is imposed by the government.
The aim of a tariff is to increase the price of imports and decrease the demand to persuade consumers to switch and buy UK made goods. Tariff’s are used to raise government revenue and to restrict imports in order to protect domestic producers.
2.1.3 - Why are tarrifs important for the UK’s economy in terms of exports and imports?
Tarrifs encourage less imports meaning there will be relatively more exports. As exports generate revenue for the UK and imports see funds leave the UK, a decrease in imports means the UK sees a larger inflow of currency than it does an outflow. This is known as the balance of payments.
2.1.3 - What are the advantages of trade barriers?
+ UK producers are not subject to the taxes/restrictions and so are likely to be cheaper allowing UK businesses to gain a price advantage compared to foreign producers
+ It can protect new businesses from large MNC’s (multinational corproations) who benefit frome economies of scale, by making their products more expensive
+ Tariffs can raise important tax revenue for the government which can be spent possibly on infrastructure (bridges and roads) which local businesses can then benfit from
+ Trade barriers can help to protect jobs in local industries which means the economy can prosper
2.1.3 - What are the disadvantages of trade barriers?
- High import prices may not put many customers off, especially if branding is important to the market
- Tariffs may just increase prices for consumers
- Other countries may impose their tariffs in response to this on their imports, (e.g. when the UK exports to China they make our goods more expensive) which is a disadvantage to UK exporters
2.1.3 - Explain how trade blocs can work and list three examples of a trade bloc.
A trade bloc is a group of countries who make a trade agreement not to place tariffs on imports from each other in order to promote trade within the region. Some examples of Trade Blocs;
- EU; The EU is one of the largest trade blocks, which allows free trade between member countries.
- NAFTA; the North American Free Trade Association enables free trade between Canada, the US and Mexico.
- ASEAN; aims to promote economic propserity and peace throughout 10 member states within South-East Asia.
2.1.3 -How does E-commerce enable a business to compete internationally?
E-commerce (online platforms that enable online purchasing) mean that a business can expand its market without the need to sell through foreign retailers. In addition it can mean sales can occur 24/7 which increases the convenience for its customers.
2.1.3 -Why does a business need to adapt its marketing mix to compete internationally?
As local customers needs in different countries will vary due to tastes, cultural, legal and religious reasons it is essential a company adapts its marketing mix.
