4.1 - Globalisation Flashcards
What is an emerging economy?
Emerging economies are economies that have increasing growth rates but relatively low income per head (per capita) e.g. India, China, Brazil
What is the growth rate of the UK economy compared to emerging economies?
UK growth tends to be lower than emerging economies
* A key reason why is because of the growth of the manufacturing sector; the UK economy has seen a decline in this sector as businesses choose to manufacture in emerging economies due to lower labour costs and access to raw materials
* China is the world’s largest manufacturing economy and exporter of goods
What is globalisation?
Globalisation is the economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology, and finance
The growing economic power of countries within Asia, Africa, and other parts of the world.
- The integration of global economies has impacted national cultures, spread ideas, and speeded up industrialisation in developing nations
- These emerging economic powers include:
- BRICS - Brazil, Russia, India, China, South Africa
- MINT - Mexico, Indonesia, Nigeria, Turkey
- Emerging economies have a growing middle class with increasing incomes which allows their citizens to spend more on domestic goods and imported goods from abroad - thus increasing the profitability of international firms who sell their goods and services in these emerging economies
What is the impact of economic growth on businesses?
- Increased trade opportunities as demand for goods and services increases
- Potential for increased profits
- Reduced costs of production as lower labour costs and cheaper raw materials in emerging economies
- Increase in investment + FDI as businesses want to benefit from growing economies
What is the impact of economic growth on individuals?
- Reduced unemployment as there is more demand which requires more labour to increase output
- Increased average incomes as individuals now have rising incomes due to employment which increases the standard of living
- Access to quality public services
What are the four key indicators of growth?
- GDP per capita
*Literacy - Health
- HDI (Human Development Index)
How is GDP per capita used to measure growth?
- GDP per capita is the total output (GDP) divided by the population of a country
- High GDP is associated with a high standard of living
*GDP per capita can also be a useful indicator to compare the growth in two countries by comparing the rates of growth over time
How is health used to measure growth?
- The health of a countries’ citizens is important to businesses who want to invest in emerging economies as this will have an impact on the quality of the workforce
- Key indicators to consider are the average life expectancy, infant mortality rate, access to healthcare and access to clean water
How is literacy used to measure growth?
- Literacy refers to the percentage of adults within an economy who can read and write
- Information about literacy rates is important as this will determine the quality of the workforce and also the customers they will be selling to
How is HDI used to measure growth?
*The Human Development Index combines the factors of life expectancy, education, and income to determine the quality of development of citizens within a country
* HDI looks specifically at; life expectancy mean years of schooling, and gross national income per capita (GNI)
* Created by UN and is measured between 0-1
* The problem with HDI as a measure of development is that;
- it does not account for inequalities within a country
- there is a lack of reliable data in some countries
What is the link between specialisation and competitive advantage?
Specialisation occurs when a country/business decides to focus on producing a particular good/service
* This is beneficial as it can bring lower unit costs through economies of scale and so can charge a lower price, giving them a cost advantage
* Also, if they can increase the value added on their goods/services, this can help to gain an edge over their competitors
What is foreign direct investment (FDI)?
This is investment by firms which result in more than 10% share of ownership of domestic firms
* This is usually done through mergers, takeovers, partnerships, or joint ventures to allow a business to enter new markets
What are the benefits of FDI for a country?
- Increased economic growth
- Increased job opportunities
*Access to knowledge and expertise
What is Inward and Outward FDI?
- Inward FDI occurs when a foreign business invests in the local economy
- Outward FDI occurs when a domestic business expands its operations to a foreign country
What is trade liberalisation?
It is the removal or reduction of barriers to trade between different countries
What are the benefits of trade liberalisation?
*Increased international trade allows businesses to increase their market size
- This leads to increased output and countries can benefit from economies of scale
* Freer trade helps businesses to reduce costs as imported raw materials and components can be sourced more cheaply
What are the drawbacks of trade liberalisation?
- Domestic firms, in particular, infant industries, may not be able to compete against international firms
- Some industries may be subject to dumping as businesses abroad may sell excess products at unfairly low prices
What are the factors contributing to increased globalisation?
- Political change
- Reduced cost of transport and communication
*Increased significance of transnational companies
*Increased investment flows (FDI)
*Migration (within and between economies) - Growth of the global labour force
*Structural change
How does political change contribute to increased globalisation?
Changes in the government of a country can influence the country’s attitude to trade
How do reduced transport and communication costs contribute to increased globalisation?
- Economies of scale due to innovation in containerisation on large ships
*Technological advancements due to the internet/mobile technology have improved made it easier for buyers and sellers to connect with one another
How does the increased significance of transnational companies contribute to increased globalisation?
- A transnational company is a business that operates in more than one country
*They will have their headquarters in one country but have other branches in other countries - With increasing numbers of transitional companies operating globally, there is an increased pressure by countries to engage in free trade
How does increased investment flows (FDI) contribute to increased globalisation?
- FDI is important for job and wealth creation within an economy
*It allows for businesses to establish themselves in countries where they may face trade barriers
How does migration (within and between economies) contribute to increased globalisation?
- Migration is the movement of people from one location to another
*Migration has led to increased globalisation as better transportation and deregulation have allowed workers to have more flexibility when looking for work
How does the growth of the global labour force contribute to increased globalisation?
*The global labour force has grown significantly especially due to the growth of emerging economies such as India and China
* This has increased globalisation due to the following reasons:
- more people in work means more income to spend on goods and services, boosting global demand
- an increased supply of labour leads to falling wages which is beneficial in reducing business costs
- more people working generates increased levels of entrepreneurship
How does structural change contribute to increased globalisation?
- This occurs when a country, industry, or market changes which sector of industry they operate in
- Offshoring is common practice and speeds up the process of globalisation
What is protectionism?
Protectionism is when a government seeks to protect domestic industries from foreign competition
What is a tariff?
A tariff is a tax placed on imported goods from other countries - this increases the price of imported goods which helps to shift demand for that product/service from foreign businesses to domestic businesses
What are the benefits of tariffs?
- They protect infant industries so they can eventually become more competitive globally
*An increase in government tax revenue
*Reduces dumping (selling their products abroad in export markets at significantly lower prices) by foreign businesses as they cannot sell below the market price
What are the disadvantages of tariffs?
- It increases the cost of imported raw materials which may affect businesses who use these goods for production, leading to higher prices for consumers
- Reduces competition for domestic firms who may become more inefficient and produce poor quality products for their customers
*Reduces consumer choice as imports are now more expensive and some customers will be unable to afford them
What are import quotas?
An import quota is a government imposed limit on the amount of a particular product allowed into the country - restricting the physical amount of imports means that domestic businesses face less competition and benefit from a higher market share, thus more of the domestic demand is now met by domestic producers
What are the benefits of import quotas?
- To meet the extra demand, domestic businesses may hire more, reducing unemployment and benefiting the wider economy
- The higher prices for the product may encourage new businesses to start up
- Countries are able to easily change import quotas as market conditions change
- Foreign countries view a quota as less confrontational to their business interests than tariffs
What are the disadvantages of import quotas?
*Quotas limit the supply, so the price will rise
*They may generate tension in the relationship with trading partners
*Domestic firms may become more inefficient over time as the use of quotas reduces the level of competition
What is government legislation as a trade barrier?
*Governments can impose laws to restrict certain imports to protect customers and businesses
* Imports may need to meet strict regulations in order to be allowed into the country
What are the benefits of government legislation as a trade barrier?
*Allows domestic firms to grow as they have limited competition from businesses abroad
What are the drawbacks of government legislation as a trade barrier?
- Can lead to retaliation from countries facing the legislation
What are domestic subsidies as a trade barrier?
*Payments are given to domestic businesses to help lower costs of production
What are the benefits of domestic subsidies as a trade barrier?
- Reduced costs can lead to lower prices making domestic firms more competitive in international markets as their exports may be cheaper
*Businesses remain competitive and this helps to protect jobs in the industry
What are the drawbacks of domestic subsidies as a trade barrier?
- Businesses may become inefficient as they know their costs are being subsidised
What is a trading bloc?
A trading bloc is a group of countries that form an agreement to reduce or eliminate protectionist measures between each other
* Joining a trading bloc is a key method of increasing trade liberalisation and leads to trade creation (where businesses are able to enter new markets which can lead to an increase in sales volume and revenue)
What is the European Union (EU)
The EU is an economic union, formed in 1993
* There are 28 countries in the union
* Being a member of the EU includes free movement of goods and people - countries within the union have no trade restriction between themselves and they also have common external barriers to countries outside of the union
What is the Association of Southeast Asian Nations (ASEAN)?
ASEAN was originally formed in 1967
*There are 10 countries in this free trade area
*This free trade area is less integrated than the EU as it does not allow for the free movement of people between the countries, whereas the EU does
* A free trade area aims to achieve free flow of goods in the region (no barriers)
* Free trade areas lower business costs, increase market size, and help businesses to generate economies of scale
What is the North American Free Trade Agreement (NAFTA)?
NAFTA was established in 1994
* It is a free trade agreement between Canada, Mexico, and the USA - the aim was to promote free trade
*Many USA businesses relocated their manufacturing to Mexico as goods could be produced there much more cost effectively due to the lower wages paid to Mexcian workers - the products could then be imported back into the USA without any tariffs
* Mexico benefitted from this agreement as it helped to create many new industries and jobs within the country - however, most of the benefits occurred in the north of the country, close to the USA border
What are the benefits of trading blocs for businesses?
*Access to more markets
* External tariff walls
*Infrastructure support
*Free movement of labour
What are the drawbacks of trading blocs for businesses?
- Increased competition
*Common rules and regulations
*Retaliation
*Inefficiency
