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Business Studies Theme 4 > 4.1 - Globalisation > Flashcards

4.1 - Globalisation Flashcards

1
Q

Growth of UK economy compared to developing countries (2)

A
  • For the past 200 years, economic growth has averaged 2.25% per year this means the size of the economy doubles every 30 yes or so
  • Economic growth of developing countries: Bangladesh 3.8%, China 9.4%, India 5.0%, Bolivia 1.8%, Nigeria 3.4%
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2
Q

Growing economic power of counties within Asia and Africa (2)

A
  • Chinese manufacturers are looking for suppliers from whom transport cost will not be great - led to other Asian economies such as Vietnam, Indonesia and Cambodia seeing rapid growth the last two decades
  • These countries represent a viable source of supply for China with lower productions costs than China. Where increases in real wages and other costs are putting off companies looking for cheap production locations
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3
Q

Implications of economic growth for businesses (3)

A
  • New export opportunities
  • Offshoring production
  • Increased domestic competition
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4
Q

New export opportunities - Implications of economic growth for businesses (3)

A
  • As developing countries see incomes rising, UK businesses may discover new markets to which they can export
  • As economies reach the latter stages of development, the demand for services grows
  • Services the UK are good at include: fashion design, design engineering and architecture, culture (books and entertainment), financial and other business services
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5
Q

Define offshoring

A

Offshoring means moving a business function to another country, generally in order to lower costs

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6
Q

Offshoring production - Implications of economic growth for businesses (2)

A
  • The goal of this is to exploit the lower production costs, boosting profit margins even if transport costs rise
  • Call-centre enquire, complaint handling and basic analysis of medical x-rays being shifted to lower cost economies are ways UK businesses offshore their work
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7
Q

Increased domestic Competition - Implications of economic growth for businesses (2)

A
  • As countries develop, entrepreneurs, are increasingly able to access capital and credit, which will start ups businesses that may be so successful that they can start exporting to counties such as the UK
  • This leads to increased competition for UK business, both globally and in their own home market
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8
Q

Implication of economic growth for individuals (3)

A
  • This will lead to changes in employment patterns as those employed in agricultural jobs moving into manufacturing jobs - manufacturing processes add more value than primary sector jobs, stimulating growth
  • Impacts of changing employment patterns: rural to urban migration, increased need for managers (expanding middle class), increasing skill levels within the economy
  • Developing economies represent opportunities for entrepreneurs to start up and grow businesses that depend on increasing disposable incomes
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9
Q

Indicators of growth (4)

A
  • GDP (gross domestic product) per capita
  • Literacy
  • Health
  • Human development index (HDI)
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10
Q

Define GDP (gross domestic product) per capita (2)

A
  • Is a measure of the total output of a country’s economy
  • Dividing this by the population adjust for countries with larger populations - purchasing power parity is a further adjustment that factors in differences in the cost of living
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11
Q

GDP per capita - indicators of growth (2)

A
  • Is a clear indicator of economic growth as ,if on average, the people of a country are earning more they will spend more creating a virtuous circle
  • GDP per capita over time provides an excellent indicator as to the level of purely economic development taking place within a country
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12
Q

Literacy - indicators of growth (2)

A
  • literacy rates are the number for people who can read or write which should see a dramatic improvement as an economy passes through the stages of economic development
  • A literate workforce will be more productive, capable of performing tasks that add more value to production, thus hastening further economic development
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13
Q

Health - indicators of growth (2)

A
  • Levels of health should improve as an economy develops
  • Life expectancy gives a good clue as to the health of a nation
  • Economic growth leads to healthier living along with better treatment of later life diseases
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14
Q

Define Human development index (HDI)

A

The human development index is an attempt to provide a single measure of economic development encompassing income, education and health

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15
Q

Human development index (HDI) - Indicators of growth

A

HDI combines measures of economic progress with health and education to try to provide a well-rounded picture of a country’s economic development

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16
Q

Define imports (2)

A
  • Imports are products and services produced abroad and consumed domestically
  • When goods and services arrive cash flows out of the UK
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17
Q

Define exports (2)

A
  • Exports are products and services that are produced domestically and consumed overseas
  • When goods and services flow out cash flows into the UK
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18
Q

Examples of imports (4)

A
  • Foreign brands that add to the choice available to UK consumers
  • Goods or services that Britain no longer mass produces
  • materials and components used by British businesses ,especially manufacturers, which may be produced far more cheaply, perhaps at better quality, abroad
  • Services, such as tourism, involve importing services from foreign hotels
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19
Q

Impact of exporting (2)

A
  • Offers businesses the chance to increase sales, to achieve growth which enables them to enjoy economies of scale
  • A major reason for exporting is to avoid reliance on the domestic market e.g overall sales less impacted during recessions if firms exports to a different country
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20
Q

What links business specialisation and competition?

A
  • Business specialisation
  • How specialisation can boost efficiency
  • How efficiency gains created by specialisation can create competitive advantage
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21
Q

Business specialisation - links between business specialisation and competition (2)

A
  • Choosing to produce only one product for a single market is a common strategy used by businesses
  • Porter’s focused differentiation or focused cost leadership are examples of strategies
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22
Q

How specialisation can boost efficiency - links between business specialisation and competition (3)

A
  • Cost associated with purchasing or funding machines will be lower if a firm produces one product as opposed to multiple products
  • Training costs also push down total costs as there is no need to provide training to help multi-skill staff working in a single product firm
  • Links to Taylor motivation theory and how specialisation enhances efficiency as they get quicker at completing a task over time
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23
Q

How can efficiency gains created by specialisation create a competitive advantage? (3)

A
  • Increased efficiency brings Lowe unit costs which gives two attractive options:
  • Lower selling price - profit margin on each unit is preserved, but lowering price boosts competitiveness of the business within its market thus boosting sales
  • A company may simply decide to not adjust prices but settle for a higher profit margin on every unit sells as a result of lower unit costs
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24
Q

Define foreign direct investment (FDI)

A

Occurs when a business purchases non-current assets in another country

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25
Q

Benefits of foreign direct investment (FDI) rather than exporting (5)

A
  • Avoiding problems involved in exporting
  • Avoiding transport costs
  • Avoiding trade barriers
  • Access to natural resources
  • Lower operating costs
26
Q

How can foreign direct investment lead to business a growth? (2)

A
  • FDI may typically involve building production facilities or buying retail outlets, although takeovers of foreign businesses are considered as outward FDI
  • Inward FDI is when foreign companies buy British assets, buying property or building factories in the UK
27
Q

Define globalisation

A

Is the trend towards closer ties between economies and businesses within the global economy

28
Q

Define isolationism

A

Refers to a nation whose trade policies are designed to put the interests of domestic businesses first by imposing trade barriers to hamper import

29
Q

What is trade liberalisation? (2)

A
  • Involves removing trade barriers such as tariffs, quotas and regulations
  • Liberalisation will generally follow a new trade agreement between two countries on the basis that both remove trade barriers between one another
30
Q

Define tariffs

A

This is the tax imposed that raises the price of imported products, aiding sales of domestic rivals

31
Q

Define quotas

A

These are physical limits on the quantity of a type of good that can be imported in a year. Once the limit is reached, consumers must buy from domestic producers

32
Q

Define regulations

A

Are the rules, paperwork and systems that can be put in place to make it harder for imports to enter a country

33
Q

Factors contributing to increased globalisation (8)

A
  • Reduction of international trade barriers/trade liberalisation
  • Political change
  • Reduced cost of transport and communication
  • Increased significance of global (transnational) companies
  • Increased investment flows (FDI)
  • Migration
  • Growth of the global labour force
  • Structural change
34
Q

Opportunities from trade liberalisation (2)

A
  • Companies that rely on imported materials and components will enjoy lower costs, enabling them to reduce prices to compete with cheaper imported rivals
  • Can lead to increased export opportunities with the removal of barriers in the other direction
35
Q

Threats of trade liberalisation

A

Allowing imports into domestic markets increases competition for domestic firms - more efficient firms should survive but firms that could only survive due to the barriers will,lose that protection and possibly face closure

36
Q

How can political change lead to increased globalisation (China example) (2)

A
  • Following the death of Chairman Mao the 80s and 90s saw a move away from hard-line communism with private ownership of business allowed
  • In 2001, China joined the WTO giving it access to rich western markets leading China enjoying an export-led boom
37
Q

How has reduced transport and communication led to increased globalisation? (4)

A
  • Oil prices have remained stable or fallen
  • Technological developments have led to the development of more efficient engines, reducing fuel consumption and therefore cost
  • Technology has also enabled the building of bigger trains, boats and planes which allow container economies of scale
  • Communication much more efficient due to internet and email allowing worldwide communication of complex data
38
Q

Increased significance of transnational corporations - factors leading to an increase in globalisation (3)

A
  • Whenever a transnational corporation enters a new market, local businesses face an incredibly powerful new competitor that will benefit form enormous economies of scale
  • These companies will be transferring resources and products from one country to another, boosting international trade
  • When global transnationals are able to sell their product in so many markets, consumers choice from nation to nation declines
39
Q

Increased investment flows - factors leading to increased globalisation (2)

A
  • Financial markets are more willing to invest capital in businesses based elsewhere in the world
  • Downside of this is the interconnectedness which has evolved with banks in one country investing in another part of the world and lending to foreign customers - a financial crisis can spread rapidly as seen in 2008
40
Q

Migration - factors leading to increased globalisation (4)

A
  • Many people who migrate do so for economic reasons
  • Migrants are proactive and determined, willing to uproot and move to an entirely new country to work and live
  • They tend to be relatively well-educated
  • Those traits help to explain why increased migration can stimulate economic growth
41
Q

Growth of the global labour force - factors leading to increased globalisation (2)

A
  • Many UK businesses have offshore production in order to benefit from cheaper labour elsewhere in the world
  • Meanwhile, other UK businesses facing shortages of skilled staff have recognised the benefits of recruiting from abroad in order to fill jobs that would otherwise have to be offshore or left undone - losing sales
42
Q

Structural change - Factors contributing to increased globalisation (3)

A
  • All economies that experience development see structural change with a reduced reliance on agriculture as economic activity shift to manufacturing then services
  • Economies that have experienced rapid development in the last 40 years have increasingly specialised in order to improve prove their international competitiveness
  • These economies have enabled the acceleration of development and the related trade to sustain the rise of globalisation
43
Q

Define protectionism (2)

A
  • Means giving preference to domestic producers by making it harder for foreign companies to export to your country
  • The goal is to increase a nation’s prosperity by increasing the amount exported and/or decreasing the amount imported to the country - which is the opposite of free trade
44
Q

Three major forms of trade barriers used in protectionism

A
  • Tariffs
  • Quotas
  • Legislation and regulation
45
Q

Why will a government tend to use tariffs? (2)

A
  • To protect a declining industry

* To protect ‘infant’ industries

46
Q

Benefits of tariffs (3)

A
  • As tariffs help firms to survive, they protect jobs of firms whose rivals are being taxed
  • Tariffs also indirectly protect the other businesses that rely on these firms for trade: suppliers and local firms that would suffer if unemployment rose
  • Tariffs raise tax revenues, allowing governments to increase spending on public services
47
Q

Drawbacks of tariffs (2)

A
  • Imposing tariffs pushes up prices, reducing consumers’ ability to buy the product, reducing standards of living
  • Tariffs help inefficient firms to survive, potentially harming competitiveness. Without tariffs there is far greater incentive for these firms to improve what they do
48
Q

What is the purpose of quotas? (3)

A
  • They are designed to protect and encourage domestic producers
  • if imports are limited this is likely to push prices up - increasing the amount domestic producers are willing to supply
  • Quotas are also likely to improve the current account of a country’s balance of payments
49
Q

Benefits of quotas (2)

A
  • Domestic firms face less competition, improving their competitiveness. This improves profit for shareholders and job security for workers
  • Preventing unemployment theoretically reduces government specimens on benefits
50
Q

Drawbacks of quotas (2)

A
  • No extra tax revenue is gained by the government

* They push up prices domestically for consumers

51
Q

Government legislation - trade barrier (2)

A
  • Legislation relating to consumer protection and environmental protection can act as a barrier to imports
  • If a government imposes new, stronger standards for safety or emissions in certain industries, imported may find their products suddenly become illegal
52
Q

Domestic subsidies (3)

A
  • the subsidy can be though of as reducing the unit costs by the amount of the subsidy, thus boosting margins, or allowing companies to cut their selling price
  • Boosting margins may keep some businesses operating in markets for, which they would otherwise withdraw, protecting jobs and domestic supply of that product
  • Makes it easier to export these products as with a lower selling price they may be more price competitive in foreign markets
53
Q

Define subsidy

A

Is a payment made by the government to a business producing a certain product or located in a particular area that the government whisked to support

54
Q

Benefits of paying subsidies

A
  • Subsidies in effect stimulate demand, perhaps allowing struggling businesses to boost order books, allowing investment in more efficient production
  • Subsidies have a positive effect on the balance of payments by reducing imports and boosting exports from firms receiving the subsidies
55
Q

Drawbacks of paying subsidies (2)

A
  • Artificially inflating profit margins of inefficient businesses can prevent them pushing for efficiency gains that would allow them to compete without subsidies
  • Subsidies must be funded, meaning the government must increase taxation - in a sense pushing firms in industries where no subsidies are provided
56
Q

The EU and the single market (3)

A
  • consumers in the EU, in global terms, are relatively affluent
  • The EU’s single market remains an incredibly attractive market for EU companies to access - this explains why probably the critical aspect of Brexit negotiations is the terms of access to the EU’s single marks to for British firms
  • EU has managed to introduce a single currency (though not among all members) which other trading blocs are yet to do
57
Q

ASEAN Trading bloc (3)

A
  • The ten full members operate in an Asia dominated by the economic success of China, Japan and South Korea
  • ASEAN’s members try to work constructively alongside these giant neighbours
  • After all, much of ASEAN’s success has been in the feeding might of their bigger neighbours’ manufacturing machines
58
Q

Members of ASEAN (10)

A
  • Brunei
  • Cambodia
  • Myanmar (Burma)
  • Laos
  • Malaysia
  • Thailand
  • Vietnam
  • Philippines
  • Indonesia
  • Singapore
59
Q

NAFTA trading bloc (2)

A
  • Made up of Canada, Mexico and USA
  • Mexico has a low-cost ability to attract companies looking for a low-cost manufacturing base from which they can import to the world’s largest domestic market (the USA)
60
Q

Advantages of trading blocs (4)

A
  • Free movements of goods between members gives the potential to create a large ‘single market’
  • External tariff walls insulate the business from competition from another part of the world
  • As trade grows between neighbours, it becomes economic (and necessary) for governments to provide infrastructure support
  • The advantages become much greater if there is free movement of labour as well as free movement of goods
61
Q

Drawbacks of trading blocs (4)

A
  • Competition increases due to freer trade, so those with monopoly power may find it competed away
  • To create a single market, new rules and regulations may be agreed, including minimum wage rates
  • The availability of easily accessed neighbouring markets may reduce enterprise in relation to distant ones such as China
  • Within geographically proximate bloc, there may be common factors that together become common problems e.g low commodity prices

Business Studies Theme 4 (4 decks)

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