4.1 globalisation pt 2 Flashcards
what is an export?
goods being sent out to another country (for example, raw materials)- selling abroad
what are invisible exports?
services (not goods). for example, financial services, insurance or transport
what are imports?
goods and services brought in from one country to another, for example, a car going from Japan (export) to the UK (import)- buying from abroad
what are tariffs? and what are they for?
taxes that are imposed on imports, often to limit the importation of goods
is exporting/importing the easier way for a firm to internationalise? why?
exporting is easier and is carries less risk, this is because a firm can limit the amount of money it spends.
governments can impose barriers to imports limiting a firms access to the market
what is business specialisation?
it involves the division of labour (workers focus on a specialised activity), this increases the speed and skill of each worker, leading to more productivity
what is comparative advantage?
when a country specialises in producing a product and they increase the output to trade with other countries
what is competitive advantage?
when a business specialises in what it does, it adds value and can help with making profit abroad
link between business specialisation and competitive advantage
specialisation is about increasing the speed and skill a task can be done, and also saves time, improving efficiency, whereas a competitive advantage is about using this skill to make profit abroad
what is FDI?
foreign direct investment, it is the idea of investing and setting up operations or buying assets in another country
why would firms prefer FDI over exporting?
- managers may want to keep tight control over operations in other countries
- to be close to customers
- if their products have high transportation costs
- to avoid trade barriers or political opposition
FDI and its link to business growth
- many business outgrow their own markets and need to expand to other markets, others become aware of opportunities for growth in new markets
what is horizontal FDI?
producing the same products and or services as is done at home
what is vertical FDI?
when one firm is seeking to get materials or support for its own products or services, for example, opening a call centre in a different country
what is globalisation?
the growing integration of the worlds economies
what are some factors contributing to globalisation?
- reduction of international trade barriers/trade liberalisation
- political change
- reduced cost of transport and communication
- increased significance of global companies
- increased FDI
- migration
- growth of the global labour force
- structural change
how does the reduction of trade barriers
contribute to globalisation?
with less trade barriers, it would encourage more trades between nations as there would be no penalties/fees
how does the reduction of trade barriers
contribute to globalisation?
with less barriers, it would lead to more free trade agreements, encouraging more countries to trade internationally as they wouldn’t have to pay any penalties
how does political change contribute to globalisation?
there can be policy/legislation changes like trade barrier legislation that could encourage more trade
how does the reduced cost of transport and communication contribute to globalisation?
containerisation has made a significant contribution to globalisation as it is a flexible, low cost way of transporting a lot of goods abroad
with modern technology, it has become a lot easier to transfer complex data across the world, making it easier to communicate
how does the increased significance of global companies contribute to globalisation?
they make significant contributions to world GDP and they are very powerful
how does the increase in FDI contribute to globalisation?
there are more businesses investing in countries abroad
how does migration contribute to globalisation?
migration is when people move abroad:
- they would send money back to their home country, increasing economic activity in that country
- some migrants are highly skilled, like doctors, lawyers etc, and can help fill ‘skill gaps, making big contributions to big businesses
- they can provide low cost labour
how does the growth of the global labour force contribute to globalisation?
people who earn money in employment have more money to spend on goods and services, contributing to increased demand
how does structural change contribute to globalisation?
change in the structure of economies is likely to change, e.g less investment in schools could lead to more global investment
what is protectionism?
when a country will prioritise protecting their economy/domestic producers from overseas competition over free trade
why would a country prefer protectionism over free trade?
- protect jobs (stop them from going to work for overseas competition)
- protect infant industries (small businesses) from overseas competition
- prevent dumping (overseas businesses selling goods for lower than domestic producers)
- raise revenue by imposing tariffs on imports
- prevents the entry of harmful goods
- improves the balance of payments (between imports and exports)
what are tariffs?
taxes on imports
why would a country impose tariffs?
to make imports more expensive in order to gain more revenue and reduce the demand for imports and increase the demand for goods produced at home
what are import quotas?
the physical limit on the amount of imports allowed into a country
why are import quotas used?
it would increase demand for domestic products as less imports would come into the country
what is an embargo?
an extreme form of a quota, where imports are completely banned in a country
what are some problems with restricting trade?
- it could lead to other countries retaliating and imposing their own trade barriers
- trade barriers are also ineffective if the product is inelastic
how is government legislation a trade barrier?
- the government will insist that imported goods meet strict regulations and specifications
- they would also impose administrative barriers
what is a subsidy?
financial support given to a domestic producer to help compete with overseas firms, this would be things like interest-free loans, grants or tax breaks
how is a subsidy a trade barrier?
it would lower the price to consumers as the subsidy will lower production costs and increase supply, making it easier for home businesses to break into foreign markets and harder for foreign markets to break into home markets
what is a trading bloc?
when a group of countries make it easier to trade within their geographical region by reducing or eliminating tariffs e.g EU
what is a preferential trading area? (PTA)
they allow certain types of products from participating countries to receive a reduced tariff rate, e.g China in ASEAN
what is a free trade area (FTA)
when participating states remove all barriers, like tariffs, quotas etc between themselves, but each country impose different barriers on non member states, e.g the North American FTA with NAFTA
what is a custom union?
similar to FTA, but all member states adopt a common set of barriers against non-members, so there is only one set of rules applies to non member states
what are common markets?
when goods, labour and capital can move freely across the member states with tariffs generally being removed, even workers can relocate without restriction
what is a single market?
when almost all trade barriers are removed and common laws or policies make the movement of goods easier
what is an economic union?
a type of trade bloc involving a customs union and a common market
economic and monetary union
economic union that uses a common currency , e.g EU and euros
what countries are in the EU? name 5
France, Germany, Italy, Poland and Spain, in Europe
what countries are part of ASEAN?
Indonesia, Malaysia, Philippines, Singapore, Thailand, Myanmar and Vietnam, in Southeast Asia
what countries are part of NAFTA? which region is it?
Canada, Mexico, US, in North and Central America
what kind of trade bloc is the EU? what was introduced in 2002 and what did it do for the EU?
single market
a monetary union was completed in 2002 which further integrated the European economies, and they payed in a common currency, the euro
what kind of trade bloc is ASEAN?
a free trade agreement, and they are a common market
what kind of trade block is NAFTA?
they have a free trade agreement, where members agreed to eliminate tariffs on most goods and to treat each other as if they were domestic investors, but they do not share a common external trade policy
what factors should be considered in trading blocs?
- where to produce
- where to sell
- how to enter a market
- business strategy
what are 3 positive impacts on businesses of trading blocs?
- as the volume of trade increases, producers benefit from economies of scale, leading to lower costs
- trade blocs often improve capital flows and improves competition
- resources are easier and cheaper to source, and labour is easier to recruit
what are 3 negative impacts on businesses of trading blocs?
- trade blocs can limit member countries from benefitting from non member countries who specialise in a product/service
- trade blocs can lead to tensions with other regions, leading to possible retaliation, harming global trade
- for infant industries, the large amount of competition from the trade bloc market can be overwhelming and put pressure on them
