4.1 Growing Economies Flashcards
Impact of globalisation on countries
Can specialise in what they are naturally good at
Can benefit from Foreign Direct Investment
Domestic industries may be harmed
Impact of globalisation on governments
Can collect taxes from the increased growth
Can appear to have higher gdp growth
Impact of globalisation on Consumers
Receive more choice and cheaper goods
Impact of globalisation on Workers
Low skilled workers get low cost work brought to them
Reasons why globalisation is important
An expansion of trade in goods and services between countries
An increase in transfers of financial capital across national boundaries
Development of global brands
Shifts in production and consumption
Increased levels of labour migration
Shifts in economic and political strength
Factors affecting globalisation: Improved communication
Better communication, development of satellite TV - provide worldwide marketing avenues
BUT not all countries have good communication
Factors affecting globalisation: Improved Transport
Development of containers and bulk shipping by air has allowed mass movement of goods
BUT there’s pollution and environmental issues
Factors affecting globalisation: Free Trade Agreements
Free trade as a way of increasing the countries wealth and influence
BUT there’s a bias to rich countries
Factors affecting globalisation: Global banking
Modern tech allowing vast amounts of capital to flow between countries and instantly
BUT chance of financial crisis and can create too much confidence
Factors affecting globalisation: Growth of Multinationals
Rapid growth of multinationals causes globalisation as there’s lots of investment from goods selling around the world
BUT There’s much legislation, taxation and people may choose to buy local instead
Factors affecting globalisation: Labour costs and skills
Labour intensive industries such as clothing can take advantage of cheaper labour costs and reduced regulations in lesser economically developed countries
BUT there’s likely to be an increase in the avg wages in those countries due to the economic growth
Why do countries want FDI?
New technology
Improved trade and infrastructure
Provides jobs/ better employment rate
Improved skills of workers through training
Taxes increase and gov can use them to help country
Can export more goods to other countries
Problems with FDI
Unethical/ unfair practices
Initially very expensive
Lost resources domestically
Time to develop the worker skills
Importing goods/ services/ materials from abroad and so capital leaves the country
Takes away from the domestic sales- possible monopolisation
Types of FDI: Greenfield
A company will build its own, brand new facilities from the ground up
Analysis of Greenfield FDI
Greater control of the business
New facilities will be more efficient
Entry process may take years
Competition will be difficult to overcome
Types of FDI: Brownfield
When a company purchases or leases an existing business
Analysis of Brownfield FDI
Instantly acquire companies tech, staff and knowledge
Gain access to an established market
One less competitor to deal with
Start up costs are reduced
Ways to enter international markets: Exporting
Selling products in other countries/ markets from domestic production
Low risk to test the market
Allows business to use spare capacity or increase profit margins
Ways to enter international markets: Franchising
Selling rights to sell their products in another country under their name with support from the franchise
Reduced costs of expansion
Pay initial set up fee then royalties
Ways to enter international markets: Licensing
One firm producing and marketing another’s product in a particular country
Similar to franchising but is also concerned with the production process, rather than retailing
Ways to enter international markets: Joint venture
Businesses work together as two separate identities to complete the same objective
Often foreign firm will work with a domestic producer
Ways to enter international markets: Merger/ Takeover
Joining another company in another country to sell their products and create a new joint organisation
Ways to enter international markets: Direct Investment
Setting up production facilities abroad
Can result in a merger or takeover
Used by multinationals
Can take adv of lower wages, raw materials and lower regulations
BUT higher costs and high risk strategy
Globalisation
The process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange
Economic Globalisation
Widespread international movement of goods, capital, services, technology and information
Social globalisation
Refers to the sharing of ideas and information between and through different countries
Political Globalisation
Refers to the amount of political co-operation that exists between different countries
Causes of globalisation
Expansion of trade between countries
Increase in transfers of financial capital across national boundaries
Development of global brands
Labour migration
Structural change
Shift in economic and political strength
Cause of Globalisation: Trans-national companies
Multinationals, investment in factories and operations in other countries
Creation of jobs and transfer of skills
Global brands
Protectionism
Involves Supporting domestic industries against foreign competition. Governments use policies such as quotas, tariffs and other barriers that increase prices of imported goods or make it more difficult for foreign companies
4 Protectionist Methods
Tariffs
Quotas
Gov Legislation
Domestic Subsidies
Tariff
Tax placed on an import to increase its price and decrease its demand
Imposed by gov to raise revenue and restrict imports
Increase in the final price
Consumers SHOULD switch to domestic goods
Import Quotas
Physical limit on the quantity of good imported or exported
Imposing a limit on the quantity of goods will increase the market share available for the domestic products
Subsidies
Subsidy is a way of a
government protecting
their domestic markets
Money is given to local
producers to make their
goods cheaper on the
domestic market
Reduces the final price
Government Action
Legislation on product quality requirements
Preferential state procurement policies- favouring a local/ domestic produces
Exchange controls- Limiting the foreign exchange that can move between countries
Free Trade
When government put in place policies to allow producers from overseas producers freely selling goods in our country
Arguments For Protectionism
Domestic Produced goods do not incur the tariff so are cheaper
Better job security
Increase tax revenue for gov
Protect infant businesses
Disadvantages of protectionism
Less choice for consumers
Lack of cheaper alternatives
Closure of businesses
Less competitive globally
Can raise tax for gov
reduces imports
Trading Bloc
Type of intergovernmental agreement to reduce regional trade barriers
Trade Liberalisation
Removal or reduction of restrictions of barriers on the free exchange of goods between nations
Aim is to incentivise that trade, making the economy more open to trade and investment
Arguments against trade blocs
Businesses will face increased competition from other firms inside the bloc
Firms will find it difficult to expand in areas outside
the bloc
Firms may need to act quickly before other firms
enter the markets
Trade between blocs may reduce as firms just focus on selling goods within countries in their bloc
Advantages of Trading Blocs
Encourages trade between member countries.
Provides a much larger market to sell goods to and make larger profits.
Firms can increase production and reduce costs through economies of scale
With free movement of people there is a much larger workforce for industries so people can live and work in different member countries as they choose.
More opportunities to sell in growing markets
BRIC countries
Russia Brazil India China
MINT
Mexico Indonisia Nigeria Turkey
