4.1.1 Flashcards
Globalisation definition
the economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology & finance
BRICS and MINT + what emerging economies are
BRICS: Brazil, Russia, India, China and South Africa
MINT: Mexico, Indonesia, Nigeria and 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
This increases the profitability of international firms who sell their goods and services in these emerging economies
4 key indicators of growth
GDP Per Capita
GDP per capita is calculated by taking the total output (GDP) of a country and dividing it by the number of people in that country
Health
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
Literacy
Literacy refers to the percentage of adults within an economy who can read and write
Human Development Index
Human Development Index (HDI) combines the factors of life expectancy, education and income to determine the quality of development of citizens within a country
4 impacts on businesses of EG
Potential for increased profits as businesses enter new markets and gain more customers
Reduced costs of production as businesses can benefit from lower labour costs and cheaper raw materials in emerging economies
Increased trade opportunities as demand for goods and services increases
Increase in investment because as the economy grows, businesses want to expand so they are more likely to invest
FDI definition
Foreign Direct Investment (FDI) is when a business with a head office in one country sets up business operations such as factories and offices in another country
Benefits of accessing FDI
Countries benefit from FDI as this can lead to
Increased economic growth as there is an inflow of money into the country
Increased job opportunities as businesses expand operations
Access to knowledge and expertise from foreign investors
Businesses typically grow through FDI as mergers, takeovers, partnerships or joint ventures are created with a foreign business in order to enter new markets
Trade liberalisation definition
the removal or reduction of barriers to trade between different countries
2 pros and cons of trade liberalisation
pros
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
cons
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
7 factors contributing to increased globalisation
Reductionof international trade barriers (trade liberalisation)
Political change
Changes in the government of a country can influence the country’s attitude to trade
E.g. China joined the World Trade organisation in 2001 which led to a significant increase in exports
Reduced cost of transport and communication
Economies of scale due to innovation in containerisation on large ships has reduced business costs
Technological advancements due to the internet/mobile technology have improved made it easier for buyers and sellers to connect with one another
Increased significance of transnational companies
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 transnational companies operating globally, there is an increased pressure by countries to engage in free trade
Increased investment flows (FDI)
FDI is important for job and wealth creation within an economy
It allows businesses to establish themselves in countries where they may face trade barriers
Migration (within and between economies)
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
Growth of the global labour force
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
Structural change
This occurs when a country, industry or market changes which sector of industry they operate in
E.g. the UK has shifted from the manufacturing sector to the tertiary sector over the last 50 years
Offshoring is common practice and speeds up the process of globalisation
Protectionism definition
when a government seeks to protect domestic industries from foreign competition
Tariff definition +effect
A tariff is a tax placed on imported goods from other countries
A tariff increases the price of imported goods which helps to shift demand for that product/service from foreign businesses to domestic businesses
Pros and cons of tariffs
The benefits of tariffs include
They protect infant industries so they can eventually become more competitive globally
An increase in government tax revenue
Reduces dumping by foreign businesses as they cannot sell below the market price
The disadvantages of tariffs include
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
Who pays the tariff
It is not the foreign company, but the domestic company who pays the tariff. In our cheese example above, any retailers in the USA who import cheese from Britain have to pay the tariff (import tax) when it crosses the border into the USA. This policy may help cheese manufacturers in the USA but it harms any other business that imports and sells foreign cheese as it raises their costs of production.
Quota definition + effect
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
More of the domestic demand is now met by domestic producers
pros and cons of import quotas
The benefits of import quotas include
To meet extra the demand, domestic businesses may need to hire more workers which reduces unemployment and benefits the wider economy
The higher prices for the product may encourage new businesses to start up in the industry
Countries are able to easily change import quota as market conditions change
Foreign countries view a quota as less confrontational to their business interests than tariffs
Their exporters can still sell their goods at the higher price in domestic markets (but a limited amount)
The disadvantages of import quotas include
Quotas limit the supply of a product and whenever supply is limited, the price of the product rises
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 Gov legislation and pro and con
Governments can impose laws to restrict certain imports to protect customers and businesses
pro
Allows domestic firms to grow as they have limited competition from businesses abroad
con
Can lead to retaliation from countries facing the legislation
Domestic subsidies def 2 adv and 1 pro
Payments are given to domestic businesses to help lower costs of production
pros
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
con
Businesses may become inefficient as they know as they know their costs are being subsidised
Trading bloc definition
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
Trade creation means that businesses are able to enter new markets which can lead to an increase in sales volume and sales revenue
4 benefits of businesses of belonging to a trading bloc
1.
Access to more markets
Businesses are able to sell to more customers due to free movement of goods
2.
External tariff walls
An external tariff wall is a tax applied to imported goods by a group of countries that have formed a trade agreement
This protects businesses within the trading bloc from competition from businesses outside of the trading bloc
3.
Infrastructure support
Businesses may gain additional support from the government to enable them to maintain their competitiveness against businesses in countries inside the trading bloc
4.
Free movement of labour
Trading blocs may also have free movement of labour allowing businesses to source workers from a wider pool
A higher supply of labour may push wages lower, leading to reduced costs for business
E.g. Citizens of EU countries have the right to work in any Member State and to be treated equally as citizens of that State
4 drawbacks to businesses of belonging to a trading bloc
1.
Increased competition
There is increased competition for businesses within the trade bloc which may be more of an issue for small businesses as they have less resources available with which to compete
Businesses with [popover id=”gFvRUFnfn0kKPnY2” label=”monopoly power “] can increase their monopoly by eliminating competitors in other countries within the bloc
E.g. the UK supermarket industry faced increased competition from the German supermarkets Aldi and Lidl when the UK was part of the EU
2.
Common rules and regulations
In order to operate as one market, new rules and regulations may be put in place that all businesses must adhere to
E.g. The EU working time directive states that employees can only work a maximum of 48 hours per week
3.
Retaliation
External tariffs set against countries outside of the trading bloc may lead to retaliation from these countries
4.
Inefficiency
Although there is increased competition between countries within the bloc, there is less competition from businesses in countries outside of the bloc
This may reduce the incentive of businesses to be more efficient
Trading blocs also lead to trade diversion which means trade is taken away from efficient producers who operate outside of the trade bloc and replaced by trade within the bloc
