4.1.1 Global emerging economies Flashcards
Globalisation
the process of making the world economy more independent
Emerging economy
is used to describe an economy in the process of rapid growth and industrialisation
Features of emerging economies
- rapid expansion of trade and investment flows
- rapid growth of middle class with rising disposable incomes
- engaging in global economies
- many residents being taken out of poverty
- location for offshoring
MINT countries
Mexico, Indonesia, Nigeria, Turkey
Opportunities posed by emerging markets for UK businesses
- opportunities for offshoring, growing market, product lifecycle, international operations
- growth in innovation in the east acts as a source of opportunities for western companies, see that it works and use their ideas
- demand for infrastructure and services from developed countries
Threats posed by emerging markets for UK businesses
- drop in demand through intense competition abroad offering cheaper prices
- many domestic businesses based in emerging economies are now actively pursuing expansion into developed economies - become work-leaders in their target market
- doing business in emerging economies not straight forward - increased risk of intellectual property theft, restrictions on the methods of doing business and competitive challenges from established domestic businesses are threats that need to be overcome
- political instability
What factors will make sure that emerging countries continue growth?
- urbanisation continues
- industrialisation
- population growth
- per capita income growth, rise of middle class and consumer society
- workforce will continue to improve skills and be more productive
- technological innovation in many emerging markets
How does economic growth create trade and employment opportunities?
- the key cause of growth is the transfer of jobs from agriculture to factories or the service sector
- factory labour almost always generates higher value added than working land - creates economic growth
- machine-assisted labour in factories and people focusses on jobs in service
Changing employment patterns
- working women, migration, rise of multi job and home working
- as labour and other resources move from agriculture to modern economic activities, overall productivity rises and incomes
- economies see a structural change in employment from primary sector to secondary/tertiary jobs
- rise of tertiary sector as income rises
Benefits of entering an emerging economy
- access to large markets
- first mover advantage
- increased demand for western products
- establishing a brand
- growth rate
- brand/corporate image
Problems of entering an emerging economy
- investment needed
- cultural differences
- time lags
- limited protection
- local competitors
- political issues
Implications of economic growth for businesses
- helps to give a clear idea about where the UK firms have natural competitive advantage
- in most markets, long-term success comes from adjusting your business towards your customer
- glocalisation - using a global brands strengths but designing products for the local market
- to take advantage of economic growth elsewhere needs good strategic thinking backed by strong finances
Implications of economic growth for an individual
- emerging markets don’t just grow, they change shape
- new niches emerge - with each new niche, these are chances to launch new products to challenge to existing ones
How can an individual prepare for entering a foreign market?
- learn a foreign language
- read broadly - good understanding of global business and different economies
Indicators of growth
rise in gdp
gdp per capita
health
literacy
What is gdp?
- the value of all newly produced final goods and services produced in an economy within a given time period
- includes household spending, capital investment spending, government spending, exports and imports of goods and services
Limitations of Gdp
- includes the output of foreign owned businesses that are located in a country through foreign district investment
- doesn’t represent the amount of inequality in a country
- doesn’t indicate to whether the nations rate of growth is sustainable or not
What is gdp per capita?
- a country’s economic output divided by its population
- describes how much citizens benefit from the country’s economy
- good measurement of standard of living
Limitations of gdp per capita
- doesn’t take into account the different price levels of different countries
- ignores the distribution of income
- doesn’t show dispersion issues of wealth
- doesn’t show inequalities
Health
uses life expectancy
WHO map compares health against the average life expectancy of 71 years
Human development index HDI
it combines life expectancy, education and income of population
-tracks progress made by countries in improving 3 basic development outcomes
HDI limitations
- does not take into account qualitative factors such as cultural identity and political freedoms - human security, gender opportunities, human rights
- the gdp per capita and hdi doesn’t take into account income distribution
4.1.2 International trade
imports and exports being sold between different countries
- the exchange of products and services
- powerful driver of sustained GDP growth and employment
- takes place between economic agents of a country such as businesses, governments and consumers
Why are some countries better at producing than others?
- access to natural resources
- developed economies have more money to spend on more efficient production
- skilled workforce
- trade agreement
- Demographics - young population at working age
Comparative advantage and gains from trade
- exists when relative opportunity cost of production for a good or service is lower than in another country
- a country is relatively more productively efficient than another
Specialisation
- focus on what you’re good at
- countries want to gain a comparative advantage, the best way to do that is to look at opportunity cost
- this opens up important potential gains from specialisation and trade
Impact of specialisation
- if each country specialises, total economic output can be increased across the global economy
- in many countries, comparative advantage is shifting towards specialising in and exporting high-technology manufactured goods and high-knowledge services which gets a higher price
- as a country develops more capabilities, it can produce a wider range of closely linked goods and services
- highly diversified patterns of exports - Japan, USA
- nations at a lower stage of development tend to have fewer capabilities and thus exports a narrower range of products
What are the possible gains from specialisation?
- higher output - total production of goods and services is raised and quality can be improved
- variety - consumers have access to a greater variety of higher quality products
- bigger market - specialisation and global trade increase the size of the market offering opportunities for economies of scale
- competition and lower prices - increased acts as an incentive to minimise costs, keep prices down and therefore maintains low inflation
Benefits of international trade
- export revenues and jobs help to reduce poverty
- low prices for consumer as markets are more competitive
- technology is spread, raising productivity
- knowledge and skills cross borders
- economies of scale - causing lower unit costs and prices
- better use of scarce resources
Potential drawbacks of international trade
- transport costs - emissions from food miles
- negative externalities from production and consumption
- structural unemployment as patterns of trade change
- movement of tncs
- rising inequality - uneven gains from trade - increasing gap between rich and poor
- pressure on wages and working conditions - domestic market suffers
- risk from global external shocks
Impact of exports and imports on UK economy
- low prices due to more competitive marketing
- transferrable skills
- more skilled workers
- more job opportunities - more employment
What is FDI?
Investment from one country to another
-establishing operations or acquiring tangible assets, including stakes in other businesses
Positives of FDI for businesses
- expand into foreign markets leads to growth
- may benefit from lower costs - low labour and taxes
- product life cycle - access to new market
- access to new technology
- spread risk through diversification
- revenue streams
Positives of FDI for host country
- makes country more attractive which encourages more FDI - seen as economically stable
- increases employment opportunities
- benefits infrastructure access
- improves human capital
- promotes competition - consumers get access to cheaper goods and more choice
- incentive for innovation
What is inward fdi?
a foreign company invests in the UK
What is outward fdi?
a UK company invests into another foreign country v
What are some strategies to attract fdi?
- highly skilled workforce
- large, growing market
- deregulation of capital markets
- enterprise zones
- subsidy
- trade blocs
- privatisation
- open capital markets to allow repatriated profits from the fdi of MNC’s
