4.1.2- international trade

Question 1

Why trade internationally?

Answer 1

• specialisation
  -need for raw materials
  -to access bigger markets
  -land cheaper
  -lower labour costs
  -competitive advantage

Question 2

What does specialisation mean and what are the pros and cons?

Answer 2

The process of concentrating on and becoming expert in particular subjects or skills.
ADV:
- increased productivity= reduces average costs and economies of sales
- gives business competitive advantage over next best country
-GDP growth= business grows= more jobs= increase income

DIS:
-country may become over reliant on one industry= doesnt spread risk
-other countries may become cheapen in same industry

Question 3

How can a business operate internationally?

Answer 3

• export
• producing abroad
• FDI

Question 4

What does FDI mean?

Answer 4

Foreign direct investment= means that a business from one country decides to establish themselves in another country

Question 5

How does FDI enable a firm to grow?

Answer 5

• gives access to natural resources
• lower operating costs
• transport costs decreased

Question 6

What are the four different forms of FDI and what are they?

Answer 6

Joint venture= collaborative agreement between two parties to invest in a business

Strategic alliance= firms contract to share resources or skills

M and A= buying through cross border mergers and acquisition

Built greenfield facilities= when unable to collaborate or prevented from collaboration by goverments