4.1.2 International trade and business growth

Question 1

Imports

Answer 1

Imports are products and
services produced abroad
and consumed domestically.

Question 2

Exports

Answer 2

Exports are products and
services that are produced
domestically and consumed
overseas.

Question 3

Reasons for exporting

Answer 3

Exporting offers businesses the chance to increase sales, to achieve growth which enables them to enjoy economies of scale. Another major reason for exporting is to avoid reliance on the domestic market. If a firm’s home economy enters recession, there may be a drastic fall in sales. If the firm can export to a country unaffected by recession, the damage caused by the fall in domestic sales is less significant.

Question 4

Business specialisation

Answer 4

Choosing to produce only one product, or products for a single market, is a common strategy used by businesses. Porter’s focused differentiation or focused cost leadership are examples of strategies based on specialisation.

Question 5

How specialisation can boost efficiency

Answer 5

For a business choosing to produce just one product, fewer machines will be needed so costs lower. training costs pushing down total costs; there is no need to provide training to help multi-skill staff working in a single
product firm. F.W Taylor believed that specialisation enhanced efficiency
on the basis that ‘practice makes perfect’. An employee who repeats one simple task over and over gets quicker and quicker at that task, boosting the efficiency of the process in which they are involved.

Question 6

How efficiency gains created by specialisation can create competitive advantage

Answer 6

Increased efficiency has one simple but substantial benefit: lower unit
costs. If specialisation can be used to lower unit costs, a business finds
itself with an ideal choice of two attractive options:
1) Lower selling price by the same amount as unit costs have been reduced.
This preserves the profit margin on each unit, but lowering prices boosts
competitiveness of the business within its market, thus boosting sales.
2) Alternatively, a company may simply decide not to adjust prices or its price competitiveness and settle for a higher profit margin on every
unit it sells as a result of lower unit costs. DEPENDS ON PED

Question 7

Foreign Direct Investment (FDI)

Answer 7

occurs when a business purchases non-current assets in another
country.

Question 8

Outward Foreign Direct Investment (FDI)

Answer 8

when a British business
buys assets abroad. Typically this may involve building production
facilities or buying retail outlets, although takeovers of foreign businesses
are also considered as outward FDI.

Question 9

FDI can also flow inwards.

Answer 9

When
foreign companies buy British assets, buying property or building
factories in the UK, money flows in to Britain. It is important to note
that subsequent earnings from these investments will flow out of the UK,
so rent on a foreign-owned UK property leaves the UK.

Question 10

Outward FDI benefits- benefits of FSI over exporting

Answer 10

Avoiding problems involved in exporting
• Avoiding transport costs
• Avoiding trade barriers
• Access to natural resources
• Lower operating costs.