4.1.2 International trade and business growth Flashcards
What is trade necessary?
Trade is necessary has throughout history it has taught economies that if each country specialises in the things they do best, then trades with others to get products and services they do not produce domestically, the global economy is more productive as a whole.
What is an import?
Products and services produced abroad and consumed domestically
What is an export?
Products and services that are produced domestically and consumed overseas.
What can imports include?
- foreign brands that add to the choice to UK customers
- goods and services that Britain no longer mass producers
- materials and components used by British businesses, especially manufactures, which may be produced far more cheaply and at a better quality
- services such as tourism
What do exports allow business to do?
- offers businesses the chance to increase sales, increase growth and enjoy economic of scale
- avoids reliance on domestic firms
What is business specialisation?
When a business chooses to produce only one product or product for a single market. e.g. Porters focused differentiation or focused cost leadership.
How can specialisation boost efficiency?
If a firm decides to only produce one product using the same machinery, they require less machinery than a multi-product firm. This then leads to lower costs associated with purchasing. This is similar to training since staff need to be trained once. This was enforced by Taylor and his specialisation of labour which emphasised efficiency gains over time as employees repeat a task.
How can efficiency gains created by specialisation create competitive advantages?
Better efficiency leads to lower unit costs.
1) Lower selling price by the same amount as unit costs have been reduced. This preserves profit margins and increases competition and sales.
2) Not to adjust prices and settle for a higher profit margin on each unit sold
What is FDI?
Foreign Direct Investment occurs when a business purchases non-current assets in another country
What are the two types of FDI?
Inward and outward
What is outward FDI?
Outward FDI occurs when a british business buys assets abroad. This may involve building production facilities or outlets or even takeovers.
What is inward FDI?
Inward FDI occurs when foreign companies purchase British assets including property. This results in money flowing into the UK.
What does outward FDI offer businesses?
The opportunity to grow abroad.
What are the benefits of FDI?
- avoiding problems involved in exporting
- avoiding transport costs
- avoiding trade barriers
- access to natural resources
- lower operating costs e.g. labour and rent
