6.1 - International Specialisation Flashcards
What is Specialisation?
The concentration of a product
How does specialisation occour on different levels?
Individual level - Division of labour when a worker specialises in a particular task
On a buisness level - One firm may specialise in producing a certain product
On a regional level - Certain areas specialise in production
On a national level - Countries specialise in order to trade
What are the 2 main factors which allow a country to specialise?
Superior resource availability - If the quality of the resources is relatively better than other nations country can charge high prices if the country has high quantity of the resources then it will be able to produce at lower cost of production and drive competitors out of the market
Cheaper production method - If a country has lower cost of production it will be able to lower selling prices and gain a lead in the international market share. Some countries able to produce using machinary or technological innovation and having large labour force
Why do firms specialise producing one product?
To increase efficiency and productivity - As specialisation on a larger scale allows firms to achieve economies of scale, to decrease long-run average cost of production and lead to higher profit margins
Increasing global demand - Which raises revenue
Resources well suited to the product like good climate so that a country can confidently plan their output long-term
Gain a reputation producing a product - As specialisation may improve the quality of the product through new innovative methods of production, increasing demand for the product in non-price competitive way.
Why do countries specialise and trade?
Specialisation allows countries to concentrate on what they are best at influenced by resource availability. Specialisation can reduce the average cost of production raise the productivity and efficiency which enables lower prices to be charged.
Specialisation could increase export revenue and improve trade position. Specialisation can increase GDP which may raise income and therefore living standards. Specialisation can increase the size of market leading to economies of scale.
Countries may import products from countries that can produce more efficiently themselves. Countries may import products they cannot produce themselves which allows them to gain a greater variety of goods and services
What are the Advantages of specialisation at a national level?
Consumers - Specialisation can lead to higher output, and consumers enjoy having more choice
And therefore higher standards of living
Countries develop expertise via new skills and techniques for improving production which raises the quality of a product
Specialisation may lower to COP which will be passed onto consumers through lower prices
Firms - Specialisation enables large scale production, allowing economies of scale to be achieved
Greater choice of raw materials which lowers the cost of production allowing them to produce more
Economy - Increased exports can result in economic growth
Economic growth usually leads to higher income and a better standard of living
What are the disadvantages of specialisation at a national level?
Consumers - A country may gain a monopoly of production raising prices and lower quality
Choice may reduced greater reliance on imports
Other countries may have lower health and saftey standards
Firms - Some industries unable to compete and go out of buisness
Start up firms in developing countries find it harder to compete due to global competition
Firms may grow to large and suffer diseconomies of scale
Economy - Possible structual unemployment if demand falls.
Dependence on imports increase vulnerability concentrates risk and leaves countries exposed to international economic conditions
Developing economics will specialise in commodity products which are volatile in price.
What are the general advantages of national specialisation?
Greater competition may increase productivity. Higher productivity lowers cost / unit for firms, which makes their goods more competitive internationally (exports)
Increased exports can result in economic growth for the nation
Economic growth usually leads to higher income and a better standard of living
Income gained from exports can be used to purchase other goods from around the world (imports). This increases the variety of goods available in a country
What are the general disadvantages of national specialisation?
International trade is beneficial for the firms that can compete globally. However, some industries will be unable to compete & will go out of business
Many firms in an entire industry may close leading to structural unemployment
Specialisation may create over-dependency on other countries’ resources. This may cause problems if conflict arises
Specialisation using a country’s own resources will lead to resource depletion over time. Specialisation will increase the rate of resource depletion
As multinational firms grow in size & increase market power, they can dictate prices & output in many regions. They are also able to wield their power to influence governments & gain access to raw materials through bribery & corruption
