6.3 Business and the International Economy Flashcards
Define Globalisation
Globalisation is the increased interconnectedness and worldwide movement of goods, services, capital and people.
What are the opportunities of globalisation for a business?
Businesses can expand to offer products and services in other countries
Businesses can benefit from increased investment from MNC entering their home market. For example construction companies building factories for Apple in China.
Businesses have the opportunity to manufacture goods abroad and lower production costs or source suppliers and components from other countries.
What are the threats of globalisation for a business?
business will face increased competition for customers in their own country.
But they may face stiffer competition. Local restaurants will suffer when Mc Donalds enters a new market.
Moving production internationally may damage brand image
Explain the impact of globalisation of on businesses.
The impact of globalisation will depend on the size of the business and what service they offer. Small local businesses may not be affected as much as larger businesses, but it’s best to assume that all businesses now operate in a global marketplace, and must be ready for the opportunities and threats that will bring.
Define tariffs
a tax on imports.
For example, if Toyota manufactures a car outside Indonesia the consumer must pay a 45% tariff. A $10,000 car will become $14,500.
Toyota have adapted by manufacturing their cars in factories inside Indonesia, so consumers will not have to pay the additional tariff.
Define Quotas
a limit on imports.
In Nov 2019 China limited the import of cotton from the USA to 900,000 tonnes, in response to US tariffs on Chinese exports of manufactured goods.
What is a trade war? Give an example.
If two countries continue to raise tariffs and quotas on products from each other this is known as a trade war.
The USA will fight back with tariffs on smartphones, China will retaliate with tariffs on USA’s soya beans.
What are MNCs?
Multinational corporations (MNC) are businesses that sell goods and services internationally or have production in more than one country.
Give an example of an MNC.
Apple, Google, Alibaba, Nike, Coca Cola and Huawei.
why have MNC’s become so huge, powerful and successful?
MNCs can produce their goods in countries where costs are low and sell at high prices where higher income consumers are based. Nike can make a pair of Air Max for $30 in Vietnam and sell them for $200 in the United States.
MNCs may take natural resources from other countries. For example, huge oil MNCs like Shell and BP drill for oil all over the Middle East, Africa and Asia in order to secure oil at the lowest prices.
MNC’s can also get around tariffs and restrictions by operating in other countries. Many car companies, like Tesla and Volkswagen, have located factories in China to gain unrestricted access to the huge market for cars in China.
List the benefits of MNCs?
In order to compete, many MNCs need huge economies of scale in order to spread the cost of research and development, and keep average costs down. Car manufacturers must operate in many countries to achieve these economies of scale.
Operating in more than one country also spreads risk, also known as diversification. If Coca-Cola operates in 180 different countries, if one country is in recession and there are falling sales this will not have a large impact on Coca-Cola’s global profits.
For investors, MNC expansion is positive as it means more potential profits. Workers in the multinationals home country can be the biggest losers if a factory or office is relocated to another country where labour costs are lower.
What are the positive impacts MNCs have on national economies?
When MNC’s set up production or support facilities in a country it can lead to a large investment in the local economy and jobs for local people.
Apple, Google and Facebook have all invested millions if not billions of euros setting up their European headquarters in Ireland and employing hundreds of thousand of highly paid workers.
MNC’s also allow greater choice and better service for consumers. Popular brands like Amazon and McDonalds are hugely popular when they start operating in a new country.
List the Potential drawbacks to a country and economy where a MNC is located.
Many local businesses in direct competition with MNCs, will find it difficult to survive. If Starbucks starts operating in a country, local coffee shops will find it harder to keep their customers.
MNC’s take the profits earned in a foreign country and send them back or “repatriate” the profits to their home country. Critics of MNC’s argue the profits should be re-invested in the host country where MNC’s earned the profits.
Furthermore, MNC’s are highly skilled at paying as little tax as possible in foreign countries, as they attempt to repatriate profits. In 2017, Starbuck paid an effective tax rate of 3% on over £200 million pounds of profit in the UK.
If a movie ticket costs 10 MYR or in Malaysia and 5 euros or in France, where is the cheaper location to go to the movies?
1 Euro = 5 MYR
Malaysia
Explain the depreciation and appreciation of an exchange rate.
Since the Brexit referendum the British Pound has fallen 20% against the dollar. So we can say that the value of the pound is depreciating against the dollar, while the value of the dollar is appreciating against the pound.
