businesses and the international economy

Question 1

reasons for globalisation

Answer 1

• rise in the number of free trade agreements between geographically close countries
• improved communication and transport links makes it easier to transport products and resources
• industrialisation of medium income countries makes it cheaper to produce products in those countries and export them at reasonable prices

Question 2

benefits of globalisation

Answer 2

• exporting to other countries increases sales of a business
• opening operations overseas could reduce cost of production
• free trade agreements makes it possible for businesses to import and sell in domestic markets
• importing cheaper raw materials means reduction in costs

Question 3

threats of globalisation

Answer 3

• rise of imports from foreign markets increases competition for businesses
• workers may shift to other businesses with more attractive employment conditions
• some firms selling primary products may not benefit from free trade agreements

Question 4

advantages of multinationals to the business

Answer 4

• lower costs of production in low income countries
• new sources of raw materials
• goods produced and directly placed on market avoiding transportation costs
• reduce/avoid trade barriers and protectionist measures
• increased market share so sales and profits increase
• government grants enable lower setup costs so higher profits

Question 5

advantages of multinationals to the country

Answer 5

• creation of jobs means lower unemployment
• large amounts in taxes paid
• increased choice of products means increased standards of living
• increased exports so source of income for government
• increased financial and technological investment improves living standards

Question 6

disadvantages of multinationals to the country

Answer 6

• jobs created could be low skilled which decreases living standards
• may send profits to home country
• depletion of natural resources
• local businesses threatened due to increased competition
• the businesses may demand unreasonable policies in their favour

Question 7

impacts on stakeholders of multinational companies

Answer 7

shareholders: increased dividends due to increased sales and profits
employment: better employment conditions and higher wages due to increased profits
suppliers: could see an increase or decrease in resources supplied depending on whether the company moves in or out of economy
owners: increased status and recognition
government: increased tax revenue and economic objectives like growth and unemployment achieved

Question 8

currency appreciation impact

Answer 8

• raises prices of exports as foreign customers need to pay more to buy products
• fall in import prices as currency stronger and can buy more products from overseas
• exporting businesses will face reduced sales
• importing businesses enjoy lower production costs