Ch 29 - Business and the Intl Economy

Question 1

What is globalisation

Answer 1

increases in worldwide trade and movement of people and capital between countries.

Question 2

What are the reasons for globalisation

Answer 2

Increasing numbers of free trade agreements

Improved and cheaper travel links and communications between all parts of the world have made it easier to transport products globally

Many ‘emerging market countries’ are industrialising very rapidly

Question 3

Def of free trade agreements

Answer 3

Countries agree to trade imports/exports with no barriers such as tariffs and quotas.

Question 4

Opportunities of globalisation

Answer 4

Start selling exports to other countries

Open factories/operations in other
countries

Import products from other countries to sell to customers in ‘home’ country

Import materials and components from other countries – but still produce final goods in ‘home’ country

Question 5

Business impact (pro and con both) of

Start selling exports to other countries

Answer 5

Increases potential sales. Helps extend the product’s life cycle.

Con:
Can be expensive to sell abroad.

Not 100% sure if foreign customers will buy the product just because domestic customers do.

Lack of knowledge ab the foreign markets. Would need sumn like a Joint Venture

Question 6

Business impact (pro and con both) of

Open factories/operations in other countries

Answer 6

It could be cheaper to make some goods in other countries than ‘at home’

con:
Quality may not be as good. Also may be ethical issues (child labour, working conditions, etc)

Question 7

Business impact (pro and con both) of

Import products from other countries to sell to customers in ‘home’ country

Answer 7

Could be profitable

con:
products may need to be repaired and maintained. The business selling it in the home country may not have the same resources and parts that are needed for that maintenance that foreign firms have.

Question 8

Business impact (pro and con both) of

Import materials and components from other countries. Produce final goods in home country

Answer 8

Raw materials etc could be cheaper abroad

Con:
Increased transport costs. Not sure if suppliers r reliable.

Question 9

Threats of globalisation

Answer 9

Increasing imports into home market from domestic competitors

Increased competition from foreign competitors that have set up production in the country

Employees may leave businesses that cannot pay the same or more than international competitors

Question 10

Business impact (pro and con both) of

Increasing imports into home market from foreign competitors

Answer 10

Local businesses sale may fall

pro:
increased comp could force local businesses to become more efficient

Question 11

Business impact (pro and con both) of

Increased competition from foreign competitors that have set up production in the country

Answer 11

More competition - MNCs may be able to afford economies of scale and best employees. Could sell products at a lower price than domestic firms.

pro:
Some firms can start becoming suppliers to these MNCs and make profit
domestic firms could be forced to adapt, innovate and become more efficient

Question 12

Business impact (pro and con both) of

Employees may leave businesses that cannot pay the same or more than international competitors

Answer 12

Businesses will have to try their best to keep employees - increase wage and non wage factors, net adv of the job, etc. May cost more

pro:
May encourage companies to use a range of motivation methods that would help boost labour productivity, output, hence leading to economic growth

Question 13

What is protectionism

Answer 13

Government protecting domestic businesses from foreign competition using tariffs and quotas

Question 14

What is an import tariff
what is an import quota

Answer 14

tariff - tax placed on imported goods when they arrive into the
country.

quota - restriction on the quantity
of a product that can be imported.

Question 15

How do import tariffs protect domestic businesses

Answer 15

Prices of imported goods are now higher, making them less competitive

Question 16

How do import quotas proect domestic businesses

Answer 16

Helps reduce the supply of imported goods which creates a shortage, hence leads to an increase in price.

Question 17

What is an MNC

full form and def
another name

Answer 17

Multinational Corporation - those with factories production or service operations in more than
one country

Aka: Transnational Businesses

Question 18

Adv of being an MNC (to business)

Answer 18

Produce goods in countries with lower raw materials and labour cost

Extract raw materials from other countries. Your home country may not have enough

Produce goods closer to market to reduce transport costs

Avoid trade barriers such as import tariffs and quotas (if you produce in those countries not counted as import)

Increase market share especially if home country’s market has been saturated. Extend product’s life cycle

Question 19

How does being an MNC benefit a shareholder

Answer 19

Higher dividends cuza higher profit

Question 20

How does being an MNC benefit employees

Answer 20

Increased opportunities to gain promotion as the business gets larger and has operations across many countries

opportunities to work and live abroad

Question 21

How does being an MNC affect suppliers

Answer 21

Increased/decreased sales depending on where the MNC has production set up

Question 22

Impact of MNC on govt

Answer 22

Higher/lower tax revenues depending on where the MNC has set up.

Question 23

Benefits to an economy of an MNC setting up (host country)

Answer 23

Reduce unemployment

Increased investment - output increases

Increased exports - extra output sold abroad

More tax revenue

Increased customer choice

Question 24

Drawbacks to an economy of an mnc setting up (host country)

Answer 24

Jobs created are usually unskilled labour jobs.

Reduced sales for local business

Repatriation of profits - sent back to home country

MNC use up the host country’s scarce and non-renewable resources

Misuse their influence in the economy by forcing govts to give them grants with the threat of them leaving. Govts may give in since if they leave it may cause massive job losses, etc

Question 25

What is an exchange rate

Answer 25

price of one currency in terms
of another currency, for example £1 = $1.50.

Question 26

How is an exchange rate determined

Answer 26

Demand and supply of the currency.

(explanation - If a currency is in high demand compared to another currency, it appreciates i.e: more of the first currency is needed for the same of the second currency.)

Question 27

What are the 2 things that can happen to currency

Answer 27

Appreciation
Depreciation

Question 28

What is Appreciation

impact on exports
impact on imports

Answer 28

Value of currency has increased compared to value of other currencies

exports: Raises the price of exports

Imports: Reduces the prices of imports

Question 29

What is depreciation

Answer 29

Value of currency has decreased compared to value of other currencies

Question 30

Impact on export businesses

appreciation
depreciaiton

Answer 30

Appreciation - bad for export businesses since this makes their products less competitive in the foreign markets

Depreciation - good since it makes their products more competitive

Question 31

Impact on import busineses (of appreciation and depreciation)

Answer 31

Appreciation - Good since it makes products cheaper to buy for domestic markets. Imported products are therefore more competitive in domestic markets

Depreciation - Bad since products are more expensive to buy, therefore, this makes them less competitive in domestic markets