Global business Flashcards
Based on the 2023 syllabus
Define Economic growth
an increase in a countries productive capacity
What is the Human Development Index (HDI)?
A collection of statistics that are combined into A index, ranking countries according to their human development
Define Literacy rate
the percentage of the population for that given country that is able to read and write
What is Purchasing power parity (PPP$)?
Are the rates of currency conversion that adjust the purchasing power of different currencies by excluding the differences in price levels between countries
Give Characteristics of a developed economy
High level of income
High literacy rates
Good infrastructure
High unemployment
Highly industrialised
Give Characteristics of a developing economy
poor infrastructure
Low life expectancy
High population growth
Reliance on primary sector
Low income levels
Low levels of unemployment
Explain the difference between an emerging economy and a developed economy
Emerging economies have Characteristics of developed nations, but may lack specific characteristics, e.g. Good infrastructure
Define Emerging economies and why might they experience more growth than more mature ones?
- one with rapid economic growth-usually measured by GDP
- are likely to grow more quickly than mature ones, and they may be experiencing in an increase in income
Give 2 examples of growing economic power of countries in Asia, Africa and the other parts of the world
BRICS: Brazil, Russia,India, China and South Africa
MINT: Mexico, Indonesia, Nigeria and Turkey
Explain why Trade opportunities for individual businesses may be impacted by economic growth
Demand in emerging economies is likely to be income elastic, providing significant opportunities for increased revenues and profit
Explain why Employment patterns for individual businesses may be impacted by economic growth
Equally, low labour costs and proximity to a market that is growing in size has led to more firms deciding to outsource production/customer service facilities to locations such as China and India
Define GDP
(GDP) Gross domestic product is the total monetary value of all goods and services produced in an economy over a period of time, such as a year or a quarter
Give the formula for GDP per capita
Gross domestic product(GDP)/Total population in country
What indexes are used to calculate HDI
Life expectancy
education
per capita income indicators
What might a country need to score higher in the HDI index
Lifespan is higher
the education level is higher
the gross national income (GNI (PPP) per capita) is higher
Define Import
Bringing goods and services from other countries to the home country
Define Exports
Selling goods and services from the home country to other countries
Define Specialisation - economies or businesses
Economies or businesses concentrate their resources in the areas that they do best, excess output is then traded (refers to the tendency of countries to specialise in certain products which they trade for other goods)
Give the benefits of increasing specialisations for Countries and businesses
*allows for goods and services to be produced at a lower unit cost
*therefore allows a country to reduce its prices or increase its profit margins
*helps increase the level of exports
*helps to create jobs
Give the Drawbacks of specialisation on Commodities
Over-reliance can be a problem, if demand falls because no major alternative to fall back on (new competition, changing patterns of trade)
Specialisation in commodities does not add as much value as manufacturing
Not ideal long-term because it uses unsustainable resources, jeopardising future generations
Define Foreign direct investment (FDI)
FDI is the flow of money from one country from businesses in another country
A foreign direct investment is an investment made by a firm or individual in one country into business interests located in another business
Give the benefits of FDI towards domestic businesses
- More competition in markets, which might then lead to lower prices and higher real incomes for consumers
-Technology and skill transfer from FDI may lead to improved domestic businesses and economic growth
Define Trade Liberalisation
The process of making trade between countries easier, usually by the removal or partial removal of barriers to trade such as Tariffs or regulations
Define the World Trade Organization(WTO)
-Is the only international organisation dealing with global rules of trade. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible
Describe the main functions of the World Trade Organisation
- Trade negotiations
- Implementing and monitoring
- Settling trade disputes
- Building membership
Benefits of trade liberalisation (business)
Access to huge markets
lower costs
access to labour
reduction taxation
Drawbacks of trade liberalisation (business)
Competition
the power of MNC’s globalisation
Benefits of trade liberalisation (individuals)
Drawbacks of trade liberalisation (individual)
Explain why Political changes may lead to an increase in Globalisation
A radical change in government may lead to their trade policies being more liberalised, this increases globalisation as it makes it easier for businesses to import and export in that given nation
Explain why Reducing cost of transport and communication may lead to an increase in Globalisation
As costs of transport decreases, it makes it easier for goods to transported cheaper as well as making it easier for people to travel
Explain why Increase in significance of global Corporations MNC’s may lead to an increase in Globalisation
MNC’s drive globalization by expanding markets, investing globally, transferring technology, creating supply chains, promoting efficiency, and fostering cultural exchange.
Explain why Increased investment flows (FDI) may lead to an increase in Globalisation
- Investment flows create jobs and stimulates economic development in the given country
- FDI allows businesses to expand into other nations, increasing global trade and business activity
- FDI can bring advanced Technology and expertise to local economies, which can boost productivity and competitiveness of domestic businesses on a global scale
- FDI may prompt governments to reduce trade barriers
Explain why Migration may contribute to the increase in Globalisation
- Increase the global labour forces
-it may bring new skills to nations
Migrants may send remittance, which increases interdependence between the country of origin of the migrant workers and the migrated country.
Define remittance
The money sent back to their country of origin by overseas workers
Define Free trade
Trade between nations without restrictions from barriers
Define and Explain why structural change may contribute to the increase in Globalisation
Structural change is a shift or change in the basic ways a market or economy functions or operates
This means that some economies may focus on services sectors and not as much on primary and secondary sectors like agriculture and manufacturing.
Relaying on imports, which provides an opportunity for foreign firms to expand their global market
What are the impacts on businesses of increased globalisation
- Better access to huge markets
- Lowers costs
-Access to labour
-Reduced taxation
Reasons for protectionalism
- Reducing the number of imports into the country (becoming less reliant on foreign markets)
- Reduce the foreign competition For domestic businesses
→As competition may be taken away demand/market share would increase for domestic businesses→Loss of sales for domestic businesses
- Protect employment in domestic market
- Tax revenue for the government
- Protect/help infant industries grow and develop
Define tariffs
are taxes or duties imposed by a government on imported or exported goods
Give examples of Tariffs used
- Steel imports
- Agricultural goods
Define Import quota
Import quotas are limits set by a government on the quantity or value of a product that can be imported into a country within a specific time frame
Examples of import quotas
- Textiles and Clothing: The UK has imposed import quotas on certain textiles and clothing to protect domestic manufacturers from being overwhelmed by cheaper imports.
*Fish and Seafood: To support local fisheries, the UK has established import quotas on specific fish and seafood products.
*Agricultural Products: Various agricultural products, such as sugar and dairy, have import quotas to maintain a fair market for domestic farmers.
Define Government legislation
Government legislation refers to laws and regulations enacted by a country’s legislative body. These laws govern various aspects of society, including trade, industry, health, safety, and the environment
Give examples of Government legislation
The EU refusing to allow import of American foods: due to their differing opinions on what is considered “healthy” and safe
The Customs (Import Duty) (EU Exit) Regulations 2018: The regulation outlines the imposition of import duties on goods entering the UK, effectively replacing the EU’s Common External Tariff.
The UK Critical Imports and Supply Chains Strategy: focuses on building resilient supply chains and safeguarding critical imports By collaborating with businesses and international partners, the UK government aimed to limit unnecessary imports and focus on critical goods essential for the economy, national security, and essential services
Define Domestic subsidies
Domestic subsidies are financial assistance provided by a government to its local businesses and industries. These subsidies aim to reduce production costs, support growth, and enhance competitiveness
Give examples of Domestic subsidies
*Subsidies for Green Energy: The UK government provides financial assistance to renewable energy projects, encouraging the development and use of green energy sources such as solar, wind, and hydroelectric power.
*Subsidies for Small Businesses: To support small and medium-sized enterprises (SMEs), the government offers grants, low-interest loans, and tax relief to help these businesses grow and thrive
*Agricultural Subsidies: The government provides subsidies to farmers to promote sustainable farming practices, improve food security, and support rural economies
What are the short term protectionism on businesses
*In the short term domestic businesses may benefit from the decrease in competition
*Will also help improve efficiency and competitiveness of domestic businesses as a result of domestic businesses having extra profits to develop new products/improve production techniques
What are the Long term protectionism on businesses
*businesses are likely to benefit more from free trade as it encourages competition which can motivate domestic businesses to improve efficiency
*Trade barriers may attract retaliation from overseas governments.
*As if one country imposes traffic on the goods from another, the other country is likely to impose tariffs in return
*This may lead to a trade war which will have negative impacts on businesses in both countries
Define trade bloc
*A group of countries that has signed a regional trade agreement to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves
What are the Characteristics of The European Union and the single market
*27 countries
*4.233m km2
*1992 Maastricht treaty changed the European Economic Community (EEC) to the EU.
Key changes included
* Economic and monetary union
* a common foreign and security policy
* more power to the European Parliament
* a system for developing co-operation between members on justice and home affairs issues
*Pressure on members to become a ‘citizen of the union’
*businesses that operate in most EU countries are able to move and compete equally in all other countries in the EU
What are the Characteristics of ASEAN trade agreement 1967
*ASEAN (Association of south-east Asian nations)
*(Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand Vietnam)
* Areas of co-operation:
* Macroeconomic and financial policy
* labour policies, including education and professional qualifications
* Infrastructure and communications
* E-commerce
* regional sourcing (businesses buying more resources from within the trade bloc
What are the Characteristics of NAFTA 1994-2020
*North American free trade agreement
*Canada, Mexico and the USA in a free trade zone
*covers trade and investment, labour, financial dealings and intellectual property, including common environmental issues.
*Agreed to eliminate Tariffs on most manufactured goods and to treat investors of other two countries as domestic investors
Benefits of trading blocs on businesses
*Freeing regional trade may allow individual members to specialise in the areas their country already has advantages in.
*Easier to export
*Because no tariffs can be added or quotas imposed-increase in sales-more profit/market share
*Easier to import
*Cheaper materials-costs are lower-high profit margins or lower/competitive prices
Drawback of trading blocs on businesses
*Inefficient producers may be protected from competition.
*Which may divert trade away form more efficient producers and potentially harm consumers
*Increase in imported goods
*creates competition - lose market share
*businesses may have to adapt product to sell to other members - increase in costs - lower profits margins
Why might a business chose to trade globally
Obtaining goods that cannot be produced domestically
(-Many countries are unable to produce certain goods, as a result of lack of natural resources that enable such production
-Prompting these countries to trade in order to obtain goods that cannot be produced domestically)
Obtaining goods that can be brought more cheaply from overseas:
(*Some countries can produce certain goods more efficiently than others
*making economic sense to buy goods from other countries if they are cheaper)
Excess supplies:
(*Some countries have surplus commodities
*Meaning countries which have such a large amount of a resource, for example UAE and oil will be more likely to sell excess for cheaper)
Define Push factors
*Are negative factors in the existing market that encourage an organisation to seek international opportunities
*Forcing businesses to seek overseas markets in which to sell in
Define saturated market
*Is a market in which most consumers who would buy a particular product already have it, so there is limited remaining opportunity for growth in sales.
*Leading to businesses looking elsewhere to sell their products
Push factor (Competition)
*A rise in competitors or high level of competition in domestic market may force businesses to sell abroad.
Restrictive and costly legislation
*Ford moved to Mexico as a result of high cost of employment
Brexit
Weak UK/US/EU economies
Examples of Pull factors
Increased sales and Profitability
* Many businesses want to grow by selling more to existing and new customers
* Firms can increase sales by exploiting overseas markets.
Economies of scale
* increase the scale of production leads to a lower cost per unit of output
* increasing size or speed increases efficiency and lowers costs if output rises.
Risk spreading
* by expanding into other countries and markets, a firm may be able to limit the various risks that it faces e.g. an over dependence on a single market may lead to vulnerability in the short term if that market faces an economic challenge
Strong economic growth
Large and growing population
growing middle classes
Less competitive pressure
Define offshoring
*involves moving manufacturing or service industries to a location with lower costs
*Firms do this to reduce costs and hire workers with particular skills
Define Outsourcing
*Involves moving an entire business function or project to a specialist external provider
Why might a business use outsourcing
- it reduces costs
- in order to specialize areas of the business
- to focus on the core competences of the business rather than the support functions
Labour productivity - firms often want to move operations to where labour is cheaper
