globalisation Flashcards
globalisation
the trend towards closer ties between economies and businesses within the global economy
isolationism
refers to a nation whose trade policies are designed to put the interests of domestic businesses first by imposing trade barriers to hamper imports
trade liberalisations involves removing trade barriers, such as…
- tariffs (tax imposed on imports that raises price of products)
- quotas (limits on the quantity of a good that can be imported in a year)
- regulations (rules put in place to make it harder for imports to enter a country)
what does liberalisation follow
a new trade agreement between two countries, on the basis that both remove trade barriers between one another
opportunities of trade liberalisation
companies that rely on imported materials and components will enjoy lower costs, enabling them to reduce prices and compete more competitively
liberalisation can lead to increased export opportunities with removal of barriers in other direction
threats of trade liberalisation
allowing imports into domestic market increases competition for domestic firms, without it those who could only survive due to barriers will lose protection and face closure
how does political change lead to increased globalisation
new people in power come with new laws for the better or worst - for e.g Britain’s decision to leave the EU may lead to a decrease in globalisation
how does reduced cost of transport/communication lead to increased globalisation
moving goods around the world can largely affect a businesses profit margins. There have been reductions in travel costs due to:
-oil prices remained or fallen
-tech developments (more efficient engines, reducing fuel consumption)
-technology also allowed construction of bigger trains, boats and planes allowing for EOS
communication made easy due to introduction of the internet
how does MNCe lead to increased globalisation
global giants that sell in hundreds of markets seek growth by entering new one, these companies will be transferring resources and products from one country to another, boosting international trade
how does migration lead to increased globalisation
many people who migrate to different countries do so for economic reasons, for example determined, looking for work to live better and tend to be well educated.
how does growth of a global labour force lead to increased globalisation
lots of businesses use offshore production in order to reduce labour costs
how does structural change lead to increased globalisation
when economies move from agriculture specialisation to more manufacturing and services as economic activity shifts, they see structural change. These countries have been able to find export markets that have enabled the acceleration of development.
why is trade necessary?
the global economy is more productive as a whole, with each country specialising in things they do best
what are imports
products and services produced abroad and consumed domestically
what are exports
products and services that are produced domestically and consumed overseas
what examples of imports are there in the uk?
- foreign brands that add to the choice available to UK consumers
- goods or services that Britain can no longer mass produces
- materials and components for manufacturers (cheaper, maybe better quality)
what can exporting offer to a business
the chance to increase sales, achieve growth enabling them to enjoy EOS
how can businesses avoid reliance on the domestic market
by exporting products - if the firms home economy enters recession, the exports will continue to make sales as that economy it is sold in could be in a boom period, and the damage of less sales causes less damage
what is business specialisation and what strategy does it fall in on porters matrix
choosing to produce only one product, or products of a single market. this is porters focused differentiation strategy
how can specialisation boost efficiency
producing one type of product means fewer machines, fewer trained staff and therefore, lower costs.
why did F.W Taylor believe that specialisation enhanced efficiency
“practice makes perfect”, an employee that repeats a task over and over will get quicker and quicker over time, boosting efficiency.
why can efficiency, created by specialisation, allow for a competitive advantage
lower unit costs, which opens up opportunities:
- lower selling price to boost competitiveness
- leave selling price to be the same and have higher profit margins
foreign direct investment (FDI)
occurs when a business purchases non-current assets in another country
when does outward FDI occur (2 times)
- when a British business buys assets abroad (e.g building production facilities or retail outlets)
- when foreign companies buy British assets, as money flows into Britain
benefits of FDI
- avoiding problems involved in exporting
- avoiding transport costs
- avoiding trade barriers
- access to natural resources
- lower operating costs
a trading bloc
a group of countries that sign up to free trade between them, protected by a tariff wall against imports from outside
what are trading blocs working toward
- free trade
- harmonisation (laws)
- free movement of labour
what are the attraction of trading blocs
- harmonisation (one product can be made that meet legal requirements in all member countries)
- competing in larger hole market incentives the boosting of efficiency for firms in member states.
- countries working together, standing up to dumping by non-member countries
who is in the EU - European Union
Germany, France and 28 others - the uk was
ASEAN - association of south- east asian nations
Indonesia, Thailand, Vietnam (10 all together)
MERCOSUR (south American common market)
Brazil, Argentina, uruguay (6 in total)
NAFTA - north american free trade association
USA, Canada, Mexico
EAC - east Africa community
Kenya, Tanzania (5 in total)
order trading blocs of highest GDP to lowest
NAFTA EU MERCOSUR ASEAN EAC
what neighbouring giants are ASEAN members in competition with
Japan, China and South Korea
why is NAFTA at an advantage
Mexico can produce at a low cost, which then has direct to the largest domestic market: USA
what caused mass negations when Britain decided to leave the EU
The fact Britain became a single market, losing easy access to the EU which has 27 member countries, a total of 445 million consumers
what type of firms benefit mostly from being part of a trading bloc
manufacturing firms
advantages of trading blocs
- free movement of goods between members gives the potential to create a large single market
- external tariff walls insulate the business from competition in another part of the world
- as trade grows between neighbours, it becomes economic for governments to provide infrastructure support
- the advantages become much greater if there is free movement of labour and free movement of goods
drawbacks of trading blocs
- competition increase due to freer trade
- to create a single market, new rules and regulations may be agreed (including minimum wages)
- within a geographically proximate bloc, there may be common factors that together become common problems (e.g low commodity prices)
