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Business Theme 4 > Globalisation > Flashcards

Globalisation Flashcards

1
Q

What are the key drivers behind economic developments for countries that have significantly developed over recent years?

A
  • Willingness to accept inward investment from multinationals.
  • More enterprising behaviour from local business.
  • More stable government.
  • Easier access to export markets due to improvements communication and transport: globalisation.
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2
Q

Why does Asia have a growing economic power?

A

Manufacturers in China are looking for suppliers from whom transport costs will not be great.
As a result, other Asian economies, notably Vietnam, Indonesia and Cambodia have seen rapid growth in the last two decades.
Not only do these countries represent a viable source of supply for China, they are also building their own manufacturing base.

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3
Q

What services are the UK particularly good at providing?

A
  • Fashion design.
  • Design engineering and architecture.
  • Culture (books and entertainment).
  • Financial and other business services.
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4
Q

What is offshoring?

A

Moving a business function to another country, generally in order to lower costs.

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5
Q

Why do UK manufacturers offshore productions?

A

The goal to exploit the lower production costs, boosting profit margins, even if transport costs rise as a result.

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6
Q

Why is there increased domestic competition in the UK?

A

As countries develop, entrepreneurs, are increasingly able to access capital and credit.
They will start up businesses that may be so successful that they can start exporting to countries such as the UK.
This leads to increased competition for UK business’s, both globally and in their own home market.

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7
Q

What impact does economic growth have on employment patterns?

A
  • Rural to urban migration.
  • Increased need for managers, expanding the middle class.
  • Increasing skill levels within the economy.
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8
Q

What does GDP per capita mean?

A

Gross Domestic Product

GDP is a measure of the total output of a country’s economy.

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9
Q

Why is rising levels of income per person a clear indicator of economic development?

A

If, on average, the people of a country are earning more, they will spend more, creating a virtuous circle. Therefore, watching GDP per capita over time provides an excellent indicator as to the level of purely economic development taking place within a country.

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10
Q

What should happen to illiteracy rates as the economy develops?

A

A dramatic improvement.

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11
Q

What is the benefit of having a literate workforce?

A

It will be more productive, capable of performing tasks that add more value to production, thus hastening further economic development.

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12
Q

How can you measure the levels of health in an economy?

A

Measuring the life expectancy gives a good clue as to the health the nation.

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13
Q

What does HDI mean?

A

Human Development Index is an attempt to provide a single measure of economic development encompassing income, education and health.

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14
Q

Which economy has grown faster, China or India, and why?

A

China. Largely as a result of investment in the construction and infrastructure, allied with huge export growth, China is well ahead.

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15
Q

What are the two main sources of investment for infrastructure and construction in China come from?

A
  • Government spending

- Foreign Direct Investment

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16
Q

What is fixed capital formation?

A

Term used to describe investment in long-term assets from roads to buildings.

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17
Q

What country is the worlds largest exporter of manufactured goods?

A

China, these exports contain a huge proportion of high tech products.

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18
Q

What are India’s export advantages of China?

A
  • English is widely outspoken.

- The outstanding top end of the education system turns out world class managers and software engineers.

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19
Q

What are the three key weaknesses facing the Indian economy?

A
  • Poor infrastructure: India’s democratic system of government means that if the voters don’t agree with a policy, the government cannot ultimately force it on the population.
  • Narrow education system: India’s education for the masses are poor, with 29% of of the population being unable to read or write.
  • Balance of payments deficit: Indian consumers are buying more imports than foreigners want to buy indian exports.
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20
Q

What is the key challenge to China for sustaining its remarkable growth?

A

As the economy develops, wage rates rise.

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21
Q

What are the major stumbling blocks of British export opportunities?

A
  • Short-termism in the UK PLCs.
  • Underestimating market potential.
  • Ponderous decision making.
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22
Q

What two key opportunities present themselves for British businesses exporting their products?

A
  • India may be a more comfortable market for UK businesses.

- As China’s economy continues to develop, its service sector is likely to show higher growth rates.

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23
Q

What is the economy of Africa generally like?

A
  • It is less economically developed than most other parts of the world.
  • Huge reserves of natural resources are yet to be exploited.
  • There are difficulties in maintaining reliable stable government (not true for all countries).
  • Corruption represents a significant disincentive to foreign investment.
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24
Q

What opportunities for business are there in Africa?

A
  • British retailers.
  • Hotels.
  • Public schools.
  • High end UK businesses
  • International brands (Unilever, Wal-mart, Microsoft).
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25
Q

Corruption is a problem in most African countries. What two major problems does this cause for businesses?

A
  • Costs can rise as a local or national officials expect payments to allow a firm to receive necessary licences and permissions to do business.
  • Companies that value CSR cannot condone conducting business in a corrupt manner.
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26
Q

What issues relating to infrastructure are there in Africa?

A
  • Electricity supply.
  • Road networks.
  • Rail networks.
  • Waste disposal facilities.
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27
Q

What concern over stability represent a major obstacle to investment?

A
  • Health epidemics.
  • Government collapse.
  • Inconsistent application of the rule of law create instability in many African nations.
  • Terrorists insurgents.
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28
Q

What are imports?

A

Products and services produced abroad and consumed domestically.

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29
Q

What are exports?

A

Products and services that are produced domestically and consumed overseas.

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30
Q

What goods and services does Britain import?

A
  • Foreign brands that add to the choice available to UK consumers.
  • Goods or services that Britain no longer mass produces.
  • Materials and components used by British businesses.
  • Services, such as tourism, involve importing services from foreign hotels.
31
Q

What reasons would a business want to export?

A
  • Increases sales.
  • Achieve growth which enables them to enjoy economies of scale.
  • Avoid reliance on the domestic market.
32
Q

How can specialisation boost efficiency?

A

For a business choosing to produce just one product, fewer machines will be needed than by a multi-product firm. Therefore the cost associated with purchasing or funding those machines will be lower.

33
Q

If specialisation is used to lower unit costs, what two options does a business have?

A
  • Lower selling price by the same amount of unit costs have been reduced. This preserves the profit margin on each unit, but lowering prices boosts competitiveness of the business within its market, thus boosting sales.
  • Alternatively, a company may simply decide not to adjust prices or its price competitiveness and settle for a higher profit margin on every unit sells as a result of lower unit costs.
34
Q

What is foreign direct investment?

A

FDI occurs when a business purchases non-current assets in another country.

35
Q

What are the key benefits of FDI, rather than simply exporting products made in the UK?

A
  • Avoiding problems involved in exporting.
  • Avoiding transport costs.
  • Avoiding trade barriers.
  • Access to natural resources.
  • Lower operating costs.
36
Q

What is globalisation?

A

The trend towards closer ties between economies and businesses within the global economy.

37
Q

What is isolationism?

A

Refers to a nation whose trade to policies are designed to put the interests of domestic businesses first by imposing trade barriers to hamper imports.

38
Q

Trade liberalisation involves removing trade barriers. What could these be?

A
  • Tariffs: this is a tax imposed on imports that raises the price of imported products, aiding sales of domestic rivals.
  • Quotas: these are physical limits on the quantity of a type of good that can be imported in year. Once the limit is reached, consumers must buy from domestic producers.
  • Regulations: rules, paperwork and systems can be put in place to make harder for imports to enter a country.
39
Q

What are the opportunities from trade liberalisation?

A
  • Companies that rely on imported materials and components will enjoy lower costs, enabling them to reduce prices to compete with cheaper imported rivals.
  • Due to the bilateral nature of trade agreements, liberalisation can lead to increased export opportunities with the removal of barriers in the other direction.
40
Q

What are the threats caused by trade liberalisation?

A
  • Allowing imports into a domestic market does increase competition for domestic firms. The most efficient should survive; those who could only survive due to the barriers will lose that protection and possibly face closure.
41
Q

What reasons are there for reduction is cost of transport?

A
  • Oil prices have remained stable or fallen, contrary to fears that the supply of oil may run low, driving costs up.
  • Technological developments have led to the development of more efficient engines, reducing fuel consumption and therefore cost.
  • Technology has also enabled the building of bigger trains, boats and planes which allow container economies of scale.
42
Q

What is the significance of transnational corporations?

A

Local businesses face an incredibly powerful new competitor, one that will benefit from enormous economies of scale.
The companies will be transferring resources and products from one country to another, boosting international trade.
Consumer choice from nation to nation declines: different markets become less different.

43
Q

What are the reasons for increased investment?

A

Communication and trade liberalisation have both driven increased trans-border capital flows.
As financial markets are more willing to invest capital in business based elsewhere in the world, so the world seems to become a smaller place.

44
Q

What are the two main characteristics for migration?

A
  • They are proactive and determined, willing uproot and move to an entirely new country to work and live.
  • They tend be relatively well educated.
45
Q

What are the reasons for growth of the global labour force?

A

Companies have managed to reduce their labour costs by seeing the market for labour as global, rather than local or national.
Many UK businesses have offshored production in order to benefit from cheaper labour elsewhere in the world. Meanwhile, other UK businesses facing shortages of skilled staff have recognised the benefits of recruiting from abroad in order to fill jobs that would otherwise have to be offshore, or left undone - losing sales.

46
Q

What is protectionism?

A

Giving preference to domestic producers by making it harder for foreign companies to export to your country.

47
Q

What are the three major forms of trade barriers?

A
  • Tariffs.
  • Quotas.
  • Legalisation and regulation.
48
Q

What are the main two scenarios in which the government tend to use tariffs?

A
  • To protect a declining industry.

- To protect ‘infant’ industries.

49
Q

Benefits of tariffs.

A
  • As tariffs help firms to survive, they protect jobs of firms whose rivals are being taxed.
  • Tariffs also indirectly protect the other businesses that rely on these firms for trade: suppliers and local firms that would suffer if unemployment rose.
  • Tariffs raise tax revenues, allowing governments to increase spending on public services.
50
Q

Drawbacks of tariffs.

A
  • If demand is inelastic, the tariff will be ineffective.
  • Could lead to retaliatory protectionism from other nations.
  • Imposing tariffs pushes up prices, reducing consumers’ ability to buy the product, reducing standards go living.
  • Tariffs help inefficient firms to survive, potentially harming competitiveness. Without tariffs there is far greater incentive for these firms to improve what they do.
51
Q

What is a tariff?

A

Tax imposed on an imported product to allow it to enter a country.

52
Q

What is a quota?

A

A physical limit on the volume of a product that can be imported in a year. Once the quota is used, only domestically produced goods will be available.

53
Q

Benefits of quotas.

A
  • Domestic firms face less competition, improving their competitiveness. This improves profit for shareholders and job security for workers.
  • Preventing unemployment theoretically reduces government spending on benefits.
54
Q

Drawbacks of quotas.

A
  • No extra tax revenue is gained by the government.

- They push up prices domestically for consumers.

55
Q

What is a subsidy?

A

A payment made by government to a business producing a certain product or located in a particular area that the government wishes to support.

56
Q

Benefits of subsidies.

A
  • Subsidies in effect stimulate demand, perhaps allowing struggling businesses to boost order books, allowing investment in more efficient production.
  • Subsidies have a positive effect on balance of payments by reducing imports and boosting exports from firms receiving the subsidies.
57
Q

Drawbacks of subsidies.

A
  • Artificially inflating profit margins of inefficient businesses can prevent them pushing for efficiency gains that would allow them to complete without subsidies.
  • Subsidies must be funded, meaning the government must increase taxation - in a sense punishing firms in industries where no subsidies are provided.
58
Q

What is a trading bloc?

A

A group of countries that sign up to free trade between them, protected by a tariff wall against imports from outside.

59
Q

What is dumping?

A

A term used to describe the practice of selling off excess production in a foreign market at an exceptionally low price, which destroys sales for local producers. China is frequently accused of dumping excess products, such as steel, elsewhere in the world.

60
Q

What are some trading blocs working towards?

A
  • Harmonisation of laws.

- Free movement of labour.

61
Q

What attractions of belonging to a trading bloc include?

A
  • Harmonisation of laws allows one product to be made that meets legal requirements in all member countries. This allows companies to benefit from economies of scale.
  • Countries working together within a trading bloc have more power than individual nations to stand up to non-member countries using techniques such as dumping.
  • Competing in a larger ‘home’ market incentives the boosting of efficiency for firms in member states.
62
Q

How does government legislation act as a barrier to imports?

A

Legislation relating to consumer protection and environmental protection can act as a barrier to imports. If a government imposes new, stronger standards for safety or emissions in certain industries, importers may find their producers suddenly become illegal. This in turn necessitates design change, which takes a significant period of time, before importing can resume.

63
Q

What are quotas designed to do?

A

Quotas are designed to protect and encourage domestic producers. If imports are limited, this is likely to push up prices. This should encourage domestic producers to increase the amount they are willing to supply. In addition, quotas are likely to improve the current account of a country’s balance of payments.

64
Q

How are domestic subsidies a protectionist measure?

A

Instead of acting to make importing harder, domestic subsidies are a protectionist measure that looks to actively support domestic firms.

65
Q

How do subsidies keep some businesses operating in markets?

A

The subsidy can be thought of as reducing the unit cost by the amount of the subsidy, thus boosting margins, or allowing companies to cut their selling price. Boosting margins may keep some some businesses operating in markets from which otherwise withdraw, protecting jobs and domestic supply of that product. The other consequence is to make it easier to export these products, as with al lower selling price that may be more price competitive in foreign markets.

66
Q

Name 5 trading blocs.

A
  • European Union (EU)
  • Association of South-East Asian Nations (ASEAN)
  • MERCOSUR (Spanish for ‘South American Common Market’)
  • North American Free Trade Association (NAFTA)
  • East African Community (EAC)
67
Q

Who are the 10 full members of the ASEAN trading bloc?

A
  • Brunei
  • Thailand
  • Cambodia
  • Vietnam
  • Myanmar (Burma)
  • Philippines
  • Laos
  • Indonesia
  • Malaysia
  • Singapore
68
Q

Who is part of the NAFTA trading bloc?

A
  • Canada
  • USA
  • Mexico
69
Q

Why is there tension in the NAFTA trading bloc?

A

At the heart of the tension is Mexico’s ability to attract companies looking for a low-cost manufacturing base from which they can import freely to the world’s largest domestic market: the USA.

70
Q

What different impacts on businesses do the trading blocs have?

A

Different industries will benefit more from free trade than others. In general, it tends to be manufacturing firms that benefit more than others from membership of a trading bloc. However, even within an economic sector, the balance of benefits to drawbacks can vary widely.

71
Q

What are the advantages of trading blocs?

A
  • Free movement of goods between members gives the potential to create a large ‘single market’.
  • External tariff walls insulate the business from competition from another part of the world.
  • As trade grows between neighbours, it becomes economic (and necessary) for governments to provide infrastructure supports.
  • The advantages become much greater if there is free movement of labour as well as free government of goods.
72
Q

What are the drawbacks of trading blocs?

A
  • Competition increases due to freer trade, so those with monopoly power may find it completed away.
  • To create a single market, new rules and regulations may be agreed, including minimum wage rates.
  • The availability of easily accessed neighbouring markets may reduce enterprise in relation to distant but dynamic ones such as China.
  • Within a geographically proximate bloc, there may be a common factors that together become common problems, e.g. low commodity prices.
73
Q

What are the indicators of growth?

A

GDP per capita
Literacy
Health
Human Development Index (HDI)

Business Theme 4 (5 decks)

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