International Trade And Business Growth Flashcards
What is international trade
Importing and exporting products
What are imports
- Products bought from overseas
Describe what happens as a result of importing products
- When someone buys an imported product, the money goes back to the foreign country where the product came from, therefore imports cause money to flow out of an economy
- Imports increase variety of goods and services available to firms and consumers in a country
- Imported products can often be cheaper than domestically produced ones
What are exports
- Products sold overseas
Describe what happens as a result of exporting products
- When a business sells and exported product, they get money from the person or business they sold it to in another country. So exports result in money flowing into an economy
- Businesses use exporting as a way to expand- benefitting from an increased market size
- Exporting can be the simplest and least risky way to access overseas markets
Advantages and disadvantages of international trade
Advantages= -Consumer have a wider range of product choice
- Expanding markets
- Cheap resources from other countries
Disadvantages= -Domestic firms may suffer due to less sales
-Dependence on other countries
-Environmental damage
Why’s competitive advantage important when selling internationally
Lots more competition than when selling domestically
A business can gain competitive advantage through specialisation
What’s specialisation
- When a firm focuses on producing just one product (or a very narrow range of products)
OR - When a country concentrates on the production of one or a limited range of goods and services. E.g. Norway specialises in oil production
Advantages of specialisation
- Improves efficiency of a business. As workers become highly skilled at making a particular product. Speed at they work and quality of product will increase
- Increasing efficiency reduces cost per unit, allowing price to be reduced, more sales
- Higher quality, more sales, higher price, more profit
Disadvantages of specialisation
- Risk losing sales if there’s a decrease in demand for their product, and won’t have other sources of revenue to make up loss
- Increase cost of training staff. Need extensive training to be specialised in making their products
What’s comparative advantage
The ability of a country to be more efficient in production of one type of good than another type of good
What’s competitive advantage
The idea that a business should specialise in any area (products, services, research, management etc) where it can perform better than competitors
As well as exporting, another way firms can take advantage of opportunities in foreign markets is to undertake….
Foreign direct investment (FDI)
What is foreign direct investment (FDI)
When a firm in one country invests in business in another country
- This can be merging with or taking over an existing foreign business, opening a branch or office overseas, or starting up a new enterprise in another country
To be classed as FDI what needs to happen
The investing firm has to have some managerial control of a business in a foreign country
- It doesn’t count as FDI if a firm just buys some shares in a foreign business
Most FDI is horizontal
What does this mean
Where a firm invests in a foreign business that is at the same stage of the production process as the business in their home country
E.g. Toyota (Japanese car Manufacturer) built a car production plant in the UK in 1990s
FDI can also be vertical
What does this mean
Where a firm invests in a foreign business that is in a different place in the supply chain to its original business.
E.g. a manufacturer might invest in the foreign firm that supplies it with raw materials
How can FDI help a business grow
- FDI gives a firm access to new markets- Increase sales as more people to sell to. May reduce firms costs as production and labour may be cheaper in a foreign country, increasing profit
- FDI can allow a business to take advantage of skilled local labour in the foreign country, increasing productivity
- Allow first-hand knowledge about a nations legal system, consumer tastes and markets. Help generate more sales than they would simply exporting
- FDI can help a business overcome international trade barriers such as tariffs or quotas
Results of FDI on a country’s economy
- In developing and emerging economies, inward investment can improve the local standard of living and cause economic growth
- Additional spending by foreign businesses and investors can increase GDP, and any taxes paid will increase government income, which might then be spent on schools and healthcare
What’s GDP
GDP is the value of all goods and services produced within an economy in a year
