international trade and business growth 2

Question 1

what is foreign direct investment FDI?

Answer 1

• FDI is investment by foreign firms which results in more than 10% share of ownership of domestic firms
• Inward FDI – occurs when a foreign business invests in the local economy
• Outward FDI – occurs when a domestic business expands its operations to a foreign country

Question 2

reasons for FDI

Answer 2

• Lower corporation tax
• Incentives like subsidies are given
• Be closer to the market to sell products (fast-growing?)
• Avoid a saturated market
• Reduce transport costs and avoids tariffs
• Take advantage of local resources / skills

Question 3

what are the potential issues with FDI?

Answer 3

• Lack of understanding of the local market
• Are incentives long term?
• Dynamic market – changing preferences / economic circumstances

Question 4

define imports
comparison with foreign suppliers

Answer 4

products that are produced abroad and consumed domestically
- products come to the UK
- foreign suppliers offer better quality products and lower prices than UK suppliers
- British suppliers = higher costs/prices, declining quality

Question 5

define exports

Answer 5

• goods that are produced in Britain but consumed by people and businesses overseas
• money flows into Britain
• during a recession, when incomes fall, domestic markets tend to shrink and expenditure decreases
• exporting can help firms to even out their profits over the economic cycle of boom/bust