International trade and business growth Flashcards
Define INTERNATIONAL TRADE
International trade is the exchange of goods and services around the world. It takes place between the economic agents of countries such as businesses, governments and consumers.
Define EXPORTS
Export is where goods and services produced by one country are sold to another country. Goods and services leave and money enters.
Define IMPORTS
Import is where good and services are brought into a country from another. Goods and services enter and money leaves.
What factors affect international trade?
- The exchange rate
- The PED
- The state of the world economy
- The quality of the products
- Changes in consumer tastes and fashions
Define SPECIALISATION
Specialisation occurs when individuals, businesses, regions or countries concentrate on producing specific goods or services. It involves the division of labour, where workers in an organisation focus on specific tasks in order to improve efficiency.
Why do businesses specialise?
- May provide a competitive advantage to the economy and/or business
- May help to improve the quality of a business’ products
- Means that products can be produced a much lower cost.
What are some examples of specialisation?
- Zambia and Chile (copper mining)
- Bangladesh (textiles)
- Angola (crude oil)
- London (finance)
- Korea (electronics)
Define FOREIGN DIRECT INVESTMENTS
FDI is investment from one country into another that involves establishing operations or acquiring assets. It is normally done by companies rather than governments.
It can be horizontal or vertical, depending on the stage of production that the companies involved are at.
Define INWARD FDI
Inward FDI is where a foreign firm invests to open new stores in the UK. The money is coming into the UK and the activity happens there too.
Define OUTWARD FDI
Outward FDI is where a UK business invests in another country. The money leaves the UK and the activity happens elsewhere too.
Why would UK businesses encourage FDI?
- It takes advantage of lower labour costs in other countries
- Operates closer to sources of raw materials and other supplies, rather than transport them long distances.
- Avoids protectionist policies like tariffs and import quotas.
- Earns target returns on investment by buying valuable assets.
- Supports a strategy of market development (e.g. expansion by global brands).
What are the advantages of specialisation for individual businesses?
- Provides a competitive advantage
- Helps to improve quality, which may warrant a higher price
- Utilises purchasing economies of scale, reducing costs
- Specialised staff may lead to more innovation, increased productivity and efficiency
What are the disadvantages of specialisation for individual businesses?
- Possibility that revenue may be low if demand is low
- May be difficult for workers to adapt to change, as they will be used to one role
- Concentrated risks due to a very narrow product range
- There is a significant impact if the quantity demanded by customers decreases
- Vulnerable to price fluctuations of commodities
What are the advantages of specialisation for countries?
- Experienced and specialist workers leads to increased productivity and higher production levels
- Strong demand for a country’s output can create jobs, generate income and raise living standards (multiplier effect)
- Increased tax revenue for government
What are the disadvantages of specialisation for countries?
- Risk is not spread and a fall in demand can have significant impacts
- Uncertain income for businesses if prices of commodities are volatile
- Possible depreciation of domestic currency if demand is low
