International trades and business growth

Question 1

International trade

Answer 1

Creates opportunities for business growth
Increases competition
Provides more consumer choice
Allows countries to obtain goods and services that cannot be produced domestically
Allows countries to obtain overseas goods that are cheaper
Opportunity for countries to sell off surplus commodities

Question 2

Exports and imports

Answer 2

Exports:
The easiest and least risky way to enter the international market is through exporting
The firm continues to produce in its home market but exports to a foreign market
Easier now due to trade liberalisation
Services/ invisible items can also be exported, such as:
Financial services
Tourism
Advertising
Media and/or education services

Imports:
The goods and services brought into one country from another
Many countries try to limit the importation of goods by imposing trade barriers. tariffs. Trade liberalisation has reduced this
Non-tariff barriers (NTBs) however are proving harder to manage/ such as giving subsidies to local firms to help keep prices low/ governments telling them how much they can produce etc..

Question 3

Implications of increasing specialisation by countries and businesses

Answer 3

Specialisation for economies:
Specialisation- when economies/ businesses focus their resources in the areas that they do best

Pros:
Allows a business to make full use of its resources and often leads to an increase in scale of production. Provides competitive advantage/ lower costs/ lower prices/ leads to a rise in overseas and local demand of their goods/ country can sell surplus

Imporves productivity and output. As most resources are used in the specific area rather than spread out over many. Leads to more output/ increased sales/ more export revenue. Also helps to decrease unemployment rates/ benefits local businesses

Cons:
Can lead to over reliance in one are/ decrease in demand could lead to fall in the economy. Risk and uncertainty isn’t spread.

A fall in demand could lead to severe rise in unemployment rates since most resources (including labour) are focused in that one area.

Question 4

Foreign direct investment (FDI) and link to business growth

Answer 4

Investing by setting up operations or buying assets in businesses in another country.

Different forms of FDI:
A joint venture

Strategic alliances- collaborative agreement between firms to share resources (IP/ patents/ copyrights)

Buying through cross-border mergers and acquisitions (M&A)- main way business carry out FDI

A firm may build ‘greenfield’ facilities- previously undeveloped site/ often rural areas. Usually do this if they cannot collaborate/ find another firm to buy/ too expensive to buy. Governments may prevent acquisitions to protect competition

Horizontal FDI- producing the same products or services as it it done at home
Vertical FDI- when a firm acquires an operation that either acts as a supplier or distributor. ex. opening a call centre in another country for customer support