Theme 4 Flashcards
1
Q
What is the growth rate of the UK economy like compared to emerging economies?
A
- UK economy has grown at 2.25% a year for more than 200 years and income doubles every 30 years.
- growth of car production in China is greater than any other country as businesses rely on China for production.
- India also shows substantial % growth but is dwarfed by china.
- In 2030 USA is estimated to still have the biggest economy with china close behind.
- India will have overtaken Japan to become the 3rd largest economy.
- The UK remains one the worlds biggest economy but is falling behind china and India.
- Brazil, Indonesia, Mexico, turkey and nigeria are also emerging economies.
2
Q
Describe the growing economic power of countries within Asia
A
- China has become a regional hub which has drawn supplies and therefore helped growth of surrounding countries such as Cambodia, Indonesia and Vietnam.
- Vietnam and Indonesia are important for Asia due to their huge populations - Vietnam (95mil) and Indonesia (256mil).
- Asian countries follow blueprint of china and take education seriously which allows them to improve production of higher value-added products which will ultimately improve their economies.
- The rise of china has changed the focal point of global trade, impacting not only trade of goods but also services including tourism, banking and insurance.
3
Q
Describe the growing economic power of countries within Africa
A
- Since 2000, there has been improvement in the economies of sub-saharan Africa.
- Not at the level of china and India, but more impressive than Latin America and Eastern Europe.
- Africa have had growth rates of 5.5% per year since 2000 compared to 2.5% in the west.
- Reasons for this growth could be because just before the year 2000, Britain pushed for debt write-offs in Africa, improving the macro economic balance in the main countries.
- Also, the China induced commodity price boom in 2004/5 and 2014 boosted economies across Africa with Nigeria (oil), Ghana (cocoa) and Kenya (coffee) being home to these commodities.
- Improved governance could also be responsible with reduced wars and increased number of democracy’s in Ghana and Nigeria.
4
Q
Describe the growing economic power of countries in other parts of the world
A
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5
Q
What are the implications of economic growth for businesses?
A
+ Accelerator effect on capital investment (rising demand and output encourages investment in capital).
+ Positive impact on business confidence, to for example introduce a new product or relocate.
+ Technological innovation due to greater investment.
+ Increased tax revenues for government - used to fund more spending on government services.
- Risks of higher inflation and higher interest rates.
- Inequality of growth of business could cause oligopoly.
6
Q
How does economic growth increase trade opportunities for businesses?
A
- Increased profits from trade due to greater demand for goods and services as consumer confidence improves.
- Rise in living standards means customers have greater confidence in purchasing high end goods.
- Increased capital investment can allow for technological innovation improving output and efficiency resulting in greater revenue from trade.
7
Q
How does economic growth change employment patterns?
A
- In the early stages of economic development, the key cause of growth is the switch from primary to secondary industries. Working in factories always generates more money than working the land. When this process slows, economic growth is harder to achieve.
- In order to achieve further growth there needs to be a shift towards tertiary and quaternary sectors where jobs are highly skilled and earn high incomes.
8
Q
What are 4 indicators of growth?
A
- Gross domestic product (GDP).
- Literacy rates
- Health
- Human development index (HDI).
9
Q
What is GDP?
A
- Gross domestic product is the value of all the goods and services produced in a country in the course of a year.
- economic growth is usually measured as the % change in this figure form one year to the next.
10
Q
What are literacy rates?
A
- literacy rates are the % of people who are able to read and write.
- High levels of illiteracy may prove unsustainable for future economic development.
11
Q
what are health indicators?
A
- Health indicators measure the health of a population through life expectancy, infant mortality and other factors.
- Government spending on healthcare has a direct impact on health.
12
Q
what is the HDI?
A
- The human development index was created to find a single measure of healthy economic growth.
- The HDI is a single figure reflecting health, education and economic progress. It combines 3 pieces of data:
- gross national income per capita (PPP).
- life expectancy at birth.
- average years of schooling and expected years of schooling.
13
Q
What are exports and imports?
A
- Exports are goods or services produced domestically and consumed abroad.
- Imports are goods or services which are produced abroad and then consumed domestically.
14
Q
How does international trade and business growth impact exports and imports?
A
- International trade has impacted the types of imports and exports of countries, for example Britain no longer produce goods such as shoes as they can rely on cheaper imports, meaning they import these products from exporting countries.
- Business growth has also increased imports and exports as economies of scale allows bulk buying imports of materials from exporting countries.
- International trade also increases business growth as businesses are able to tap into new markets via exporting abroad.
15
Q
what is business specialisation?
A
- Business specialisation is a method of production where a business focuses on the production of a limited range of products or services to gain greater productive efficiency within the overall business.
- In some cases a company may choose to only produce 1 product e.g. Coca Cola.
- Taylor’s scientific management supports business specialisation as his view is that everything should be broken down into smaller component tasks.
16
Q
what is competitive advantage?
A
- a condition or circumstance that puts a company in a favourable and superior business position.
17
Q
what is the link between business specialisation and competitive advantage?
A
- Business specialisation allows the business to focus on a limited range of products.
- The business will become more efficient when their output from the same raw materials increases.
- Firms that produce a wide range of products may need lots of different machines, when some machines are vacant due to low demand, capacity utilisation dips and therefore efficiency reduces.
- This can provide a competitive advantage through lower costs per unit which will increase profit margins and put the company in a superior position to competitors.
18
Q
how does international trade and business growth impact business specialisation and competitive advantage?
A
- International trade can allow a company to specialise on a limited range of products and still grow their profits through tapping into foreign markets.
- Business growth can impact business specialisation as increased number of large businesses can increase competition, therefore it is more important to gain a competitive advantage which can be achieved through business specialisation.
19
Q
How does international trade and business growth impact FDI
A
- International trade has increased FDI as the most obvious way to supply an overseas market is through exporting which will allow a business to reach a wider market.
- Business growth has caused FDI to increase because as the domestic market becomes saturated it is harder to gain a competitive advantage, meaning businesses will aim to look to invest in untapped foreign markets.
20
Q
8 factors contributing to increased globalisation?
A
- International trade barriers/trade liberalisation
- Political change
- Reduced cost of transport and communication
- increased significance of TNCs
- Increased investment flows (FDI)
- Migration (within and between economies)
- Growth of the global labour force
- Structural change
21
Q
how does international trade barriers/trade liberalisation increase globalisation?
A
- Restrictions are removed improving market access meaning more countries willing to trade with each other.
- Will reduce domestic production and increase reliance on imports from abroad.
- Results in extra competition from across the globe.
22
Q
how does political change lead to increased globalisation?
A
- Government policy decides whether a country may focus on production for domestic or global consumption meaning a change from communism to capitalism will encourage globalisation e.g. communism in China.
- Political change through memberships of ego’s such as the WTO improves access to global markets and increases integration.
23
Q
how does reduced cost of transport and communication increase globalisation?
A
- Reduced transport costs due to technological advances and more efficient methods of transport (containerisation) have encouraged global trade as transport is less likely to cancel out gains from comparative advantage.
- The growth of the internet has increased e-commerce which provides cheap marketing with global reach, enabling firms of all sizes to compete more easily in global markets.
24
Q
how does increased significance of TNCs increase globalisation?
A
- TNCs epitomise global interdependence, as they often span across a number of different countries, with sales, profits and a flow of production being reliant on several countries at once.
25
Q
how does increased investment flows (FDI) increase globalisation?
A
- Cross-border mergers and takeovers contribute to international investment flows creating interdependence as communication, imports and exports between countries will all increase.
- Banks borrowing money from abroad to provide more loans for households and firms also create interdependence.
26
Q
how does migration (within and between economies ) increase globalisation?
A
- Migrants are often self motivated and ambitious in terms of creating a better life for themselves through start up businesses, which can develop into TNC’s contributing to the global market.
- Highly skilled migrants can increase jobs in the quaternary sector leading to quicker technological advances in transport and communications which both increase globalisation.
27
Q
how does growth of the global labour force increase globalisation?
A
- Growth of global labour force reduces skill shortages as pool of skillsets to choose from is so large, this ensures TNCs are able to keep up with competition and at the same time creates interdependency.
- Growth of global labour force allows TNCs to reduce operating costs, allowing the company to generate a greater output and therefore increase the number of imports and exports.
28
Q
how does structural change increase globalisation?
A
- Industrialisation of a country from primary to secondary sector allows it access to the global market and able to import and export.
- Structural changes in industry has caused dependancy on countries exporting specialised goods that cannot be produced in their own country.
29
Q
what is protectionism?
A
- Giving preference to home producers by making it harder and more expensive for overseas companies to export to your country.
30
Q
what are tariffs?
A
- A tariff is a tax imposed on imported goods and services.
31
Q
what are import quotas?
A
- A quota is a government-imposed trade restriction that limits the number, or monetary value, of goods that can be imported or exported during a particular period.
32
Q
what is government legislation?
A
- The process of the government making or enacting certain laws in order to protect consumers and regulate business activity.
33
Q
what are domestic subsidies?
A
- A domestic production subsidy is a payment made by a government to firms in a particular industry based on the output or production.
34
Q
Why are tariffs often imposed?
A
- To raise tax revenue.
- For environmental reasons; a tariff could be placed on goods which may have negative externalities.
- Protectionism; to allow domestic firms and infant businesses a chance to grow without being swamped by international competitors. It also protects the balance of trade.
35
Q
Why are import quotas often imposed?
A
- Allows a country to be sure of the amount of the good imported from the foreign country.
- To protect jobs of domestic producers.
- Imposed as a bargaining chip to be used in negotiations on trade.
- To protect strategic industries such as defence and agriculture.
36
Q
Why is government legislation for protectionism often imposed?
A
- To protect consumers form any harmful products.
- To prevent firms from becoming unethical.
- Prevent harm to the environment.
- Can also be used to reduce competition.
37
Q
Why do governments pay domestic firms subsidies?
A
- Money is given to local producers to make their goods cheaper on the domestic market.
- This artificially raises the price of foreign goods relative to domestic goods – therefore reducing demand for them.
38
Q
what is a trading bloc?
A
- A type of intergovernmental agreement to reduce regional trade barriers.
39
Q
How do trading blocs expand?
A
There are 2 ways to expand trading blocs:
- New trading blocs
- Following success of the first trading blocs, there are now 13 worldwide and discussions have taken place between USA and Europe between merging trade blocs. - Increase in membership
- Trading blocs are attracting more members, and example of this is the EU which had 6 members and now has 28.
40
Q
what impacts do trading blocs have on businesses?
A
- The free trade and links between countries within a trading bloc can also improve business connections, this can result in businesses from various countries merging or using their expertise for mutual benefits.
- Manufacturers will see the benefits in trading blocs however memberships are not of great importance to tertiary sector businesses which make up most of our economy.
41
Q
name the general factors that prompt trade
A
- push factors
- pull factors
- off shoring/outsourcing
- extending product life cycle selling into multiple markets
42
Q
what are examples of push factors for trade?
A
- saturated markets
- competition
43
Q
what are examples of pull factors for trade?
A
- Economies of scale
- Risk spreading
44
Q
how are saturated markets a push factor for trade?
A
- In a market such as the TV market where a business has sold their product to every customer available, the only way to grow sales is to improve the products or enter a new geographical market which hasn’t been tapped into which is why saturation can limit growth.
45
Q
how is competition a push factor for trade?
A
- Arrival of new competitors can threaten a firms market share, and therefore if a new business has enough capital to support its products then an existing business may avoid the market and target and untapped foreign market with less competition.
46
Q
how is economies of scale a pull factor for trade?
A
- Widespread production facilities across several countries can cause a business to become fragmented, if a business moved all production to one location it will allow the business to benefit from economies of scale.
- Even without centralising production, growing into international markets will allow the firm to operate at a larger scale and therefore still benefit from economies of scale.
47
Q
how is risk spreading a pull factor for trade?
A
- Risk spreading is a pull factor unrelated to costs and competitiveness, the strategy of moving into new markets allows the firm to spread the risk of demand collapsing in one market.
48
Q
how is off shoring a pull factor for trade?
A
- Offshoring is when a business relocates its operations to another country.
- This is to take advantage of low labour costs in manufacturing, cost efficiencies and supply chains.
- It has to be more economical to produce goods abroad and transport them to the UK than to pay UK wages to be profitable.
49
Q
how is extending product life cycles to sell into multiple markets a push factor for trade?
A
- Product life cycle theory implies once a product hits decline there is no way back.
- Those looking to extend the life cycle may look to international sales, avoiding the heavy investment and uncertainty of designing and launching a new product into the existing market.
- Therefore selling the original product in multiple markets can act as an extension strategy.
50
Q
what factors can be used to assess the state of a country as a market?
A
- Levels and growth of disposable income.
- Ease of doing business.
- Infrastructure.
- Political stability.
- Exchange rate.
51
Q
how does levels and growth of disposable income show the state of a country as a market?
A
- Disposable income is the amount of money left after income tax, it generally equates to GDP divided by the population size.
- Level of income influences how money is spent in each industry for example a certain % of GDP will be spent on hotels or restaurants.
- It is this type of spending which decides whether a country as a market is profitable and ideal for the level of GDP.
52
Q
how does the ease of doing business show the state of a country as a market?
A
- The amount of time needed to setup a business, sort tax bills and supply infrastructure all contribute to how easy it is to do business in a country.
- The quicker a government can do the above things then the more attractive it is for a business to setup in the country.
- Businesses also want government to be as little involved as possible so a small number of regulations is also attractive.
53
Q
how does infrastructure show the state of a country as a market?
A
- With a good infrastructure, goods can be transported quicker and more reliably, this along with necessities such as water and electricity will provide an attractive prospect to setup a business in this country.
- Quick deliveries may also allow a business to use a just in time approach.
54
Q
how does political stability show the state of a country as a market?
A
- A government may be politically unstable if it is corrupt or going through a change in political ideology, with uncertainty over the future of the country and conflict which may occur.
- A highly regulated country may prevent political corruption.
55
Q
how do exchange rates show the state of a country as a market?
A
- Exchange rates can help a business decide which country to locate, if the value of a currency is weak against the pound then this country will become less profitable as the firm will be forced to charge a higher price in the local currency to maintain profit margins.
- However it is best to start up in a country where the currency is weak against the pound as it is cheaper.
- Exchange rates constantly change so it may not be a long term impact.
56
Q
what 9 factors are used to asses a country as a production location?
A
- Costs of production.
- Skills and availability of labour force.
- Infrastructure.
- Location in trade bloc.
- Government incentives.
- Ease of doing business
- Political stability.
- Natural resources.
- Likely return on investment.
57
Q
how does cost of production impact the assessment of a country as a product location?
A
- A major motive for businesses setting up production in another country is finding the lowest cost for labour, electricity, gas and other initial costs such as land.
- However labour costs are not too important in terms of total costs as they only account for a low proportion of total costs.
58
Q
how do skills and availability of labour force impact the assessment of a country as a product location?
A
- Manufacturing requires workers of a certain level of skill and literacy level, so businesses cannot move to a country with a population without these skills.
- Often where there is cheap labour, the literacy levels and skill level will be low therefore a business needs a location with skill whilst being cost effective.
59
Q
how does infrastructure impact the assessment of a country as a product location?
A
- Quality of local infrastructure in production locations is important for operation.
- A company may sometime build their own local infrastructure in order to improve efficiency such as in delivery of supplies.
60
Q
how does the location in trade bloc impact the assessment of a country as a product location?
A
- Trading blocs allow free trade to occur, this is important for companies establishing a production location as they need to be able to sell to the major markets from the location.
61
Q
how do government incentives impact the assessment of a country as a product location?
A
- Governments are keen to attract FDI, incentives may include grants, tax breaks and investment in local infrastructure in order to persuade businesses to locate in the country.
62
Q
how does ease of doing business impact the assessment of a country as a product location?
A
- Certain legal systems must be complied with by businesses locating in a country, if these regulations are not too strict it could be an attractive location for a business.
- Efficient systems of bureaucracy will make a country an attractive location.
63
Q
how does political stability impact the assessment of a country as a product location?
A
- The government decides laws, taxes and trade policies so politically unstable countries are not attractive to businesses as these policies are likely to change frequently and create uncertainty.
64
Q
how do natural resources impact the assessment of a country as a product location?
A
- For businesses early in the supply chain, local sources of natural resources are important, especially if these goods are heavy and expensive to transport.
- locating close to an abundant supply of natural resources required in the production process of a business is attractive.
65
Q
how does the likely return on investment impact the assessment of a country as a product location?
A
- Most business decisions are made according to the likely return on investment generated by each option considered.
- When choosing a location, lower costs will create larger profits and locating in a trading bloc will provide higher revenues however decisions on production locations should take into account the shifting power of manufacturing, and the sustainability of the option.
66
Q
what 5 reasons are there for global mergers or joint ventures?
A
- Spreading risk over different countries/regions.
- Entering new markets/trade blocs.
- Acquiring national/international brand names/patents.
- Securing resources and supplies.
- Maintaining/increasing global competitiveness.
