Theme Four Flashcards
1
Q
Define an emerging economy.
A
Refers to an economy that is rapidly growing and industrialising. Often involves moving away from the primary to secondary or tertiary sectors.
2
Q
Describe two features of emerging economies.
A
- rapid industrialisation and development of secondary and tertiary sectors
- potential to become developed economies
- faster long term economic growth than most developed economies
- many inhabitants still on the poverty line
- businesses struggle to bypass trade barriers and access global markets
3
Q
BRICs
A
Most prominent emerging economies - Brazil, Russia, India, China
4
Q
Name an opportunity provided by emerging economies.
A
- cultural shifts
- growth in middle class and education leads to a growth in consumer spending
- source of high skilled but low cost labour
- potential for joint ventures and acquisitions
- demand for services and developed infrastructure from developed economies
5
Q
Threats of doing business in emerging economies.
A
- political instability
- cultural differences
- variable approaches to financial and legal dealings
- corruption and bureaucracy still an issue
- emerging markets becoming major exporting
- low cost production makes emerging economies uncompetitive in some markets
6
Q
Name one reason why emerging economies are likely to continue enjoying high growth rates.
A
- continuation of urbanisation process
- industrialisation
- population growth
- per capita income growth, rise of middle class and consumer society
- workforce will continue to improve skills and be more productive
- technological innovation
7
Q
Name a key indicator of economic growth.
A
- total gdp
- gdp per capita
- ppp
- literacy
- health
8
Q
PPP
A
Purchasing Power Parity - compares different countries through the basket of goods
9
Q
HDI
A
Human Development Index- tracks longevity of peoples lives, education and minimal income
10
Q
Limitations of HDI?
A
- doesn’t take into account qualitative factors such as cultural identity and political freedoms
- GDP doesn’t take into account distribution of wealth and therefore neither does HDI
- PPP values change and can be inaccurate or misleading
11
Q
Advantages and disadvantages: international trade.
A
+ export revenues and jobs help reduce poverty
+ knowledge and skills cross borders
+ low prices for consumers as markets are competitive
+ economies of scale
+ better use of scarce resources
+ technology is spread, raising productivity
- transport costs
- rising inequality
- negative externalities from consumption and production
- structural unemployment as trade patterns change
- risks of global external shocks
- pressure on wages and working conditions
12
Q
Where does the UK mainly export to? Where are most of its imports from?
A
Exports to Switzerland the most and most the imports come from Germany.
13
Q
Importance of specialisation in international trade?
A
- total economic output can be increased across the global economy
- competitive advantage
14
Q
Name an example of a specialised country.
A
- Chile and Zambia - copper mining
- Bangladesh - textiles
- Vietnam - light manufacturing (assembly)
- Angola - crude oil
- Ivory Coast - cocoa
15
Q
FDI
A
Foreign Direct Investment - a form of investment from one country in another through the establishment of operations or acquisition of tangible assets (including stakes in other businesses) in that country. Can have both inwards and outwards flows of FDI.
16
Q
Why do businesses engage in FDI?
A
- take advantage of lower labour costs in other countries
- operate closer to sources of raw materials (such as metal mines)
- avoid protectionist measures such as tariffs
- earn target returns on investment by buying valuable assets
17
Q
What are the worlds three largest economies?
A
China, USA, India
18
Q
Name two key features of globalisation.
A
- trade to gdp ratios increasing
- expansion of financial capital flows between countries
- FDI and cross boarder m&a
- rising number of global brands
- deeper specialisation of labour
- global supply chains and new trade investment routes
- increased levels of international labour migration and migration within countries
- increasing connectivity of people and businesses thanks to wifi networks and mobile technology
- increase in off-shoring
19
Q
TNCs
A
Transnational corporations - businesses that have global reach. Top 500 TNCs account for 70% of world trade.
20
Q
Name one factor that encourages global trade.
A
- growth of MNCs and TNCs
- differences in tax systems
- less protectionism
- economies of scale
- technological change
21
Q
Advantages and disadvantages: globalisation
A
+ economies of scale
+ competitive pressure may prompt better governance and labour protection
+ free movement of labour
+ enhanced growth leads to more income per capita
- inequality
- inflation
- vulnerability to external economic shocks
- threats to the global commons (deforestation, damage to eco systems etc)
- trade imbalances
- unemployment
- standardisation
- dominant global brands
22
Q
What is free trade?
A
Trading with other nations with out protectionist policies such as tariffs and quotas.
23
Q
Advantages and disadvantages: free trade.
A
+ easier to achieve economies of scale
+ encourages competition and economic efficiency
+ enables businesses to grow beyond their domestic borders
+ lowers costs
- could have economic damage as government is not benefiting from tariffs
- harm the environment due to increased transportation
24
Q
Define Protectionism.
A
Any attempt by a country to impose restrictions on trade in goods and services. It is mainly seen through tariffs, quotas and subsidies.
25
Outline 2 methods of protectionism.
- tariffs: a percentage added to raise the price of imports
- import quotas: limit the level of imports allowed by a country
- subsidies: a payment to encourage domestic production by lowering their costs e.g. common agricultural policy (eu)
- import licensing: potential importers require a license to import goods
- exchange controls: limits currencies that can move between countries
- intellectual property laws: patents and copyrights protecting domestic ideas
- technical barriers to trade: increase product compliance costs and impose monitoring costs on export agencies; include product labelling rules and stringent sanitary rules
26
Arguments for and against protectionism?
+ protects infant industries
+ protects jobs, skills and capabilities in key industries
+ protects against import dumping
- higher prices for consumers
- retaliation from other countries
- extra costs for exporters
27
Trading Blocs
Groups of countries that operate under common trade policies (typically a free market).
28
-Advantages and disadvantages: trade blocs.
+ FDI
+ economies of scale
+ competition (prompt innovation)
+ greater trade
+ market efficiency
- negative impact on small domestic businesses
- loss of state sovereignty
- increased economic dependence
- competition (lower prices)
- retaliation from non member countries
29
Four freedoms of the EU?
- free trade in goods
- mobility of labour
- free movement of capital
- free trade in services
30
NAFTA
Canada, Mexico, and the United States - there is no free movement of labour.
31
ASEAN
Indonesia, Cambodia, Brunei, Lao People's Democratic Republic, Darussalam, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam.
32
TPP
Trans-Pacific Partnership - US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile, Peru
33
Name one reason businesses want to target international markets.
- reduce dependence on domestic market
- access faster growing markets and demand
- economies of scale
- better serve overseas customers
- build brand value
34
Push and Pull factors
- push factors are issues with the current market that make businesses feel as if they have to expand internationally to other markets
- pull factors are qualities and opportunities in other markets that make them seem attractive for businesses to expand into
35
Outline why a saturated market is a push factor
makes it difficult to grow without taking competitor's market share, and there is often a lack of innovation and businesses may find it easier to market their product overseas with less competition.
36
Name two pull factors.
- economies of scale
- risk spreading
37
Name two factors considered by businesses when assessing whether a country is a suitable market.
- levels of growth of disposable income
- ease of doing business
- infrastructure
- political stability
- exchange ratr
38
Name four factors businesses consider when assessing whether a country would be a suitable production location.
- cost of production
- skill and availability of workforce
- infrastructure
- location in trade bloc
- ease of doing business
- government incentives
- political stability
- natural resources
- likely return on investment
39
Which region is forecasted to have the biggest middle class population by 2030? And which is forecasted to have the least?
Asia-pacific is forecasted to have a middle class population of over 3000 million whereas Sub-Saharan Africa is predicted to have less than 100 million
40
Which G7 country has the highest GDP per worker EMPLOYED?
USA -138
41
Why does the UK have a lower rate of productivity compared to other locations?
- low rate of new capital investment
- banking crisis affecting lending to businesses
- possible slowing rates of process innovation
- skills shortage in key industries
- low levels of competition
- high spare capacity
42
What is the easiest and most difficult country to do business in?
Singapore is the easiest and Afghanistan the worst.
43
Joint Venture
A separate entity created by two or more parties of which they have shared ownership.
44
Advantages and disadvantages: joint ventures.
+ can benefit from each other's resources and expertise
+ shared risk
+ access to a new market
- organisational cultures may clash
- objectives of individual partners may change
- slower decision making
45
Merger vs Takeover
- mergers involve two firms combining to create a new firm
- takeovers involve one firm acquiring over 50% of another firm and thereby gaining control
46
Why may a business choose to undertake an overseas merger or joint venture?
- enter a new trade bloc
- increase global competitiveness
- acquire international patents and recognition
- spread risk over countries (a product not successful in one nation may be successful in another)
- securing overseas suppliers
47
Name one way in which exchange rates impact businesses.
- price of exports
- cost of imports
- revenues earned overseas
- converting cash receipts from overseas customers
48
How do you calculate exchange rate conversions?
amount / exchange rate
49
What might cause a change in exchange rates?
- increasing demand for exports = increased demand for currency
- lower demand for imports = lower demand for currency
- speculation (traders may bet the exchange rate will increase)
- increase in interest rates, making it more attractive to hold the currency
- FDI into the country = increased demand for currency
50
Who benefits from low exchange rates?
- businesses exporting into overseas markets
- businesses who earn substantially overseas
51
Who does not benefit from low exchange rates?
- businesses importing goods and services
- overseas businesses trying to compete in the domestic market
-
52
Offshoring
Relocating business activities from home to a different international location. Typically associated with manufacturing but is increasingly seen in services - UK call centres being abroad, for example.
53
Advantages and disadvantages: offshoring.
+ lowering manufacturing costs
+ makes use of existing capacity overseas
+ make use of free trade areas
+ access to a greater pool of skilled labour
- longer lead times
- ethical and csr implications
- additional management costs
- impact of exchange rates
- communication barriers (language, time zones etc)
54
What is reshoring? Name two reasons a business may choose to do this.
- offshoring is when a business recalls overseas activities and re-establishes them domestically
- businesses may choose to do this because:
- greater certainty around delivery times
- minimise risk of supply chain disruptions
- reduce supply chain complexity
- easier to collaborate with home suppliers
- greater certainty about quality of input and components
55
How can skills shortages be overcome?
By businesses:
- raise wages and other forms of renumeration
- offshore
- outsource to specialists
- collaborate with other firms to recruit into the industry as a whole
By the government
- invest in vocational education
- provide firms and industries with incentives to provide better and more
apprenticeships
- encourage inwards immigration of skilled overseas citizens
- provide subsidies and other incentives to invest in training and education
56
Name a way in which MNCs impact the local economy.
- local labour/wages/working conditions/job creation
- local businesses
- local community and environment
57
Name a way in which MNCs impact the national economy.
- FDI flows
- balance of payments
- tech and skills transfer
- consumers
- business culture
- tax revenues and transfer pricing
58
Define the term MNC.
A multinational company is a business that has operations in multiple countries. It cannot simply sell overseas but must have operations set up.
59
Name one reason for rapid MNC growth.
- global brands seeking to drive revenue and profit in emerging economies
- search for economies of scale
- lowering unit costs by focusing production on a few key locations
- perceived need to supplement weak demand in developed economies
- need to operate in many countries to avoid protectionist policies
- increased takeover activities that has led the the formation of businesses with international operations
60
Name one reason for rapid MNC growth.
- global brands seeking to drive revenue and profit in emerging economies
- search for economies of scale
- lowering unit costs by focusing production on a few key locations
- perceived need to supplement weak demand in developed economies
- need to operate in many countries to avoid protectionist policies
- increased takeover activities that has led the the formation of businesses with international operations
61
Advantages and disadvantages: to countries that are bases for MNCs.
+ provide significant employment and training to the labour force
+ transfer of skills and expertise help develop the labour force
+ MNCs add to the host countries GDP though capital investment and liaising with local suppliers
+ competition from MNCs act as incentive for domestic businesses
+ profitable MNCs provide significant tax revenue for the host nation
- domestic businesses may fail to compete
- may not act ethically
- MNCs may impose their own culture on the host country, perhaps at the expense of local culture
- MNC may not reemit profits into the host country but rather to their base
- businesses make use of transfer pricing and tax avoidance measures
- corrupt businesses may engage in activities such as bribery
62
Define ethics.
Moral guidelines that govern acceptable behaviour.
63
What did Friedman say about ethics?
'the only one responsibility of a business towards the society is the maximisation of profits to shareholders, within the legal framework and ethical custom of the country.'
64
Advantages and disadvantages: behaving ethically.
+ higher revenues
+ improved brand image
+ new sources of finance such as ethical investors
+ access new demographics who take ethics into account
- higher costs
- higher overheads
- a danger of building up false expectations
65
Name a common ethical issue with MNCs.
- pay and working conditions
- environmental damage
- supply chain management
- marketing
66
Name a business that has been caught using sweatshops or child labour.
Calvin Klein, Gap, H&M, Nike.
67
Name a reason MNCs need controlling.
- to protect against exploitation
- to discourage source depletion
- to ensure local culture is protected
- to protect domestic businesses
- to prevent abuse of market power
68
Name two ways in which MNCs can be controlled.
- social media
- political influence
- pressure groups
- legal control
