Unit 4 Flashcards
what is an emerging economy?
one that has increasing growth rates (GDP) but relatively low income per capita.
what is HDI?
a measure of a country’s development which takes into account GNI, Average years of schooling and life expectancy
what are the 4 key indicators of growth?
GDP per capita
literacy rates
Health indicators
HDI
define specialisation
specialisation occurs when a country or business decodes to focus on the production of particular goods or services
two benefits of specialisation
-lower unit costs due to economies of scale, which may allow businesses to lower prices and increase sales or achieve higher profit margins
-excess output can be sold abroad as exports
define FDI
FDI is the value of inward investment from other countries/businesses into a country over a period of time
1 benefit of FDI for a country’s economy
increased economic growth as there is an inflow of money into the country
what is structural change in an economy?
when a country, industry, or market changes which sector of the industry they primarily operate in
what is containerisation?
a global shipping method that allows large volumes of goods to be transported quickly and easily
what is trade diversion?
where trade is taken away from efficient producers who operate outside of a trade bloc and replaced by trade within the bloc.
What is an external tariff wall?
An external tariff wall is a tax applied to imported goods by a group of countries that have formed a trade agreement. This protects businesses within the trading bloc from competition from those outside of the trading bloc.
1 impact of import quotas
they may cause product prices to rise by limiting supply
What is meant by the term trading bloc?
a group of countries that have signed a regional trade agreement to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves.
What is meant by the term free trade area? give an example
where all tariffs and quotas are removed on trade in goods between member countries. Example: NAFTA
customs union characteristics (3) and example
-no internal trade barriers
-common external tariff on goods coming from outside the bloc
-Member countries are not free to make their own individual trade agreements
-CARICOM
Common market characteristics (4) and example
-no internal trade barriers
-common external tariff on goods coming from outside the bloc
-Member countries are not free to make their own individual trade agreements
-free movement of labour and capital
-ASEAN
Economic and monetary union characteristics (5) and example
-no internal trade barriers
-common external tariff on goods coming from outside the bloc
-Member countries are not free to make their own individual trade agreements
-free movement of labour and capital
-common currency
-EU
Advantages of being in an FTA for businesses in NAFTA
-Allows US businesses to produce their goods much more cost effectively in Mexico due to lower labour costs
-Led to increased job creation in Mexico due to increased demand for Mexican labour
Advantages of trading blocs for businesses (4)
- Access to a wider market due to free movement of goods
- Businesses within the trading bloc are protected from competition outside the trading bloc by external tariff walls
- Businesses can get government support e.g subsidies to help maintain their competitiveness within the bloc
- Free movement of labour means there is a high supply of labour which may lead to lower wages
disadvantages of trading blocs for businesses (5)
- There is increased competition for businesses within the bloc, impacting small businesses
- All businesses must adhere to common rules and regulations.
- Other countries may retaliate to external tariffs.
- Businesses may feel less incentive to become more efficient because they face less overall competition
- May lead to trade diversion- trade is taken away from efficient producers who operate outside the trade bloc
import quota definition
a government-imposed limit on the amount of a particular product allowed into the country
define protectionism
an approach used by governments to protect domestic industries from foreign competition e.g. tariffs
Main impact of tariffs
A tariff increases the price of imported goods which helps to shift demand for that product/service from foreign businesses to domestic businesses
Benefits of tariffs (3)
- They protect infant industries so they can eventually become more competitive globally
- An increase in government tax revenue
- Reduces dumping by foreign businesses as they cannot sell below the market price
disadvantages of tariffs (3)
- Increases the cost of imported raw materials which may affect businesses who use these goods for production, leading to higher prices for consumers
- Reduces competition for domestic firms who may become more inefficient and produce poor quality products for their customers
- Reduces consumer choice as imports are now more expensive and some customers will be unable to afford them
advantages of import quotas
-To meet extra the demand, domestic businesses may need to hire more workers which reduces unemployment and benefits the wider economy
-higher price of imported goods due to a more limited supply may encourage new domestic businesses to start up in the industry
-Countries are able to easily change import quota as market conditions change
-Foreign countries view a quota as less confrontational to their business interests than tariffs
Limitations of using HDI to measure economic development
-It does not account for inequalities within a country
-Years of schooling is unreliable if it is not of high quality
-There is a lack of reliable data in some countries
-Purchasing Price Parity (PPP) values change very quickly and are likely to be inaccurate.
-HDI does not take into account social factors such as crime rates, quality of the environment, political freedom and war.
Advantages of using HDI to measure economic development
-HDI measures three factors, rather than just income, giving a more rounded view of living standards than GDP.
-The use of PPP qualifies income in terms of the cost of living
-The HDI is given as one number between 0 and 1, which allows for easy comparison between different countries.
GNI formula
GNI=GDP + net interest and dividends owned by nationals domestically and abroad
GNI definition
GNI is the total amount of money earned by a nation’s people and businesses.
examples of pull factors
- Economies of scale, achieved by expanding production into new markets abroad.
- Cost reductions: raw materials and labour may be cheaper than within the domestic market.
- Spreading risk- operating in multiple markets allows businesses to diversify their customer base and reduce their exposure to risks associated with operating in a single market such economic and political changes which could affect operations and profitability.
examples of push factors
- Saturated market- when the demand for goods and services has reached a peak and it becomes challenging for businesses to grow and expand within the domestic market.
- Intense competition- it may be difficult to sell products, or it may be unprofitable due to competitive pricing or a high number of substitutes.
define offshoring
when a company moves part of the production process to another country.
define outsourcing
when a business hires an external organisation to complete certain tasks or business functions
five factors a business should consider before entering new countries
-quality of infrastructure
-ease of doing business (Low ease of doing business –> delays in operations and the business generating sales)
-Levels of growth and disposable income- this tells a business if there is potential for growth in sales in the future.
- exchange rates and how they compare to countries they are importing from/exporting to
-level of political stability
define the term risk spreading
when a business accesses multiple markets to diversify their customer base. this reduces their exposure to risks associated with operating in a single market
define infrastructure
the basic physical and organisational systems and facilities needed for the operation of a society such as roads, transportation networks, communication
define ease of doing business
the presence or absence of rules and regulations involved in establishing a business in a particular market
what’s the importance of political stability when assessing a production location?
to avoid disruptions in production. unstable political environments can have high levels of corruption, poor law enforcement and crime
global merger
a permanent agreement between two or more businesses from different countries to join together
joint venture
a contractual agreement between two or more firms to combine resources and expertise to achieve a particular goal
what is a culture clash?
a conflict that arises between workers from combined businesses as a result of different working norms or organisational processes
define the term competitive advantage
the ability of a business to outperform its competitors in a particular industry by offering superior products and services
ethnocentric approach
overseas markets are treated identically or similarly to domestic markets
poly centric approach
a business adapts the product to meet the slightly different needs of customers in new foreign markets
geocentric
an approach to global marketing where a business uses a combination of the ethnocentric and polycentric marketing approaches when marketing a product in new foreign markets.
define global niche markets
small segments of the global market often characterised by unique and specific customer needs and preferences
why is it important for businesses to understand cultural and social factors in global marketing?
so that businesses can build strong customer relationships and achieve long-term success
define balance of payments
a statement showing all of the financial transactions between a country and the rest of the world
what is transfer pricing?
a method used by MNCs to shift profits from where they are generated to countries with lower taxes
business ethics
the principles and norms that govern business behaviour
CSR (corporate social responsibility) definition
when companies integrate social and environmental concerns into their business operations.
define supply chain
all stages from obtaining materials and components to delivery of the product to the end consumer.
what is political influence in terms of MNCs?
the ability of MNCs to exert pressure on national or regional governments through lobbying to create favourable conditions for their business
