4.1 Globalisation

Question 1

What are the implications of economic growth for businesses?

Answer 1

New export opportunities
Offshoring production
Increased domestic competition

Question 2

How does economic growth foster new export opportunities?

Answer 2

Markets for luxuries grow as countries now have a ‘middle-class’, offering export opportunities to UK businesses as many specialise in luxury goods.

Question 3

How does economic growth foster offshoring production?

Answer 3

Infrastructure and skill levels of populations improve through more investment in education.
Developing economies become favourable locations for production due to low cost (land and wages).

Question 4

How does economic growth foster increased domestic competition?

Answer 4

Countries beginning to export to UK lead to greater competition at home for UK businesses.

Question 5

What are the implications of economic growth for individuals?

Answer 5

Rural to urban migration
Increased need for managers, expanding the middle-class
Increasing skill levels

Question 6

What are the four main indicators of growth?

Answer 6

GDP per capita
Literacy
Health
HDI

Question 7

How does Gross Domestic Product per capita indicate economic growth?

Answer 7

If earnings increase, consumption is likely to increase, driving business activity and growth to create a virtuous circle.

Question 8

How does literacy indicate economic growth?

Answer 8

As education is more widely available, literacy rates should improve. This helps to create a more productive workforce.

Question 9

How does health indicate economic growth?

Answer 9

Increasing life expectancy indicate economic development and helps to ensure a healthier workforce, capable of working productively for more years.

Question 10

How does Human Development Index indicate economic growth?

Answer 10

Health, education and economic measures give a good overview of development. Higher score shows greater development.

Question 11

What are the main exports to the UK?

Answer 11

Foreign brands that add choice.
Goods and services no longer mass produced in the UK.
Materials and components used by UK businesses produced cheaper and better quality abroad.
Services such as tourism import services from foreign hotels.

Question 12

How does business specialisation foster competitive advantage?

Answer 12

Helps chances of using Porter’s differentiation or cost leadership strats.
Less machinery needed
Less training required (multi-skilling)
Repetition leads to greater productivity

Question 13

How does outward FDI foster business growth?

Answer 13

A UK business buys assets abroad in the form of:
Production facilities
Retail outlets
Takeovers

Question 14

What are the benefits of outward FDI?

Answer 14

Avoids problems involved in exporting.
Avoids transport costs.
Avoids trade barriers.
Gives access to natural resources.
Lower operating costs.

Question 15

What are the eight main factors that contribute to increased business globalisation?

Answer 15

Trade liberalisation.
Political change.
Reduced cost of transport and communication.
Increased significance of TNCs.
Increased investment flows (FDI).
Migration.
Growth of global labour force.
Structural change.

Question 16

What opportunities arise from trade liberalisation?

Answer 16

Companies reliant on imported materials and components will enjoy lower costs, allowing them to drop their prices and be more competitive.
Bilateral nature of trade agreements, liberalisation can lead to increased export opportunities with removal of barriers in other direction.

Question 17

What threats arise from trade liberalisation?

Answer 17

Imports into a domestic market increases competition for domestic firms. The most efficient survive.

Question 18

How can political change lead to increased globalisation?

Answer 18

A major political change that led to the rise of globalisation was the Chinese govt’s decision to open their economy to foreign investment.
Donald Trump’s policy statements and Brexit suggest some political decisions may slow globalisation.

Question 19

How can reduced cost of transport and communication lead to increased globalisation?

Answer 19

Stable or falling oil prices.
Technological developments make engines more fuel-efficient.
Technological developments cause economies of scale as transport can happen on a larger scale.
Internet and fibre-optic cables criss-crossing the world revolutionise worldwide communication.

Question 20

How has the increased significance of TNCs contributed to increased globalisation?

Answer 20

TNCs more likely to be able to select the best country to operate in while reaching wide numbers of target markets.

Question 21

How has increased investment contributed to increased globalisation?

Answer 21

Communication flows makes cross-border financial transactions easier.
More investment capital flowing into a wider range of countries.

Question 22

How has migration contributed to increased globalisation?

Answer 22

Transport has become cheaper, making migration more feasible, stimulate economic growth.
Migrants tend to be proactive, determined, hard-working and relatively well-educated.

Question 23

How has the growth of the global labour force contributed to increased globalisation?

Answer 23

Sometimes businesses move to where they can find the right staff so UK businesses offshore functions, especially manufacturing as labour costs are lower.
UK businesses have recognised the benefits of recruiting staff from abroad to work in the UK.

Question 24

How has structural change contributed to increased globalisation?

Answer 24

As economies develop, their industrial structure changes, moving from agriculture towards manufacturing and then services.

Question 25

What are the three main factors involved with protectionism?

Answer 25

Tariffs Import quotas Government legislation Domestic subsidies

Question 26

How do tariffs increase protectionism?

Answer 26

Tariffs drive up the price of imports, making them seem more expensive thus less attractive to customers, so consumers buy from domestic producers instead of importers.

Question 27

What are the benefits of tariffs?

Answer 27

Help businesses survive Raise tax revenues

Question 28

What are the drawbacks of tariffs?

Answer 28

Pushes up prices, reducing consumers' ability to buy, reducing standards of living. Help inefficient firms survive, potentially harming competitiveness. Far greater incentive to improve without tariffs to fall back on.

Question 29

How do import quotas increase protectionism?

Answer 29

Scarce supply raises the price of imports through the price mechanism, making consumers buy from domestic producers.

Question 30

What are the benefits of quotas?

Answer 30

Domestic firms face less competition, improving their competitiveness, improving profit and job security.

Question 31

What are the drawbacks of quotas?

Answer 31

No extra tax revenue. Pushes up prices domestically for consumers.

Question 32

How does government legislation increase protectionism?

Answer 32

Changes in laws relating to safety or environmental impacts can act as a barrier to imports which may now fall foul of the new laws, preventing their sale.

Question 33

How does domestic subsidies increase protectionism?

Answer 33

Actively support domestic firms' competitiveness with foreign rivals, by reducing the cost of producing domestically

Question 34

What are the benefits of paying subsidies?

Answer 34

Stimulate demand, perhaps allowing struggling businesses to boost order books, allowing investment in more efficient production. Positive effect on the balance of payments by reducing imports and boosting exports.

Question 35

What are the drawbacks of paying subsidies?

Answer 35

Artificially inflating profit margins of inefficient businesses can prevent them pushing for efficiency gains that would allow them to compete without the subsidies. Subsidies must be funded meaning the government must increase taxation, punishing firms in industries where no subsidies are provided.

Question 36

What are the three main trading blocs?

Answer 36

EU ASEAN NAFTA

Question 37

What is the EU?

Answer 37

The European Union and the single market. Total population over half a billion relatively affluent consumers.

Question 38

What is ASEAN?

Answer 38

Association of Southeast Asian Nations Ten smaller Asian countries whose success has come through feeding the manufacturing of local giants China, Japan and S Korea

Question 39

What is NAFTA?

Answer 39

The North American Free Trade Agreement Canada, Mexico and the USA. Troubled future as the USA seeks to prevent low-cost Mexico 'taking American jobs'.

Question 40

What are the advantages of trading blocs to businesses?

Answer 40

Free movement of goods between members gives potential to create a large 'single market'. External tariff walls insulate the members from competition. As trade grows between neighbours encourages govts to provide infrastructure. Advantages multiply with free movement of goods AND labour.

Question 41

What are the disadvantages of trading blocs to businesses?

Answer 41

Competition increases because of freer trade. New rules and regulations may be agreed to create a single market, including minimum wage rates, increasing bureaucracy. Within geographically proximate blocs common factors may become common problems. Availability of easily accessed neighbouring markets may reduce enterprise in relation to distant but dynamic ones such as China.