4.1 - Globalisation

Question 1

Define Economic growth

Answer 1

Is the increase in a country’s productive capacity, usually measured using GDP

Question 2

Explain the patterns in growth rate in the UK economy

Answer 2

150 years ago the UK produced manuafactured goods that were exported all over the world
Figures show the UK manufacturing output grew by 2.8% in 2014, UK products remain competitive.
Has a strong and growing service sector and manufacturing is starting to decline with firms offshoring to emerging countries

Question 3

Define emerging economies

Why do they interest innvestors

Answer 3

Are the economies of developing countries where there’s rapid growth , but also significant risk

Investors like emerging countries as they are likely to grow quicker than more mature markets, allowing a business to increase its profits

Question 4

State the BRICS and MINT emerging economies

Answer 4

BRICS- Brazil, Russia, India, China, South Africa

MINT- Mexico, Indonesia, Nigeria, Turkey

Question 5

Explain the patterns in the economy and economic power of Asian and African countries

Answer 5

China frequently tops the rankings as an exporter and receiver of FDI
In 1990, China produced 3% of the global manufacturing output, in 2015 it had risen to 25%
China has a significant impact on South East Asian countries through supply chains and offshoring
Emerging markets in Africa are challenging the dominance of global firms
70% of the world’s GDP growth comes from emerging countries

Question 6

What are the implications of economic growth for individuals and businesses (5)

Answer 6

Trade opportunities- increased consumption and disposable income leads to a more elastic income, higher demand fro goods and services imported and domestic

New export opportunities- emerging countries incomes rise, opening up new markets for businesses to export to

Offshoring production - firms in developed countries may see economic growth and offshore production to achieve higher profits.

Increased entrepreneurship- increased incomes in emerging markets could see more start up businesses who look to compete with large firms

Alter employment patterns- increased employment

Question 7

Explain GDP per capita as a indicator of growth

What is the importance of PPP (Purchase Power Parity)

Answer 7

GDP shows the sum total of everything a country produces as a nation, within the nation

PPP is used as an estimate for GDP, a measure that uses the price of a basket of goods and services in order to compare prices between countries

Question 8

Explain Literacy rate as an indicator of growth

Answer 8

Is the percentage of adults (over 15) that can read and write. Gives a firm an insight into the quality and skills of a country’s workforce

Question 9

Explain health measures as an indicator of growth

Answer 9

WHO collects information on life expectancy, infant and maternal mortality rate, pollution exposure and access to clean water. Allows investors to measure absenteeism of workers, to be cost effective.

Question 10

Explain the human development index (HDI) as an indicator of growth

Explain the measures

Answer 10

Combines statistics on life expectancy, education and income for a country, to assess people and their skills.

Life expectancy is how many years on average a person is expected to live, indicates the health of the nation

Mean years of schooling considers how long a person spent in education, indicates the skills of the nation

GNI (gross national income) shows the income earnt by the population, indicates the wealth of a nation

Question 11

Why does a business use a range of measures when deciding whether to invest in an emerging economy

Answer 11

Will use a range of measures to gain a better understanding into where to invest, to maximise productivity and profits

Question 12

Define Export

Answer 12

Are goods and services that a firm produces in its home market, but sells in a foreign market. Has become easier due to trade liberalisation which reduces tariffs and quotas.

Question 13

Define imports

Answer 13

Are goods and services that are bought into one country from another

Question 14

Define international trade

Answer 14

Consists of exporting and importing, where firms trade between countries because they benefit from it

Question 15

Define division of labour

Answer 15

Is different workers specialising in different productive activities

Question 16

What are the risks of importing and exporting for a business

Answer 16

Is heavily reliant on exchange rates, unfavourable exchange rates can increase a businesses costs.

If quotas and tariffs are in place this can increase the businesses costs

Question 17

Define specialisation

Answer 17

A production strategy where a business focuses on a limited scope of products or services. This results in greater efficiency, allowing goods to be produced at a lower unit costs

Question 18

Define comparative advantage

Answer 18

Is the theory that a country should specialise in products and services that they can produce more efficiently than other countries

Question 19

Define competitive advantage

When competitive advantage occur

Answer 19

Is the idea that a business should specialise in any area (products, services, management or research) where it can perform better than its competitors

Can occur if a business has highly trained and specialised employees, access to local markets and resources or better organiser at cross-border trade

Question 20

Define foreign direct investment (FDI)

Answer 20

Is investing by setting up operations or buying assets of businesses in another country

Question 21

Why may a business use FDI (3)

Answer 21

A potential for making a profit if it invests in a new location

Trying to acquire direct knowledge of the local market

Attempting to avoid barriers to the market

Question 22

Define horizontal FDI

Give and example

Answer 22

Refers to a business producing the same product or service as they produce in their home country

Lloyds bank FDI into spanish bank, sabadell

Question 23

Define vertical FDI

Give an example

Answer 23

Is where one firm invest in a foreign business in a different part of the supply chain.

British toy company invests in a plastic producing Chinese company

Question 24

Explain the different forms of FDI (3)

Answer 24

Joint venture- An agreement between two parties to invest in a business and share control

Strategic alliances- when firms contract to share resources or certain skills

Cross-border mergers or takeovers

Question 25

Explain what real GDP is

Answer 25

Is a measurement of economic output that accounts for the effects of inflation and deflation. Provides a more realistic of growth than normal GDP, good indicator of where the economy is in the business cycle

Question 26

What is economic development

Answer 26

Is the process by which a nation improves its economic, political and social well-being of its people, to improve their quality of life.

Question 27

Define globalisation

Answer 27

Is the growing integration of the world’s economies

Question 28

State the causes of globalisation (8)

Answer 28

``` Reduction in trade barriers Political change Reduced costs of transport and communication Growth of TNC’s Migration Increased investment flows Growth of the global labour force Structural change ```

Question 29

Explain reduction in trade barriers as a cause of globalisation

Answer 29

Has meant that an increasing number of countries around the world have opened up there economies, making it easier to trade. A reason for this is due to the world trade organisation (WTO), who caused trade liberalisation. Trading blocs like the EU and NAFTA allow trade without quotas and tariffs.

Question 30

Explain political change as a cause of globalisation Give examples

Answer 30

Due to radical changes in political regimes of certain nations globalisation has been helped to increase. In 1991, the end of the Communist rule of the USSR saw members dissolve and become independent. This allowed for members to open up their own economies and trade with other countries. China adopted an open door policy in 1970 to allow trade with other countries.

Question 31

Explain reduced costs of transport and communication as a cause of globalisation

Answer 31

Has occurred due to considerable improvements in international transport networks over the years. The cost of flying has fallen and the number of flights has increased allowing people and goods to be transported quicker and easier. Containerisation has allowed huge volumes of goods to be transported across the world, causing goods to be transported for $0.16 per tonne.

Question 32

Explain the growth of TNCs as a cause of globalisation

Answer 32

Has seen a growing number of large firms develop significant business interests overseas. TNCs are companies that own or control production and service facilities outside the country in which they are based.

Question 33

Explain migration as a cause of globalisation

Answer 33

Is the movement of people who aim to set up permanent or temporary residence in a new location Migrants import new cultures into a country, seen the importation of goods from their home country. Migrants often provide a supply of low-cost labour, helping to fill skill gaps

Question 34

Explain increased investment flows as a cause of globalisation Give an example

Answer 34

Due to FDI a company makes an investment in a foreign country. In 2013, a Malaysian company paid £400 million for Battersea power station, creating around 13,000 jobs

Question 35

Explain a growth of the global labour force as a cause of globalisation

Answer 35

A bigger labour market helps drive global demand, due to people having increased disposable income. Rising number of people in labour leads to a growth of labour costs and causes offshoring into other countries

Question 36

Explain structural change as a cause of globalisation

Answer 36

In the UK a decline in primary and secondary industries has seen increased globalisation due to offshoring production overseas.

Question 37

Define Protectionism

Answer 37

Is an approach used by a government to protect domestic producers

Question 38

Explain the reasons for protectionism (5)

Answer 38

Protect jobs- unemployment is undesirable and a government would be criticised if jobs are lost to overseas. Protect infant industries- need protection until they can grow, become established and exploit economies of scale Prevent dumping- prevents overseas firms from dumping goods below the domestic price Raise revenue - tax from tariffs can be spent on government services to improve the standard of living. Prevent the entry of harmful and undesirable goods

Question 39

Explain regulations as a method of protectionism Give an example

Answer 39

Can prevent a Country from importing certain goods from other countries. And example of this is the band of importing chemically washed US chicken, due to EU food safety regulations

Question 40

Explain subsidies as a method of protectionism Give an example

Answer 40

Involves giving financial support such as grants or interest free loans to domestic producers to help them increase supply and charge lower prices to customers. And example of this is the Japanese government subsidising $65 million to Japanese firms to reduce reliance on imports from China

Question 41

Explain tariffs as a method of protectionism Example

Answer 41

Or taxes on imports to make the more expensive, reducing demand for overseas goods and increasing demand for domestic goods. Also raise tax revenues And example of this is the US imposing tariffs on solar products from China and Taiwan

Question 42

Explain quotas as a method of protectionism Example

Answer 42

Or physical limits on the quantity of imports allowed into a country. An extreme quarter is and in Bago, which is a total ban of imports from certain countries. An example of a quota is the 34 overseas films allowed in China per year. An example of an embargo is the ban of goods imported into the USA from Cuba in the 1960s

Question 43

Define an Economy

Answer 43

Is the state of a country or region in terms of the production and consumption of goods and services and the supply of money

Question 44

Define a Trading bloc

Answer 44

Is a group of countries that has signed a regional trade agreement to reduce or eliminate tariffs, quotas and other protectionist barriers.

Question 45

Define a regional trade agreement (RTA)

Answer 45

Is an agreement made between two or more countries within a geographical region, which is designed to facilitate by bringing down barriers

Question 46

State the trade blocs that exist

Answer 46

``` Preferential trade areas (PTA) Free Trade Areas (FTA) Custom unions Common markets Single market Economic unions ```

Question 47

Explain preferential trading areas (PTA) as a trading bloc

Answer 47

Allow certain types of products from participating countries to receive a reduced tariff rate. Is the beginning of the process of economic integration.

Question 48

Explain Free Trade Areas (FTA) as a trading bloc

Answer 48

Exist where member states remove all trade barriers, such as tariffs and important quotas, between themselves but keep barriers against non member states.

Question 49

Explain Customs Unions as a trading bloc

Answer 49

Similar to FTA’s where all trade restrictions are removed except that members adopt a common set of barriers and rules against non-members.

Question 50

Explain Common Markets as a trading bloc

Answer 50

Allow goods, labour and capital to move freely across the member states. Work together on economic and political policies that effect the market.

Question 51

Explain a single market as a trading bloc

Answer 51

Means all trade barriers are removed and members have common laws and policies. Borders, standards and taxes are harmonised as much as possible to not interfere with trade between members

Question 52

Explain economic unions as a trading bloc

Answer 52

Involve both a customs union and common market, where there are economic, political and cultural ties between members. Has an economic and monetary union.

Question 53

Define rules of origin in terms of trading blocs

Answer 53

Is a system of allocating certificates where a certain amount of products or services must be certified as being produced within that region.

Question 54

Define a economic and monetary union in terms of trading blocs

Answer 54

Is an economic union that uses a common currency

Question 55

Give three examples of trading blocs and explain what they do

Answer 55

``` European union (EU) is a economic union, most powerful in the world, who guarantees the free movement of people, goods and capital. Most members use the Euro as a common currency. ASEAN- Is a common market of South-East Asian countries who’s work together to promote growth and social progress between members. Have similar financial and labour policies. NAFTA- A FTA of North American countries who’s agreement covers trade and investment, labour, financial dealings, intellectual property and environmental issues. ```

Question 56

Explain the factors for businesses to consider with the effect of a trading bloc

Answer 56

Where to produce- locate in a country with the cheapest labour and resources Where to sell- trading blocs can increase market, providing opportunities and threats How to enter market- firms can adapt entry strategy Business strategy- changes where firms can import and export goods

Question 57

Explain the opportunities for a business of a trading bloc

Answer 57

Increased market size More able to exploit economies of scale Resources may be easier to source and labour easier to recruit Greater competition may result in greater efficiency Gives firms better power to negotiate in global market

Question 58

Explain the threats for a business of a trading bloc

Answer 58

Countries outside the trading bloc may provide cheaper and better quality resources than members of bloc Increased competition for smaller firms, put pressure on pricing strategies as larger firms can produce at a lower cost May lead to tensions between members, creating social and political instability, affecting operations