4.1.2 International Trade And Business Growth Flashcards
What are imports ?
• The UK is only a small Island so we need to bring in goods from other countries that we might need. This is called importing.
• Some countries specialise in producing certain goods, and with their low labour costs they can make products at more attractive prices than we can in the UK
What are exports?
• All countries trade with other countries, they send products abroad. This process is called exporting.
• The UK exports:
• Medical supplies
• Cars
• Gas turbines
• And gold….
What is Specialisation
• Specialisation is the process of concentrating on and becoming expert in a particular subject or skill
• In terms of countries it means that a country will have industries in which it leads the world. This may be due to; proximity of raw materials, low labour costs, historical ability or other factors e.g. Belgian chocolate, Scotch whiskey etc.
Benefits to India of specialisation?
A. Increased productivity and output, this means reduced average costs and economies of scale
B. As more resources are devoted to the industry rather than being spread out the scale of production can be increased to gain the EOS
C. This gives the Indian call service industry comparative advantage over the next best country
D. The increased productivity will lead to GDP growth and increasing sales will boost economic growth
The downside of specialisation?
• A country may become over reliant on one industry (eggs in one basket) and this does not spread risk
• Other countries may become cheaper in the same industry and it may be harder to compete
• If the business grows too big it may suffer from DEOS through lack of communication and co- ordination
What is FDI?
• FDI is foreign direct investment – this means that a business from one country decides to establish themselves in another country.
FDI and business growth?
• FDI may decide to build factories or other business premises which will create jobs for the host nation e.g. Microsoft, Facebook and Amazon have all setup in India
• Vodaphone bought an existing business in India and trained up the managers with the latest telecom ideas, so MNCs can bring skills and technology to emerging economies
How can a business gain a competitive advantage when trade
- A business may have particular resources that it can use whoever it goes , such as a business model highly trained and specialist staff
- it may have acquired access to local markets , local resources and materials
- it may be able to better organise and replace separate, cross- border trading enterprises ( exporting and importing) with one firm that does it all.
Why would firms choose to directly invest into a business
- has a high potential for making a profit if it invests in a new location
- needs to maintain control over its subsidiaries in the new market
- is trying to acquire direct knowledge of the local market.
- is attempting to avoid barriers to the market
Why might a firm prefer FDI over exporting or licensing.
- Managers want to keep tight control over operations in the other country or countries. The business may need to share common culture or communication systems or they may want to ensure that agreement are enforced
- It needs to be close to its customers
- it’s products incur high transportation and logistics costs.
- It faces trade barriers or political opposition
- A firm wants to protect its intellectual property ( such as patents , copyrights , trademarks and management know-how)
What are different forms of FDI?
- A joint venture is a collaborative agreement between two parties to invest in a business and share ownership and control.
- Strategic alliances are collaborations created when firms contract to share resources ( often intellectual property in the form of patents or copyrights)
- Buying through cross - border mergers and
acquisitions is the main way that business undertake FDI
Comparative advantage
The theory that a country should specialise in products and service that it can produce more efficiently than other countries.
Competitive advantage
The idea that a business should specialise in any area ( products, service , management, research) where it can perform better than its competitors.
Division of labour
- different workers specialising in different productive activities
International trade
Exporting ( selling abroad ) and importing ( buying from abroad)
