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BUSINESS THEME 4 - TOPIC 4.1 - GLOBALISATION - Coggle Diagram
BUSINESS THEME 4 - TOPIC 4.1 - GLOBALISATION
4.1.1 Growing Economies
Growth rate of the UK compared to emerging economies
developed economies:
high standard of living with high incomes and generous welfare provision
slow economic growth
small primary sectors, shrinking secondary sectors and large tertiary
high education levels
e.g Europe, North America
emerging economies:
rising standard of living
economic growth is rapid
declining primary sector, largest is second sector but growing tertiary
e.g China, India, Nigeria
developing economies (LIC's):
low standard of living
large primary sector
labour intensive due to skill shortage and poor education
e.g many Asian, African countries
mature economies e.g UK tend to average 2-2.5% economic growth per year
the process of transforming from developing to mature typically takes 30 years
implications of economic growth for individuals and businesses
economic growth means more is produced
this needs more resources including labour
employment is therefore created which leads to further demand and growth
migration
rising demand
globalised labour market
Indicators of growth
Gross Domestic Product
measures the value of all goods and services produced within an economy in a year
drawbacks
doesn't show
inequality
exchange rates
make international comparison hard
cost of living
varies from country to country
the hidden economy
home grown and produced goods
Literacy
there is a strong link between literacy and economic efficiency and growth
Health
- workers who are health are more likely to be more productive
HDI
- a measure of 0-1.0 that combines multiple factors
the three strands are
income
(GNI per capita),
Life expectancy
and
Time spent in schools
4.1.2 International trade and business growth
Exports and Imports
a good or service that enters a country from abroad is an
import
when that country produces a product and sells it to another country it is an
export
The link between business specialisation and competitive advantage
In international trade most economies will specialise to some extent by producing the things they're best at
specialisation
refers to the process by which individuals, businesses and economies concentrate on creating and selling those goods and services that they produce most efficiently
pros
goods and services produced more cheap
competitive advantage enhanced
EoS as output increases
export earnings increased
increased output + efficiency
cons
structural employment issues if demand falls
reliance on importing other goods
all eggs in one basket
over-reliance one one area of economy
FDI and it's link to business growth
FDI
is the flow of investment from one country to another and it occurs when a business with its head office in one country, sets up factories, offices or distribution outlets in another country
can be associated with the outsourcing of production in countries with lower costs
4.1.4 Protectionism
protectionism involves any policy that restricts international trade in order to minimise competition from foreign businesses or alternatively providing subsidies to own industries
Tariffs
A tariff is a tax or duty placed on an imported good
Consumers will either then not buy or find alternatives due to the higher price
however it's less when the goods inelastic
Import quotas
A quota is a physical limit placed on the amount of imports allowed to enter a country in a given period
This restricts supply and raises price of the product
Government Legislation
keeping the exchange rate low makes imports more expensive
Higher prices + subsidies
Subsidies allow domestic industries to lower prices and be more internationally competitive
How protection constrains businesses
Majority of businesses want to keep trade barriers low in order to access new markets but a few industries e.g Steel in the US face strong competition from imports
4.1.5 Trading blocs
Trade blocs
are groups of countries where barriers to trade are reduced or eliminated between members
Free trade areas
are groups of countries that trade completely freely, with few or no trade barriers, but members retain its own trade policies on the rest of the world
Common markets
have completely free trade and a unified policy on the rest of the world. In addition there's free movement of goods, services, people and capital
A
single market
goes one further and they have harmonised business regulations too
Benefits
Access to member country markets without trade restrictions increases exports
No tariffs on imports means lower prices for consumers
EoS
Spreads risk
More competition can increase efficiency
Constraints for Free Trade Areas...
No protection when competing with bloc members
Stiffer competition form domestic producers
For common markets...
A common external tariff can increase costs of raw materials outside of bloc
Harmonised regulations may not suit all businesses
Overall Impact
businesses can increase exports
Businesses will face competition from member countries
But competition provides an incentive
4.1.3 Factors contributing to increased globalisation
Reduction of international trade barriers + trade liberalisation
Total trade in 2000 was 22x what it was in 1950
A trade barrier is anything that stops, restricts or impedes trade between countries and reduces the total amount of trade taking place e.g tariffs + quotas
Trade liberalisation refers to the process of limiting and reducing barriers to trade so economies move closer to free trade e.g having no trade barriers at all
Countries may try to restrict trade due to foreign competition effecting domestic consumption, but restriction had been reduced through things such as trade blocs
Political Change
The collapse of communist rule in Eastern Europe in 1989 + Soviet Empire in 1991 opened up these areas for business
Influence of China being allowed to trade
Increased significance of TNC's
TNC's are businesses with operations in more than one country
They're both a cause + consequence of globalisation; as trade increases, barriers come down and they expand into new markets
Increased investment flows (FDI)
FDI finances development with TNC's providing employment, technology transfer and access to international markets
Migration (within + between countries)
Growth of global labour force
Alongside globalisation, the global labour force has grown with migration
Better education and more women's rights increase it too
Structural change
A move away from secondary sectors for many countries mean they need to trade for these goods