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International Trade & Business Growth - Coggle Diagram
International Trade & Business Growth
Imports
products and services produced abroad that are then transported and consumed domestically.
As the imports, the goods and services arrive, CASH flows OUT of the uk.
to - add choice to the uk / add goods or services the uk no longer produce / production which is cheaper abroad / may be better quality abroad.
Exports
products and services that are produced domestically and then transported and consumed overseas.
As exports, the goods and services leave the uk, CASH flows IN to the uk.
Offers domestic businesses the change to increase sales and improve growth which enables them to enjoy EOS. it also reduces reliance on the domestic market, if the uk were to go into recession, domestic firms can export elsewhere.
Trade is necessary because each country specialises in things they do best, then they trade with others to get products and services they do not specialise in or produce domestically. It makes global economy more productive as a whole.
Business Specialisation
Choosing to produce only one product or products for a single market is commonly used by businesses, shown by porters differentiation or focused cost leadership focus are examples of this.
Boosting Efficiency
For a business choosing to produce just one product, fewer machines will be needed by a multi-product firm. Therefore costs of productions will be lower. Additionally there is a similar effect with training costs, there is no need to provide training to help multi-skill staff in a single product firm. A employee who repeats one task will get quicker and more efficient.
This can gain a competitive advantage as the lower unit costs can lead to either lower selling prices ( by the same as the reduction of unit costs to preserve profit margins but increase competitiveness)
Or a company may decide not to adjust prices or its price competitiveness and settle for a higher profit margin.
Foreign Direct Investment
outward FDI offers business opportunities to grow abroad , the key benefits of FDI rather than simply exporting are; LOWER OPERATING COSTS / avoiding the problems of exporting/ avoiding transport costs/ avoiding trade barriers / access to natural resources / lower operating costs.
INWARD FDI - When foreign companies buy British assets such as property money flows into the Uk. However the subsequent earnings from the investment will flow out direct to the foreign investor.
OUTWARD FDI - FDI occurs when a business purchases a non-current asset in another country. Typically this may involve building production facilities or buying retail outlets..
Why does a country take FDI? Job opportunities / transfer of skills and tech / improvement of infrastructure / driver of economic growth.
Therefore many governments provide incentives to encourage FDI such as tax relief or grants to employ in areas of high unemployment.
However FDI may be a rival to domestic firms, making it difficult for them to survive. and it could cause labour shortages as workers are in demand, leading to rising wages.