4.1.2 International trade and business growth

Protectionism

Methods used by governments to reduce imports e.g. increase tariffs (tax). Boosts sales in their country.

Comparative advantage

The ability to produce products more efficiently than other countries.

Divison of labour

Separating workers into different activities or roles. Taylor- “workers should work, managers should manage”. They shouldn’t choose what they do.

Foreign direct investment (FDI)

Investing by setting up operations or buying assets in businesses in other countries.

The three ways FDI is done?

By opening factories or offices.

Retail stores/outlets.

Can purchase shares.

Tariff

Tax on imports.

Exports

Rising demand means higher sales and opportunities for growth. Exports create jobs, increase GDP and improve the Bop (balance of payments- financial account tracking inflows and outflows).

Imports

Businesses may import raw materials which are turned into finished goods and then exported. Increased global sales enables growth and can take advantage of EoS. This leads to a competitive advantage.

Specialisation

Where a business focuses on a limited number of products and services.

How does specialisation create a competitive advantage?

It means greater efficiency, reducing average cost per unit. As they can produce at a lower cost than rivals they have a comparative advantage. They can charge lower prices and adopt an aggressive pricing strategy (penetration) when entering new markets. This competitive advantage can facilitate business growth and they can expand from MEDCs to LEDCs (lower incomes).

Specialisation broad positive impacts

Reduced unemployment, increased productivity, increase profits means more business investment, increased demand for overall exports, increased economic growth.

Specialisation broad negative impacts

Over-reliant on a narrow range of goods/services, risk of diseconomies of scale, may not be demanded in the future (fashion/trends), interdependence on other countries for imports.

FDI and business growth

Foreign businesses set up operations in the UK. This includes setting up factories, sourcing components, offices for sales and R&D facilities.