4.1 business

4.1 globalisation

interconnectedness of countries around the world through trade, communication etc. allows businesses to expand beyond home markets and access resources globally

4.1 effects of globalisation

• expanded operations- businesses can open in multiple different countries and source raw materials for a lower cost and manufacture in areas with affordable labour

• global trade networks- firms can buy supplies and sell products to any country, creating opportunities for growth

• growth in developing economies- globalisation helps increase trade and investment to developing economies and develop their living standards

• contrast with developed economies- more economically dependant feature large economies and higher living standards so they benefit from globalisation with the access to new markets and competition from low cost producers.

4.1- KEY TERM: emerging economies

an economy in process of rapid growth

• creates number of trade opportunities for international businesses

• as economy develops, unemployment rates fall so higher income generates demand

4.1 key features of emerging economies

• BRICS (Brazil, Russia, India, China and South Africa)- represent nearly half of global population, offering low labour costs and attracting manufacturing investments as trade barriers decrease

• MINT (Mexico, Indonesia, Nigeria, Turkey) feature youthful, growing populations entering the workforce, with proximity to major markets supporting exports and further growth

4.1-KEY TERM: emerging markets

rapid growth rates over recent years which result in higher average income and development of new industries and markets

• rise in income leads to great demand in both domestic and international market. as market grows, so does the quality of education and skills of labour force

4.1 indicators of growth: GDP

(gross domestic product) key measure of countries economic size and performance. represents total value of goods and services produced in a country over a specific period

• adjusted for inflation to provide real terms so comparisons reflect actual output rather than price changes.

4.1 indicators of growth: GDP limitations

• GDP doesn’t account for wealth distribution, levels of disposable income or living costs meaning it may not fully capture overall living standards or economic inequality

• a country with high overall GDP may still have low individual wealth if population is large

FORMULA: gdp per capita

total GDP/ population

4.1 indicators of growth: health

health of a nation is a good indicator of standard of living as rising health standards indicate economic advancement, they reflect government investment in healthcare and healthier workforce capable of higher productivity

• measures of health:

  • life expectancy

  • death rates

  • infant mortality rates

  • access to clean water

4.1- indicators of growth: literacy

• measures % of people 15+ who can read and write in a country

• give an indication of standard of living in terms of quality of education and skills of the workforce in a country.

• higher literacy rates lead to better quality workforce.

4.1 indicators of growth- human development index

HDI combines life expectancy, average years of schooling and income levels to measure a countries development.

• scores range from 0-1, higher values indicate greater human development and quality of life.

• business looking to expand internationally might use data to analyse potential demand, income and skills within a country.

4.1 positive impacts of economic growth on businesses

• increased demand and opportunities: higher earnings reduce poverty and expand m/c which boosts demand for goods e.g luxury goods.

• business expansion: growing markets encourage higher sales and profits while foreign firms can enter to create jobs and meet rising demand for global brands

• cost saving strategies: companies may relocate for cheaper labour costs or lower transport costs

4.1 negative impacts of economic growth

• offshoring can lead to job losses in the original country, reducing unemployment opportunities there despite benefits abroad

KEY TERM: offshoring

• relocation of a business (e.g manufacturing) from home country to international location to reduce labour costs, access better skills or move closer to new markets

4.1 international trade

exchanging goods and services between countries, including: selling products abroad/ buying materials from overseas

4.1 imports

goods/ services purchased from other countries (e.g importing raw materials)

• imports expand range of products available to consumers and companies (e.g UK imports different fruits they cant grow)

4.1 exports

good/ services sold to other countries

• businesses export to grow by reaching larger markets

4.1 KEY TERM: competitive advantage

gained from adding value where other businesses cannot

• enables a business to achieve higher sales or greater profits than competitors

4.1 competitive advantage: sources

• low production costs

• higher quality

• specialised employees

4.1 KEY TERM: specialisation

businesses concentrate on producing a single product/ limited range of items

benefits of specialisation

• employees can develop an expertise in creating specific items

• production become faster and higher quality

• higher profits

drawbacks of specialisation

• excessive training for employees may be expensive and is often required

KEY TERM: Foreign direct investment (FDI)

direct investment from one country into another country, leading to business becoming an MNC

• more risky than importing/exporting but allows firm to access specialisation and competitive advantages held by foreign businesses

ways to undertake FDI

• merging/ takeover an existing company brand

• setting up new operation overseas

reasons for FDI

• access to local resources

• access to local knowledge and skills

• access to foreign brands

benefits of FDI

• entry to new customer bases, boosting sales

• wages/ manufacturing may be cheaper

• skilled labour, enhancing output

economic impacts of FDI

• in emerging & developing economies, FDI raises living standards

• extra spending from FDI boosts GDP

• economic expansion