4.1 Globalisation

Globalisation

The process by which economies have become more integrated and inter-dependent. 

Developed economy

Industrialised, high income economies with good infrastructure and high living standards. 

Emerging Economies (BRICS)

economies in transition: they are usually experiencing industrialisation, rapid economic growth, improving infrastructure and rising living standards. 

 

MINT

Mexico, Indonesia, Nigeria, Turkey

What are some Business opportunities in Emerging markets?

1. Growing middle class- Increase consumer spend

2. demand is elastic

3. culture shifts

4. demand for infrastructure

5. source of high skilled labour

6. Lower cost labour

What are the business threats for emerging markets?

1. Undervalued currency

2. inadequate protection of brands

3. state subsidy of industry

4. large pool of low paid- skilled labour

What are the risks of investing into an emerging market?

1. Political instability

2. Cultural differences- Glocalisation

3. Corrupt governments- bad human rights

4. emerging markets become exporters

5. competition

6. protectionism

7. employment patterns- relocation/ lack of

GDP

Market value of all final goods and services produced in a year

GDP per capita

GDP / Population

HDI

Human development Index, measures progress of development. Health

What does globalisation include?

1. trading

2. Expansion of financial capital flows

3. FDI

4. Increasing global brands

5. increased international migration

What factors have caused gloablisation?

1. Trade Liberalisation- less trade barriers and tariffs

2. political change- changing policies

3. reduced transportation- containerisation

4. increased of global economies- TNC

5. migration- Brain drain

6. structural change

7. increased investment (FDI)

What are the Economic and corporate benefits of globalisation

1. increased growth

2. lower prices

3. international potential

4. increased choice

5. free trade

6. access to labour

7. production and sourcing

8. sales

What are the Economic and corporate disadvantages of globalisation

1. Income inequality

2. dominance of global trade by rich

3. exploitation

4. unemployment

5. Race to the bottom

6. using up materials

7. cultural differences

8. risk costs will rise

economic development of a country can be measured by

• GDP and GDP per capita 

• Literacy rats 

• Health statistics, e.g. life expectancy 

• HDI 

Human Development Index

This is a composite measure (based on more than one measure) of economic development.

What does HDi not include?

HDI looks at averages. It does not take into account: 

• Income inequality  

• Gender inequality  

• Regional inequality  

Specialisation

Business concentrates on producing a specific range of products or services

What are the advantages of specialisation

1. skilled workforce

2. Diffrenciation

3. lower costs- less mashinary

4. economies of scale

5. increased in employment in that area

What are the disadvantages of specialisation

1. Risks arent spread

2. uncertain income

3. vulnerable to competition

4. Is it sustainable- Resources

Specialisation risks

over-reliance, uncertain income and is it sustainable

FDI

When a company invests into another country to allow growth

What methods are there to join a new market?

1. Exporting

2. Cross-Border Mergers

3. FDI

What is the difference between horizontal and vertical FDI

Horizontal- Duplicating production

Vertical- production occurs in different places. Increasing supply chains

What’s the difference between inward and outward FDI?

Inward FDI – Flows of capital into a country, e.g. a foreign firm invests in the UK, e.g. by opening a factory or buying a UK-based business. 

 

Outward FDI - Flows of capital out of a country, e.g. a UK-based firm invests in the another country, e.g. by opening a factory or buying a foreign business. 

What are the Benefits of FDI?

1. low labour costs

2. avoid protectionist measures

3. operate closer to raw materials

Protectionsim

Implementing measures designed to restrict free trade or reduce the level of imports

Why would you reduce imports?

1. protect jobs

2. restrict those with bad human rights

3. retaliation

4. prevents dumping

Infant industry

unable to compete so they restrict imports

dumping

Countries release extra products and sell in another market

What are the negatives of globalisation

Unemployment, falling wage rates, dependence on other nations, negative impacts on MNCs

What are the 4 methods to protect

1. Tariffs- Tax that raise price of imports

2. quotas- physical limits on imports

3. Subsides- Payments from governments

4. Government legislation- complex legal forms

Pros and cons for tariffs

pro- Reduces imports, can retaliate

Cons- higher prices, Depends on the PED for imports

Pros and Cons for quotas

pro- reduce imports, Doesn’t raise consumer price

Cons- limits choice, encourages black market

Pros and cons for subsidies

pros- reduces consumer price

Cons- Increase gov spending, increase taxes for funding

Government Legislation pros and cons

pro- improve quality, reduce negative affect on environment

con- raise costs, difficult to check

What are the Pros and Cons of Protectionism

Pro- protected by competition, guaranteed stability

Cons- Loss of export Markets, reduced economies of scale

Trading blocs

Governments of different countries who agree to trade together freely

Free trade area –

members agree to trade liberalisation, by either reducing or eliminating trade barriers for all goods and services.  

Customers union

Countries in the trading bloc apply the same tariffs, quotas and other trade barriers to all goods entering the bloc.  

Single (common) market –

a highly integrated trading bloc involving free trade on goods and services, a customs union and free movement of labour and capital . 

What are the 5 types of trade blocs?

1. Preferential trade blocs- reduce trade for some goods

2. Free trade area- reduce all trade in an area

3. customs union- remove barriers inside and increase barriers outside

4. Common Market- Removal of barriers and free movement

5. economic unions- share common economic policies

Comparisons between WTO and Trade Blocs

Similarities- reduce trade barriers, economies of scale

differences- WTO distorts trade barriers, allocates resources inefficiently

Facts about the EU

1. 2016 - 28 Members

2. Free trade goods

3. EU has 30% of global GDP

What impacts does Trade Blocs have on Businesses

Pro- Access to new markets, Economies of scale, access to knowledge, lower variable costs, higher sales

Cons- Decrease trade within countries not in bloc, Power isnt even.