4.1 The market

Emerging economies

Economies that have increasing growth rates but relatively low income per capita e.g. china and Brazil

Globalisation

The economic integration of different countries through increasing freedoms in the cross border movement of people, goods/services, technology and finance

BRICS

Brazil, Russia, India, China, South Africa

MINT

Mexico, Indonesia, Nigeria, Turkey

Indicators of growth

Gross domestic product, literacy, health, human development index

GDP

Total output of a country divided by the number of people in the same country

High= high standard of living

Useful indicator to compare the growth of countries

Literacy

% of adults within an economy who can read and write

Heaths

Key indicators: avg life expectancy, infant mortality rates, access to health care and access to clean water

Impacts the quality of workforce and therefore whether businesses want to invest there

Human development index

Combines life expectancy, education level and income to determine the quality of development of citizens within a country

Imports

Goods and services bought by people and businesses in one country from another country

Exports

Goods and services sold by domestic businesses to people or businesses in foreign countries

Specialisation

Occurs when a country / business decides to focus on producing a particular good or service

Competitive advantage

When a business specialises they can have higher quality products so can add value to their products to gain advantage over their competition

FDI

Foreign Direct investment is investment by foreign firms which results in more than 10% share of ownership of domestic firms

Reasons for FDI

• Access to local resources

• Access to local knowledge and skills

• Access to infrastructure and complementary industries

• Investment in expanding industry and fast growing profitable businesses

• Access to foreign branches

FDI benefits

• Increased economic growth as there is any inflow of money into the country

• Increased job opportunities

• Access to knowledge and expertise from foreign investors

Horizontal FDI

Occurs when a business invests in the same industry or sector in host country as in home country e.g. McDonalds invests in the same industry (fast food)

Vertical FDI

Occurs when a MNC invests in foreign businesses that are part of the supply chain e.g. Toyota purchase a tyre manufacturer

Trade liberalisation

The removal or reduction of barriers to trade between different countries

Trade liberalisation benefits

• Allows businesses to increase their market size → increased output and benefits from economies of scale

• Free trade helps businesses to reduce costs as imported raw materials and components can be sourced cheaply → business is more competitive

Trade liberalisation drawbacks

• Domestic firms → infant industries may not be able to compete against international firms

• Some industries may be subject to dumping as businesses abroad may sell excess product at unfairly low prices

Factors contributing to globalisation

• Political change

• Growth of structural change

• Growth of the global labour force

• Migration

• Increased investment flow

• Increased significance of global companies (TNCs)

• Reduced cost of transport and communication

Political change

Changes in the gov of a country can influence the country’s trading attitude

Reduced costs of transport and communication

Economies of scale → containerisation

Tech improvements → sellers and buyers to connect easiler

Increased significance of TNCs

Businesses operate in more than one country → HQ in one country and then branches in other countries

FDI increase (investment)

Job and wealth creation within an economy

Establish in countries where trade barriers may face businesses

Migration

Movement of people → flexibility of jobs

Growth of labour force

Grown significantly → china and India → emerging economies

Structural change

Country, industry or market changes which sector or industry they operate in → offshoring often occurs

Protectionism

When a gov seeks to protect domestic industries from foreign competition

Protectionism measures

• Tariffs

• Import quotas

• Legislations and domestic subsidies

Tariff

A tax placed on imported goods from other countries → increases the price of imported goods → helps to shift demand to domestic businesses / products

Tariff benefits

• Protect infant industries

• Increase in gov tax reve

Tariff drawbacks

• Increases the cost of imported raw materials → affect businesses who use these goods for production = higher consumer prices

• Reduces competition for domestic firms who may become more inefficient and produce poor quality products for consumption

Import quotas

Government imposed limit on the amount of a particular product allowed into the country

Import quota benefits

• To meet the extra demand → domestic businesses may need to hire more workers → reduces unemployment and benefits the wider economy

• The higher prices for a the product may encourage new businesses to start up in the industry

• Countries are able to easily change import quotas as market conditions change

• Foreign countries view quota as less confrontational to their business interests than tariffs → exports can still sell goods at higher price in domestic markets (limited amount)

Import quotas drawbacks

• Quotas limit the supply of a product and whenever supply is limited price rises

• They may generate tension in the relationship with trading partners

• Domestic firms may become more inefficient over time as the use of quotas reduces the level of competition

Government legislation

Impose laws to restrict certain imports to protect customers and businesses e.g. US chicken is banned in the UK → health and safety reasons

Government legislation benefits

Domestic businesses can grow as limits competition

Government legislation cons

Face retaliation from other countries

Domestic subsidies

Payments are given to domestic businesses to help lower their cost of production e.g. post brexit, UK gov provides subsidies to farmers to reduce the costs

Domestic subsidies pros

Reduced costs = lower prices → domestic firms more competitive and jobs protected

Domestic subsidies cons

Businesses could become inefficient as they know that costs are subsidised

trading bloc

a group of countries that form an agreement to reduce or eliminate protectionist measures between each other

EU and the single market

• formed in 1993

• countries can apply and there are 27 members (jan 2025)

• being a member included free movement of goods and people

• have common external trade barriers outside of the UK

• uk voted to leave the EU in 2016 and officially left in 2020

• switzerland and norway are not members

Association of Southeast Asian Nations (ASEAN)

• formed in 1967

• 10 countries (jan 2025)

• less integrated than EU- no free movement of people

• does allow for free movement of goods lowering business costs, increasing market size and helps businesses achieve economies of scale

North American Free Trade Agreement (NAFTA)

• formed in 1994

• now referred to as USMCA (United States, Mexico, Canada Agreement)

• many US businesses relocated to MExico → cheaper production costs and products could be imported back without paying tariffs

• mexico benefited positively but it mainly occurred in the north close to the border

the impact of trading blocs on businesses

the level of impact on trading blocs on businesses is mainly determined by whether the business trades within or outside of a trading bloc

businesses that are outside of the bloc will face protectionist measures

this means that prices may need to increase to increase profits making them less competitive compared to domestic options

trading bloc benefits

• wider markets

• external tariff walls

• infrastructure support

• free movement of labour

trading bloc drawbacks

• increased competition

• common rules and regulations

• retaliation

• inefficiency

trade diversion

trade is taken away from efficient producers outside of the bloc to be replaced with those inside the bloc