Whole of Theme 4

Why does a healthy labour force lead to Economic development

- Healthy workers miss less days of work

- Lack of health is a burden on resources.

What 3 criteria make up the Human Development Index?

- Life expectancy at birth

- Years of schooling

- Real Gross National Income per capita at Purchasing Power Parity (PPP)

What 4 things causes rapidly growing economies

- Inward investment from MNCs

- More risk taking from local domestic businesses

- More stable government

- Globalisation - Easier access to export markets due to improvement in Communication, Transportation, Freedom in movement cross border

Emerging Economy definition

Economy with rapid growth rates but relatively low GDP

What are the 3 effects of FDI on the domestic society and workers?

- Improved standard of living

- Employment patterns change from primary sector to secondary sector

- Number of skilled workers increase, Increasing the middle class

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What does B.R.I.C.S(A) stands for?

Brazil

Russia

India

China

South Africa

How is health mainly measured?

Life Expectancy

What are the 3 effects of emerging economies growth on UK businesses?

- New markets to export to

- More people with more disposable income to sell to

- Offshoring production

Is the growth of the UK economy higher or lower compared to Emerging economies?

Much lower

What are the main 2 Emerging Economy acronyms studied?

BRICS

MINT

What does MINT stand for?

Mexico

Indonesia

Nigeria

Turkey

Why is the standard of living improved for MNC employees compared to domestic employees?

MNC can afford to pay more than Domestic businesses

What is the main measure of Growth? How is it calculated?

Gross Domestic Product per capita (GDP per capita) - National Income/Population

What is a high GDP associated with?

Higher standard of living

What are the 4 Indicators of growth?

1. GDP Per Capita

2. Literacy

3. Health

4. Human Development Index (HDI)

Why do Literacy Rates rise with economic growth

- Because of Investment in human capital such as education

How does a literate workforce boost economic development?

A literate workforce capable of more complicated work tasks, accelerating further economic growth.

How is a literate workforce a sign of development?

- Shows a country is more able to invest in education leading to higher literacy

2 Reasons why life expectancy is higher is Developed countries?

- Better health care

- Healthier lifestyle

What is the aim of the HDI?

To combine measures of growth to provide a well rounded picture of a countrys economic growth

A Drawback of the HDI

- Does not account for inequalities within a country

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What is Exporting?

Selling of Goods and Services to another country

2 Benefits of exporting for a business

- Increases sales, allowing economies of scale

- Less reliance on Domestic market

What is importing?

Buying goods and services from other countries

How does appreciation of the £ affect importing and exporting?

- Reduces number of exports since they are more expensive (SPICED)

- Increases Imports since they are cheaper (SPICED)

- Less demand

- Less Inflation

- Less Foreign Direct Investment

How does appreciation of the £ lead to less inflation?

- Lower import prices

- Less Exports and Lower Demand

- To remain competitive, firms are forced to cut costs

Why does appreciation of the £ lead to less FDI to the UK?

Because it is now more expensive for them to invest into the UK

How does Depreciation of the £ Affect imports and exports?

- Increased exports meaning more employment

- Inflation rises ( Rise in import prices requires printing more money)

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Main factors contributing to increased globalisation

- Trade Liberalisation

- Political change

- Reduced cost of transport and communication

- Increased significance of transnational

- Increased significance of transnational corporations

- Increased FDI Investment

- Migration

- Growth of global labour force

- Structural change

What is Trade Liberalisation

- A trade agreement that removes Trade Barriers such as Tariffs, Quotas and Regulations

How does Trade Liberalisation encourage globalisation?

Less regulations means Free Movement of Goods and People in and out of the borders

What is a positive effect of trade liberalisation related to market access?

Access to more markets

How do companies reliant on imports benefit from trade liberalisation?

They will enjoy lower costs

What is a drawback of trade liberalisation?

Increased competition coming in

What is a tariff

Tax imposed on imports coming into a country

What are Quotas

Limit on the quantity of a good that can be imported in a year

What are regulations

Rules and paperwork that make it harder for imports to enter a country

An example of political change slow down globalisation

Decisions to leave a Trade Bloc such as Brexit slow down globalisation.

Why has the cost of transport decreased

- Containerisation - The ability to transport larger amounts of goods allowing economies of scale

Why have communication costs decreased

Advances in technology

How does Increased FDI encourage Globalisation

Movement of the Goods, Workers, Technology across borders needed to function abroad

Drawback of increased FDI

Financial crisis can spread easily and quickly

Reason there been a growth in the Global Workforce

People can move across the borders easier

Benefit of growth in the global workforce on the UK

- Easier to fill jobs that would otherwise not be filled

How does Growth of the Labour Force encourage Globalisation

Increased Labour force globally means more offshoring

What is thee primary sector

Agriculture

What is the Secondary sector

Manufacturing

What is the Tertiary sector

Services

Why do economies want to shift from the primary sector

To start being more competitive internationally and exporting to other markets to speed their growth

How does a change in sector encourage globalisation?

A change in sector means an economy is able to start exporting good and services and trading with other countries

What is Protectionism

The attempt to restrict Imports and increase Exports

What is Protectionism the opposite of

Trade Liberalisation

What are the 3 main forms of trade barriers?

Tariffs

Quotas

Legislation and Regulation

What method of Protectionism adds taxes to imports?

Tariffs

What is a Tariff?

Import Taxes

2 Reasons why Tariffs good for Domestic Companys

- Less foreign imports competition

- Domestic Products seem cheaper

A drawback of Tariffs on consumers

- Higher prices on imported goods

What are quotas

A limit on the volume of a product that can be imported in a year

What method of protectionism limits the amount of imports in a year?

Quotas

What effect do quotas have on the price of imported goods

- Pushes them up due to limited supply

2 Benefits of import Quotas on domestic businesses and the unemployed

- Less competition

- Creates more jobs to make up for the lack of imports

1 drawbacks of Quotas on government revenue

No extra revenue from import tax

Drawback of Quotas on domestic consumers

Higher price on imported goods

How can increased government legislation Reduce imports?

- Increased safety regulations could make a product all of a sudden become illegal

What are Domestic Subsidies?

Government paying money to a domestic firm to improve their competitiveness

What do domestic subsidies do allow a domestic firm to do to be more price competitive?

Reduce prices

Benefit to demand of Domestic Subsidies

- Helps to stimulate demand

A Drawback to everyone of Domestic Subsidies

Taxes are increased to pay for these taxes

Trade bloc

Group of countries that agree to reduce or eliminate trade barriers between them eg EU, ASEAN, NAFTA

ASEAN

Association of the Southeast Asian Nations

Benefits of Business within Trade Blocs

1. Access to more markets - More customers

2. External Tariff walls - Tariffs for countries importing from outside the trade bloc

3. Infrastructure support - Government support

4. Free movement of labour

Access to more markets

Free movement of goods allows Access to all markets + customers within trade bloc

External Tariff walls

Tax applied by a trade bloc to goods imported from outside the bloc

Protects Domestic Businesses from External Competition

Infrastructure support

Government may offer businesses additional support to maintain competitiveness with other countries within the trade bloc

Free movement of labour

Allows higher supply of workers

May push wages down, reducing costs for business

Drawbacks of Business within Trade Blocs

1. Increased competition

2. Common Rules + Regulations

3. Retaliation

4. Inefficiency

Increased competition

Number of Competitors increase due to lower trade barriers eg no tariffs

Difficult for smaller firms to compete

Larger businesses may dominate eg economies of scale

Depends on type of business

- Larger businesses may thrive

- Smaller businesses with limited resources may struggle

Common Rules + Regulations

Must follow Trade Blocs rather than your own

- May need to make changes to production processes or train staff on new procedures, increasing costs

- Once standards are met, Long term benefits may outweigh the short term costs

Retaliation

External countries may retaliate to Trade Bloc tariffs

Depends on type of business

- Increases costs for Globalised businesses

exporting/importing outside trade bloc

- Smaller businesses are less effected but it may prevent them expanding globally

Inefficiency

Less competition from external businesses may reduce incentive for innovation/efficiency

Trade Bloc may lead to Trade diversion - Most efficient producers outside the block are replaced with less efficient producers inside the block, leads to higher cost, lower quality

How is economies of scale a pull factor

Opportunities to build a single production site covering a whole continent rather than multiple widespread smaller ones will allow a company to operate on a larger scale allowing economies of scale.

5 Reasons a business would want to target international market

- To reduce their dependence on the domestic market

- To take advantage of fast growing markets

- To achieve economies of scale

- To better serve customers located overseas

- To build brand value

Characteristics of a saturated market

- Stalled or Falling sales

- Lack of product innovation

- Usually durable product markets such as TVs, kettles, toasters

How is increased competition a push factor?

- Competitor may be too powerful to compete with

- It may be better to focus on a foreign market rather than competing

What is a push factor

Issues in the domestic market that push a business to expand internationally.

Examples of push factors

- Saturated market

- Excessive competition

- The need to extend the product life cycle

How is a saturated market a push factor? What products suffer from this most?

- Once a firm has sold their products to everyone in a market, their only option is to expand product range or find a new market to sell existing products in

- Ansoff called this market development

- Firms that sell consumer durables such as televisions suffer from this most

How is the need to extend the product life cycle a push factor?

- A product reaching the decline stage may want to look to international markets to boost sales

- This avoids the cost and risk of launching a new product

What is a pull factor

Opportunities abroad attracting a business to grow by expanding internationally

3 Examples of pull factors

- Economies of scale

- Possibilities for offshoring and outsourcing

- Risk spreading

What is offshoring and outsourcing?

- Outsourcing is delegating business processes to another company or independent contracting for a lower cost

- Offshoring is running a portion of a business in another country for a lower cost

How is the possibility of offshoring and outsourcing a pull factor?

- Lowers the costs of business and may be their only chance of surviving

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What are the 5 Factors to consider

- Levels and growth of disposable income

- Ease of doing business

- Quality of infrastructure

- Political stability

- Exchange rates

What is disposable income?

The amount of money left over after tax

Why are levels of growth an important factor to consider?

As people get wealthier and the middle class grows, they spend more and begin to also spend on luxuries rather than essentials

What 5 factors make up ease of doing business?

- Time + paperwork it takes to set up a company

- Time + paperwork it takes to get a construction permit

- Time it takes to get electricity

- Days to enforce a contract

- Tax rates on imports/exports

Some of these factors like tax rates are more important than others like time it takes to set up a company

What factors make up Quality of infrastructure and why are they important?

- Roads - Goods transported quicker and more efficiently (JIT)

- Wifi - Makes communication within and between businesses easier

- Reliable electricity

- Water