4.1.2 international trade and business growth

imports

• goods and services bought by people and businesses in one country from another country

• result in money leaving the country which generates extra revenue for foreign businesses

exports

• goods and services sold by domestic businesses to people or businesses in other countries

• generate extra revenue for businesses selling their goods their goods abroad

why do countries import

• access to global markets

• countries can acquire what they lack domestically

• a wider range of choices

• lower prices for consumers

why do countries export

• gain access to larger markets for their goods and services

• job creation

• increased competition & innovation

• increased income & economic growth

why has international trade become easier

• globalisation: countries are more connected through trade, technology & business so companies buy and sell across borders to reach new markets & access cheaper resources

• improved transport: faster, cheaper & more reliable

• advances in communication: instant communication allows businesses to manage global operations, make deals & track shipments quickly

specialisation

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

• can increase the quantity and quality of goods and services produced. this has benefits including

  • lower unit costs due to economies of scale as costs are spread over a large output

    • allows business to lower prices leading to more sales

    • or allows them to increase their profit margins

• can help a business gain competitive advantage

  • they can increase the value added on their goods/services which can help gain advantage over their competitors

benefits of specialisation

• efficiency: countries focus on what they do best, saving time & money

• higher output: produces more goods at lower cost

• better quality: workers & firms gain expertise, improving quality and innovation, therefore reducing waste

• lower prices: efficiency & global competition reduces prices

• bigger markets: access to global customers increases sales & profits

• higher living standards: more trade, jobs & consumer choice worldwide

downsides of specialisation

• country may become over reliant on one industry

• other countries may become cheaper in the same industry and it may be harder to compete

• if the business grows too big it may suffer from diseconomies of scale through lack of communication and coordination

trade liberalisation

• process where international trade is made easier through relaxation of tariffs and barriers

• increases trade by:

  • lower taxes on imports & exports make goods cheaper

  • fewer restrictions encourage businesses to trade globally

  • countries can specialise in what they produce best & trade for the rest

  • by reducing barriers, trade liberalisation helps boost international trade and strengthens global connections

foreign direct investment

• a business from one country decides to establish themselves in another country

• may decide to build factories or other business premises which will create jobs for the host nation

• why take FDI:

  • job opportunities/ reduce unemployment

  • transfer skills / technology

  • improvement of infrastructure

  • a significant driver if economic growth

• government incentives to bring FDI:

  • tax relief

  • cash payments for employing in areas of high unemployment