Increased globalisation & protectionism

factors increasing globalisation: reduces trade barriers, political change, reduced cost of transport & communication

• International agreements like WTO and regional trade blocs such as NAFTA & EU. Trade liberisation encouraged trade by reducing barriers → better access to new markets and increase competition which drives change/ innovation.

• Political shift towards market orientated & democratic policies → enourage private enterprises/start ups/foreign investments

• Advanced transport increases convenience. Container ships to effectively bulk transport and air freights to move goods quickly → faster delivery & long distances

• Digital revolution & widespread internet availability allows immediate communication with stakeholders across the globe → video confernes,emails reduce need for f2f meetings → consumers exposed to global trends on social media

increased FDI, migration and changes in economic structure

• Capital injections from abroad as businesses seek to enter markets → increase connectivity and developing countries especially benefit (job opportunities, tech, infrastructure)

• Increased migration causes movement of labour (bring new skills/expertise) → often fill sectors with vacancies such as healthcare.

More tax-payers, become consumers which increases demand/speding and improve ageing population issues.

Puts pressure on resources and services, income may be sent abroad/economic leakage

• Shifts in the way an economy/industry operates such as moving from production based to industrialised and service orientated. eg India’s tech services boomed due to global outsourcing such as call centers

TNCs and MNCs

TNC: Same product everywhere and no home country (Shell)

• Decentralised so branches can adapt to local tastes, global stragey focuses on flexibility & responding to different needs and merge operations across boarders (eg. cheaper labour)

MNC: Operates in multiple countries but strong Prescence in home country/based headquarters (Apple)

• Centralised so uses a standardized approach in different regions, prioritise home market needs and operations segmented by county

Protectionism

Government action to protect economic interest of their country and make domestic firms competitive

Tariffs - define & evaluate

By increasing the tax on imports, foreign businesses will face higher costs → increase price → less desirable to customers

• Protects new industries / start ups to eventually become more competitive

• Increases government tax revenue to fund public services

• Keeps local workers in jobs

• Increases the cost of imported raw materials

• Reduces competition for domestic firms could make them inefficient and produce poor-quality products 

• Reduces consumer choice

Quotas

A restriction which limits the amount or value of of goods that can be imported or exported in a given period (regulate vol of trade)

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

• Flexible to change import quotas based on market conditions change

• Foreign countries view a quota as less confrontational (no retaliation)

• Quotas limit the supply of a product so price of the product rises

• They may generate tension in the relationships between trading partners

• Limits the growth of domestic businesses

Government legislation

Policies which makes it difficult to trade internationally such as requiring a license, very specific criteria for manufacture, banned ingredient and paperwork.

• Reduces competition from aboard which allows domestic firms to grow

• Time consuming to write up and monitor

• Can lead to retaliation

Subsidies

Funding to support domestic firms by paying them for every unit successfully produced and exported.

• Encourages growth of domestic businesses

• Reduces costs can lower prices → remain competitive

• Producers gain security → incentive to continue supply such as food

• Businesses could become reliant on governments → less efficient

trade blocs

groups of countries in specific regions that manage and promote trade activities.

Trade liberalisation (free trade with less protectionism/barriers) and trade creation between members..

Impacts depend on..

• The impact of trading blocs on a business is dependent on whether the business trades in or out of the trading bloc. Businesses outside the trading bloc will face higher costs from tariffs and trying to meet legal requirements -> less competitive -> decrease their sales volume to countries within the bloc

pros

Access to more markets: target more customers -> revenue opportunities

Control competition: protects businesses within the trading bloc from external brands

Infrastructure support: may gain additional support from the government to maintain their competitiveness

Free movement of labour: source of skilled workers from a wider pool. A higher supply of labour may push wages lower.

cons

Increased competition: rivalry within the trade bloc which may threaten small businesses, as they have fewer resources available to compete -> increase monopoly  power E.g. UK supermarket industry German supermarkets Aldi and Lidl when the UK was part of the EU

Common rules and regulations: in order to operate as one market, new rules like labour laws/manufacture criteria and clear labelling which all businesses must adhere to -> impractical and adds costs

Retaliation: tariffs set against countries outside of the trading bloc may lead to retaliation, trigger trade war

Inefficiency: less competition may reduce the incentive of businesses to be more efficient