4.1.2 international trade nad business growth

imports

• The UK imports goods due to limited domestic resources and geographic size

• Other countries specialise in certain products and offer lower prices due to cheaper labour

• Global trade allows access to better value and variety, but increases reliance on external suppliers

exporting

sending products abroad

• medical supplies

• cars

• gas turbines

• gold

specialisation

• Focused expertise in a specific skill or industry

• Countries lead in certain sectors due to:

  • Access to raw materials

  • Low labour costs

  • Historical expertise

• Examples: Belgian chocolate, Scotch whisky

• Drives global trade and comparative advantage

specialisation and comparative advantage 

• Countries specialise in industries where they have a natural or strategic edge

• Example: India specialises in IT due to its large pool of English-speaking graduates

• This enables cost-effective services like call centres for overseas firms

• Comparative advantage boosts global trade and competitiveness

• Other examples: UK beer brewing, Indian garments

benefits of specialisation

1. Higher productivity and output → leads to lower average costs and economies of scale

2. Focused resource allocation → boosts production scale and efficiency

3. Comparative advantage → makes industries globally competitive

4. GDP growth → increased sales and productivity drive national economic expansion

drawbacks of specialisation 

• Over-reliance on one industry → increases vulnerability, limits risk-spreading

• Global competition → other countries may offer cheaper alternatives, reducing competitiveness

• Diseconomies of scale → large firms may face coordination and communication issues

• Real-world examples:

• Santander and UK mobile firms moved call centres back to the UK due to customer dissatisfaction with overseas services

FDI

• Definition: When a business purchases a foreign company or sets up production in another country

• Involves the movement of capital across borders to support international operations

FDI explained , 3 main forms

• FDI = Money from one country invested in another

• a business decision to acquire a substantial stake in a foreign business or to buy it outright to expand its operations into a new region 

• Three main forms:

  1. Building a new factory abroad

  1. Merging with or acquiring a foreign company

  1. Investing in an existing overseas firm

• Enables MNCs to expand operations, access new markets, and reduce costs

• Drives globalisation by deepening international economic ties