6.1 external influences on business activity chapter 6

Importance of international trade and its impact

importance: countries such as China, USA, and the EU has great impact on their economic development, by trading together, countries can also build improved business, political and social links'

risk: may be loss of output and jobs from domestic firms that cannot compete effectively with imported goods

how international trade agreements might have impact business

• trade agreements often lower or eliminate tariffs between member countries, reducing the cost of importing and exporting goods. This benefits businesses by making raw materials, components, and products more affordable, increasing profit margins and competitiveness.

• specialization can lead to economies of scale and further cost and price benefits

protectionism

the use of barriers to free trade to protect a country’s domestic industries

tariff

a tax imposed on an imported product

quota

a physical limit placed o the quantity of imports of certain products

voluntary export limits

agreed limits to the quantity of certain goods sold by one countries to another

role of technologies in international trade

• Blockchain: these technologies are speeding up the finance arrangements needed for international trade and reducing the cost of trade finance

• Artificiality intelligence and machine learning: these can be used to establish the most cost-effective trade shipping routes, manage ship and truck traffic at ports efficiently by having route planning which is considered real-time weather, ocean currents, and fuel prices to identify the most efficient routes, saving fuel and reducing costs. ML models can predict optimal speeds and adjust routes to avoid delays or adverse conditions, further saving fuel and reducing emissions.

• New digital platforms: bringing together service providers - educators, web developers, accountants, and others - with potential global customers

• Mobile payments: using mobile technologies, enabling to buy products online.

relationship between MNC and governments

the relationship between MNCs and governments is reciprocal, where businesses gain market access, resources, and regulatory support, while governments benefit from economic growth, revenue, and infrastructure development. Balancing these interests requires collaboration, as both parties aim to achieve mutually beneficial outcomes while addressing challenges like compliance, trade, and sustainability.

advantages and disadvantages of MNC bring to a country

• advantages:

  • Local firms benefit from supplying service and components, generating additional jobs and incomes

  • Tax and revenues are boosted from profits made by the multinational

• disadvantages:

  • local competing firms may be squeezed out of business due to inferior equipment and much smaller resources than the multinational

  • profits sent back to the country where the head office is based, rather than kept for re-investment in the host nation

The advanatges and disadvantages of privatisation

• Advantages

  • Business may prioritize in taking decision for financial reason rather than for political reasons.

  • Business may make decision faster, as public business can be slow in making a decision

• Disadvantages

  • Privately operate business that compete with each other may unable to work and collaborate together that may benefit the whole country.

  • If a comopany is being privatised, it may have a potential in gaining power in monopolizing, which can be concerned by consumers due to its high price.

advantages and disadvantages of nationalisation

• Advantages:

  • Government may prevent monopolization by another competing business.

  • Government may have a control of major industries

• Disadvantages:

  • Government may be considered in intervene too much in business decision-making for political reason'

  • Removes the ability of the industry to raise finanve from private sources

how government may use law to control:

• employment practies

• conditions of work

• wage levels

• marketing behaviour

• competiitons

• Employment practices

  • holiday amd pension entitlements

  • protection against unfair dismissal

• Conditions at work

  • using safety equipment for staffs

  • provide hygienic facilities like clean toilets

• wage levels

  • to meet standard of living cost

  • prevent exploitation of poorly organised workers by powerful employers

• marketing behaviour

  • can’t use misleading advertising information

  • use a guaranteed quality of product and service to ensure fair rights to consumers

• competitions

  • to control monopoly activity snd prevent mergers in creating monopoly

  • to have low price of product so consumers can access

impact of changes in political and legal factors on business and business decisions

• Businesses must adapt strategies to comply with new laws or respond to political risks, such as entering or exiting specific markets.

• CSR and legal pressures encourage businesses to invest in innovation, such as eco-friendly products and sustainable practices.

How government may help individuals in business and encourage enterprise?

• Offering loan guarantee schemes

• Providing information, knowledge and advice for new entrepreneurs

• reduce paperwork and legal formalities needed to set up new business

how government might intervene to constrain business activity

• subsidies in hope to keep the price down

• grants to relocate business into areas with high unemployment

how governments help business in market failure

• When external costs are not included in the market price, goods or services are sold at a lower price than their true societal cost. This leads to overproduction and overconsumption.

  • So, governments help by impose fees for activities that lead to external costs, such as driving in congested urban areas.

• Inadequate provisions of skills training can lead to market failure by causing inefficiencies in the labor market and reducing overall economic productivity. This leads to a skills mismatch where companies struggle to find qualified workers despite high unemployment.

  • So, government could pay for more training courses at college funded from general taxation.

the macroeconomic objectives of governments

• Economic growth - the annual percentage increase in a country’s total level of output - known as GDP

• low inflation: the rate at which consumer prices on average, increase each year

• long-term balance between the value of imports and exports

How macroeconomic objective