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4 key drivers of economic development

- inward investment from MNCs

- more enterprising behaviour from local businesses

- more stable governments

- easier access to export markets due to improvements in communication and transport; globalisation

Growth rate of the UK economy compared to other growing economies

- UK growth in GDP is 2.25% per year but emerging economies such as Bangladesh, China and India have been experiencing more rapid growth

What growing economic power of South-East Asia means for businesses

China has acted a manufacturing hub that look for suppliers with cheaper transport costs

- So other Asian economies such as Vietnam and Cambodia have seen rapid growth; they have also built their own manufacturing base where they offer lower production costs and cheaper labour

Advantages of economic growth for businesses

- New export opportunities as domestic businesses can discover new markets to export

- Offshoring production (offshoring is the process of a business function to another country to generally lower costs) will exploit production costs to profit margins

- more investment in machinery and increased employability improves producitivity

Disadvantage of economic growth for businesses

- May mean that UK businesses are dependent on these countries with that are specialised in those sectors

- offshoring means they have to pay for transport costs

- increased domestic competition as MNCs move to country, making market more saturated

Implications of economic growth on the individual

- change in employment patterns as countries move towards secondary/tertiary sector; higher income means people have more disposable income

- increasing skills in the economy

What is an economy

the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services.

Indicators of growth and how they can affect a business

GDP per capita (shows the average levels of income per head of population); earning more means they'll spend more especially on luxury items

HDI; well-rounded overview on economic growth as well as health and education

Literacy Rate; literate workforce means higher skills in the economy allowing for tertiary sectors to expand + allows workforce to have a higher income

Health: healthier living means less staff absenteeism and higher productivity

fixed capital formation

an economist's way of saying investment in long-term assets, such as roads or buildings.

- China is prime example as its government has spent capital on infrastructure, schools and hospitals to reinforce a growth path; it has also got a large about on FDI as businesses take advantage of the low wage costs - India have lagged behind on this but have an advantage through its growing younger population China hasn't got this due to their attempts to limit their population over the past 20 years

India's economic failures

- not that straight forward as they mostly export "invisibles" such as software engineering and running call centres

- India's education is not good for the masses as 29% of its population is illiterate so these people cannot take on high skilled jobs but in China 95% of its economy is literate

- India is importing more than exporting

- inflation is mostly curbed by high interest rates with halts growth when the economy "overheats" during production acceleration

China vs America

-China has a higher GDP than America however it has a higher population therefore it's GDP per capital is much lower than America

- China's growth is heavily dependent on low wage manufacturing which is attractive to TNCs

- not many environmental legislation in China which is a concern as the manufacturing sector emits many pollutants

Opportunities for British Businesses in Asia (and counter points)

- export opportunities as westernised products are heavily demanded and can charge higher price for quality; depends on how well known the brand is in these countries

- British service companies such as finance and the arts may want to establish themselves in a rapidly growing sector of the Chinese economy; may conflict against desires shareholders who want quick short termism profits as these services will take time to establish themselves in these major markets

- many economic commentators have said these rapidly growing economies will eventually implode due to outstanding growth

Opportunities for UK businesses in Africa (and counter points)

- places like oil-rich Nigeria there is a lot of wealth in the top %, can be targeted by high-end UK businesses and retailers to sell products of high price; but may be low quantity sold as it is only a few % of people- may not get repeat purchases if it high quality due to the lack of planned obsolescence

- Nigeria has seen economic development so there will be an increase in middle class people with disposable income; corruption may mean local officials expect payment to allow a firm to receive a licence or permissions, so costs increase

- poor infrastructure could make transporting goods difficult e.g. if there are no road links available- could be difficult if the government is not stable which may cause major disruptions if laws are changing, reduced reliability of stock

- investors could be skeptical about investing in a business which is taking a risk by expanding to Africa (due to low income and unstable economy); business may lose out on investors and finance

What are imports? and why do we import?

goods brought into a country from another country

- foreign brands add to choice for UK consumers

- goods may not be produced in the UK

- source of materials may be produced cheaply elsewhere or better quality

* goods and services arrive to the UK and cash flows out of the UK

What are exports? and why do we export?

goods and services that are produced domestically and sold abroad

- allows to access newer markets and increase sales, benefit of economies of scale

- avoid reliance on domestic market

- if home economy is faced with recession, exporting to a foreign country may cause the firm to unaffected by recession

*goods and services flow out of the UK and cash flows into the UK

What is business specialisation? + how it can boost efficiency + counterpoint

- choosing to produce one product or products for a single market

- producing one product means that fewer machinery is needed than by a multi-purpose firm- increase economies of scale through mass/ flow production + however can make the business over-reliant on one market which does not spread risk

- don't need to pay for training to help multi-skill staff working in a single product firm

- Friedrich Taylor believed that "practice makes perfect" so an employee repeating a task again and again will make then quicker at that task, boosting efficiency

link between business specialisation and competitive advantage + counter point

- business specialisation improves efficiency which ultimately lowers unit costs through economies of scale

- lowering unit costs means that the company can pass on lower prices to the customer whilst maintaining their profit margins which boosts competitiveness within the market. Reducing price will improve sales + depends on their PED, if price elastic then the above will occur, if price inelastic, there will be no point cutting price as the increase in unit sales will be marginal

- also not lowering prices to the consumer will boost profit margins allowing the business to reinvest in r&d or satisfy shareholders

FDI

Foreign Direct Investment - Investment made by a foreign company in the economy of another country (when a British business buys non-current assets abroad)

- typically involves building production facitlites or buying retail outlets

- can include takeovers of foreign businesses (outward FDI)

- also flow inwards when foreign businesses invest in UK businesses but earnings such as rent on UK property will flow out of the UK

benefits of FDI

- can avoid problems involving administration and bureaucracy when exporting if goods are made and sold in the same country + avoid transport and tariff costs

- closer access to natural resources such as mining as UK businesses must go and built the extraction facilities

- lower operating costs as businesses tend to invest in places with lower labour or land costs which reduces the cost of production

what is globalisation

Globalisation is the process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange.

What is trade liberalisation + why it is beneficial for an economy

- removing barriers to trade through relaxations of tariffs, quotas (physical limits) and regulation

- after trade agreements were made, the world felt the benefits of multi-lateral trade liberalisation as it raised living standards for developing countries who were able to export their goods to industrialised countries without having to pay huge tariffs.

benefits and drawbacks of trade liberalisation

- new jobs for unskilled workers in labour intensive manufacturing

- companies that relied on imported materials can enjoy lower costs enabling them to reduce prices to compete with cheaper imported rivals

- consumer can also experience a larger range of goods and services

- increase export opportunities

- allowing imports into a domestic market will increase competition for domestic firms and profit margins may be squeezed

- over-cultivation of land and extra pollution to keep up with demand

How political change can impact globalisation

- increase in political stability e.g. China

- multi-national organisations such as WTO decide on policy on a global scale

- less protectionism and more open trade

G7

- USA

- Japan

- Germany

- UK

- Italy

- France

- Canada

- seven major advanced economies with 64% of the net global wealth

Factors contributing to increased globalisation

- Trade Liberalisation

- reduced cost of transport and communication

- TNCs

- Increased FDI

- Migration

- Global laboour force

- structural change

How costs of transport and communication has impacted globalisation?

- reduced by cargo containers and larger trains and vessels to allow for container economies of scale

- advancements of technology have led to the discovery of more efficient fuels which reduced engine consumption and therefore costs

- technology such as Internet has led to faster communication and countries are no longer isolated from the global market place

TNCs impacting globalisation

- operate in more than one country as they benefit from economies of scale

in which local businesses face competition and struggle to pass on cheap prices to consumer

downside to globalisation

- a recession/ financial crisis in one part of the world can spread through the whole global financial system

Growth of Global Labour Force in Globalisation

- UK businesses benefit from cheap labour in offshore production

- shortage of skilled staff in the UK means business recruit from abroad in order to fill jobs

What is structural change? and how does it impact globalisation'\#?

- An economic condition that occurs when an industry changes the way it operates e.g. moving from primary to secondary to tertiary sector

- countries are able to pull themselves out of poverty by moving away from the primary sector ; increase income

What is protectionism? tariffs? quotas?

- protectionism is the practicing of protecting domestic industries from foreign competition by taxing imports (tariffs), limiting quantities of goods coming in (quotas) or through regulation

Impact on tariffs on a business

- helps protect the fledging (emerging) industries from foreign competition as it drives the range of affordable choice for the consumer down so consumers have no choice but to buy the domestic goods however depends on elasticity of product; consumer may still want to buy it

- protect the ageing industries and maintain structural unemployment; protect jobs of firms whose rivals are being taxed but push up prices for the customer, reducing consumers ability to buy the product and therefore reducing their standard of living