4.1 - Globalisation

4.1 - Globalisation

1. Growing Economies

   • Emerging economies
     • BRICS: Brazil, Russia, India, China and South Africa
     • Average incomes are increasing
       • Consumers spend more money
     • Favourable demographics for the next 20 years and their economic prospects are interesting
       • MINT: Mexico, Indonesia, Nigeria and Turkey
   • Largest economies in the word
     • Germany
       • Japan
         • UK
           • U.S.A
   • Implication of growth
     • Trade opportunities
       • Demand will become price elastic
     • Employment patterns
   • Indicators of growth
     • Gross domestic product - GDP - all goods and services divided number of people
       • Important to look at the sources for the data
         • Real GDP - allows comparison of income to be made over time as it includes price changes
           • Nominal GDP - distorted by price changes (increase in GDP due to increased prices and not output)
             • If comparing between countries then you should use GDP at purchasing power parity PPP
     • Literacy
       • % of adults that can read/write
     • Health
       • Life expectancy
         • Infant mortality rate
     • H.D.I
       • Life expectancy
       • Mean years of schooling
       • Gross national income per capita

2. International trade and business growth

   • Exports
     • Goods manufactured in a country that are sold to foreign markets
     • Physical/services
   • Imports
     • Goods/services brought into a country
     • Limit imports by having trade barriers
     • Top import is crude oil
     • WTO works with countries to try and ensure free trade
   • International trade
     • Involves both importing and exporting
   • Comparative advantage
     • If countries specialise in what they are best at and trade then world output increases
     • When a country specialises in products and services it can produce more efficiently
   • Competitive advantage
     • Countries gain an competitive advantage when they specialise
       • Greater efficiency = lower cost
         • Allows a business to reduce prices or increase profit margins
     • Example - India
       • IT industry very good = set up call centres for overseas companies
         • Reduce average costs and exploit EOS
           • Gives Indian call service comparative advantage
       • Negatives
         • Doesn't spread risk
         • Becomes too big it may suffer from diseconomies of scale - lack of communication
           • Become too reliant on one industry
   • Foreign direct investment
     • Many businesses outgrow their home market so look to expand abroad
       • Very risky
       • Potential to make a profit
       • Avoid trade barriers
     • Firms may become a multinational
       • Helps to acquire direct knowledge of the local market
     • FDI over exporting
       • Protect patents
         • Managers get control over operations
         • Close to customers
     • Vertical FDI
       • Acquire material
     • Horizontal FDI
       • Same product
     • Forms of FDI
       • Joint venture
       • Mergers and acquisitions

3. Factors contributing to increased globalisation

   • Globalisation increasing integration of the worlds local, regional and national economies into a single international market
     • Free trade across national boundaries of goods and services
       • Free movement of labour which increases specialisation and division of labour
         • Free movement of capital
           • Free interchange of technology and intellectual capital
   • Causes of globalisation;
     • Trade liberalisation
       • Open up economies due to WTO
         • 2012 - Australia and Malaysia agreed to move the majority of tariffs
       • Stop imports which compete with state monopolies
     • Political change
       • Regular meetings with heads of state to open trade
       • Collapse of communism - eastern bloc and China have increased globalisation
       • DT - increase trade barriers
     • Fall in transport costs
       • Easier
     • Migration
       • EU free movement
     • Communication
       • Technology = ideas travel quickly
       • Businesses can save money - outsourcing
     • F.D.I
       • Spreads business activity, jobs and wealth
       • Very good for emerging countries

4. Protectionism

   • Interests to restrict trade, in order to protect domestic industries from overseas
     • Why they do this?
       • Protect jobs
       • Infant industries
       • Prevent dumping
       • Raise revenue
   • Tariffs
     • A tax placed on an import increases the price
     • Product less attractive
     • Effectiveness depends on the PED of the product
     • Advantages
       • Domestic producers gain price advantage
         • Sell more = better job security
   • Import quotas
     • Limit on the quantity of goods
     • Embargo when its completely banned
       • Politcal reasons

5. Trading blocs

   • Agreement to reduce or eliminate tariffs
   • No taxes/tariffs or customs between EU countries
   • Wheres best to produce/sell
   • ASEAN - association of southern Asia nations
   • NAFTA - North American free trade agreement