4.1.2 International trade & Business growth

• Imports

  • Goods and services produced in one country and consumed by another.
  • Cash needed for this product flows out of the country
  • Imports are done because there may not be mass market consumers for that product.
  • Foreign suppliers may offer better quality products or sell their products for lower prices.
  • Importing but cheap but quality products give business competitive advantage.
• Exports

  • goods and services sold by domestic (UK) business to people or businesses in other countries.
  • Money flows into UK
  • Main reason for exports is to find new markets
  • Short & Medium term, economic growth can vary but benefits in the long run.
  • Rising income created by growth make for bigger markets.
  • Exporting helps business to even out their profits over the economic cycle of boom and bust.
• Specialisation

  • occurs when a country/business decides to focus on producing a particular good/service.
  • increase the quantity and quality of goods and services.
  • Lower unit costs due to Economies of scale  as costs are spread over a large output.
  • Lower unit costs = lower prices for consumers leading to more sales.
  • Any excess output can be sold abroad as exports .
  • Gain competitive advantage.
  • increase value added = edge over competitors.
• Specialisation & efficiency

  • they can produce more output from same amount of raw materials,energy,labour, machinery - reduces avg cost.
  • Specialisation requires less machinery - lower capital costs = lower unit costs.
  • No extra cost spent on training - less staff
  • If total output increases, without addition to wage bill - avg cost of production will fall.
  • However,repetitive wrk leads employees to boredom = products of less quality.
• Specialisation & competitive advantage

  If business is more efficient, then it has a cost advantage. They can use this to lower retail prices without any loss in the amount of profit made per unit supplied.
• Foreign Direct Investment (FDI)

  Where a company sets up a new business abroad or where a company takes over/merges with another business overseas.

  results in more than 10% ownership of domestic firms
• Benefits of FDI

  • Inflow of money into the country = Increased economic growth.
  • Increased job opportunities
  • Access to expertise & knowledge from foreign investors
• Inward FDI


  When foreign business invest in local economy (UK)
• Outward FDI

  • When domestic (UK) firm expands overseas
• Why FDI

  To increase growth, companies will look to add customers close to home. However, this domestic market will become saturated, making growth harder. So, managers look for unsaturated markets abroad.
• Problem with exporting as means of FDI

  • Transport costs - time & money to move products from one country to another. Cuts into profit margins.
  • Avoiding protectionist trade barriers - avoids tariffs & quotas.
  • Access to natural resources - European countries need oil,gas & minerals - commodities are scarce = they sell for higher prices.
  • Lower operating costs - cheaper exporting from domestic base. This maybe because environmental & labour laws are more relaxed - reducing costs.
• Scientific management

  F.W Taylor suggested managers should maximise worker productivity by calculating how best to divide up tasks into smaller units.

  Produces more efficiency