4.1.2 International trade and business growth

• When a country specialises in a product this is called a comparative advantage,they produce products they are relatively better at producing than other countries.

  Each country should produce goods it has a comparative advantage in and trade these for goods they are less efficient at producing
• Specialisation is when a country or business focuses on producing one product
• Advantages of a business specialising

  • Specialist staff become very experienced in one area

  • All R&D can be focused on that one area improving results, a business that

  operates in many areas may lose focus

  • A strong specialist brand can be created that consumers associate with the

  product

  • The firm can really get to know its market and consumers

  • Maybe able to reap economies of scale within the market

  • If perceived to be a specialist brand they may be able to charge a premium

  price

  • Demand and profits can be high if the product is on trend/fashion
• Disadvantages of a business specialising

  • It is a risk strategy as ‘all eggs are in one basket’

  • New entrants into the market could have a major impact on sales

  • If it is a niche market the firm is prospering in and the market grows, it

  may attract larger firms into the market making them vulnerable if they

  are specialist

  • Changing market conditions can make the firm vulnerable e.g. recession

  specialist in luxury holidays

  • Consumer tastes or social trends could make them vulnerable
• Advantages to country of specialising

  • Can have specialist workers, university, supply industry can grow up to support specialisation, therefore the country can reap external economies of scale

  • The country becomes associated with the product and therefore customers go there first e.g. China outsourced manufacturing, India ICT support

  • A lot of jobs can be created, it could improve balance of payments, boost exports, increase GDP
• Disadvantages to the country of speacialising

  • It is a risk as ‘all eggs are in one basket’

  • If new countries enter the market prices could fall, unemployment, growth falling

  • Changing market conditions can make the country’s industry vulnerable

  • They may be under cut by cheaper countries