6.3 – Business and the International Economy

• Globalization: the term used to describe the increases in worldwide trade and movement of people or capital between countries
• Protectionism: when governments protect domestic firms from foreign competition using trade barriers such as tariffs and quotas
• Import quota: a restriction on the quantity of product that can be imported
• Imported tariff: a tax placed on the product when they arrive into the country
• Multinational Business: businesses have factories, production and service operations in more than one country
• Exchange rate: the price of one currency in terms of another currency
• Currency appreciation: when the value of a currency rises (good for importers, bad for exporters)
• Currency depreciation: when the value of a currency falls (good for exporters, bad for importers)
• Reason for increased globalization:

  • Increasing number of free trade agreement
  • Improve, cheaper transport/ communication
  • Increasing global exports (emerging are growth)
• Opportunities for businesses:

  •   opening up new markets
  •   opening factories/operations in other countries
  •   more imports to buy from other countries
  •   importing materials and components at lower costs
• Threats for businesses:

  • increasing imports in the home market - increased foreign competition
  • increasing investment from multinationals setting up in home market
  • wages increase
• Effects for consumers:

  •   more choice of goods and services
  •   lower prices
  •   increased efficiency 
• Firms become multinationals:

  • To produce goods with lower costs
  • To extract raw materials for production, available in a few other countries
  • To produce goods nearer to the markets to avoid transport costs.
  • To avoid trade barriers on imports
  • To expand into different markets and spread their risks
  • To remain competitive with rival firms 
• Drawbacks to a country of multinationals location:

  •   existing firms in danger
  •   profits flow out of country
  •   only low-skilled jobs created
  •   uses up scarce resources
  •   influence on government - not environmentally friendly
• Advantages to a country of multinationals location:

  •   new investment
  •   more exports/fewer imports
  •   jobs created
  •   more competition
  •   taxes paid to government