Business Theme 4

• Economy: the state of a country or region in terms of the production and consumption of goods and services and the supply of money
• Emerging economy: an economy in the process of rapid growth and industrialisation but is not yet fully developed

  • features: development of secondary and tertiary industries; potential to become developed; many inhabitants still in poverty but economic growth is taking some out of poverty; unemployment falls
  • original emerging economies - BRICS - Brazil, Russia, India, China, South Africa
  • newer emerging economies - MINT - Mexico, Indonesia, Nigeria, Turkey
• Reasons emerging economies have faster economic growth

  • Urbanisation continues
  • Industrialisation
  • Population growth
  • Income growth
  • Improved workforce skills
  • Technological innovation
• Opportunities of emerging economies to UK businesses


  • Growing consumer spending
  • Cultural shifts - higher demand for personal products, private education and healthcare
  • Demand for infrastructure
  • Source of high skilled but low cost labour
  • Potential for joint ventures and acquisitions
• Threats of emerging economies to UK businesses


  • Skilled but low cost labour
  • Undervalued currencies make exports cheaper
  • Inadequate protection of brand
• Difficulties of expansion into emerging markets

  • Political instability
  • Cultural differences and sensitivity
  • Issues of corruption and bureaucracy
• Indicators of economic growth: GDP

  • gross domestic product - total value of goods and services produced within a country over a period of time
  • per capita means per person
  • issues include reporting figures and it is hard to compare across different currencies
• Indicators of economic growth

  • literacy levels - higher adult literacy rate can mean a better quality workforce
  • health - measured through life expectancy, mortality rates etc
  • HDI - human development index - made up of mean years of education, life expectancy, gross national income per capita
  • limitations include it does not take into account qualitative factors like cultural identity and political freedoms, takes no account of income distribution
• Imports - goods made in other countries and brought into the UK

  • increase variety of goods and services available; often cheaper than domestic products
• Exports - goods manufactured in UK and sold abroad

  • simplest and least risky way to expand
• International trade - exchange of products between economic agents of a country

  • benefits - jobs help reduce poverty; low prices for consumers as competitive markets; knowledge and skills across borders; better use of scarce resources; economies of scale
  • drawbacks - transport costs; negative externalities (costs to third party) from production and consumption; rising inequality - uneven gains from trade; pressure on wages and working conditions; risks from external shocks
• Specialisation - producing products or services a country is good at

  • benefits - increased productivity; efficiency and output; reduced average cost and economies of scale - lower price or higher profit margins; boost economic growth
  • drawbacks - overreliance on one industry doesn't spread risk; harder to compete if other countries specialise in same area; can suffer from diseconomies of scale due to lack of communication; essential to trade
• Comparative advantage: a country's ability to specialise in the production of certain goods and trade them with other nations rather than producing multiple products themselves

  Competitive advantage: adding value where other businesses cannot
• Foreign direct investment


  Investing by setting up operations or buying assets in businesses in another country
• Horizontal FDI


  • Invest in similar firms in same industry that produces similar products
• Vertical FDI


  • Invest in supply chain but not directly in same industry, to a firm they supply or sell to
• Conglomerate FDI


  • Invest in foreign business unrelated to core business
• Inward FDI


  • Overseas business builds manufacturing factory in UK
• Outward FDI


  • UK business expands overseas by opening new production facility
• Greenfield FDI


  • Build a completely new factory or business
• Brownfield FDI


  • Buy an existing business and grow it
• Benefits of FDI


  • High paying new jobs to host country
  • Brings new technology
  • Creates new markets
  • Expand footprint into international markets
• Drawbacks of FDI


  • Regulation and oversight of multiple governments
  • Higher level of political risk
• Globalisation - companies operating internationally on a global scale
• Trade liberalisation


  The process by which international trade is made easier through a relaxation of the rules which govern it

  • before, governments may have placed an import tax, or tariff, on products reaching the country, or embargoes (total bans) or quotas (fixed maximum quantities of imports)
• Advantages of trade liberalisation


  • Cheaper imported raw materials so lower costs
  • Cheaper to export so more markets to expand into
  • Increased consumer choice
  • Increased competition so lower prices
• Disadvantages of trade liberalisation


  • Domestic businesses can be forced out by imports if not competitive leading to unemployment
  • Removing of national cultures
• Benefits of globalisation


  • Leads to higher income per capita
  • Helped poorer countries achieve faster economic growth and reduce poverty
  • Freer movement of labour between countries
  • Sharing of ideas, skills and technology across borders
• Drawbacks of globalisation


  • Rising inequalities in income and wealth
  • Inflation - strong demand for food and energy has caused a steep rise in commodity prices
  • Vulnerable to external economic shocks especially due to interdependence of national economies
  • Threats to environment - irreversible damage to ecosystem, land degradation, deforestation, loss of biodiversity
  • Trade imbalances
• protectionism - protecting domestic economy and jobs by stopping foreign countries trading in market
• tariff - tax placed on import to increase its price and decrease its demand

  • advantages - domestic produced goods likely to be cheaper as they don't incur tariff; more domestic sales due to price advantage; better job security; protect infant businesses; can raise tax revenue
  • disadvantages - high import price may not put many off; unfair competition; tariffs may just increase prices for consumers; restricts volume of trade; other countries may impose tariffs in response; reduce consumer choice; less competition reduces incentives to improve quality and efficiency
• import quotas - physical limit on quantity of good imported in certain time period

  • will increase market share available for domestic products, boost local investment, creates more job opportunities, goods become less expensive
  • often last long after industry has matured, other countries may use quotas in response, complex as require lots of paperwork, difficult to measure precise degree of protection they offer
• other trade barriers

  • subsidies - money given to local producers to make goods cheaper on domestic market - artificially raises price of foreign goods relative - reduces demand however may lead to higher tax
  • product quality requirements/legislation - restrict certain products that don't meet required standards
• Trade blocs


  Groups of countries in specific regions that manage and promote trade and reduce barriers
• EU


  • Most powerful trade block in world
  • 27 countries as of 2021
  • Established single market among members
  • Free circulation of goods, money and people with no trade barriers
  • Product regulations
  • Many use single currency of Euro
• Brexit


  • Weaker exchange rate so higher imports
  • Low economic growth
  • Unemployment
• ASEAN


  • Association of south east nations
  • Free trade zone among ten member countries including Thailand and Indonesia
• NAFTA


  • Canada, Mexico, United States
  • Free trade zone
• advantages of trade blocs - freedom to trade, reduced protectionist measures so greater demand, enlarged market can mean economies of scale, freedom of movement and people, protection from international competition outside bloc

  disadvantages of trade blocs - retaliation and tensions - other blocs created as a result, protectionism doesn't help trade liberalisation, expensive to import and business costs may increase, may have to adjust operations to comply with regulations
• push factors - adverse situations that force businesses to look for opportunities in international markets

  • examples - saturated domestic markets, low growth opportunities, end of product life cycle at home, need to diversify, need to reduce risk, competition, shareholder pressure, government policies, changes in local tastes which decrease demand