International Trade & Business Growth 4.1 Globalisation

b) The link between business specialisation and competitive advantage What you need to know a) Exports and imports b) The link between business specialisation and competitive advantage c) Foreign direct investment (FDI) and link to business growth

What is International Trade? ________________________________________________________________________________ Trade doesn’t take place between countries, it takes place between the economic agents of that country, such as businesses, governments or consumers When conditions are right, international trade brings benefits to all countries involved and it can be a powerful driver for sustained GDP growth, employment and rising living standards

Key Benefits from International Trade Export revenues and jobs help to reduce poverty Low prices for consumer as markets are more competitive Technology is spread, raising productivity Knowledge and skills cross borders Economies of scale – causing lower unit costs and prices Better use of scarce resources

Potential Drawbacks of International Trade Transport costs e.g. emissions from food miles Negative externalities from production and consumption Structural unemployment as patterns of trade change Rising inequality – uneven gains from trade Pressure on wages and working conditions Risks from global (external) external shocks

What are Exports? Exports arise as a function of international trade whereby _____________________________________produced by one country are ________ to another country.

What are Imports? Imports are the _____________ of exports. Imports are goods or service brought into one ___________from another.

UK – Where Most of our Exports Go To More than half of the UK’s exports go to the other nations inside the European Union. Switzerland is our biggest export market but is outside of the EU. Text goes here Source: Office for National Statistics

UK – Where Most of our Imports Come From The European Union (28 countries) is the biggest source of imported goods and services for the UK. But China is now ahead of USA as a supplier of products. Source: Office for National Statistics

The Importance of Specialisation for International Trade Why are some countries better at producing certain goods or services than others? 1. Relative opportunity cost of production for a good or service is lower than in another country 2. A country is relatively more _____________________________than another Basic rule – specialise in the goods and services that a country is relatively best at. This opens up important _________________from specialisation and trade

Why Specialisation Makes Sense If each country _________________, total economic output can be increased across the global economy Providing that a good _______ can be found from buyers, then specialisation should focus on those goods and services that provide the best _________. In many countries, ___________________________is shifting towards _________________ in and exporting high-technology manufactured goods and high-knowledge services which get a higher price As a country develops more capabilities, then it can produce a wider range of closely-linked goods and services Countries such as South Korea, Japan, Germany, the USA and UK all have a ___________________________________________ Nations at a lower stage of development tend to have fewer capabilities and thus export a ________________________

Examples of Specialisation Zambia and Chile - ? Bangladesh - ? Vietnam - ? Angola – ? Ivory Coast - ?

What is Foreign Direct Investment (FDI)? FDI is investment from one _________into _________ (normally by companies rather than governments) that involves establishing operations or acquiring ____________ assets, including ________ in other businesses

The Rapid Global Growth of FDI Global flows of FDI peaked at around $3 trillion just before the financial crash of 2018

Inward FDI Outward FDI Two Main Flows of FDI E.g. an overseas business decides to build a manufacturing factory in the UK A foreign retail firm invests to open new stores in the UK E.g. an UK business expands into an overseas market by opening a new production facility A UK business completes a takeover of a business based in another country

Recent Inward and Outward Flows for the UK

Some Examples of Inward FDI into the UK

Some Examples of Outward FDI from the UK

Reasons Why Businesses Engage in FDI Take advantage of ________________costs in other countries Operate closer to sources of r____m___________and other supplies rather than transport them long distances Avoid ____________measures (e.g. tariffs and import quotas) Earn target returns on ________________ by buying valuable assets Support a strategy of market development (e.g. expansion by global brands)