Growing Economies

Globalisation: the process by which businesses or other organisations develop international influence or start operating on an international scale.

Globalisation of markets - selling products across national borders.

Globalisation of production - making products in low cost countries.

Starbucks at The Great Wall of China. Picture here.

According to the World Bank, the largest economies in the world are:

The order of leading economies will change many times in future years.

Growth rate of the UK economy compared to 'emerging economies'.

An emerging economy is one where GDP growth year on year (YoY) has been rapid.

An emerging market economy describes a nation's economy that is progressing toward becoming more advanced, usually by means of rapid growth and industrialisation. 

These countries experience an expanding role both in the world economy and on the political frontier.

What are the BRICS nations?

What are the MINT nations?

BBC news story here.

Real (taking into account inflation or deflation) GDP growth figures. Click on the graph.

In 1990, China produced less than 3% of global manufacturing by value.

By 2015 this had risen to 25%.

China & GDP growth. Details here.

China has seen the largest migration of people in history.

Chinese mega-cities. Details here.

China has seen a rapid rise in 'middle class' consumers.

Meet China's booming middle class. Video here.

Around 70% of world GDP growth is likely to come from emerging market economies, with China and India accounting for between 40 - 50% of this figure.

Brits get rich in China - click on the picture:

Implications of economic growth in emerging markets for individuals and businesses:

1. Trade opportunities:

Consumers disposable incomes are rising.

Demand for products is likely to be income elastic, providing greater opportunities for increased revenues and profits.

Costa Coffee has 395 outlets in China.

Starbucks is opening a store in China every 15 hours. Details here.

A business looking to sell products would seek to operate in an emerging economy with low unemployment.

2. Employment / Unemployment patterns.

Manufacturing opportunities in emerging markets.

A business seeking to manufacture products for export may seek to locate in an emerging economy with high unemployment.

Tesla in China. Details here.

Growth in China has recently slowed.

This video explains why:

Indicators of growth:

Per capita GDP (GDP divided by the population of a country).

Literacy levels.

Literacy rates per country. Details here.

The Human Development Index combines information about life expectancy, mean years of schooling and gross national income per capita.

This allows for a more sophisticated investigation into an emerging economy. Click on the picture.

International Trade and Business Growth

Exporting:

Sending (goods or services) to another country for sale.

The UK also exports 'invisibles' or services.

Imports:

Bringing (goods or services) into a country from abroad for sale.

Trade barriers:

Many governments try to limit the importation of goods by placing trade barriers in the way.

Tariffs: 

Taxes that are imposed on imports.

The World Trade Organisation has been driving tariffs around the world down.

Much talk about how the UK will have to play by WTO rules if we leave the EU without agreement on free access to the Single Market.

Click on the picture for the result of a 'no deal' Brexit:

Non tariff barriers:

1. A quota (physical limit) on the number of imported goods.

2. Specifying rules about packaging, quality, safety or ingredients.

Methods of entering international markets:

Business routes to international markets. Details here.

Direct exporting:

Indirect exporting:

Overseas agent or distributor: details here.

Overseas distributor: details here.

Licencing and franchising: details here.

This is also known as foreign direct investment (FDI).

FDI is the most complicated, costly and risky form of investment in a country.

FDI is investing by setting up operations or buying assets in another country.

The UN considers FDI to have occured where a firm takes an equity stake of 10% in a foreign enterprise.

A firm may prefer FDI over exporting or licencing for many reasons.

1. Managers want to maintain close control over operations in other countries.

2. A firm wants to protect its intellectual property.

3. A firm wants to be close to its consumers.

4. Its products incur high transportation and logistics costs.

5. It faces trade barriers or political opposition.

Nissan’s Sunderland plant opened in 1986 and has produced almost 9 million cars since then.

One in three British cars are produced in Sunderland, which is the UK’s largest car plant of all time.

In addition, 80% of production from Sunderland is exported to over 130 international markets.

More than 2 million Qashqai’s have been built in Sunderland in less than 10 years.

In addition to the 7,000 direct employees at Sunderland, the plant supports a further 28,000 British automotive supply chain jobs.

To date, Nissan has invested more than £3.7 billion in FDI in Sunderland.

A joint venture would involve FDI: details here.

Set up an overseas operation: details here.

Horizontal FDI:

Taking over or opening operations which are the same as in the home country.

Spanish bank Sabadell took over British Bank TSB in 2015.

Vertical FDI:

Where one firm is seeking to obtain materials or support for its own products or services.

Click on picture:

Other forms of FDI.

Strategic alliances.

Such as Star Alliance, the largest airline codeshare alliance in the world. Details here.

Potential benefits of FDI:

Access to new markets.

Cheaper manufacturing facilities.

Possible problems with FDI:

Not understanding the market.

Possible government interference.

Click on the headline:

Theft of intellectual property.

Accusations of unethical business activities causing reputational damage.

Click on the headline:

Lego in China:

The link between specialisation and competitive advantage:

Specialisation means a business concentrates on a specific range of products or services.

Click on the headline:

This results in greater efficiency, allowing for goods and services to be produced at a lower unit cost.

This allows businesses to lower prices or increase profit margins.

Competitive advantages (Michael Porter, 'Competitive Advantage' 1985).

A business should specialise in what it does well and adds value.

A business may have particular resources that it can use wherever it operates:

Resources such as a successful business model.

Highly trained and specialised staff.

Intellectual property.

A business may have gained access to local markets, local resources and materials.

Factors Contributing to Increasing Globalisation

Globalisation: The growing integration of the world's economies.

Goods and services are traded throughout the world.

Many people are able to live and work in the country of their choice.

There is a high level of interdependence between countries.

The US financial crisis of 2008 had an impact on many economies around the world.

Capital flows freely between many countries.

Increasingly global recognition of intellectual property.

However.....

Barriers to trade such as tariffs still exist.

Free movement of people is limited to certain areas such as the EU.

Globalisation quickly developed from the 1980's.

Reasons (From 4.48):



1. Reduction of international trade barriers (trade liberalisation). 

There have been a number of trade agreements between countries to encourage trade.

Click on the picture:

The WTO (World Trade Organisation) encourages such agreements.

You need to know some advantages and disadvantages of trade liberalisation. Click on the headline.

2. Political change.

In 1991 communist rule ended in the Soviet Union and the old soviet bloc of nations dissolved.

China has embraced economic reforms and welcomed foreign investment into the country.

3. Reduced cost of transport and communications.

Containerisation has revolutionised transportation.

Click on the picture.

Air travel has also become cheaper.

http://www.spicejet.com/ 

The internet has allowed for the fast and cost effective transfer of data around the world.

Outsourced nursing. Details here.

4. Increased significance of transnational / multinational companies.

These companies make significant contributions to world GDP.

They are responsible for two thirds of global exports.

They spend considerable amounts on R & D.

5. Increased investment flows.

FDI spreads business activity, job creation and wealth all over the world.

FDI makes a huge contribution to globalisation.

FDI allows businesses to operate where trade barriers exist.

6. Migration

The UK has seen net migration into the UK running into hundreds of thousands per year.

How does this contribute to globalisation?

- Importation of goods from migrants home countries.

- Migrants often provide a source of low cost labour.

This could give some industries a competitive advantage.

- Some migrants are highly skilled people who can fill gaps in the labour market.

Migration can also occur within a country.

China has seen the largest movement of people from rural to urban areas in the history of the world.

7.Growth of the global labour force.

1980: global labour force was 1.7 billion.

2010: 2.9 billion.

A large number of these extra workers were from China and India.

More workers means more global demand.

Plentiful supplies of labour keeps costs down which is good for global businesses.

8. Structural change.

A decline of traditional industries in the west has led to a huge growth in the tertiary sector. 

Many of these businesses can operate anywhere in the world.

The growth of export oriented knowledge industries has also increased globalisation.

Globalisation: good or bad?

Will globalisation take your job? Details here.

Protectionism

Click on the headline:

Protectionism

Sometimes governments believe it is in their countries best interest to restrict trade.

Why?

To protect jobs.

Unemployment is undesirable and a government may be criticised if jobs are lost to cheap imports.

To protect 'infant industries'.

New industries need time to become established and may need protecting from overseas rivals.

To prevent 'dumping'.

This is where foreign producers sells goods below cost.

To raise revenue.

To prevent the entry of harmful or undesirable goods.

Details here.

To improve the balance of payments.

This is where the spending on imports exceeds the income from exports.

Methods of protectionism:

Tariffs:

Taxes on imports are called tariffs or customs duties.

Products produced overseas will become more expensive.

UK customers will be encouraged to buy UK products.

The impact of tariffs will depend on the price elasticity of demand for the imported product.

Examples of tariffs here.

Click on the headline:

Import quotas:

A physical limit on the number of items that can be imported into a country.

Quotas will raise prices as fewer cheaper products are available.

An extreme form of a quota is an embargo.

This is where imports are completely banned from a country.

Government legislation and subsidies:

Government legislation can also be used to limit imports.

These include setting product standards, health and safety regulations and labelling requirements. 

Administrative barriers such as safety rules for toys.

Subsidies.

A subsidy involves giving financial support to domestic producers that face fierce competition from imports.

Or giving financial support to exporters to help them sell in overseas markets.

Rolls-Royce gets government help. Details here.

Problems with trade barriers.

Countries may retaliate if tariffs are imposed.

This may lead to a 'trade war'.

Tariffs are ineffective for price inelastic products.

More pages for 4.1 below. Click on Older Posts.