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Summary Edexcel A-level Business Theme 4: Global Business
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Pearson Edexcel A-level Business studies notes that cover the whole of Theme 4 (Global Business) and are structured using the Edexcel specification.
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SECTION 4.1.1 China’s strengths:Economy: the state of a country or region in terms of the production and consumption of goods and services and the supply of money ● China's growth is helped by foreign direct investment who chose it over india due to logistics
● Chinese government spends 40% of its annual output investing in future fixed capital formation (investment in long-term
Developed economy: an economy which has already undergone high growth, with high incomes per capita assets such as roads and buildings)
● E-commerce and advanced technology = high automation levels
Emerging economy: an economy in the process of rapid growth and industrialisation, with low incomes per capita ● Younger population is highly educated and skilled
China’s weaknesses:
• Brazil • Russia • India • China • South Africa (BRICS)
● Low birth rates = only 22% of China’s population is under 18 or under
• Mexico • Indonesia • Nigeria • Turkey (MINT) ● Reduced working age = pushing wages up
● Long working hours = poor mental health
Economic growth: an increase in the amount of goods and services produced per head of the population over a period of time e.g. UK ● Three children may not encourage a baby boom = government is not investing in childcare
economy has grown at around 2.25% a year for over two decades
India’s strength:
+ More income per capita means a higher standard of living e.g. more disposable income
+ Increased incomes means the government can receive more in taxes, which may be invested back into public services ● India’s population is rising
+ Lower unemployment - greater level of output leads to increased employment opportunities ● Only 35% of India’s population is under 18 or under
+ Increased profits - higher incomes mean the demand for products that have a positive income elasticity of demand will rise
+ Foreign businesses may relocate due to cheap labour available in the growing economy or to save on transportation costs India’s weaknesses:
to sell goods there, providing local jobs and increasing incomes
+ Increased demand for recognisable western brands, creating opportunities for western businesses to expand to new ● Poor infrastructure
markets leading to the creation of new jobs ● Narrow education system
- Operating overseas can be risky - products may need to be localised to meet target market demands in terms of incomes ● International trade - India has more imports due to Indian consumers overspending in relation to the goods foreigners want
and cultural differences, which limits opportunities for economies of scale to buy from India
- Increased pollution and degradation of natural resources
Africa’s strengths:
Reasons for economic growth:
● Combined population is more than 1 billion
● Globalisation ● Fastest population growth in the world, more than 50% is under 20
● Inward and outward investment ● Increased exports in textiles
● Stable governments e.g. India ● Increased investment form Japan and China due to cheap labour
● Increased demand from customers of that economy ● Its debts have been written off
● Move from agriculture to industrialisation in emerging economies ● Commodity prices increased and boosted economies across Africa
● Countries are close to large markets that they can export to, meaning that demand for their products may be high ● Improvement in governance, showed a sharp reduction in wards and civil wards and c
● MINT economies all have large and growing populations with abundant of young people of working age
Africa’s weaknesses:
Indicators of economic growth:
● Corruption = poor reputation = low investment
Gross Domestic Product (GDP) per capita: the total value of goods and services produced within a nation over a period of time divided ● Poor infrastructure - businesses have their own generators which adds to the their costs
by the population size ● Transport - lack of investment in roads and rail, affects trade
● Investor concern about stability - external factors such as ebola virus, boko haram
Literacy: measurement of the population’s ability to read and write, increased literacy rate indicates economic growth as it suggests that ● Only 11% of African trade is with other African countries
more of the population are educated and able to work in skilled jobs
Imports: products that are produced abroad that are consumers domestically
Human development index (HDI): a statistic that measures how developed people in a country are, the higher the country’s HDI score,
the higher its development level is considered to be ● When someone buys an imported product, the money goes back to the foreign country where the product came from,
therefore imports cause money to flow out of an economy
- Life expectancy ● Imports increase the variety of goods and services available to firms and consumers in a particular country
- Average income of each person ● Imported products can often be cheaper than domestically produced ones
- Average number of years of schooling
- Infant and maternal mortality Exports: products and services that are produced in domestic markets but consumers by people and businesses overseas
- Pollution exposure
- Access to clean water ● When a business sales an exported product, they got money from the person or business that they sold it to in another
country, therefore exports result in money flowing into an economy
Health: the absence of illness or injury, accompanied by physical, mental and social well being ● Businesses use exporting as a way to expand benefiting from an increased market size
● Exporting can be the simplest and least risky way to access overseas markets
World Health Organisation considers a number of indicators when assessing the level of a country’s health:
Competitive advantage: ability of a business to add more value for its customers than its rivals and attain a position of relative advantage
- Life expectancy
- Mortality rates from a range of causes ● Product innovation - improve product design, feature, quality, USP
- Morbidity rate for several diseases ● Good customer service - polite, knowledgeable staff = repeat purchases + charge a higher price = good reputation
- Risk factors for health such as lack of safe sanitation ● Convenience - offer product/service in a more convenient location e.g. next day delivery
● Marketing - strong brand image = brand awareness
An increasing level of health suggests that an economy is growing as it suggests that the government is spending more on healthcare ● Reduce costs - lower price = increased sales
and that more of the population is fit to work ● Reliability and quality - more reliable and better quality = good reputation
● Specialist staff - higher quality = good reputation and brand image
Comparative advantage: an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners
, Specialisation: when a firm focuses on becoming an expert in a particular skill by producing just one product or a very narrow range of Factors contributing to increased globalisation:
products
Reduction of trade barriers: reducing restraints on the flow of international goods and services imposed by governments
+ Improves the efficiency of a business as workers become highly skilled at making a particular product, meaning that the
speed at which they work is likely to increase along with the quality of what they produce Trade liberalisation - the process by which international trade is made easier through relaxation of tariffs and barriers
+ Increasing efficiency reduces the cost per unit allowing the price to be reduced or the profit margin to be increased
+ Producing higher quality products may generate more sales and allow a higher price to be charged + Diversifies risk
+ Increased productivity and output, meaning reduced average costs and economies of scale + Reduced costs of imports
+ trong demand for a country's output can create jobs, generate income and raise living standards + Helps to lower prices and broadens the range of quality goods and services available
- Specialised businesses will risk losing sales if there’s a decrease in the demand for their product, and won’t have other + Increased productivity and efficiency as domestic firms must compete with foreign firms
sources of revenue to make for the loss + Businesses can outperform other economies due to their comparative advantage
- Can increase the cost of training staff - if new staff are not experts they may need extensive training to gain the skills they + Exporting goods becomes easier and cheaper, so there are more markets for firms to expand into
need to become specialised in making their products + Businesses can outsource portions of their production process to other countries reducing production costs
- Repetitive work leads to boredom and alienation and can cause product quality issues - Increased competition, domestic businesses may be forced out of the market if they’re not competitive
- A country may become over reliant on one industry and this does not spread risk - Employment that has been created by lower trade barriers may only be temporary
- Increased trade can mean pollution or over cultivation of lad to keep up with new demand
Specialisation of labour:
- Developing nations can become economically dependent on industrialised ones
+ Lower unit costs leading to higher profits - Some feel that trade liberalisation is leading to a removal of national cultures
+ Less mistakes leading to higher quality = competitive advantage / ability to charge a higher price
+ Skilled workforce is likely to produce more and make fewer mistakes leading to lower costs World Trade Organisation (WTO): an intergovernmental organisation that regulates and facilitates international trade between nations
+ Increased productivity leads to reduced cost per unit of output and therefore increases efficiency
+ Provides a legal framework for negotiation of trade disputes, this aims to provide greater stability and predictability in trade.
- Risk of disruptions to production process e.g. protests
+ Committed to protecting fair competition and economic development
- Dissatisfied employees cause absenteeism to increase
- Risk of structural unemployment due to occupational immobility due to limited skill set + Encourages trade liberalisation by operating a system of trade rules and by providing a forum for the negotiation of trade
- Repetitive work that requires little skill can lower motivation and eventually causes lower productivity disputes
Specialisation in goods and services to trade: Political change - when the type of governance in the country changes
+ Allows a country to make full use of their economic resources ● Restrictions to international trade put in place by one government might be removed if the political system changes to one
+ Increases the scale of production leading to lower cots and prices that supports trade liberalisation, leading to more trade with that country and so increased globalisation e.g. China has
+ Surplus can be exported undergone a period of economic and trade reform since the 1970s, which has included opening its economy to trade
- World prices for a product might fall leading to declining revenues ● Political agreements between countries have led to a growth in trading blocs, which reduce trade barriers between certain
- Risk of over specialisation and structural unemployment countries
- Might lead to over extraction of a country's natural resources ● Group of 7 is an organisation of the world’s seven largest advanced economies consisting of Canada, France, Germany,
Italy, Japan, the United Kingdom and the United States
Foreing direct investment (FDI): when a firm in one country invests in business in another country
Transport costs -
Inward foreign direct investment: investment into a country from companies abroad
● Cost of transporting goods long distances between countries has been reduced due to the development of cargo ships and
Outward foreign direct investment: a business strategy in which a domestic firm expands its operations to a foreign country containerisation
● Containerisation - raw materials and products are packed in large containers that can easily be dealt with at any port,
FDI is horizontal - where a firm invests in a foreign business that is at the same stage of the production process as the business in their
helping to reduce the price of ocean shipping
home country
● Businesses can benefit from economies of scale as they can ship huge quantities at once
● Aircrafts fuel usage reduced due to advancements in technology, new aircrafts are more fuel efficient
FDI can also be vertical - where a firm invests in a foreign business that is in a different place in the supply chain to its original business
FDI can help businesses to grow and increase sales: Communication costs -
● Growth of the internet across the world means that information can be sent between countrie more easily and cheaply
+ Tax incentives
+ FDI gives firms access to new markets, this can increase sales as there are more people to sell to. ● Communicating with overseas customers, suppliers and business partners has become more convenient and less
+ Lower costs as production and labour costs may be cheaper in a foreign country, making the firm more profitable expensive, which has led to a growth in international trade
+ FDI can allow a business to take advantage of skilled local labour in the foreign country, which can increase productivity ● Offshoring e.g. call centres in India allowed costs to be reduced
+ Investing in a foreign business can help a business to overcome international trade barriers such as tariffs or quotas which
can prevent access to a market Increased significance of global transnational companies -
+ Operating in a foreign country will allow a firm to obtain first hand knowledge about a nation's legal system, consumer
Transnational companies (TNCs): multinational companies that tend to localise their products and services
tastes and markets, allowing the firm to generate more sales in the foreign country than they would by simply exporting
their goods + Boost the economies of the countries that they’re located in by increasing employment and training opportunities for locals
- Displacement of local businesses + Increased income can lead to more demand for products and encourage other businesses to expand into those countries
- Hindnerence to domestic investment
+ Improves levels of education and skills, as well as infrastructure
- Risk of political changes in host country
+ Businesses can benefit from global brand recognition
- Higher costs than exporting if they set up factories some initial capital must be sufficient for long term benefits
+ Access to cheaper labour and suppliers
Globalisation: the process by which the world is becoming increasingly interconnected as a result of massively increased trade and + Access to a wider range of skills
cultural exchange - Exploitation of the workforce can damage a businesses reputation
- A lot of the industry is mechanised, meaning low numbers are employed
+ Increased choice of products from different countries - Communication and coordination problems
+ Can access specialist skills from abroad = increased quality - Differences in culture and legal systems
+ Increased international economies of scale
+ Greater employment opportunities Structural change - refers to a long term shift in the fundamental structure of an economy, which is often linked to growth and economic
+ Lower costs as labour and raw materials can be sourced from the cheapest location development
+ Lower costs due to offshoring/outsourcing
+ Greater potential for growth - access to new foreign markets Primary industries are concerned with obtaining raw materials such as agriculture and mining
- Vulnerability to external economic shocks Secondary industries manufacture goods from those raw materials
- Exploitation of workers Tertiary industries are services such as financial and health service
- Loss of cultural identity (cultural homogenisation) Quartanery industries are knowledge-based service such as IT and scientific research
- Trade imbalances if a country overly exports or imports
- Unemployment due to businesses relocating to cheaper countries + Increased contribution to national income from tertiary sector due to higher returns
- Businesses struggle to compete on cost for manufactured goods as wage rates in the UK are relatively high + Increased employment of highly skilled labour and demand for services internationally = increased global brand
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