Business and the International Economy (Copy)
- Globalization
- It means increase in the global flow of information, products, capital and labor.
- Reasons
- Free trade agreements between nations
- Cheaper and improved travel
- Emerging market countries that have greater industrialization
- Problems and Opportunities for global businesses
- Opportunities
- Can export to other countries
- Can create factories in different countries with lower costs
- Import the machinery that is required back in home country
- Import material and components that are required domestically
- Problems
- It can lead to expense, and make it difficult to adjust the businesses.
- Maintenance can be a huge expense as well.
- Imports can increase competition in domestic market
- Investments by multinational
- Employee can leave domestic businesses to work in multinationals
- Opportunities
- Why are tariffs and quotas imposed
- The are a form of protectionism
- They protect domestic industries from foreign competition.
- Tariff is a tax on imports and can make imports comparatively expensive.
- Quota is a physical limit on the number of imports for a product possible.
- However it can lead to retaliation with other countries taking the same measures and making your exports more expensive.
- Multinational Business
- Must have production in more than one coutry
- Should sell in more than one country as well.
- Benefits of multinationals
- Goods produced at low costs so higher profits
- Raw materials taken from the other country
- Transport costs reduced for final products
- Barriers to entry in another country bypassed
- Market share of the company can increase
- Competitiveness increases
- Government grants can help promote businesses in a new country
- Stakeholder impact on multinational businesses
- Dividends from greater profits
- Employees can have more opportunity in the market
- Suppliers will have increased sales
- Government will receive higher tax revenue
- Benefits to a country of multinationals
- They can create jobs
- Investment
- Transfer of technology
- Taxes
- Exports
- Consumer choice increased
- Problems of multinational businesses
- Jobs are unskilled and low paid
- Reduced sale for domestic businesses
- Repatriation of profits – profits sent back to home country
- Scarce and non-renewable resources are used up
- Can pressurize and influence the government decisions.
- Exchange rate
- Price of one currency in terms of another
- Depreciation is when one currency becomes less expensive in terms of another currency
- Appreciation is when one currency gains value in terms of another currency
- Appreciation of exchange rate
- Makes imports cheaper
- Exports become expensive
- Depreciation of exchange rate
- Makes exports cheaper
- Imports become expensive
