Unit 3.3.2 - Key Players in the World Economy

Key Terms
1. Purchasing Power Parity (PPP)
  1. Way of adjusting monetary values to allow for differences in prices between countries
  2. E.g. The cost of living is lower in India than in the USA, one US dollar will buy more in India that it would in the USA - hence the adjustment to make it comparable
2. Supply Chain Management
  1. Organising the sequence of processes that leads to the sale of the final product
  2. The supply chain may have many different suppliers, often located in different countries
  3. Managers must locate the supplier with the best competitive advantage - minimise costs
3. Joint Venture
  1. Collaboration between two businesses
  2. Typically one provides finance from abroad whilst the other provides knowledge and local contacts
  3. Helpful in recruiting suitable employees and dealing with local regulation
Population Trends
1. India
  1. World's second most populous country
  2. Expected to surpass China's population over the next 2 decades
  3. In the future its population will be younger than China's and more able to push up economic growth and fill job vacancies
    1. However, this will only benefit if educational standards improve
  4. There is fear that its growth rate won't be enough to benefit its increasing population
  5. Lower size, lower population size, lower GDP rate, higher inflation rate, higher unemployment rate, lower HDI ranking, smaller labour force, lower literacy rate, lower mean years of schooling, higher infant mortality rate, lower life expectancy and less internet access
2. China
  1. World's most populous country
  2. Its population growth has been slowed by its one child policy
  3. By 2019, its population is expected to reach 1.4 billion but will peak and slowly drop after 2030
    1. This will have implications for China's manufacturing sector - reduces the number of workers available
  4. Bigger size, higher population size, higher GDP rate, lower inflation rate, lower unemployment rate, higher HDI ranking, bigger labour force, higher literacy rate, higher mean years of schooling, lower infant mortality rate, higher life expectancy and more internet access
GDP Breakdown
1. India
  1. Service - 55.3%
  2. Agriculture - 16.1%
  3. Industry - 28.6%
2. China
  1. Industry - 46.8%
  2. Service - 43.6%
  3. Agriculture - 9.6%
Impact of Chindia's growth on individuals and businesses
1. Positive Outcomes for Individuals
  1. Lower prices
  2. More choice
  3. Job opportunities increase when real incomes rise
2. Negative Outcomes for Individuals
  1. Jobs lost where competition from imports is stiff
  2. Jobs lost where employers outsource or produce off-shore
3. Opportunities for Businesses
  1. Access to new skills (e.g. IT skills in India)
  2. Offshoring and reducing costs
  3. Access to new export markets and increasingly wealthy consumers - rapid growth
  4. FDI inflows from growing economies (e.g. Tata)
  5. Access to new trade areas (e.g. ASEAN)
4. Threats for Businesses
  1. Competition from producers with lower costs
  2. Reduced market power where competition is stiff
  3. Rising costs for commodities and energy, driven up by rising demand from India, China and other emerging economies
  4. China's low exchange rate makes it more difficult to compete
Trade Opportunities
1. China
  1. Has demanded increasing quantities of raw materials and energy supplies. Prices have risen considerably and for businesses involved this has been a period of expansion and increasing profitability
  2. Chinese consumers can be quick to adopt what once were unfamiliar products, opening up whole new areas of growth for foreign businesses
2. India
  1. Government planning to invest £600bn on infrastructure over the next few years (roads and railways) - areas which the UK has many world-class companies and a tradition of exporting to India
  2. Manufacturing sector is expanding rapidly - provides opportunities for British engineering firms (many of which have developed successful high-end technology operations in India)
  3. The media sector is expected to grow in value - creating more opportunities for UK technology businesses
Why did the two countries develop differently?
1. Offshoring created many manufacturing jobs for the Chinese and helped to raise incomes there. Specialists in supply chain management sprang up in Hong Kong and elsewhere, businesses that could help customer companies to find appropriate suppliers. Rising Chinese wages created a consumer market within China itself, a further stimulus for the manufacturing sector
2. Chinese government sought to liberalise its economy in the 90s - creating opportunities for western businesses to outsource some of their production (exploiting cheap labour, cutting costs and prices)
3. Indian government has previously been less keen than China to encourage foreign business involvement in its economy. Also, there were many regulatory obstacles that hindered new business start-ups. India has a good supply of engineering and IT graduates
  1. India's IT specialists set up very competitive businesses that could export IT services. The possibility of supplying IT services remotely, firms in the IT sector gained high export revenues

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Unit 3.3.2 - Key Players in the World Economy

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