Lecture 11- The global context

Supply chain of business is made up of all [blank_start]businesses[blank_end] & [blank_start]individual[blank_end] contributors involved in creating [blank_start]product[blank_end], from [blank_start]raw materials[blank_end] to finished [blank_start]merchandise[blank_end]

Comparative advantage occurs when country has [blank_start]lower[blank_end] opportunity cost in [blank_start]production[blank_end] of product than other [blank_start]countries[blank_end]

Protectionism occurs when [blank_start]government[blank_end] introduces measures to support [blank_start]domestic[blank_end] businesses, & makes it [blank_start]difficult[blank_end] for overseas businesses to [blank_start]compete[blank_end]

Customs union occurs when there is [blank_start]free[blank_end] movement of products between [blank_start]member[blank_end] countries, & all [blank_start]members[blank_end] have same protectionist measures against [blank_start]non-members[blank_end]

One barrier to international trade is trading abroad can be [blank_start]complex[blank_end] & therefore, can be [blank_start]costly[blank_end]

Another barrier to international trade is differences in [blank_start]business environment[blank_end] compared to UK, such as differences in [blank_start]laws[blank_end] that affect business & state of economy

Third barrier to international trade is differences in [blank_start]social norms[blank_end] which can make decisions such as how to [blank_start]promote[blank_end] your products more challenging

First time business is going to start getting involved in international trade is by [blank_start]exporting[blank_end]. [blank_start]Exporting[blank_end] refers to selling products abroad

Other ways of getting involved in international trade for first time include [blank_start]licensing[blank_end] your idea to an [blank_start]overseas[blank_end] operator or [blank_start]linking[blank_end] up with local business in [blank_start]partnership[blank_end] or [blank_start]joint venture[blank_end]. This may help overcome barriers around different [blank_start]regulations[blank_end] & [blank_start]cultural[blank_end] barriers. However, choosing these options may involve sharing [blank_start]profits[blank_end]

According to law of comparative advantage, [blank_start]producers[blank_end] in country should specialise in production of products where they have [blank_start]low[blank_end] opportunity cost & [blank_start]buy[blank_end] in from abroad products where they have relatively [blank_start]high[blank_end] opportunity cost. This can lead to [blank_start]more[blank_end] goods & services being produced around world & overall, everyone being [blank_start]better off[blank_end]

Impact on business of comparative advantage is by using [blank_start]specialists[blank_end] overseas they can [blank_start]buy[blank_end] in goods & services where they have relative [blank_start]disadvantage[blank_end] for [blank_start]lower[blank_end] price than they could produce them for themselves. This saves business [blank_start]money[blank_end] & allows business to use their resources [blank_start]efficiently[blank_end]

One benefit of international trade is trading can be [blank_start]win–win[blank_end] situation for everyone. [blank_start]Producers[blank_end] can sell their products for [blank_start]profit[blank_end], & [blank_start]consumers[blank_end] & [blank_start]businesses[blank_end] abroad can buy them in for [blank_start]less[blank_end] than they would pay if they were produced [blank_start]domestically[blank_end]

Two benefits of free trade are it enables [blank_start]producers[blank_end] & [blank_start]consumers[blank_end] to benefit from [blank_start]cheaper[blank_end] products from abroad & also, it provides [blank_start]producers[blank_end] & [blank_start]consumers[blank_end] with greater [blank_start]variety[blank_end] of products than would be produced if country did not allow [blank_start]trade[blank_end]

Changes in exchange rate change [blank_start]purchasing power[blank_end] of your currency abroad & [blank_start]price[blank_end] of your products in foreign currency. Changes in exchange rate can happen [blank_start]frequently[blank_end] & are out of business's [blank_start]control[blank_end]. They can affect [blank_start]costs[blank_end] & [blank_start]demand[blank_end] & therefore, can have significant impact on [blank_start]competitiveness[blank_end] & [blank_start]profitability[blank_end]

One method of protectionism is [blank_start]tariffs[blank_end]. These add [blank_start]tax[blank_end] to [blank_start]imported[blank_end] products. This increases their [blank_start]price[blank_end] & makes them less [blank_start]competitive[blank_end]

Another method of protectionism is [blank_start]quotas[blank_end]. These [blank_start]limit[blank_end] total number of [blank_start]foreign[blank_end] products. This forces up [blank_start]price[blank_end] & allows [blank_start]inefficient[blank_end] domestic producers to produce now

Third method of protectionism is [blank_start]administrative requirements[blank_end]. These are for things such as [blank_start]permits[blank_end], health & safety [blank_start]regulations[blank_end], & rules about product [blank_start]labelling[blank_end] & [blank_start]packaging[blank_end]. This makes it more difficult for [blank_start]foreign[blank_end] businesses to access [blank_start]domestic[blank_end] market

Reason for protectionism is to protect certain industries from [blank_start]foreign competition[blank_end]. Manager of business within protected industry will be [blank_start]satisfied[blank_end] with this support from their [blank_start]government[blank_end] because it gives them more [blank_start]monopoly power[blank_end] over market

Downside of protectionism is if you are business in other [blank_start]sectors[blank_end] or [blank_start]consumer[blank_end] you may not welcome protectionist measures as protectionism tends to [blank_start]increase[blank_end] prices & [blank_start]reduces[blank_end] choice. Also, it may also lead to [blank_start]retaliation[blank_end] by other countries, making it difficult for you to [blank_start]export[blank_end] in future

One economic argument for protectionism is to protect [blank_start]infant industries[blank_end]. Government may want to protect industries that are still [blank_start]developing[blank_end], in order to help them become more [blank_start]established[blank_end] & [blank_start]gain[blank_end] from economies of scale

Another economic argument for protectionism is to protect [blank_start]strategic industries[blank_end]. Government may decided to protect selected [blank_start]industries[blank_end] that are regarded as [blank_start]essential[blank_end] to country

Third economic argument for protectionism is for [blank_start]political motivations[blank_end]. Government may impose [blank_start]sanctions[blank_end] on foreign governments. This involves placing complete [blank_start]ban[blank_end] (an [blank_start]embargo[blank_end]) on trade to try & reduce country’s income from [blank_start]exports[blank_end] in order to force political change

Fourth economic argument for protectionism is for '[blank_start]unfair[blank_end]' [blank_start]competition[blank_end]. There may be reasons relating to [blank_start]quality[blank_end] or [blank_start]standards[blank_end]. Government may impose restrictions based on [blank_start]quality[blank_end] or [blank_start]safety[blank_end] of product

Trade agreements refer to anything that is used to try & overcome [blank_start]protectionist[blank_end] measures. Countries may join together in different [blank_start]forms[blank_end] of trade agreement. These usually allow for [blank_start]free trade[blank_end] (i.e. no [blank_start]protectionism[blank_end]) between member countries on some or all products. In some cases, this [blank_start]free trade[blank_end] will extend to freedom to move [blank_start]money[blank_end] between countries & for [blank_start]employees[blank_end] to work easily in different countries. Agreement might also include common approaches to trade with non-member countries

EU is an [blank_start]economic[blank_end] & [blank_start]political[blank_end] union of countries. This is [blank_start]customs[blank_end] union where goods, services, money, & people can travel relatively [blank_start]freely[blank_end] throughout most of continent. All EU citizens have [blank_start]right[blank_end] & [blank_start]freedom[blank_end] to choose in which EU country they want to study, work, or retire. Every member country must treat EU citizens in exactly [blank_start]same[blank_end] way as its own [blank_start]citizens[blank_end] for employment, social security, & tax purposes. Members of EU have same protectionist measures against non-members