Business and international economy

Globalisation is the increase in worldwide trade of people and capital between countries .
Free trade agreement is when countries agree to impose no tariffs or quotas .
Reason why globalisation occurs
1. Increase in free trade agreement.
2. Improved and cheaper travel links and communications between companies
3. Emerging market countries are industrialising really quickly (china)

Opportunities of globalisation
1. Selling exports to other countries-
Increase potential sales.
Can be expensive to sell abroad and consumers there might not buy the goods.

2. Open factories in foreign countries (MNC)-

could be Cheaper to make goods.
Quality might decrease and price of good might increase.

3. Import products and sell in home country-

With no trade restrictions it could be profitable.
Product will need maintenance. Support might not be available in home country.

4. Import material from other countries and sell in home countries

It could be cheaper to purchase these materials.
Suppliers may not be reliable ,transport cost will increase business cost.

Potential threats of globalisation

1. Increase import into home market

Sales of local business may fall
Increased competition could improve efficiency

2. Increased investement from mnc to set up in home country

Create further competition, local business’s lose sales
Local business may become suppliers to mnc’s and gain profits
3.Employees may leave business for money
Employers may lose employess
Local business are encouraged to use motivational methods
Protectionism- includes tariffs and quotas
To make sure local business can survive.
Benefits of being a MNC
MNC is any company which derives more than quarter of its oncome outside home country
Produce goods with low cost due to economies of scale
Help remain in competiton of other mnc
Produce goods and raw materials near the production
Employees have increased opportunities for promotion
Suppliers may have increased or decreased supply

Advantage for host country

High investment , unemployment and income levels
Latest technology is brought
Economy develops

Advantage for home country

Creates employment
Boost industrial activity
Benefit of foreign culture

Disadvantage of home country

Unfavourable balance of payment
Loss of jobs if geometric approach is used

Disadvantage of host country

Kills domestic industry
Exhausts natural resources
Large sum of money flows to foreign countries