Product/Market conditions that may prompt a business to trade internationally

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1. Definition of globalisation?

  • "The increased freedom and capacity of individuals and firms to undertake economic transactions with residents of other countries on a global scale"
  • "When a business successfully enters every single market on the globe"
  • "The decreased freedom and capacity of individuals and firms to undertake economic transactions with residents of other countries and operate on a global scale"
  • "If everyone decided to travel around the globe"
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2. Why would Protectionism be negative in the long term?

  • The revenue from tariffs may become too big for the government
  • It weakens the protected industry because there would be no reason to innovate due to lack of competitors
  • It means that business will get less revenue
  • It can be expensive for a business to upkeep

3. What is a benefit of global sourcing?

  • The cost of training the new workers
  • Higher risk of loss of intellectual know-how
  • Potentially significant labour cost reductions
  • Impact on existing workers

4. Give some examples of trading blocs:

  • EQ, HTO, & TSFC
  • BFC, NFFC, & SMO
  • The EU, ASEAN, & NAFTA
  • PTO, the BU, & AZEAN

5. Advantages of being in a trading bloc:

  • Firms inside the bloc are protected from cheaper imports from outside e.g. EU shoe industry from China/Vietnam imports
  • Products cost more for consumers because efficient producers from outside the bloc may have tariffs added to them
  • It reduces the beneficial effects of specialisation
  • The benefits of free trade between countries in different blocs are lost

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