<6.3 BUSINESS & THE INT'L ECONOMY

•  GLOBALISATION refers to the GROWING INTERDEPENDENCE of the world's economies, cultures, and populations, brought about by cross-border trade.

• Use the example paragraph above, complete the remaining 3 opportunities applied to Taistyle.

• CONTINUING our application, explain how each of the THREE THREATS mentioned above could impact Taistyle. I have done the first one for you

  • • • THREAT 1:  Increase in imports into Taiwan. (K)

      • "Globalisation in the form of less protectionism and free trade zones means that the price of imported clothing into taiwan is now lower (as they pay no import taxes) (an) and as a result, domestic clothing firms like Taistyle face more competition from lower cost & more efficient foreign producers of textles (app) such as from China and Bangladesh (app), which could force them out of the market or force them to become more efficient by lowering their prices to stay competitive (an)".

• IMPORT TARIFFS are a form of TAX ON IMPORTS that RAISES THEIR PRICE in the domestic market, making them less competitively priced against domestic brands, whereas QUOTAS RESTRICT THE NUMBER OF IMPORTS allowed into the domestic market.

• As such BOTH these GOVERNMENT POLICIES REDUCE the NUMBER OF IMPORTS PURCHASED DOMESTICALLY.

  • • • • The MAIN ARGUMENTS FOR these types of policies are TO PROTECT DOMESTIC INDUSTRIES FROM LOWER-PRICED (UNFAIR?) IMPORTS that could result in the domestic industry closing down and thus PROTECTING DOMESTIC EMPLOYMENT and in the case of NEW INDUSTRIES ('INFANT INDUSTRIES') which the country wishes to DIVERSIFY into allows them the time to grow, hence why these policy types are referred to as PROTECTIONIST POLICIES.

        • The MAIN ARGUMENTS AGAINST this type of practice is that these protected domestic firms are often INEFFICIENT COMPARED TO THE MORE PRODUCTIVE FOREIGN FIRMS, which LEADS TO WASTED RESOURCES. In addition, DOMESTIC CONSUMERS will NOT BENEFIT FROM THE LOWER-PRICED IMPORTS, RAISING THEIR COSTS OF LIVING, while DOMESTIC FIRMS THAT USE IMPORTED RAW MATERIALS will see their COSTS OF PRODUCTION RISE, leading to HIGHER PRICES, and in the case of DOMESTIC EXPORTS, LESS COMPETITIVE.

• Read the section above 'IMPORT TARIFFS & QUOTAS' then answer this question: "Explain four stakeholder affects of an import tariff placed on milk products from New Zealand" (12), remember to start your answer with a definition of a tariff. (12)

  • • Here are the stakeholders you could mention:

      • • • Domestic consumers of milk.

          • Domestic producers of milk.

          • Workers in the local milk industry.

          • Domestic producers that use milk products.

          • Domestic exporters of products containing milk.

          • Foreign exporters of milk eg new zealand.

          • Foreign workers in milk exporting industry.

"A tariff is a form of protectionism aimed at....it works by...., If a tariff is imposed on imports of milk from New Zealand it will impact various stakeholders positively and negatively, for instance, domestic consumers of New Zealand milk will see the price increase, which will mean..., whereas domestic producers of milk should see...,..."

• MULTINATIONAL COMPANIES (MNCs), refer to businesses that PRODUCE GOODS/SERVICES IN MORE THAN ONE COUNTRY.

  • • BENEFIT- TO LOWER COSTS OF PRODUCTION for example by producing where the COST OF LABOUR and LAND is LOW.

    • BENEFIT- TO EXTRACT RAW MATERIALS which the firm needs for its final products, for example, coffee beans for its coffee products.

    • BENEFIT- REDUCE TRANSPORTATION COSTS by producing the product CLOSER TO ITS CUSTOMERS.

    • BENEFIT- AVOID IMPORT TARIFFS & QUOTAS as by producing within the country they will not need to pay them at the border.

    • BENEFIT- TO SPREAD RISK as by operating in different countries they are not overly dependent on the economic state of one country and can move production away from countries with declining sales towards countries with rising sales.

    • BENEFIT- TO REMAIN COMPETITIVE as without expanding they will lose market share to their rivals who (assuming they expand) will not only see their BRAND AWARENESS GROW, but also be able to use the cost advantages to make their products more competitively priced.

• Imagine you were the Business Development Manager at TESLA, who first proposed the opening of a manufacturing base in China in 2019, using THREE+ OF THE BENEFITS TO BEING AN MNC listed above, WRITE THE INITIAL PROPOSAL LETTER TO THE CEO, Elon Musk, explaining why it will be highly beneficial for them to open TESLA, China. 

• "Dear Elon, please allow me this opportunity to explain why I think my idea to open a manufacturing base in China would be beneficial for us. Firstly,...."

• Domestic JOBS ARE CREATED.

• NEW INVESTMENTS in INFRASTRUCTURE.

• NEW TECHNOLOGY introduced.

• MORE TAXES are earned by the host government.

• MORE CHOICES for consumers.

• MORE COMPETITION should mean LOWER PRICES.

• Imagine you are Pierre Poilievre, the opposition leader of Canada and you wish to ATTRACT TESLA to open up a manufacturing base in Canada. Using THREE+ OF THE BENEFITS TO THE HOST COUNTRY listed above, WRITE A RESPONSE to a reporters question about "Why you think it would be beneficial to Canada to be the host country of TESLA plant.

• "Great question!, I am passionate about allowing TESLA to open up a manufacturing hub in Canada for the following reasons; firstly,...."

• Jobs created ARE ONLY LOW-SKILLED MANUAL ONES.

• Domestic firms FORCED TO CLOSE DOWN.

• MNCs will REPATRIATE PROFITS back to their own country.

• MNCs will USE UP SCARCE RESOURCES then LEAVE.

• MNCs will create EXTERNAL COSTS.

• MNCs may be TOO POWERFUL and INFLUENCE POLICY.

• Finally, 🥵 imagine you are The (Ex) prime minister of Canada and you DO NOT wish to have TESLA set up a manufacturing base in Canada. Using THREE+ OF THE DRAWBACKS TO THE HOST COUNTRY listed above, WRITE A RESPONSE to a Pierre Poilievre's answer from above.

• "Shame on Mr. Poilievre! As usual, only focusing on the short term gain!, I am completely against allowing TESLA into Canada for many reasons; firstly,...."

• Complete the past paper below using the mark scheme as your guide. Pay attention to how the points are awarded. (Not that the blue text is a direct link to th ecase study and the red text links to the MS.

• (PP) Consider the benefits and drawbacks to country Z if PP decides to locate a factory there. Recommend whether the government of country Z should allow PP to set up a factory. Justify your answer. (12)

• EXCHANGE RATES REGULARLY CHANGE, but PRICES of goods and services REMAIN STABLE/UNCHANGED. Therefore it is possible to find the EXACT same product sold at a higher/lower price depending on the currency it is quoted in. 

• Go HERE to see the 5 year historic value of the GBP to the HKD and identify the following:

  • • • • • • Q. When and at what price was the HKD at its strongest against the GBP?

            • Q. When and at what price was the GBP at its strongest against the HKD?