4-1-2-international-trade-and-business-growth

Business specialisation and competitive advantage

Imports and exports 

• Businesses that trade internationally import and export goods/services

  • Imports are goods and services bought by people and businesses in one country from another country

    • In 2022, the UK’s biggest import was cars, valued at approximately £3.25bn

  • Exports are goods and services sold by domestic businesses to people or businesses in other countries

    • In 2022, China’s biggest export was smartphone manufacturing, valued at approximately $21.4bn

• Exports generate extra revenue for businesses selling their goods abroad

• Imports result in money leaving the country, which generates extra revenue for foreign businesses

Specialisation and competitive advantage 

• Specialisation occurs when a country/business decides to focus on producing a particular good/service

  • Businesses specialise when they focus on a specific good/service; e.g. Apple focuses on the production of technological products and services

  • Countries can also specialise in a narrow range of goods and services; e.g. Ghana specialises in cocoa and gold 

• Specialisation can increase the quantity and quality of goods and services produced. This has many benefits, including:

  • Lower unit costs due to economies of scale, as costs are spread over a large output 

  • Lower unit costs allow the business to lower prices for consumers, leading to more sales

  • If businesses do not lower their selling price, then, due to the lower costs, they are able to increase their profit margins

  • Any excess output can be sold abroad as exports 

• When businesses specialise, it can also help them gain a competitive advantage

  • If they can increase the value added on their goods/services, this can help to gain an edge over their competitors

  • An example of a competitive advantage is having access to markets, resources and materials that competitors do not have access to

Foreign direct investment and business growth

• Foreign direct investment (FDI) is investment by foreign firms that results in more than a 10% share of ownership in domestic firms

• Businesses typically grow through FDI as mergers, takeovers, partnerships or joint ventures are created with a foreign business in order to enter new markets

  • E.g. EE was formed in 2012 as a joint venture between the French company Orange and the German company T-Mobile, allowing access to a greater share of the UK market 

• Countries benefit from FDI, as it can lead to:

  • Increased economic growth, as there is an inflow of money into the country

  • Increased job opportunities as businesses expand operations

  • Access to knowledge and expertise from foreign investors

• Inward FDI occurs when a foreign business invests in the local economy

  • E.g. in 2017, Kenya opened the Kenya Standard Gauge Railway line built by Chinese investors 

• Outward FDI occurs when a domestic business expands its operations to a foreign country

  • E.g. Dyson has moved its manufacturing from the UK to Malaysia, China and the Philippines