Globalisation of Trade: Understanding Benefits and Challenges
Economic globalisation facilitates international trade, allowing companies to expand globally. Explore the benefits to developing countries and the challenges faced by critics in a single, interconnected market.
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Be Business 3.7 GLOBALISATION OF TRADE
3.7 GLOBALISATION OF TRADE Learning Intentions At the end of this unit I will: Know about globalisation Understand the benefits and challenges of globalisation Know about the balance of trade and the balance of payments Value international trade 2
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3.7 GLOBALISATION OF TRADE BEFORE WE BEGIN Do this exercise individually or in pairs. Tick whether you agree or disagree with the statements. Revisit it after the unit to see if you have changed your mind about any of them. Before After I agree I disagree Statement I agree I disagree Improvements in technology have slowed down globalisation Balance of Trade = Visible Exports Visible Imports Balance of Payments = Total Exports Total Imports Ireland doesn t have to worry about currencies when trading internationally Ireland is an open economy #04AFEF 4
3.7 GLOBALISATION OF TRADE Websites Wonderful Worthwhile Websites www.businesseducation.ie www.cso.ie www.tutor2u.net/economics 5 5
3.7 GLOBALISATION OF TRADE Introduction Bartering is where goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. Bartering became trade Trade is where goods or services are exchanged for payment Types of trade: Local trade National/domestic trade International trade 6 6
3.7 GLOBALISATION OF TRADE Did You Know? Barteringhasn t been consigned to history. A community in Clonakilty, County Cork have set up their own bartering system. It s called the Clonakilty Favour Exchange. Find out more at www.clonakiltyfavourexchange.ie 7
3.7 GLOBALISATION OF TRADE Globalisation Economic globalisation is where countries come together to create one global economy, making international trade easier. National companies can develop into international companies International companies can have subsidiaries all over the world Expansion of international markets has resulted in a very large, single world global market 8 8
3.7 GLOBALISATION OF TRADE Globalisation: Benefits and Challenges Benefits Challenges Beneficial to developing countries Critics see world free market as undesirable and unrealistic Human rights improve Income increases Powerful and rich countries: Standard of living improves Make the rules Reduction in poverty Get all the benefits 9 9
3.7 GLOBALISATION OF TRADE Why Has Globalisation Expanded? The speed of globalisation has increased for a number of reasons: 1. Improvements in technology and communication 2. Improvements in transport 3. Sophisticated online payment methods 4. The growth of multinational companies (MNC)s and increase in global brands 10 10
3.7 GLOBALISATION OF TRADE Containerisation Containerisation is a system that uses standard-sized containers to transport goods. Containers can be loaded and unloaded between ships, trains and trucks. Containers are tracked using computer programmes. Containerisation has reduced the cost of transport and helped globalisation. 11
3.7 GLOBALISATION OF TRADE Economic Advantages 1. An incentive for countries to specialise and benefit from competitive advantage 2. Businesses benefit from economies of scale 3. Access to cheap raw materials, enabling firms to be more competitive 4. Increase in trade should lead to increase in employment 5. An increase in dividends makes shareholders happy 12 12
3.7 GLOBALISATION OF TRADE Economic Disadvantages 1. A risk of countries becoming too dependent on each other 2. The increased power and influence of MNCs 3. The over-specialisation of goods is a risk 4. MNCs and economies of scale can drive local companies out of business 5. A lack of international laws means MNCs can operate differently in developing countries 6. Growth in trade has increased pollution 7. Globalisation creates winners and losers 13 13
3.7 GLOBALISATION OF TRADE Are All Global Products Identical? Global businesses sell standardised products. However, not all global products are identical. 1. Adjustments for technical differences 2. Countries have different laws on packaging and labelling 3. Different tastes in different countries 4. Variation in price due to taxes, duties and exchange rates 14 14
3.7 GLOBALISATION OF TRADE International Trade An open economy is an economy where goods and services are traded with other countries without rules or limits. Ireland is an open economy. To prosper and maintain growth it needs to export and attract oversees companies to locate in Ireland. The following organisations work to promote Ireland overseas: IDA Ireland (Industrial and Development Authority) Enterprise Ireland Bord Bia Tourism Ireland Science Foundation Ireland 15 15
3.7 GLOBALISATION OF TRADE Definitions of National and International Trade International trade means selling goods and services to, and buying goods and services from, other countries. Domestic trade is buying and selling goods and services in our own country. Exporting is when goods and services are sold to other countries. Importing is buying goods and services from other countries. Invisible trade is trade in services. Visible trade is trade in physical goods. 16 16
3.7 GLOBALISATION OF TRADE Imports Imports are made up of: Visibleimports Invisibleimports Whether an import is invisible or visible, the money is leaving our country. Think of an import as money leaving the country. 17 17
3.7 GLOBALISATION OF TRADE Example 1 If Ireland imports BMWs from Germany it is a visible import. Why? The BMWs come into Ireland (physical goods) Money leaves Ireland and goes to Germany to pay for the BMWs 18
3.7 GLOBALISATION OF TRADE Example 2 If Irish people holiday in New York it is an invisible import. Why? Nothing physical comes into Ireland Money leaves Ireland as Irish money is spent in New York 19
3.7 GLOBALISATION OF TRADE Why Import? 1. There are raw materials we don t have in Ireland 2. Our climateisn t suited to growing certain products 3. We don t produce all the products we need 4. Irish people like to travel 5. It s easy to buy goods online 20 20
3.7 GLOBALISATION OF TRADE Benefits of Importing 1. It gives consumers a greater variety of goods 2. It provides taxation for the government customs duty 3. Consumers can obtain goods that would otherwise not be available 4. We can import essential raw materials which help production and the economy Time to think Think about where you buy your clothes and accessories. Are any of your clothes or accessories produced in Ireland? Consider doing an audit of where all the clothes and accessories you bought over the last year were produced. 21 21
3.7 GLOBALISATION OF TRADE Exports Exports are made up of: Visible exports Invisibleexports Exports means money is coming in to our country. Think of an export as something good for the country in terms of money. 22 22
3.7 GLOBALISATION OF TRADE Example 3 If Ireland exports beef to Poland it is a visible export. Why? Irish beef goes to Poland (physical goods) Money (euros) leaves Poland and comes into Ireland to pay for the goods 23
3.7 GLOBALISATION OF TRADE Example 4 If French people holiday in Ireland it is an invisible export. Why? Nothing physical leaves Ireland The French tourists come to Ireland with their money and they spend it in hotels, restaurants, shops, etc., which helps the Irish economy 24
3.7 GLOBALISATION OF TRADE Why Export? Ireland is a small open economy and we need to export to create employment and to increase our GDP (gross domestic product). 1. We don t want to depend entirely on the home market 2. We benefit from economies of scale 3. We earn foreign currency from non-eurozone areas that we trade with The eurozone is all the countries that are part of the European single currency and have the euro as their currency. Non-eurozone countries are all the other countries of the world 25 25
3.7 GLOBALISATION OF TRADE Benefits of Exporting 1. The increased levels of production create employment 2. There are additional taxes for the government 3. Companies are less dependent on the home market Time to think Have you ever had to exchange your euros for British pounds when visiting the UK? What happened? What is the current euro sterling exchange rate? 26 26
3.7 GLOBALISATION OF TRADE 1. Copy and complete the sentences on page 475. 2. Copy the table and place a tick in the correct box. True False Ireland is an open economy Eurozone countries all have the same currency Visible exports are services we sell to other countries An export is something bad for a country 27
3.7 GLOBALISATION OF TRADE The Balance of Trade The balance of trade is the difference between the value of visible exports and the value of visible imports. Balance of Trade = Visible Exports - Visible Imports The following is an example of a healthy balance of trade. Balance of Trade (BOT) millions Total visible exports Less total visible imports Balance of Trade Favourable 300 250 50 28 28
3.7 GLOBALISATION OF TRADE The Balance of Trade If the value of visible exports is greater than the value of visible imports = surplus If the value of visible exports is equal to the value of visible imports = balanced If the value of visible exports is less than the value of visible imports = deficit 29 29
3.7 GLOBALISATION OF TRADE Look at the transactions in the chart on page 476 and put a tick in the correct box to indicate whether each transaction is a: Visible export Invisible export Visible import Invisible import 30
3.7 GLOBALISATION OF TRADE WORKING WITH OTHERS Source the top three products that Ireland imports Source the top three products that Ireland exports #04AFEF Source the top three countries that Ireland imports from Source the top three countries that Ireland exports to Page 477 31
3.7 GLOBALISATION OF TRADE Balance of Payments The balance of payments is the difference between the value of all goods and services that Ireland exports and imports. Balance of Payments = Total Exports - Total Imports (Visible plus invisible exports) - (Visible plus invisible imports) The balance of payments can: Have a surplus Be balanced Be a deficit 32 32
3.7 GLOBALISATION OF TRADE Balance of Payments Balance of Payments BOP million Total Exports Visible Exports 300 Invisible Exports 350 650 Less Total Exports Visible Exports 250 Invisible Exports 200 450 Surplus 200 33 33
3.7 GLOBALISATION OF TRADE Balance of Payments Deficit Surplus What can our country do to improve on a balance of payments deficit? What can our country do to improve on a balance of payments surplus? Try to grow exports Use the money to pay off some of our national debt Reduce imports Encourage buy Irish Spend more on services and infrastructure Promote Irish products and services 34 34
3.7 GLOBALISATION OF TRADE Example 5: Balance of Trade and Balance of Payments BOT millions Visible exports Less visible imports BOT Surplus 800 ( 650) 150 BOT is a surplus as visible exports are greater than visible imports. Total exports = visible + invisible exports ( 800 m + 400 m) Total imports = visible + invisible imports ( 650 m + 550 m) BOP is a surplus as total exports are greater than total imports. BOP millions Total exports Less total imports BOP Surplus 1,200 ( 1,150) 50 35
3.7 GLOBALISATION OF TRADE WORKING WITH OTHERS Be the Minister of Finance. What might you do with the surplus? #04AFEF Page 478 36
3.7 GLOBALISATION OF TRADE 1. Using the information on page 478, calculate the following: a) Total exports b) Total imports c) The balance of trade d) The balance of payments State whether each is a deficit or a surplus. Show your workings. 2. Using the figures on page 478, calculate the balance of trade and the balance of payments for a country called Youty. If it is a surplus, what might the government of Youty do? If it is a deficit, what might the government of Youty do? 37 37
3.7 GLOBALISATION OF TRADE Factors in International Trade A business will have to consider a number of factors when trading with other countries. 1. Language barriers translation costs for non-English speaking countries 2. Cost of transport Ireland is an island, increases costs 3. Insurance costs goods are at risk at ports and airports 4. Adjusting products - different standards worldwide 5. Currency different currencies outside the eurozone 38 38
3.7 GLOBALISATION OF TRADE WORKING WITH OTHERS Working in groups of four or five, write a script for your own economics show, called The JC Business Economics Fix. The topic of the show is International Trade . What would make the best possible show: content, communication skills, visuals, research ...? #04AFEF You might decide to present your show to your classmates. Page 479 39
3.7 GLOBALISATION OF TRADE Currency We refer to currency conversions as exchange rates. The following are the rules for converting currencies: 1. Going from euro to foreign currencies, you multiply by the sell at rate x 2. Going from foreign currency to euro, you divide by the buy at rate 40 40
3.7 GLOBALISATION OF TRADE Example 6: Sample Euro Exchange Rate Sell 0.80 1.28 Buy 0.90 1.32 Remember, if you re converting from euros to a foreign currency multiply. British Pound US Dollar $ If I have 100 to convert to pounds = 100 x 0.80 = 80 If I have $500 to convert to euros = $500 1.32 = 378.79 It is a good idea for businesses to trade with countries that use the same currency. However, this is not always possible. 41
3.7 GLOBALISATION OF TRADE Be a holidaymaker. You must decide on three destinations where you would like to go on holiday and the amount of euros you want to convert. Use the sample Bank Sell Rates in the chart on page 480 to help you make your decision. You have 300 to take with you on holiday. 42
3.7 GLOBALISATION OF TRADE Be a Researcher 1. Research the exchange rates for ten countries that are not in the eurozone. Can you source an online currency converter? Do you know of any apps for currency conversions? 2. Use websites to source information on Ireland s current imports and exports. Copy and fill in the Trade Learning Sheet 1 from page 480. 3. Use websites to source information on Ireland s current Balance of Trade and Balance of Payments. Copy and fill in the Trade Learning Sheet 2 . 43 43
3.7 3.7 GLOBALISATION OF TRADE GLOBALISATION OF TRADE Quick Quiz If the value of visible exports is less than the value of visible imports, what is the balance of trade? Balanced Balanced Deficit Deficit Surplus Surplus 44
3.7 3.7 GLOBALISATION OF TRADE GLOBALISATION OF TRADE Quick Quiz If the value of visible exports is less than the value of visible imports, what is the balance of trade? Balanced Balanced Deficit Deficit Surplus Surplus 45
3.7 3.7 GLOBALISATION OF TRADE GLOBALISATION OF TRADE Quick Quiz If the value of visible exports is less than the value of visible imports, what is the balance of trade? Balanced Balanced Deficit Deficit Surplus Surplus 46
3.7 3.7 GLOBALISATION OF TRADE GLOBALISATION OF TRADE Quick Quiz If the value of visible exports is less than the value of visible imports, what is the balance of trade? Balanced Balanced Deficit Deficit Surplus Surplus 47
3.7 3.7 GLOBALISATION OF TRADE GLOBALISATION OF TRADE Quick Quiz: Review If the value of visible exports is less than the value of visible imports = deficit If the value of visible exports is greater than the value of visible imports = surplus If the value of visible exports is equal to the value of visible imports = balanced 48
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3.7 GLOBALISATION OF TRADE Key Words Balance of payments Globalisation Balance of trade Importing Comparative advantage Imports International trade Containerisation Invisible trade Domestic trade Multinational companies (MNC) Eurozone Visible trade Exporting Exports 50
