Business Environment

1. Business Environment HNC/HND Unit 1 2011-12 Global Factors

2. Be able to assess the significance of the global factors that shape national business activities: • You are required to produce a presentation which addresses the following: • • Discuss the significance of international trade to UK organisations. • • Analyse the impact on organisations operating in the UK of the growing economic, social and political influence of the BRIC countries as well as other global factors such as global warming, third world poverty and global financial stability. • • Evaluate the impact to UK based organisations of two policies of the European Union one of which must be the existence of the Eurozone.

3. Outcomes of the session • To be able to explore the importance and value of international trade to UK organisations • To be able to analyse the impact on organisations operating in the UK of the growing economic, social and political influence of the BRIC countries as well as other global factors such as global warming, third world poverty and global financial stability. • To be able to evaluate the impact to UK based organisations of two policies of the European Union one of which must be the existence of the Eurozone.

4. Comparative Cost Advantage • Absolute advantage • A nation has an absolute advantage in producing a good when it produces more with the same fixed resources than any other country • Comparative advantage • The advantage in the production of a product of one nation over another when that product can be produced at a lower opportunity cost • Opportunity Cost • The products that must be sacrificed to facilitate production of a given product

5. Importance of International Trade • International Trade is the exchange of goods and services between countries • Case study: Open Hospitality • Import is the purchase of a good or service made in another country • Export is the sales of a nationally made good or service to another country • Case study: Lila Paws

6. Importance of International Trade : For Nation States • Allows the availability of a much wider range of products and services than those available in one country • Allows nations to exploit their natural resources more effectively • Allows more effective use of resources such as technology. • Essentially an extension of reasons for national trade • Case study: Tesco

7. Importance of International Trade : For Individual Companies • Market Development • New market segments • Reduce risk and dependency on one market • Saturation of domestic market • Case study: GR Wright & Sons • Product Development • Source products overseas • Raw materials • Economies of scale • National market too small • Improve productivity • Case study: Fab & Fix • Increase Product Life Cycle • Scaled launch of products in different markets

8. UK Balance of Payments • Definition: The balance of payments is a record of one country’s trade dealings with the rest of the world • 2 main areas • Current account- trade in goods(visible trade) and services (invisible trade) • Transactions in assets and liabilities • Direct investment, shares & other assets

9. Trade Barriers • Why do you think nations still put barriers to trade? • Protect jobs • Some countries may engage in unfair trade practices • “The national interest”. National security, strategic industries • Safeguard infant industries • Improve balance of payments/trade

10. Trade Barriers: Protection Methods • Tariffs • Surcharges on the price of imports • Quotas • Restrictions on quantities • Exchange controls • Limit access to foreign currency to purchase imports • Export subsidies • Payments made to encourage exports

11. International Agreements • World Trade Organisation • Created in 1995 and succeeded the General agreement on tariffs and trade (GATT) • Administrates trade agreements • Acts as forum for trade negotiations • Settles trade disputes • Reviews national trade policies • Assists developing countries in trade policy issues

12. International Agreements • Free Trade Areas • NAFTA • APEC • COMESA • EEA • Customs Unions • Unification of customs and trade policies • Common market • Mercosur • Free movement of labour and capital • Economic Union • European Union

13. BRIC CountriesGrowing economic power • For the last 100 years, USA and the EU have held the most economic power globally, followed by Japan and other South East Asian countries. • Countries that have been growing substantially in economic terms are known as the BRIC countries: • Introducing Brazil – Brazil’s economic power • Introducing India – India’s economic power • Introducing Russia – Russia’s economic power • Introducing China – China’s economic power • Economic power leads to political power. Check it

14. Indicators of growing power • Population size • GDP and Export rates • Purchasing power parity (PPP) • Foreign investment • State ownership of firms • Barriers to market entry (duty, competition, etc.)

15. Your presentation task (part 2) • Analyse the impact on organisations operating in the UK of the growing economic, social and political influence of the BRIC countries as well as other global factors such as global warming, third world poverty and global financial stability.

16. In groups • Consider the impact to organisations in the UK of one of the following: • Global warming • Third world poverty • Global financial (in)stability

17. Your presentation (part 3) • Evaluate the impact to UK based organisations of two policies of the European Union one of which must be the existence of the Eurozone

18. Key EU policy areas • European Monetary Union • Free Movement of Labour within the EC • Common Agricultural Policy • Environmental Policy • Transport Policy

19. Some useful resources • BBC News Global Economy • http://www.bbc.co.uk/news/special_reports/global_economy/