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Summary Assignment 1, Task 2 - International Business - Globalization features
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Summary of 7 pages for the course Unit 5 - International Business at PEARSON (D)
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WHY TRADE INTERNATIONALLY?TASK 2: The main features of Globalisation
Slide 1 and 2:
GLOBALISATION is the process that results in economies around the world becoming inter-
connected and inter-dependent on each other.
Features:
1. Trading Blocs
2. International mobility of labour and capital
3. International currencies
4. International business communications
5. International payment systems
Slide 3
1. TRADING BLOCS – a number of countries which work together, with a view to making the
moving of goods/services more accessible and easily, eliminated the barriers to trade.
Trading Blocs protect its members from the imports of non-members.
There are more types of Different Trading Agreements:
Preferential Trade Areas (PTAs) – are small steps for creating a trading bloc;
Countries from a geographical region enter into an agreement that diminishes or
removes tariff barriers on certain goods which are imported from other countries
that are members of the agreement.
Free Trade Area (FTAs) – the agreement is between at least 2 countries in a region
and means diminishing and removing the barriers to trade all goods between
member countries.
Customs Union – All tariff barriers between members are removed, but an common
external tax is introduced against non-members (members acting as a single bloc
with third parties e.g. other trading blocs or with the WTO)
Common Market – Free trade for all resources (goods, services, labour, capital)
between member countries. No tariffs. Instead, there are common economic
policies and rules regarding monopoly power or other anti-competitive practices.
Examples of Trading Blocs:
EU (European Union)
EFTA (European Free Trade Association)
NAFTA (North American Free Trade Agreement)
MERCOSUR (Southern Common Market)
World Trade Organisation (WTO) - is the only global international organization dealing with
the rules of trade between nations. The goal is to help the businesses who sell
goods and services, as well as exporters, and importers conduct their
business.
1
, Slide 4
Member in a trading bloc
Benefits
- Free trade (no tariffs)
- Less costs
- Free labour movement
- Economies of scale (more export opportunities)
- A big competition in bloc leads to comparative advantage and more efficiency
Drawbacks
- Expensive trade outside the block
- Time for reaching agreements inside the trading block
- The common rules may not be suitable for all businesses from all member countries
Slide 5
Before Brexit, Morrisons and Aston Martin had a number of advantages due to the UK being a
member of the European Union. As an importing business, Morrisons could import products from
the European Union without tariffs and also, Aston Martin was able to open car sales outlets in the
EU member states. For both businesses, there were fewer costs; economies of scale and due to the
big competition the comparative advantage and the effectiveness of the companies increased.
Additionally, due to the fact that the UK was a member of European Union, Morrisons and Aston
Martin had from where to select employees with skills and qualifications required for the specific job
roles. A current example is the truck driver crisis, Morrisons being sometimes unable to have all the
products on the shelves due to the fact that the goods arrive late (they are not enough drivers).
Leaving European Union (the largest trade bloc in the world), the UK searched to base future trade
relations on Preferential Trade or Bilateral Free Agreements. The United Kingdom negotiated for a
Free Trade Agreement with the European Union (as a single party). Also, the UK wants to set a
bilateral agreement with the United States of America and trade deals with Australia, Canada etc. as
Commonwealth nations.
Immediately after the Brexit referendum, Morrisons took action: becoming an Authorised Economic
Operator, Morrisons is known as an important business by the European Union after Brexit (it
minimalizes the chances of border checks for imported products). Also, Aston Martin has insisted
that the UK to have an agreement with the EU, warning to put a pause the production of cars if this
does not happen.
*In addition to the European Union, the two businesses can trade with NAFTA (Aston Martin exports
to USA, Canada etc.), MERCOSUR (Morrisons imports exotic fruits from countries like Columbia,
Brazil etc.) .
Slide 6
Protectionism – methods that countries and trading blocs use in order to reduce the amount of
imports.
Import Tariff – a tax added to goods that are imported.
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