UNIT 1. Chapter 2. Business Structure Flashcards
Def. Privatisation
Selling state owned and controlled business organisations to investors in the private sector.
Arguments for privatisation (6)
- Higher efficiency due to the profit motive of private sector businesses
- Greater sense of empowerment by managers and higher motivation due to direct involvement with the business.
- No constraints of the government’s limit of growth
- Decisions not made for commercial reasons but for influences on the economy.
- Sales of nationalised industries raises finance for the government
- Increased investment in industries of the sold national businesses.
Arguments against privatisation (5)
- Governments can still attain some control over the businesses and keep the business activities that may be considered unprofitable.
- Competition between private businesses makes it difficult to benefit the whole country e.g. privatised railway system.
- Many privatised industries could act as ‘monopolies’ and exploit consumers.
- Breaking up nationalised industries (by privatising some) will reduce opportunities for economies of scale.
- The industries could be made accountable of much more responsible figures e.g. ministers.
Def. Public Private Partnerships (PPP)
These are government services or business ventures that are funded and managed through a partnership of government and one or more private sector companies.
What are the two main types of PPP. Explain.
- Government funded - Privately managed schemes. Here government provides all of the funding but the management is done by the private business.
- Private sector funded - Government or state managed. Vice versa.
Risks of international trading (3)
- Loss of output and jobs due to lack of competition from domestic firms against imports.
- May be a decline of domestic ‘strategic’ goods e.g. coal.
- If the value of imports exceeds the value of exports, it may lead to loss of foreign exchange.
Def. Free trade
No restriction or trade barriers exist that might prevent or limit trade between countries.
Types of trade barriers (name) (4)
- Tariffs
- Quotas
- Voluntary export limits
- Protectionism
Types of trade barriers (define) (4)
- Tariffs: Taxes imposed on imported goods to make them more expensive than they would otherwise be.
- Quotas: limits on the physical quantity or value of certain goods that may be imported.
- Voluntary export limits: An exporting country agrees to limit the quantity of certain goods sold to one country.
- Protectionism: Using barriers to free trade to protect a country’s own domestic industries.
Def. Globalisation
The increasing freedom movement of goods, capital and people around the world.
Benefits of free trade (5)
- Consumers are offered a wider choice
- Wider choice of raw materials for businesses
- Imported raw materials help increase economy’s rate of industrialisation.
- Imported goods bring additional competition for domestic businesses.
- Living standards of consumers would increase.
Def. Multinational Businesses
Business organisation that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries.
Reasons to become multinational (4 (3) (3) )
• Become closer to main markets
+ Lower transport costs
+ Better market info regarding consumer tastes
+ Easier to gain consumer loyalty
• Lower costs of production
+ Lower labour rates
+ Cheaper rent and site costs
+ Government grants and tax incentives to encourage certain activities
• Avoiding import restrictions by producing in the local country
• Access to local natural resources that are not available in company’s home country
Disadvantages of becoming multinational (3)
- Poor communication
- Language, law and culture differences
- Skill levels of local employees may be low which would require investment in training.
Benefits of multinational operations of host countries (7)
- The investment will bring in foreign currency
- Employment opportunities -> improving quality and efficiency of local people
- Lower unemployment rates
- Local firms have to become more competitive
- Higher tax revenues for the government
- Improvement in local management expertise
- The total output of economy increases -> higher GDP
