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capital movements (not trade) are driving forces of the world economy production is uncoupled from employment e.g security guards in India using webcams primary products have become uncoupled from the industrial economy e.g steel from South America into Europe the world economy is in control 75-year contrast between capitalism and socialism is over
Barriers to Trade
Tariff barriers - direct taxes on imports
Bahamas has 30% on all goods Australia and US impose on cars and agricultural goods e.g Japanese manufacture in Australia Average now 5% was 25% in1945
Non-tariff Barriers
Increased govt. participation, US wheat subsidy Customs entry procedures Quotas (quantitative restriction) US textile imports from China
Common Market - as above but also the free flow of all factors of production
e.g EU since 1993
Economic Union common market characteristics are combined with the harmonisation of economic policy. Supranational authority to design policy for a group of nations objective of Maastricht Treaty in 1991. EU was formed in 1993.Monetary Union commenced in 1999. Now political union in 2000s? More convergence and less national autonomy?
COMPETITIVE RIVALRY
Threat of substitutes
Substitutes
Source: Adapted from M. E. Porter, Competitive Strategy, Free Press, 1980, p. 4. Copyright by The Free Press, a division of Macmillan Publishing Co., Inc. Reproduced with permission.
Competitive Rivalry
Entry is likely Substitutes threaten Buyers or suppliers exercise control Competitors are in balance There is slow market growth Global customers increase competition There are high fixed costs in an industry Markets are undifferentiated There are high exit barriers
Buyer power
There is a concentration of buyers There are many small operators in the supplying industry There are alternative sources of supply Components or materials are a high percentage of cost to the buyer leading to shopping around Switching costs are low There is a threat of backward integration
Supplier power
There is a concentration of suppliers Switching costs are high The supplier brand is powerful Integration forward by the supplier is possible Customers are fragmented and bargaining power low
Threat of substitutes
Substitutes take different forms: Product substitution - Bt for Orange Substitution of need - international not local calls (satellites not wires) Generic substitution - mobiles for land based telephones Doing without - no communication
Citibank - Firstmover
High brand recognition More positive brand image More customer loyalty More distribution Longer market experience
Factory conditions
Demand conditions