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All domestic businesses are concerned with the unemployment rate as a result of it represents a waste of scarce resources. Also increased number of unemployment would lead to a fall in the household disposable income. Therefore this can cause a shift in the demand curve for luxury products to the left which simply represents the poor economic performance. There is an inverse relationship between the unemployment rate and economic growth. This is because fast economic growth would lower the unemployment rate of a particular nation. Also output could be higher if most unemployed people are working within that nation. Below the diagram represents the claimant unemployment rate in the UK among the GDP growth from 1990 to 2006.
This diagram clearly represents the cyclical relationship between the unemployment rate and GDP growth. By looking at this we can say that there is a significant increase in the GDP growth when the unemployment level falls especially in the year of 2004. However, I would say these figures are not accurate because there are unemployed people within the UK who didnï¿½t claim the allowance during this period of time.
Inflation can be described as changes in the pricing strategy in an economy. Lower inflation rate would allow consumers to buy large quantity of goods for less price due to the lower pricing strategy. On the other hand, high inflation rates could bring adverse effects to the business. For example, increase in price would lead to value of what savings can buy falls. Also another problem would be if the price changes every month consumers often forgets what reasonable price for a product is when they come to purchase. Therefore this disrupts the consumer knowledge. In UK the highest inflation rate was in 24.2% in 1978 whereas some countries such as Brazil and Argentina experienced hyperinflation in 1980. Inflation focuses on Retail price Index and Consumer Price Index. Below the table represents the current inflation rates in the UK.
Inflation of UK
Aspects within the International Business
International business can be described as commercial trade between two or more nations but it has benefit of joining all countries around the world. International business will come under the globalisation. International trade and investment can be examined under the comparative advantage; this is focusing on the nations factors of production (land, labour and capital)
The two key elements within the study of international business are shown as follows:
Imports and Exports
Any goods and services purchased from one country and transporting it to another country is called imports. The main importing products In the UK are motor cars, crops and fuels. For example, in 2005, 49.3% of goods are imported from euro zone countries, 62.9% came from Western Europe, 9.7% from North America and 20% from developing countries to UK.
Any goods and services has been produced locally and sold it to foreign countries is called Exports. The main exporting products in the UK are medicines and petroleum products. In 2005, 51.1% of goods from the UK exported to euro zone countries, 61.2% to Western Europe, 16.6% to North America and 12.8% to developing country.
Below the graph represents the growth in imports and exports by region in between 1995 ï¿½ 2005.
By looking at this graph we can see that China increased its merchandise growth significantly in 2005 when compared with other regions. This therefore explains that most nations are involved with importing and exporting and China will become the most powerful country in ten years time.
Exchange rate is a system which allows businesses to exchange one currency for another under the conditions. It is essential for international firms during their imports and exports. For example, if goods have to purchase from Japan, firms have to pay the yen to the supplier. World Bank is controlling the exchange rates; therefore they are constantly changing. Within this aspect of international business we also focus on two types of exchange rates; they are fixed, free-floating exchange rates. Below the demand and supply curve explains the fixed exchange rate system.
Similarities in Domestic and International Business
On the other hand there are few similarities between study of Domestic and International Business.
> The main similarity would be all the firmsï¿½ shares the same aims and objectives in order to become successful in the market. For example, most domestic and international private firms aim is to maximise the profit.
> Finally, both the international and domestic businesses have same functional departments such as marketing, accounting, human resources, administrative etc. This therefore businesses often combine the aspects of domestic operations with international operations.
In conclusion, I strongly agree with the point that international business is different from Domestic business. I would say the study of international business is more complicated. This is because firms will be affected by the environment changes when they cross the international border which would lead it to invest more time and resources to be familiar with that market. With the domestic firms, they understand the environment quite well. Another reason would be economic environment can also affect the international firms as result of it can be very different from one country to another. For example, developed countries are rich countries, less developed countries are poor and developing nations are moving from poor to rich. If international firms entering in the planned economy will be facing more barrier as the government within that nation has the power to set the prices and control the production. However, in the UK domestic market we have free market economies because government have minimal control over the firms. Altogether, I would say it is necessary for international and domestic business to understand the values and beliefs of countries where they do business.