Section 6 ,Topic 1
International
Specialisation
Specialisation of countries at
national level:
specialisation a occurs when individuals, firms, regions
or countries concentrate on the production of particular
goods or services. This occurs when people, businesses and
countries concentrate on producing goods and services
that they are best at. What countries are best at producing
is influenced by the quality and quantity of their
resources.
For example, a country with an abundance of fertile land, good
irrigation, moist climate and a large number of workers may
decide to concentrate on producing rice. Its average cost of
producing the rice is likely to be low.
1. Individuals tend to master a particular skill in life. This
allows workers to master their skill and increase their
productivity leading to higher wages.
2. Businesses around the globe specialise in a particular
industry. For example, shell has specialised in oil, IKEA in
furniture, McDonald’s in fast food.
3. Countries Specialise in production of certain products. For
example, Germany in consumer electronics and luxury
cars, Pakistan in production of rice and mangoes.
4. Specific regions in the world specialise in the production of
a particular good or service. This is because of geographic or
social factors. For example Silicon Valley for IT and
communication technology, Paris and Milan for fashion
industry, Sialkot for sports goods.
• Advantages and disadvantages of specialisation
at a national level to consumers:
Advantages Disadvantages
• Countries specialising produce
• Some countries might create a
products that they are best at hence
monopoly in a certain type of good
output increases which leads to
and then charge their customers a
consumers enjoying more goods
high price for it.
and services and hence have a
• The country where the product is
higher standard of living.
being made might not be using
• Since firms focus on just one
ethical practices like not following
product, the quality of the product
the same health and safety
is generally superior.
standard. Leading to lower
• Lower cost of production due to
quality.
economies of scale which can be
• Since these goods are shipped
passed onto the consumer in the
across borders, any problem like
form of lower prices. natural disaster, political issues
can lead to these goods becoming
unavailable or short in supply.
• Advantages and disadvantages of specialisation
at a national level to firms:
Advantages Disadvantages
• Through specialisation firms can • The firm can become dependent on
produce on a large scale which can other countries for the markets of
enable them to take advantage of the products they produce and for
economies of scale and lower costs sources of their raw materials. The
ultimately leading to higher supply and prices of the raw
profits. materials might fluctuate
• Due to specialisation firms trade depending on the taxes and duties.
and they can acquire new • The trends and fashion can
production techniques, technology change and other countries can
and high-quality/high skilled become more efficient at producing
labour from abroad which can the product or may develop
improve efficiency. substitutes locally.
8B
• Advantages and disadvantages of specialisation
at a national level to economy:
Advantages Disadvantages
• Specialisation can result in • The countries specialise in a particular
efficient use of factors of product and this makes the economy
production. This results in higher vulnerable. For example economies like
GDP. Iran are highly dependent on oil
• Labour becomes more productive due exports, a trade embargo by the west on
to repetition of jobs because their oil results in major economic collapse.
skills improve you to practice. This • Since the worker is only skilled in
leads to more output in less time. producing a particular product, it is
• Since production increases, hard for him to understand other
therefore firms enjoy larger functions of the business, making
economies of scale. These cost cuts labour less occupationally mobile.
can be passed on to consumers in • The cost to employ specialist workers is
form of lower prices. Hence reducing high. Plus, if transportation cost is
inflation. high it might also offset any cost
• Combined with international trade, advantage a country has introducing
specialisation can allow an a product. If goods are heavy and have
economy to consume outside its to be transported long distances it may
production possibility curve. This be more efficient for the importing
can raise standard of living and economy to produce it themselves.
reduce absolute poverty.
• International trade:
It Was thought that most international trade was based on
absolute advantage. This is not actually the case, although it
does account for some international trade. International trade
is done on the basis of comparative advantage.
1) Absolute advantage:
It is the ability of a country, company or individual to produce
a good or service more efficiently meaning using fewer
resources than others. A country with an absolute advantage
in multiple products may not always benefit from trade.
2) Comparative advantage:
It is the ability of a country, company or individual to produce
a good or service at a lower opportunity cost than others. Even if
a country lacks absolute advantage in any product, it can
still benefit from trade by specialising in what it does best
competitively.
The one who looses more
ofa productwhilemaking
anotherproductshould not produce it
International trade Internal trade
• External external trade • Trade within the country.
happens between countries. • Less chances for economies
• Wider market. More of scale.
chances for economies of • Lower transportation cost
scale. • Same Culture
• Higher transportation costs. • Does not involve trade
• Different cultures restrictions
• Involves trade restrictions • Less competition from
like tariffs and quotas. international firms
• More competition from • Dealing in local currency.
international firms
• Dealing is usually in
foreign currency as
compared to local currency.
