Page 340 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 6 External influences on business activity

CASE STUDY The global nature of the car industry

Car manufacturing is a global industry. Th e diff erent
stages are often spread out all over the world. Car

companies often develop production bases in some

of the countries they sell their cars to. In addition,
car companies have their design and research and

development centres in different countries in order
to use their knowledge base and expertise. Th e parts

they use are often bought from suppliers across the

world. After production is complete, cars are shipped
to dealerships around the world to be sold.
South Africa’s attractive business environment
provides a strong platform for export and
manufacturing, cost reduction and new market
access. Many of the major multinational fi rms use
South Africa to buy components and assemble
A car plant of a multinational company in South Africa
vehicles for the local and international markets.
With dealers, manufacturers and customers being
situated in different countries, the car industry is especially affected by the ever changing exchange rates of national

currencies. The South African rand (ZAR) is the currency of South Africa.
Sources: www.southafrica.info/business/economy/sectors/automotive-overview.htm#.Us1eR_RdWuJ and
www.unido.org/fi leadmin/import/11902_June2003_HumphreyPaperGlobalAutomotive.5.pdf
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TASK
a Identify the features that make the car industry global.

b Why is the car industry likely to be affected by fluctuations in exchange rates?
c Why do you think multinationals use South Africa for car production? How do you think local sales of cars made in

South Africa would be affected by the appreciation of the ZAR against other foreign currencies?
d How would the international sales (export) of cars made in South Africa be affected by the appreciation of the ZAR

against other foreign currencies?

e How would the international sales (export) of cars made in South Africa be affected by the depreciation of the ZAR
against other foreign currencies?

TEST YOURSELF
1 What is meant by currency depreciation?

2 How do exchange rate changes affect international trade?
3 Discuss the impact of exchange rate appreciation on importers and exporters.
4 Discuss the impact of exchange rate depreciation on importers and exporters.