4.1 Globalisation

• Problems when exporting goods

  1. Difficulty collecting market research
  2. Different languages and cultures
  3. Making sure the product is suitable (different safety standards)
  4. Import regulations,tariffs etc
  5. Fluctuations in exchange rates
  6. Political or economic change
  7. Different tastes customs and climate
• (EU) European Union countries

  • High wage rates
  • Developed indigenous industries.
  • Free trade

  And Eastern Europe

  • Middle income.
  • Developed infrastructure
  • skilled workforce.
  • Some industry.
• (W) Western Economies

  • High wage rates
  • Developed indigenous industries.
  • Protectionism, tariff barriers, particularly high in countries such as Japan.
• (D) Developing nations

  • Middle income
  • Developing industry, particularly in low tech areas.
  • Developing infrastructure.
• (A) African

  • Low wage rates
  • Little domestic industry
  • Tariff barriers
  • Poor infrastructure
• (SEA) South East Asian

  • Middle income
  • High tariff
  • Developing industry
  • Reasonably good infrastructure.
• (AS) Asian

  • Low income
  • High Tariff.
  • Little indigenous industry

  (Japan and South Korea are rich) (China has lots of developing industries)
• (O) Oil Producers

  • High income
  • Little indigenous industry
  • Low tariff barriers.
• Methods of selling goods abroad

  Direct sales from UK

  Online

  Overseas agent

  Overseas subsidiaries
• Direct sales from the UK 


  Involve running an exports sales department and sending representatives abroad to meet foreign buyers directly.

  May be easily and cheaply done for small businesses online
• Overseas agent

  these are appointed (generally on a commission basis) to sell the

  goods on the firms behalf.
• Overseas subsidiaries 


  instead of exporting a firm may decide to set up a factory overseas.

  This may be to manufacture the whole product, assemble a product or

  merely a sales outlet to market and sell the product.
• Direct sales from UK

  a - Business keeps all the profit

  d - Don't know the language/markets,difficult and expensive if sending people overseas

  Online

  a - easy and cheap

  d - poor relationships with customers
• Overseas agent

  a - know all markets and culture and language,incentive to sell (commission)

  d - have to pay a percentage to them
• Overseas subsidiaries

  a - avoid transport costs,tariffs and exchange rates should be cheaper

  d - expensive to start,don't know market,can often be distracting from main business
• Protectionist measures are measures that a country uses to protect its own industry from foreign competition.

  This is often done to keep domestic firms open in a country and protect jobs

  Forms:

  Tariff

  Import Quota

  Government Legislation (including products standards, joint ventures)

  Domestic Subsidies

  Keeping a currency artificially low
• Tariff barriers are taxes added when goods are imported from abroad which means the selling price for consumers will increase so they are more likely to buy goods from local businesses rather than abroad.
• The two main reasons a country would impose a tariff barrier would be to protect domestic businesses and jobs and to raise money for the government.

  Both the company who made the good and the local consumer will loose out as a result of a tariff
• An Import Quota is when a physical limit is put on the number of imports that can come in from a particular country

  For example India might state that a maximum of 50,000 cars from Japan can be imported per year.

  One implication of this is that the good will be more expensive and the consumer will have less choice
• An export subsidy is when the government subsidises a certain material or cost of something to make it cheaper for local businesses or consumers so that they don't import it from abroad.

  e.g The Chinese government pay for electricity for Chinese firms that are producing steel, so they have lower costs than other markets in the world, so they can sell steel cheaper and out compete Britain and America
• If a foreign firm wanted to set up in India or China they would have to set up as a joint venture,this is where they would have to join with a local business.

  This is done to help local businesses grow and protect them and stop foreign firms taking over.
• Gross Domestic Product (GDP) – shows the size of the economy, the higher the GDP the greater the size of the potential market
• GDP per capita – this show the average income per person

  • The higher the income the greater the potential to export to the country
  • The lower the value the better to produce products there (unless skilled labour is required)
• Economic growth

  Show the increase in output per year

  A very high growth rate may be above 5% per year

  A high value is good if you are looking to sell to the country or are a business locating there e.g. Tesco
• Employment patterns

  This shows the make up of the workforce e.g. how many work in the agriculture

  sector compared to manufacturing e.g. China specialising in manufacturing
• Human Development Index (HDI)

  This rates the skills & education of a workforce

  Normally a rating out of 1. 0.9 would be very high 0.7 average 0.5 very low

  The type of worker required would depend on the type of product being produced e.g. a low skilled workforce maybe fine for making trainers
• The growth rate of a country is measured by the annual change in its gross domestic product (GDP)

  Emerging economies are economies that have increasing growth rates but relatively low income per head (per capita)

  E.g. India, China and Brazil are considered to be emerging economies
• Health 

  The health of a countries’ citizens is important to businesses who want to invest in emerging economies as this will have an impact on the quality of the workforce
• Advantages of a foreign firm taking over a UK firm

  • Access to UK and single European market tariff free
  • Acquisition of recognised international brand
  • Different target market
  • Use their designs
  • Get heritage of brand
• When a country specialises in a product this is called a comparative advantage,they produce products they are relatively better at producing than other countries.

  Each country should produce goods it has a comparative advantage in and trade these for goods they are less efficient at producing
• Specialisation is when a country or business focuses on producing one product
• Advantages of a business specialising

  • Specialist staff become very experienced in one area

  • All R&D can be focused on that one area improving results, a business that

  operates in many areas may lose focus

  • A strong specialist brand can be created that consumers associate with the

  product

  • The firm can really get to know its market and consumers

  • If perceived to be a specialist brand they may be able to charge a premium

  price
• Disadvantages of a business specialising

  • It is a risk strategy as ‘all eggs are in one basket’

  • If it is a niche market the firm is doing well and the market grows, it

  may attract larger firms into the market making them vulnerable if they

  are specialist

  • Changing market conditions can make the firm vulnerable e.g. recession

  specialist in luxury holidays

  • Consumer tastes or social trends could make them vulnerable
• Advantages to country of specialising

  • The country becomes associated with the product and therefore customers go there first e.g. China outsourced manufacturing, India ICT support

  • A lot of jobs can be created, it could improve balance of payments, boost exports, increase GDP
• Disadvantages to the country of speacialising

  • It is a risk as ‘all eggs are in one basket’

  • If new countries enter the market prices could fall, unemployment, growth falling

  • Changing market conditions can make the country’s industry vulnerable

  • They may be under cut by cheaper countries
• Globalisation is the moving towards ‘a world’ economy, where the same companies and brands can be bought and sold throughout the world, rather than the traditional independent and culturally different economies.
• Advantages to a Business of globalisation

  • Much larger market to sell to – increased revenue, profit and able to reap economies of scale

  • Build a global brand

  • Take advantage of the international labour force
• Disadvantages to a Business of globalisation

  • Much greater competition from abroad

  • Local firms can’t compete with large multinational corporations

  • Businesses may get undercut due to foreign subsidies e.g. Chinese

  subsidised electric cars
• Benefits of Globalisation to consumer

  • Increased choice of goods for consumers
  • Greater employment opportunities
  • Cheaper goods
• Disadvantages of Globalisation to consumer

  • Dominance of global trade by the rich countries
  • A loss of cultural identity
  • Large multinationals putting small traditional businesses out of power