Business and globalisation

• Globalisation


  The economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology and finance
• The past twenty years has been characterised by rapid globalisation and growing international business expansion
• Imports


  Goods and services bought by people and businesses in one country from another country
• UK's biggest import in 2022


  • Cars, valued at approximately £3.25 billion
• Exports


  Goods and services sold by domestic businesses to people or businesses in other countries
• China's biggest export in 2022


  • Smartphone manufacturing, valued at approximately $21.4 billion
• Exports generate extra sales revenue for businesses selling their goods abroad
• Imports result in money leaving the country, which generates extra revenue for foreign businesses
• Reasons for increased globalisation

  • Advances in technology
  • Trade liberalisation
  • Transportation improvements
  • Political and economic reforms
  • Cultural awareness
• Advances in technology


  • The rapid development of communication technology has significantly reduced trade barriers
  • The internet has made it easier for businesses and individuals to connect and collaborate across borders
• Trade liberalisation


  • Many countries have adopted policies that promote free trade and signed trade agreements
  • The removal of quotas and tariffs on goods crossing borders has made global trade smoother
  • The formation and growth of trade blocs such as the EU and NAFTA have opened up trade between groups of countries
• Transportation improvements


  • Containerisation and improvements in air and long-distance rail travel have made it more cost-effective and efficient to move goods and people across long distances
  • In 2017, as part of China's One Belt, One Road programme, the first direct rail freight service carrying clothes and high-street goods completed its 18-day, 12,000km journey from China to the UK
• Political and economic reforms


  • Many countries have implemented economic and political reforms to open up their markets to foreign investment
  • This has created opportunities for businesses to operate in new markets and has contributed to global integration as overseas business practices are absorbed
  • In recent years, Laos has implemented economic reforms that are more welcoming to foreign direct investment and encourage private ownership of commercial businesses
• Cultural awareness


  • Increased awareness of other cultures through media, entertainment and education has encouraged a more interconnected world
  • This has led to the sharing of ideas, values and lifestyles across borders which has increased consumer demand for diverse brands from around the world
• Business opportunities as a result of globalisation

  • Market expansion
  • Lower costs
  • Access to resources
• Market expansion


  • Businesses can export their products to other countries
  • Exporting can help a business spread risks by avoiding reliance on the economic stability of one country to achieve success
  • They can also expand into new markets which is likely to lead to higher sales volumes and increased revenue
  • Eg. Fashion brand Jack Wills opened its first retail store in Germany with a further 11 international stores planned over the year, which helped it to increase its sales revenue by more than 4%
• Lower costs


  • Businesses can buy cheaper raw materials and components from abroad
  • This reduces their direct costs and may lower the break even point and increase their competitiveness
  • Production can be located in countries with lower land and labour costs
  • This reduces indirect costs which can help to increase profitability
  • Eg. In 2023, Nike announced plans to relocate production of many of its sportswear items to Mexico as a result of rising labour costs in China where manufacturing had been located since the 1980s
• Access to resources


  • Businesses can import and sell different goods and services in their home country
  • This allows them to broaden their product range and increase their domestic customer base
  • If they are the first or only business to offer these products, they may gain a competitive advantage over rivals, potentially leading to increased market share
  • Businesses may build production or processing facilities in countries where key resources or suppliers are located in order to reduce transportation costs and ensure supply
• Business threats as a result of globalisation

  • Competition from foreign brand imports
  • Multinational business domination
  • Cultural, social and environmental concerns
• Competition from foreign brand imports

  • Businesses may struggle to compete with larger, more established international rivals who have lower costs, greater marketing power and more significant economies of scale
  • Domestic consumers may be more attracted to well-known international brands than domestic alternatives
• Multinational business domination


  • Large international businesses may be more attractive as employers to the most highly-skilled workers
  • Domestic businesses may struggle to compete with pay, conditions and chances for development that large firms can offer
  • Supply chains become focused on meeting the needs of large businesses and may lack the flexibility required by smaller domestic businesses
• Cultural, social and environmental concerns

  • Adapting products and services to diverse cultural preferences can be challenging and expensive
  • Businesses need to be sensitive to local customs, languages, and social norms to avoid cultural misunderstandings that could harm their reputation
  • Businesses need to understand and comply with different environmental regulations and address concerns from customers about sustainability of their global operations
• Globalisation is unlikely to be entirely negative or entirely positive for a business; for most it is a matter of getting used to the increasingly global nature of trade
• Businesses that find creative ways to maintain or improve their market position in the face of increased international competition are likely to succeed
• Import tariffs


  • A tariff is a tax placed on imported goods from other countries
  • A tariff increases the price of imported goods, which helps shift demand for that product or service from foreign businesses to domestic businesses
• Example of import tariff


  • Tennis rackets imported into the UK from China have a tariff of 4.7%
• Benefits of tariffs


  • They protect infant industries so they can eventually become more competitive globally
  • An increase in government tax revenue
  • Reduces dumping by foreign businesses as they cannot sell below the market price
• Disadvantages of tariffs


  • Increases the cost of imported raw materials, which may affect businesses that use these goods for production, leading to higher prices for consumers
  • Reduces competition for domestic firms, who may become more inefficient and produce poor-quality products for their customers
  • Reduces consumer choice as imports are now more expensive and some customers will be unable to afford them
• Import quotas


  • An import quota is a government-imposed limit on the amount of a particular product allowed into the country
  • Restricting the physical quantity of imports means that domestic businesses face less competition and benefit from a higher market share
  • More of the domestic demand is now met by domestic businesses
• Example of import quota

  • China has set an import quota on Cambodian rice of approximately 5.32 million tonnes per year
• Benefits of import quotas

  • To meet extra demand, domestic businesses may need to hire more workers, which reduces unemployment and benefits the wider economy
  • The higher prices for the product may encourage new businesses to start up in the industry
  • Countries are able to easily change import quota as market conditions change
  • Foreign countries view quotas as less confrontational to their business interests than tariffs
  • Their exporters can still sell their goods at a higher price in domestic markets (but a limited amount of it)
• Disadvantages of import quotas

  • Quotas limit the supply of a product and whenever supply is limited, the price of the product rises
  • They may generate tension in the relationship with trading partners
  • Domestic firms may become more inefficient over time as the use of quotas reduces the level of competition
• Multinational company (MNC)


  A business that is registered in one country but has manufacturing, processing and/or service outlets in many different countries
• Examples of multinational companies

  • Starbucks, BP, General Electric (GE), McDonald's, FedEx
• Factors such as globalisation and deregulation have contributed to the growth of MNCs
• MNCs often choose locations based on factors such as cost advantages and access to markets
• Example of MNC location choice

  • Nike originates from the USA, but 50% of their manufacturing takes place in Mexico, China, Vietnam and Indonesia due to the lower production costs in these countries
• Benefits of becoming a multinational

  • Economies of scale
  • Increased profit
  • Create employment
  • New markets
  • Lower transportation costs
  • Risk management
• Economies of scale


  As they operate globally, they are able to increase their output and benefit from lowered costs created by economies of scale
• Increased profit


  Much of their profit is sent back to their home country. This point is debatable, as many MNCs have offshore bank accounts and do not bring the profit back home