Globalisation intro

Definition of globalisation

The growing interconnectedness of world's businesses and markets (flow of goods, services, capital, and labour across borders).

 

Reasons for increase

• Advanced technology: Instant communication and share info worldwide (media, emails)

• Wide distribution: Made accessible with online shopping / efficient delivery services

• Reduced transport costs

• Migration between economies

• Reduced trade barriers

• More dominate multi-national brands

Push factors

Factors in the existing markets that encourages a business to expand internationally

Social Trends, political changes, saturated market, inflation

Pull factors

Factors that entice firms into new markets

Emerging economy (new demand) spreading risk, cheaper labour & materials, improved transport links, less legislation (trade barriers)

Ways of measuring growth

• GDP: Total value of goods and services produced by a nation's economy. (per capita is an indicator of prosperity)

• GNI: Total value of incomes flowing to UK owned production whether they are located in the UK or overseas. This takes into income sent from outside of the country.

• The Human Development Index: Measure out of 1.0 Focus on people and their capabilities should be the ultimate criteria for assessing the development of a country (education, longevity, health)

emerging economy, BRIC & MINT

a country where there is increasing GDP & industrialization but still poor infrastructure

Brazil, Russia, India, China, Mexico, Indonesia, Nigeria, Turkey

pros

• Increased market opportunities: access global consumers

• Economies of scale: Purchasing - cheaper materilas & labour. Marketing - one campaign for all countries. Managerial - workforce with diverse skills/ideas

• Raise finance: Reputation as globally recognised brand, attracts loans & investments

• Lower production costs = increasing profitability.

cons

• More competition creates risks like price was and need to differentiate

• Diseconomies of scale: Lack of organization, poor communication (mistakes & low morale)

• Harder to manage and control such as time zone/language barriers

• Need to adapt to local tastes

• Lack of shared vision - too many ideas / conflict

off-shoring

relocating a business function overseas - often customer service related

• Lower manufacturing costs

• Less legislation

• Skilled workers

• Closer to consumers in emerging markets

• Longer lead time / delivery issues

• Impacted by exchange rates

• Supply chain management / invest in CSR

out-sourcing

business function is sub-contracted to a third party eg. market research, IT systems, delivery & logistics

• Increase capacity /output

• More flexible - adjust to demand

• Better skills / knowledge

• Quality control issues

• Depending on another business

• Does not guarantee lower costs