2.1.3 Globalisation

Globalisation

process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange

effects of globalisation

• has increased production of goods and services

• the biggest companies are no longer national firms but multinational corporations with subsidiaries in many countries

MNC

company with production facilities or outlets in more than one country

what is globalisation due to

• intro of new tech (deep water ports/containerisation)

• economic development

• improved travel

how does globalisation affect location

businesses can either be completely or partly based outside of their own/home country

trade

buying & selling

import

• products/services bought from another country

• → cheaper may not be able to produce in your own country

export

products/services sold to another country

→ exports generate money for our own economy

Discuss the likely benefits to a business of importing goods from abroad. (6)

• raw materials will be cheaper

• the business will have lower costs in their source raw materials from countries like China

• business will make more profit if their price remain the same

• business can access products and tech that are not able to produce in their own country

• product will have a unique selling point to stand out from competitors

• able to charge a premium price and increase sales revenue

benefits of globalisation

• increased market for business and large through exporting

• use of e-commerce & better distribution → can find cheaper raw material & production opportunities (imports)

• countries have cost advantage in production and are able to specialise its production and sell throughout the world at cheaper costs

• impacted location

• more competition → more efficient → more choice at lower prices

• increased transfer of knowledge & skills throughout the world → increased tech + more efficient production

disadvantages of globalisation

• domestic firms have to face competition across the world

• MNCs are very powerful with global brands

• some complete industries have closed → need for new business & training for unemployed workers whose jobs don’t exist

• UK decrease in skilled manufacturing and an increase in service industry

• economy now vulnerable to world economic conditions → if there’s a change in one country it will affect others

protectionism

a government trying to discourage imports

tariff

tax on imported goods

protectionism + tariff theory

• foreign company will need to put the price of goods up (to pay for tax)

• foreign imported product is now more expensive

• domestic consumer will not buy foreign imports

• domestic consumers will buy from domestic firms

• this protects sales for domestic firms

• however → domestic consumers might still buy their loved foreign products at higher prices

• → more tax revenue for the domestic government from increased tariffs

• danger of inflation and money flowing out of the economy

no barriers to international trade theory

• all countries can benefit in the long term if there’s free trade between them → everyone’s standard of living increases → imports and exports can be exchange between countries with no barriers to trade like tariffs quotas or regulations

barriers to trade

• a government imposes regulations to restrict flow of international products into its country

theory of barriers to trade

• countries prioritise short term needs of own economy → carriers to trade are implemented

• allows domestic industries to develop, protects jobs from foreign competition + retaliating against other countries protecting its own economy

quota

• government put limits on number of that imported good that can come into country

• → once limit is reached domestic consumers forced to buy from domestic firms

• limited supply of good pushes the price up so domestic consumers more likely to buy from cheaper domestic firms

subsidy

• grant/gift of money government gives to a domestic firm/ industry to support them

• → lowers domestic firms costs of production

• → domestic firm can lower price of goods

• so they are more competitive on international markets

disadvantage of quotas

• may limit supply of essential raw materials

• hugely complicated to track and monitor

disadvantages of a subsidy

• expensive for taxpayers

• firms may become over reliant on a subsidy less efficient

trade bloc

• EU trade union → 17% of globes GDP

• european union of opportunity for free trade between within the group of trading nations

• likely to charge high tariffs on imported products from countries outside of the trading bloc so consumer suffer from restricted choice

• business outside face restrictions, tariffs & quotas on exports

• other like NAFTA & EAC

• ASEAN free trade agreement

EU trade union

• 27 countries

• freedom of movement of goods & services

• freedom of movement of labour

• freedom of movement of capital

ASEAN free trade agreement

• Vietnam, Malaysia, Singapore etc

• good links with China and Japan

• includes some of the world’s most dynamic economies

glocalisation

in order to sell to international markets businesses often have to change their products to adapt to other countries cultural differences, tastes and legal requirements

Discuss how a business might change its products/services in order to compete in international market. (6)

• glocalise → change/adapt to other countries’ cultural differences and legal requirements in order to sell to an international market

• electrical firm may choose to focus on legal requirements

• for example changing the plugs/ compatible voltage for a hairdryer used in different countries (health and safety)

• means more distributors and retailers would be willing to stock their product as its suitable for customers

• leads to an increased use of product throughout the world (can compete in international market)

• however costs may increase to adapt