12 Business: Factors Driving Global Business Development and Impacts of Globalisation

globalisation

• refers to the growing interdependence among nations

• encompasses:

  • trade

  • investment

  • technology

  • flow of capital

  • movement of labour

• provides opportunities for companies to increase sales, profits and shareholder value

• cooperation between governments and formal free trade agreements create conditions that encourage global business development

• eg. the use of offshore labour, global media, the rise of internet and the widespread adoption of Western culture

reasons for globalisation

• access to larger markets, increased profitability, and reduced production costs

• free trade agreements lower barriers, and governments support overseas expansion

• technology improves the movement of goods, services, and capital

• encourages employment, investment, and competition, improving living standards

reasons against globalisation

• can widen wealth gaps and expose weaker economies to exploitation

• multinational corporations take advantage of low wages and weak regulations

• environmental concerns arise due to relaxed policies in some countries

• cultural identity loss as materialism and individualism spread

factors driving global business development

• financial growth opportunities and/or loss minimisation

• consumer purchasing and spending patterns

• World Trade Organisation (WTO) regulations and sanctions

• deregulation of the financial market

financial growth opportunities and/or loss minimisation

• domestic businesses can look overseas for investors and sources of funding

• Australian companies can access services and production at a lower cost than in the domestic market — reduce costs and help make growth more affordable

• domestic markets may be more mature or highly competitive — international markets provide opportunities for sales growth

• seasonal differences between the northern and southern hemispheres means that companies may hedge against fluctuations in demand

consumer purchasing and spending patterns

• Increased consumer confidence due to:

  • Secure online payment systems

  • Real-time order tracking

  • Mobile accessibility

• Global market expansion for businesses as there is no need for physical stores — broader customer base

• Changing shopping habits due to smartphones & internet — consumers research, compare prices, and read reviews before purchasing

• Social media influence on buying decisions:

  • Used for product discussions and marketing

  • Boosts brand awareness and customer loyalty

• Evolving consumer preferences — higher demand for ethical & eco-friendly products, secure third-party payment systems (e.g., PayPal) enhance trust

• Economic factors shaping behaviour —disposable income, currency exchange rates, and lifestyle trends

World Trade Organisation (WTO) regulations and sanctions

• The WTO sets standards for international trade and for countries participating in Free Trade Agreements.

• Under WTO rules, Free trade agreements must:

  • 1. Eliminate tariffs and other restrictions on all trade in goods between member countries

  • 2. Eliminate almost all discrimination against service suppliers from member countries (helping increase trade in services)

  • 3. Simplification of customs procedure, trade regulations and other measures to simplify trade between countries.

  • 4. The WTO aims to maintain safe global trade where countries can trade with clear rules, standards and ways to resolve disputes.

deregulation of the financial market

• Deregulation is the process of removing government restrictions on businesses and individuals that dictate how a market functions

• due to this, a vast quantity of money circulates at an international level

• this provides a financial environment that supports global business

• domestic businesses can look overseas for investors and sources of funding

• Examples of government regulations that can be imposed in the financial sector include:

  • Interest rate control.

  • Fixed exchange rates.

  • Banks being subject to reserve and liquidity ratios.

impacts of globalisation

• employment levels in developing and developed countries

• global spread of skills and technology

• international cooperation

• domestic market

employment levels in developing and developed countries

• Outsourcing and offshoring reduce jobs in high-cost economies but increase employment in developing nations

• multinational companies create employment in other countries but could be at the expense of local employment in their home country

• Cost-saving measures can improve business profitability, potentially leading to local job reinvestment

• Economic instability and climate change drive migration as workers seek employment abroad

global spread of skills and technology

• Globalisation spreads the knowledge of new inventions, innovations, business models and technology

• International companies are investing in, and encouraging governments to support, training and education to build a supply of skilled local workers

• Companies can take advantage of people with specialised skills in construction, technology and business, and local language and cultural knowledge

• A company may take their technology, design or process to a low-cost country

• By basing manufacturing in another country, local people will be trained and employed, there may also be a transfer of technology because of joint ventures and licencing arrangements

international cooperation

• Governments cooperate internationally through free trade agreements

• Free trade agreements reduce regulations and barriers to trade and reduces the costs of importing and exporting goods

• Countries reducing migration restrictions and visa requirements means companies can source skilled labour easier.

• Technology means cooperation can take place in real time, information, capital and expertise can be shared quickly and cheaply.

• Governments have incentives to encourage international companies to work together to create new products and services.

domestic market

• Domestic businesses not only compete with each other but also with imported goods.

• Online shopping and secure online payment systems give customers access to business from around the world.

• Globalisation makes it easier for business from other countries to sell their products in Australia and increases the competition domestic businesses face

• To try and compete, domestic businesses may decrease their prices and provide consumers with value which will have an impact on their profits and may lead to some small businesses going out of business.

• Global prices and customer demand impact on domestic businesses.

• If an Australian business exports goods to other countries they will be affected by changes in exchange rates, price and demand overseas.

tax minimisation

• Businesses are entitled to arrange their financial affairs to minimise the tax they have to pay.

• Tax minimisation is when you legally make arrangements to reduce the amount of tax.

• Two methods businesses use to minimise tax are:

  • tax havens

  • transfer pricing

• The use and establishment of tax havens and transfer pricing arrangements are not necessarily illegal.

• At the least their use has an ethical aspect that must be considered.

tax havens

• Tax havens are counties with secretive tax and financial systems and low taxes for non-residents and foreign owned companies.

• It results in less taxes paid to the government where the business is operating.

• A country can be classified as a tax haven if in terms of taxation and finance there is:

  • A lack of transparency: no or weak laws about business records and reporting making it difficult to track business transactions, earnings and money.

  • A lack of information exchange: governments and financial institutions do not share information with other governments and resist sharing information to assist international investigations.

• Companies benefit by creating a parent company registered in the tax haven country or by creating complex accounting arrangements to transfer global earnings to the tax haven.

transfer pricing

• Transfer pricing refers to internal prices and is used by multinational companies to reduce their tax bill.

• It is when one part of a multinational company sells products or services to another part of the same company in a different country.

• The prices charged can manipulate profits and the amount of tax they have to pay.

• If two unrelated businesses trade with each other at ‘arm’s length’, prices are set by the market.

• The prices charged are similar to what other companies charge each other.

• When two businesses that are part of the same multinational company trade with each other, they can artificially distort the price to minimise the overall tax bill.