3.9.3 - assessing globalisation

what are the reasons for targeting, trading and operating in international markets

• Ability for businesses to travel, work, sell and operate across borders

• Ability to buy goods and services from almost any country

• World trade has increased to nearly $30 trillion per year

• Increased choice for businesses, employees and consumers

• Countries increasingly linked through markets and production

• Increased mobility of:

  • Labour

  • Capital

  • Goods

  • Services

• More international labour markets to recruit from

• Greater cultural diversity in workforce and customer base

• Increased competition and threats due to fewer trade barriers

• Business strategy must consider international opportunities and threats

• Firms must consider where raw materials are sourced

what is globalisation driven by

• Trade agreements

• Improvements in transport

• Improvements in communication technology

features of trade agreements

• Encourage greater internationalisation

• Reduce trade barriers

• Increase global competition

benefits of trade agreements

• Countries specialise based on comparative advantage

  • Countries produce goods/services with lower opportunity cost

  • Trade increases economic welfare for all parties

• Wider range of products for consumers

• Better value for money due to competition and lower prices

drawbacks of trade agreements

• Not all businesses benefit from free trade

• Firms unable to compete globally may face:

  • Closure

  • Redundancies

what is free trade

Trade between countries without barriers such as tariffs or quotas

what is a tariff

A tax placed on imported goods or services

what is a quota

A limit on the quantity of imports allowed

what is a customs union

• Free trade between member countries

• Common external tariff on non-members

what is containerisation

• Standardised containers

• Lower transport costs

• Higher labour productivity

• Lower unit costs

• Increased trade volumes

factors affecting attractivness of foreign markets

• Size and growth of the market

• Income levels

• Political stability

• Exchange rates

• Legal and regulatory environment

• Infrastructure quality

• Cultural differences

• Level of competition

reasons to produce and source abroad

• Lower labour costs

• Access to raw materials

• Reduced production costs

• Favourable tax regimes

• Less regulation

• Proximity to markets

what is offshoring

moving production abroad

reasons for offshoring

• Lower costs

• Access to skills

• Economies of scale

what is reshoring

bring producing back to home country

benefits of reshoring

• Quality issues abroad

• Rising overseas wages

• Shorter supply chains

• Improved automation at home

feature of MNC’s

• Operate in two or more countries

• Have production or service facilities overseas

• Benefit from global economies of scale

• Face management and cultural challenges

influences on buying selling and pricing abroad

• Exchange rate movements

• Trade barriers and tariffs

• Political risk

• Ethical concerns

• Transport costs

• Consumer preferences

what is globalisation

• Increasing integration of economies, markets and businesses worldwide

• Driven by:

  • Trade agreements

  • Improved transport

  • Improved communication technology

motivations to become global

• Increase profitability

• Spread risk through diversification

• Benefit from economies of scale

• Experience curve effect

• Protect domestic market share

• Follow key customers abroad

• Increase growth and market share

problems with offshoring

• Political and supply chain risks

• Hidden costs (management, transport)

• Exchange rate risk

• Quality control issues

• CSR and reputation concerns

entry methods into international markets

1. Exporting

• Low risk and low cost

• Easy to exit

• Limited control

• Transport costs and tariffs

2. Licensing

• Low risk

• Limited control

• Risk of imitation

3. Strategic Alliances / Joint Ventures

• Shared risk and expertise

• Cultural conflict possible

4. Direct Investment (FDI)

• Full control

• High cost and high risk

features of managing international businesses

• Pressure for cost reduction

  • Standardisation

  • Economies of scale

• Pressure for local responsiveness

  • Adapting products to local tastes and laws