Globalisation (OCR GCSE Business): Revision Notes
6.3 Globalisation
Globalisation is the process by which businesses around the world have become increasingly interconnected. This can occur through global buying and selling, global production, the global movement of people, and the global movement of capital.
Ways Businesses are Interconnected
• Global Buying and Selling: Businesses buy and sell goods and services in many countries.
• Global Production: Businesses may produce parts of a product in different countries to reduce costs.
• Global Movement of People: Employees may move between countries for work.
• Global Movement of Capital: Businesses may borrow money from international markets.
Reasons for Increased Globalisation
• Improvements to Transport: Larger ships and better road and rail networks reduce transport costs.
• Better Telecommunications and the Internet: Easier and cheaper to arrange international business or share plans and knowledge.
• Reduced Trading Barriers: Lower tariffs and quotas make international trade more accessible.
Impact of Globalisation on Businesses
Growth of Multinational Companies
Multinational companies (MNCs) operate in multiple countries and gain several advantages from this structure.
| Benefit | Description |
|---|---|
| Increased sales | Each country provides potential customers, increasing overall sales. |
| Risk is spread | Dependence on a single country is reduced, spreading financial risk. |
| Lower Costs | Production can occur in countries with lower costs for labour or materials. |
| Tax Avoidance | Can benefit from paying lower taxes by operating in countries with favourable tax laws. |
Influences on business location
| Advantages of locating abroad | Disadvantages of locating abroad |
|---|---|
| Lower production costs | Difficult quality control if managers are remote |
| Access to expert/skilled workers | Higher transport costs for moving goods |
| Closer to international markets | Potential loss of sales if customers prefer local products |
| Availability of cheap labour and land | Productivity issues if local workers are unskilled |
International Branding
Businesses must consider several factors when creating an international brand to ensure their goods and services meet the local market's expectations
For example:
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Product Promotion: Advertising methods, PR, and promotions influenced by local culture.
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Income Levels: Varying income levels dictate product pricing and target markets.
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Language: Words used for products can have different meanings in different languages.
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Legal Issues: Different countries have different laws on what can be sold and advertised.
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Bribery: Practices regarding bribery differ; businesses must decide on their stance.
How Businesses Compete Internationally
Businesses that compete internationally sell goods and services abroad and face competition from overseas firms. Factors influencing international competition include:
| Factor | Influence |
|---|---|
| Growth | Expanding overseas, opening shops in other countries. |
| Marketing | Adapting products and promotions to local markets, setting competitive prices. |
| Human Resources | Recruiting, training, and motivating local workers, complying with local labour laws. |
| Business Operations | Optimising production methods for local conditions, reducing costs through efficient logistics. |
| Exchange Rate | Managing the impact of currency value fluctuations on export and import prices. |
| Ethical and Environmental Influences | Ensuring ethical practices and sustainability in different markets. |
| Economic Climate | Responding to economic conditions in various countries to maintain sales. |