Internationalisation and Globalisation (LC 2027) (Leaving Cert Business): Revision Notes

Internationalisation and Globalisation

What are internationalisation and globalisation?

Understanding these two concepts is crucial for modern business studies. While they're related, they have distinct meanings and implications.

Globalisation refers to the growing interdependence and interconnectedness of the world's economies, governments and people. This arises from cross-border trade in goods, services, digital technology and movement of investment, people, data and information. Think of it as the world becoming one giant marketplace where countries rely on each other for various needs.

Internationalisation is more specific - it means designing or adapting a product, service or operation for entry or growth in international markets. This is what individual companies do when they decide to expand beyond their home country.

A global company views the world as one large marketplace. Multinational corporations (MNCs) are perfect examples of these global companies, as they trade their products all over the world.

Understanding interdependence

Interdependence arises when one group becomes dependent on another for the supply of necessary goods and services. A great example is Ireland's dependence on the Organisation of the Petroleum Exporting Countries (OPEC) for oil supply.

Factors encouraging globalisation

Several key factors have driven the rapid growth of globalisation in recent decades:

Market saturation and consumer demand

When a firm's domestic market becomes saturated and it cannot increase sales or profits, it will search for new markets to expand sales, achieve economies of scale and increase profits. Consumers also want the best-quality, most on-trend goods and services available globally.

Labour mobility

The availability of cheaper labour or skilled labour in many countries means firms can locate operations in one country and export their product or service to a division in another. This has led to increased migration as workers move from one country to another seeking alternative employment opportunities.

Transport improvements

Improved transport services and lower transport costs (such as reduced shipping costs) have increased global trade between countries and encouraged globalisation.

ICT improvements

Improvements in information and communication technology mean that firms can locate their operations in many countries, yet communication between their operations is faster and cheaper. This has become significantly easier to communicate with customers, suppliers and subsidiaries all around the world.

Free trade agreements

International agreements and organisations set up to promote free trade, such as the World Trade Organisation (WTO), have advocated for free trade on a global scale. Transnational corporations (TNCs) were initially viewed as a potential threat by many countries, but now countries actively welcome the arrival of a TNC as it creates employment opportunities and brings investment for greater free trade.

Impacts of globalisation

Globalisation affects different groups in various ways. Let's examine these impacts systematically.

Impacts on businesses

Economies of scale: Firms selling to a larger market can produce and sell on a large scale, leading to reduction in unit costs and economies of scale. However, firms may also experience diseconomies of scale, which is an increase in the unit cost of production as the firm increases in size.

Increased sales and profits: Firms increase sales when they sell on a global scale, which means higher profits. Shareholders will receive higher dividends as a result.

Labour advantages: Firms have a wider pool of potential employees as globalisation leads to increased migration and labour mobility.

Global brand recognition: Selling on an international scale requires global marketing campaigns. However, international marketing campaigns are expensive and require heavy investment without guarantee of success.

Increased competition: Many businesses face more competition from international firms because of reduced trade barriers and deregulation. Globalisation has seen an increase in the size of firms due to mergers and acquisitions. Smaller Irish firms may struggle to compete with large global companies.

Innovation requirements: Globalisation and increasing competition means that Irish firms must continually innovate and invest in research and development (R&D). This can be expensive and prove challenging for smaller firms.

Impacts on consumers

Lower prices: Consumers benefit from lower prices as firms reduce their price to compete with global brands and due to economies of scale achieved by global firms.

Increased choice: Consumers have a wider range of goods and services to choose from as markets become more competitive. Brand proliferation (many brands being owned by one parent company) may also exist due to an increase in mergers and takeovers.

Standardised products: Global brands may sell standardised products and use a standardised marketing mix to reduce costs. These standardised products may not accurately reflect the needs of consumers in individual markets.

Social and environmental impacts

Climate change awareness: Consumers are more aware of the importance of environmental and income inequality issues and are demanding that organisations and governments make choices about greener and more sustainable products.

Labour movement: Increased migration has meant that ideas, skills and cultural traditions are shared across borders. However, cultures are at risk of losing their national identity and heritage.

Economic growth: Globalisation has led to economic growth, which means a higher standard of living for Irish consumers.

Resource pressure: Increased consumerism has put pressure on the world's scarce resources and resulted in increased pollution and damage to the environment. A move towards a circular economy is important to ensure sustainable economic growth.

Environmental damage: Increased production to meet consumers' demand for goods and services is having a negative impact on the environment. Air and sea pollution, destruction of natural landscapes (such as the Amazon rainforest) are destroying our world, which will impact on future generations.

Wealth distribution: International trade and the benefits of globalisation are not always distributed evenly. The gap between rich and poor has widened, and there are greater inequalities in the world.

Role of technology in globalisation

Technology has changed rapidly in recent years and has a significant impact on how we work, interact and how businesses operate.

Work practices

Video-conferencing software and cloud computing enable workers to work from home, which means that companies can reduce their overheads. Many employees can work from anywhere in the world and connect remotely to head offices.

Trade improvements

The greater availability of broadband and wireless internet enables firms to sell their products worldwide via websites and apps. This is a major factor in increasing the number and size of global companies, making it easier for firms to source raw materials globally.

Business operations

Computer-aided manufacturing (CAM) and robotics have streamlined production processes, allowing firms to reduce their cost of production. This can help firms that wish to locate production in the country that best suits their needs, while basing their finance and administration in other countries.

Social media and e-commerce

The growth of the internet has meant that companies need to adopt more standardised and adapted marketing strategies. The number of global brands has increased, and consumers are more aware of these brands and want to be able to access them anywhere in the world.

E-commerce has allowed businesses to operate internationally, enabling people from all over the world to both access and purchase products through online portals and websites.

Foreign direct investment (FDI)

Foreign Direct Investment (FDI) involves terms investing in a set up in the production of capital goods, for example buying new machinery for a factory, building new premises or expanding existing premises. When this type of investment is carried out by foreign companies in Ireland, it is called FDI and is a key contributor to our economy.

Ireland's FDI performance

Ireland's FDI stocks represent an impressive 254% of GDP, compared to the OECD average of just 51%. This demonstrates Ireland's position as a truly globalised economy.

Key statistics show that in the last quarter of 2023, direct investment into Ireland increased by €0.8bn, while Irish investment abroad increased by €3.2bn. Foreign investors in Ireland employ over 570,000 people, highlighting the significant impact of international businesses on Irish employment.

How Ireland promotes FDI

Ireland has developed a comprehensive strategy to attract foreign investment:

Human capital: Ireland has an English-speaking workforce with good skills, particularly in knowledge-intensive and technology sectors. Ireland has the highest level of young people completing third-level education in the EU, with over 62% of Irish people aged 25-34 having completed third-level education.

Pro-enterprise policy: Ireland's low corporation tax rate (12.5%) has been a key factor in attracting FDI, as it means that businesses can retain more of their profits. Ireland adopts a pro-enterprise policy that supports enterprise development.

Access to markets: Ireland is the only English-speaking member of the EU, allowing for the free movement of goods, services, people and capital between member states. Firms established in Ireland have access to a European market of over 450 million consumers.

Research and development: Ireland invests significantly in research, development and innovation, which accounts for the largest proportion of the IDA's grant funding programme.

Infrastructure: There has been significant investment in Ireland's infrastructure, including air, road and sea links connecting Ireland with the UK, the EU and the rest of the world.

IDA Ireland

The Industrial Development Agency (IDA) Ireland is responsible for attracting and developing FDI in Ireland. It attracts foreign businesses into Ireland in several ways:

• Information and statistics: It gathers information on key businesses and their sectors and where they are located in Ireland
• Links: It creates links between international businesses, third-level institutions and research centres
• Assistance: It provides support and guidance to businesses that want to set up in Ireland by helping them find the ideal location for their business

Case study: Pfizer in Ireland