Business and Globalisation

This section explains business and globalisation. Globalisation refers to the increasing interconnectedness and interdependence of the world’s markets and businesses. It involves the movement of goods, services, capital, information, and people across national borders, creating opportunities and challenges for businesses. Globalisation allows businesses to expand into new markets, access cheaper resources, and compete internationally. However, it also increases competition and requires businesses to adapt to a more complex and diverse global environment.

Globalisation

Definition: Globalisation is the process by which businesses or other organisations develop international influence or start operating on an international scale. This can involve the flow of goods, services, capital, and labour across borders.

Impact on businesses:

Increased market opportunities: Businesses can now access global markets for both sourcing products and selling goods and services.

Greater competition: Companies face more competition from foreign firms, which may offer lower prices or more innovative products.

Access to cheaper resources: Companies can outsource or import materials from countries with lower production costs, increasing profitability.

Example: A UK-based fashion retailer might source clothing from factories in Bangladesh or China to reduce costs, while selling to customers across Europe and the US.

Imports – Competition from Overseas and Buying from Overseas

Imports: When a business buys goods or services from another country, it is called importing. Globalisation has made it easier for businesses to access products from around the world.

Competition from overseas: Imported goods can lead to increased competition for domestic businesses. Overseas companies may offer cheaper prices, higher-quality products, or innovative solutions.

Advantages of imports:

• Access to cheaper materials and goods.
• Ability to offer a wider variety of products.

Disadvantages of imports:

• Increased competition from foreign companies.
• Possible job losses in domestic industries if foreign products replace local goods.

Example: A UK-based electronics retailer may import mobile phones from China, where production costs are lower, to sell at a competitive price in the UK.

Exports – Selling to Overseas Markets

Exports: Exports involve selling goods or services to other countries. Globalisation has opened up international markets, allowing businesses to expand their customer base beyond national borders.

Advantages of exports:

• Expanding into new markets can increase sales and profits.
• Reduces dependence on the domestic market.
• Diversifies revenue sources, spreading risk.

Challenges of exports:

• Understanding and adapting to different legal, cultural, and economic environments.
• Currency fluctuations and exchange rate risks.

Example: A UK-based car manufacturer may export vehicles to the US or European markets, thereby increasing its global presence and sales revenue.

SPICED and WPIDEC

SPICED: An acronym used to explain how changes in exchange rates affect a business’s costs and competitiveness.

S = Strengthening of the currency: A stronger currency makes exports more expensive and imports cheaper.

P = Price: A stronger currency can lower the price of imports, but increase the cost of exports.

I = Inflation: Changes in currency value can affect the cost of goods sold, impacting inflation rates.

C = Competition: A stronger currency may reduce competitiveness in global markets, as exports become more expensive.

E = Employment: Currency fluctuations can impact employment levels, particularly in export-oriented industries.

D = Demand: Exchange rate changes can influence demand for both imports and exports.

WPIDEC: A similar acronym that explains the effects of exchange rate movements.

W = Weakening of the currency: A weaker currency makes exports cheaper and imports more expensive.

P = Profitability: A weaker currency can boost profits from exports but reduce profits from imports.

I = Investment: Currency devaluation may encourage foreign investment in local businesses.

D = Demand: Demand for exports may increase as they become cheaper for foreign buyers.

E = Employment: A weaker currency can create jobs in export sectors as demand rises.

C = Costs: A weaker currency can increase the cost of imported goods and raw materials.

Changing Business Locations and Multinationals

Changing business locations: Companies often move or expand their operations to different countries to take advantage of lower costs, better resources, or emerging market opportunities.

Multinational companies (MNCs): These are companies that operate in multiple countries. They have subsidiaries, branches, or operations in more than one country, which allows them to access global markets, reduce production costs, and achieve economies of scale.

Advantages of operating internationally:

• Access to new markets and customers.
• Lower production costs by outsourcing or setting up in countries with cheaper labour.
• Diversification of risks by operating in multiple countries.

Challenges:

• Different legal, cultural, and economic environments.
• High initial investment costs to set up international operations.

Example: A multinational company like Starbucks operates in dozens of countries, adapting its menu and marketing strategies to suit local tastes and preferences.

Barriers to International Trade – Tariffs and Trading Blocs

Tariffs: A tariff is a tax on imports or exports. Governments impose tariffs to protect domestic industries, raise revenue, or control trade with certain countries.

Impact of tariffs: Tariffs make imported goods more expensive, which can reduce demand for them and protect domestic producers. However, they can also lead to retaliatory tariffs and raise the price of goods for consumers.

Example: If the US President imposes 60% tariffs on imported cars, this will make foreign cars more expensive, encouraging consumers to buy domestic vehicles instead but pushing prices up and causing inflation.

Trading blocs: A trading bloc is a group of countries that have agreed to reduce or eliminate trade barriers between them. Examples of trading blocs include the European Union (EU) and the North American Free Trade Agreement (NAFTA).

Advantages of trading blocs:

• Easier access to markets within the bloc.
• Reduced tariffs and trade barriers.
• Increased economic integration.

Disadvantages:

• Limited access to markets outside the bloc.
• Rules and regulations that businesses must comply with.
• Holds developing countries back by restricting trade.

Example: The European Union allows free trade between its member countries but imposes tariffs on goods coming from outside the EU.

Competing Internationally – Internet and E-Commerce

Internet and E-commerce: The internet and e-commerce have revolutionised how businesses compete internationally. Companies can sell products online to customers around the world without the need for a physical presence in each country.

Advantages:

• Lower costs compared to establishing physical stores abroad.
• Wider reach to international customers.
• Ability to use online marketing tools to target specific international markets.

Challenges:

• Managing international shipping and logistics.
• Adapting to different regulations, payment systems, and currencies.

Example: Online retailers like Amazon or eBay sell products to customers globally, allowing businesses of all sizes to reach international markets.

Competing Internationally – Changing the Marketing Mix

Adapting the marketing mix: Businesses may need to adapt their marketing mix (product, price, place, promotion) to suit international markets. What works in one country may not work in another due to cultural differences, local regulations, and market preferences.

Product: Modifying products to meet local tastes, needs, or regulations. For example, a food brand might alter its ingredients to suit local dietary preferences or legal requirements.

Price: Adjusting prices based on local income levels, competition, and market conditions.

Place: Deciding how to distribute products internationally, considering factors like logistics, local distributors, or setting up retail locations.

Promotion: Tailoring marketing and advertising strategies to align with cultural differences and local media habits.

Example: Coca-Cola adjusts its product formula and advertising strategies to suit different markets. In some countries, it may offer smaller packaging or advertise using local celebrities. In the UK they are required by law to reduce the sugar content in their products.

Conclusion

Globalisation has transformed the way businesses operate and compete, opening up new opportunities and challenges. Companies must adapt to changes in market conditions, technology, and legal environments as they expand internationally. By understanding the impact of imports, exports, tariffs, trading blocs, and e-commerce, businesses can develop strategies to succeed in the global marketplace. As global competition increases, adapting the marketing mix and responding to local market conditions becomes crucial for success.