2.1.3 Business and Globalisation

Question 1

Globalisation:

Answer 1

• where businesses operate internationally and gain a lot of influence or power
• the free movement of goods, services, people, capital, information and technology, analysing businesses to sell their products anywhere in the world
• this involves most of the world’s economies working together to provide and produce goods and services

Question 2

Imports:

Answer 2

the flow of goods and services into one country from another country

Question 3

Exports:

Answer 3

the flow of goods and services out of one country to another country

Question 4

Benefits of globalisation for businesses:

Answer 4

• new market opportunities
• transfer of knowledge, skills, tech, resources etc.
• access to cheaper labour + raw materials
• creates competition → better quality products/services produced
• provides jobs for local community
• enhances relationships between countries - economically & politically
• spreading risk – if the business has operations in a number of international locations, risk is spread → if a business is able to source materials from a range of locations, they are less likely to be affected due to weather related production issues.
• growth - increasing sales and profits – having access to cheaper materials or a larger amount of potential customers is likely to increase the chance of the business making more sales and profits
• spreading technical knowledge + ideas – often different countries have individuals with different technical knowledge, experiences and expertise → international trade allows businesses to benefit from this

Question 5

Drawbacks of globalisation for businesses:

Answer 5

• threat from foreign competition with cheaper prices → have to lower prices → decrease profits
• challenge of adapting products and services to meet the needs of foreign consumers
• effects of events in other countries
• whole industry closures
• disproportionate growth in world → increase in inequality
• language barriers – these can be a major issue, for example all packaging, advertising and branding may need to be accurately translated to other languages → if a business is buying or selling to another country, they may make errors if they are unable to communicate in the same language
• cultural barriers – it is very important that businesses have a good understanding of different cultures when undertaking international trade
• supply chain issues – as a business expands, its supply chain becomes longer and more complex - this provides more scope and opportunity for potential issues
• currency issues – most countries use different currencies, and the values of currencies around the world change constantly → this can make it very difficult for a business to accurately predict and monitor finances
• local taxes – each country has its own taxes and tax rates → businesses operating in an international environment must pay each of these taxes, making finances more complex and expensive to manage
• local laws - each country has their own laws that businesses must abide by → these can affect the way in which businesses operate, how they deal with consumers and how they deal with employees

Question 6

How is changing business location an impact of globalisation on businesses?

Answer 6

• globalisation brings with it the opportunity for businesses to relocate operations to other countries
• this may be to benefit from lower labour costs to be closer to raw materials or to be closer to the market to which they sell their products

Question 7

Multinational:

Answer 7

a business that has operations in more than one country

Question 8

Impacts of imports:

Answer 8

• Foreign imports to the UK increase competition for UK firms
• Consumers are able to buy goods and services from overseas leading to an increase in consumer choice
• Allows businesses to import products and raw materials at lower prices than they would be able to produce them for in the UK - either for resale or to produce their own goods

Question 9

Impacts of exports:

Answer 9

• exporting opens up new international markets for businesses and gives them potential to grow
• operating in international markets can be very different to operating in the UK and businesses may face problems if they lack the necessary expertise or knowledge

Question 10

Reasons for changing business location:

Answer 10

• To access lower manufacturing costs (particularly in countries which enjoy the advantage of lower labour costs)
• To access potentially better skilled & higher quality supply
• To makes use of existing capacity overseas
• To take advantage of free trade areas and avoid protectionism
• To make it easier to target international markets (where it is important to be located in, or near to, those markets)

Question 11

Impacts of changing location:

Answer 11

• benefit from lower labour costs
• closer to raw materials
• closer to the markets to which they sell their products to

Question 12

What makes a business a multinational?

Answer 12

• a business does not become a MNC simply because it sells its goods and services to more than one country
• the key to being a MNC is that the business hasoperationsin two or more countries

Question 13

Reasons for becoming a multinational company:

Answer 13

• Operate closer to target international markets
  
  • Producing closer to target markets may reduce transport costs (which will be important for bulky goods)
  • Operating closer to the target market will provide better information on the local market and its specific needs
• Gaining access to lower costs of production
  
  • Many MNCs have taken advantage of lower production costs from operating in developing economies
  • For some businesses, it is more beneficial to set up their own operations in order to meet domestic demand, as well as supply demand in the host and nearby countries
• Avoiding protectionism
  
  • By producing in a host country, a MNC may be able to avoid restrictions on imports, such as tariffs and import quotas

Question 14

Impacts of multinationals:

Answer 14

• create jobs and growth when they enter a country
• smaller local businesses an lose out esp. in less economically developed countries (LEDCs)

Question 15

When does a barrier to international trade occur?

Answer 15

• Barriers to international trade occur when a government imposes regulations to restrict the flow of international products into its country
• This may be done through trade blocs or the introduction of tariffs or quotas on imported goods

Question 16

Reasons for trade barriers:

Answer 16

• protecting jobs in domestic industries
• protecting emerging industries
• preventing the dumping of cheap goods on domestic market and the entry of undesirable good
• raising revenue from tariffs

Question 17

Trade blocs:

Answer 17

Trade blocs are usually groups of countries in specific regions that manage and promote trade activities

Question 18

Benefits of being in a trade bloc:

Answer 18

• Foreign Investment - an increase in foreign direct investment which benefits the economies of participating nations
• Economies of scale - larger markets created via trading blocs permit economies of scale
• Competition - trading blocs bring businesses in numerous countries closer together, resulting in greater competition
• Greater trade - trading blocs seek to reduce protectionist measures such as tariffs and quota tariffs, which should stimulate greater demand within the trading bloc
• Market efficiency - the combination of greater competition, foreign investment, economies of scale and greater trade should result in a more efficient market
• give member nations of the trade bloc preferential treatment in other countries within the trade bloc to encourage trade between the countries

Question 19

Benefits of trade blocs:

Answer 19

• Consumers: for example, the ability to buy cheaper products from the businesses that are located within the trading bloc
• Businesses which export within the bloc, although they will still face competition from other businesses

Question 20

Quota:

Answer 20

a limit to the volume or value of specific imports allowed into a country in a given time period

Question 21

Tariffs:

Answer 21

• a tariff is a tax on goods coming into the country from abroad (imports)
• they are implemented by a government wishing to boost demand for goods from the home country

Question 22

Methods of selling overseas:

Answer 22

• Exporting direct – the business stays in the UK and sells directly to the customer in other countries
• Using overseas distributors and agents – the business uses other businesses or individuals (agents) who are based in other countries
  
  • they help sell the products, as they know the market, in return for a percentage of the price
• Setting up overseas business units – the business will set up a factory in another country to make the product, which might be slightly different due to local preferences
• Buying a business overseas – a merger or takeover of an overseas firm allows a business to “buy” the production unit and to carry on selling to their existing customers

Question 23

How does use of internet and e-commerce allow business’s to compete internationally?

Answer 23

• E-commerce and the internet enables businesses to access international markets without the need to distribute or sell their products through foreign retailers
• business can trade 24hrs a day when selling through e-commerce and can promote themselves through social media sites
• trade barriers mays till apply when selling on the internet

Question 24

Glocalisation:

Answer 24

in order to sell to international markets, businesses often have to change their products in order to adapt to other countries’ cultural differences, tastes and legal requirements

Question 25

How is product in the marketing mix changed to allow business’s compete internationally?

Answer 25

• Customers in different countries will have different needs and wants - their tastes and preferences may be different. e.g. fashions may not be the same
• Change taste to meet cultural preferences
• Changing technological components e.g. sockets
• Change components to meet safety regulations

Question 26

How is price in the marketing mix changed to allow business’s to compete internationally?

Answer 26

• Change price to meet needs of different consumers in different markets - account for incomes in foreign countries
• Change price to consider tariffs
• Comply with different tax laws
• Account for currency conversions

Question 27

How is promotion in the marketing mix changed to allow business’s to compete internationally?

Answer 27

• promotion will need to reflect the cultural differences in the different countries so revise advertising campaigns to take into account the fact that the meanings of colours, gestures and phrases are different in different countries
• businesses will need to think carefully about the best ways to reach their target audiences
• appropriate images used in advertising
• translation of the marketing message
• promotion through social media – which platforms are the most popular for the target audience

Question 28

How is place in the marketing mix changed to allow business’s to compete internationally?

Answer 28

• issues with trade restrictions, such as tariffs, which might mean there is an additional cost when exporting to other countries
• change location of products in line with local prefernces