Unit 2.5 - the impact of globalisation on businesses Flashcards
Explain the difference between exports and imports.
Exports are the selling of goods and services to foreign markets, including to customers and businesses whereas imports are the purchasing of goods and services from foreign countries and markets.
Name the advantages of entering overseas markets. (5)
New potential markets - more sales
Spreading risk
Spreading technical knowledge
Benefits of economies of scale
Increased profits
Name the disadvantages of entering overseas markets. (6)
Cultural differences
Language barriers
Supply chain issues
Currency issues
Local taxes or tariffs
Local laws
Name the advantages to both consumers and to Wales and the UK. (4)
Increasing competition, improving quality and reducing prices
Trading with other countries increases political stability
Encouraging innovation
May bring employment opportunities
Define globalisation.
Globalisation is the process of greater interaction and integration of people, businesses, cultures and governments of different countries and allows product markets to operate across the globe.
What has caused globalisation? (7)
Political changes
Increase in the volume of international trade
The lowering of transportation costs
Improved communication systems
Increased movement of people across the globe
Increased movement of capital (money) across the globe
Growth of multinational companies
What are the opportunities of globalisation for UK businesses? (6)
They can reduce their costs and increase profits by producing in low-cost countries
They have a greater spread of risk. The impact of the decline in one market can be lessened by continued trade in other markets
Massive economies of scale occur. Selling to a number of countries and growing the business (which would not have been possible if they operated in domestic markets only) increases the scale of production; average costs fall, making them more competitive
New markets bring new sales opportunities. By selling in new markets sales can increase quickly. This has been especially important when the home market is saturated
Opportunities of partnerships with overseas businesses. For example, within the airline industry, British Airways (BA) has relationships with American, Australian and Far Eastern airlines. This improves the service that they are able to offer to customers
The opportunities available for employees of developing countries are now far greater. Skilled and educated workers can now compete in a global marketplace for high-paying positions
What are the threats of globalisation for UK businesses? (3)
Increased competition from overseas businesses. For example, the growth of McDonalds and Starbucks in the UK has resulted in smaller UK-based fast food businesses and coffee shops being forced out of business. Many manufacturing businesses in the UK have closed as they cannot compete with foreign manufacturers
Unskilled workers in richer countries have found their real wages falling or their jobs being taken by migrants who are willing to accept lower wages. Also many UK businesses have relocated some aspects of their business activity to other countries where wages and other costs are lower, resulting in many UK workers losing their jobs
Global companies become more dominant – this can result in a large multinational business attempting to take over a UK business in order to get a foothold in the UK market. These large companies have so much capital from their profits they can afford to buy a number of smaller UK businesses. These takeovers may be agreed or may be hostile
Define multinational companies.
Multinationals are businesses that have their headquarters in one country but operate in many countries. This means that they may have offices and factories around the world. They are set up in more than one country.
Name the reasons a business wants to be multinational. (9)
Multinationals are well-known around the world, attracting consumers to their products
It is easier to compete in foreign markets as multinationals are in effect local businesses being managed by local people
Multinationals can take advantage of economies of scale, due to their size
Multinationals may benefit from lower production costs. For example, labour costs may be lower in foreign countries than in the UK. For this reason, many UK multinational companies have moved production abroad
To take advantage of exchange rate movements. Setting up as a multinational means that there are few concerns caused by changes in the value of money if the business is selling locally or buying materials locally
Grants may be available in other countries to encourage multinationals to set up, this means that capital costs may be lower. Governments are keen to give grants to multinationals if they create jobs in the country
Multinationals can overcome trade restrictions (tariffs) that limit imports, as they already produce in the particular country. Many American and Asian companies have located factories within the European Union to avoid paying tariffs
Transport costs may be reduced as goods and materials do not have to be moved as far. For example, Coca Cola sends the syrup used to make their drinks to factories around the world, where water and gas are added locally to produce the final product
Taxes on businesses may be lower in other countries
Name the problems of being a multinational business. (5)
Difficult to manage
Communication problems
Follow the laws in that country
Different political rules
Exchange rate movements
Unhappy workers in home country as jobs have moved abroad
What benefits do multinational businesses bring to the countries they operate? (6)
They provide employment and create better living standards – multinationals can employ thousands of local people
Investment leads to infrastructure development – new transport links, communication systems and housing can result when multinationals open large factories
Pay taxes to the government – tax on profits made in the country where the multinationals operate will benefit government revenue
Introduce new technology and working methods – the technology these large businesses bring to the country can be used to increase efficiency in other businesses
Increased customer choice – consumers have a wider range of products and services, try to imagine the high street without the multinational retailers, there would be much less choice
Increased growth in the UK economy – the creation of new jobs and increased spending in the local economy will benefit the country. Many local businesses may experience an increase in business from supplying multinationals in their locality
What issues do multinational businesses bring to the countries they operate? (5)
Increased competition, which leads to local or national businesses potentially going out of business
Many of the jobs they create are low wage and involves the automated process
They have been accused of destroying local cultures, where global ‘super-brands’ take over from localized produce
Profits are sent back to multinational businesses’ home countries
Cause unemployment – domestic firms can’t compete so have to close down
What are the features of a single market? (like the EU) (9)
There are no customs duties to be paid when goods move from one member to another
There are no border posts, so goods pass easily between member countries
There is easy movement of people (workers) from one European country to another
Investments also move easily across European borders
No barriers to trade between member states, so there are no quotas (limits on number, value or quantities) on imports and exports
No tariffs (taxes on imports and exports) on goods and services traded within the single market
Free transfer of resources from one country to another, including capital and labour
Consistent standards from one country to another (a good, service or professional qualification that is valid for sale or for use in one member state, is free to be sold or used in all member states)
Common external tariff on imports into the EU from countries not in the EU
Name the advantages of the single market for businesses. (6)
Increased levels of demand results from access to a larger marketplace as it is easier to export to the other countries in the EU
Lower costs through increased economies of scale as larger markets results in larger scale production, lowering average costs of output
Lower costs in sourcing raw materials and supplies from EU countries
Freeing of capital markets as businesses will be able to access the best finance and capital-raising deals throughout Europe
Greater employer access to labour markets – workers from all member states are potential employees
Growing wealth in poorer parts of the single market could drive future demand for products
