Globalisation (Edexcel IGCSE Business)

An introduction to globalisation

Spec point — 1.5.1 · concept of globalisation

• Globalisation is the business and economic integration of different countries through increasing freedoms in the cross-border movement of people, goods, services, technology and finance

• The past twenty years has been characterised by rapid globalisation and growing international business expansion

• Businesses that trade internationally import and export goods and services

  • Imports are goods and services bought by people and businesses in one country from another country

    • In 2022, the UK’s biggest import was cars, valued at approximately £3.25 billion

  • Exports are goods and services sold by domestic businesses to people or businesses in other countries

    • In 2022, China’s biggest export was smartphone manufacturing, valued at approximately $21.4 billion

• Exports generate extra sales revenue for businesses selling their goods abroad

• Imports result in money leaving the country, which generates extra revenue for foreign businesses

Reasons for globalisation

Spec point — 1.5.1 · concept of globalisation

• The growth of globalisation has occurred for a number of reasons

Reasons for increased globalisation

*Globalisation has been driven by developments in technology, saturation of domestic markets and deregulation *

• Developments in technology

  • This allows faster communication, transfer of data and online sales around the world

• Improved transport networks

  • This allows international business travel and improved distribution of products

• Deregulation

  • Deregulation such as the removal of trade barriers as well as simpler financial systems, has made trading internationally easier

• Government commitment

  • Governments have taken steps to increase trade so people, products and finance can move more easily across borders

• Market saturation

  • Saturation of domestic markets means that growth can only be achieved by targeting new target markets overseas

• Familiarity with global brands

  • The increase in tourism and access to overseas media has familiarised consumers with global brands

Opportunities of globalisation

Spec point — 1.5.1 · opportunities and threats of globalisation for businesses.

• Since the 1990s, globalisation has led to reduced levels of poverty in developing countries

  • Employment levels have increased
  • Living standards, health and education outcomes have improved

• Businesses have been able to take advantage of this development

  • Better qualified and more productive workforces
  • More attractive markets in which to sell products
  • New locations for production facilities

The main opportunities of globalisation for businesses

Exam Hint In the exam you may be asked to explain a benefit of globalisation. Look at the question carefully to determine whether you are being asked for a benefit to businesses, their workers or consumers. Each have benefitted in their own ways from globalisation.

Threats of Globalisation

Spec point — 1.5.1 · opportunities and threats of globalisation for businesses.

• Globalisation can also present significant problems and risks for businesses

1. Increased competition

• Competition from international rivals may put domestic firms out of business

  • International firms may benefit from lower costs and greater economies of scale, so they can offer lower prices than domestic businesses to consumers
  • Large overseas competitors can spend more on research, marketing and distribution than a small domestic business
  • Access to cheaper labour or materials allows them to sell products at lower prices

2. Increased need to develop a profitable niche

• Businesses risk losing sales and market share as a result of globalisation unless they can adapt or exploit a profitable market niche

  • Exploiting a gap in the wider market is often very profitable
  • E.g. Walkers Crisps dominate the lunchbox market with their multipacks

3. Vulnerability to international takeovers

• Domestic Public Limited companies risk being taken over by foreign rivals

  • Capital can flow easily across borders

  • Most countries allow foreign businesses to take ownership of domestic businesses

    • E.g. In 2009 UK confectionary company Cadburys was acquired by US company Kraft in a hostile takeover

4. Greater risk from external shocks

• Interconnected financial systems allow economic difficulties in one part of the world to be felt by businesses operating in another

  • The UK's vote to leave the EU in 2016 caused immediate financial shocks around the world, with stock exchanges in countries as distant as Australia and Japan reporting sharp falls

• Global distribution networks can be affected by natural disasters or other interruptions, such as accidents or terrorism

  • In 2021, the grounded container ship Ever Given blocked the Suez Canal for six days, causing delays to deliveries of goods such as semiconductors, which impacted technology manufacturing around the world