The Importance of Globalisation (CIE IGCSE Business)

Advances in technology

• The rapid development of communication technology has significantly reduced trade barriers
• The internet has made it easier for businesses and individuals to connect and collaborate across borders

Trade liberalisation

• Many countries have adopted policies that promote free trade and signed trade agreements
   
• The removal of quotas and tariffs on goods crossing borders has made global trade smoother
   
• The formation and growth of trade blocs such as the EU and NAFTA have opened up trade between groups of countries

Transportation improvements

• Containerisation and improvements in air and long-distance rail travel have made it more cost-effective and efficient to move goods and people across long distances
  • In 2017, as part of China's One Belt, One Road programme, the first direct rail freight service carrying clothes and high-street goods completed its 18-day, 12,000km journey from China to the UK

Political and economic reforms

• Many countries have implemented economic and political reforms to open up their markets to foreign investment
   
• This has created opportunities for businesses to operate in new markets and has contributed to global integration as overseas business practices are absorbed
  • In recent years, Laos has implemented economic reforms that are more welcoming to foreign direct investment and encourage private ownership of commercial businesses

Cultural awareness

• Increased awareness of other cultures through media, entertainment and education has encouraged a more interconnected world
   
• This has led to the sharing of ideas, values and lifestyles across borders, which has increased consumer demand for diverse brands from around the world

Market expansion

• Businesses can export their products to other countries
  • Exporting can help a business spread risks by avoiding reliance on the economic stability of one country to achieve success 
• They can also expand into new markets which is likely to lead to higher sales volumes and increased revenue
  • E.g. Fashion brand Jack Wills opened its first retail store in Germany with a further 11 international stores planned over the year. This helped it to increase its sales revenue by more than 4%

Lower costs

• Businesses can buy cheaper raw materials and components from abroad
  • This reduces their direct costs and may lower the break even point and increase their competitiveness
    
    
• Production can be located in countries with lower land and labour costs
  • This reduces indirect costs which can help to increase profitability
  • E.g. In 2023, Nike announced plans to relocate production of many of its sportswear items to Mexico as a result of rising labour costs in China where manufacturing had been located since the 1980s

Access to resources

• Businesses can import and sell different goods and services in their home country
  • This allows them to broaden their product range and increase their domestic customer base
  • If they are the first or only business to offer these products, they may gain a competitive advantage over rivals, potentially leading to increased market share
     
• Businesses may build production or processing facilities in countries where key resources or suppliers are located in order to reduce transportation costs and ensure supply

Competition from foreign brand imports

• Businesses may struggle to compete with larger, more established international rivals who have lower costs, greater marketing power and more significant economies of scale
  
  
• Domestic consumers may be more attracted to well-known international brands than domestic alternatives

Multinational business domination

• Large international businesses may be more attractive as employers to the most highly-skilled workers
  • Domestic businesses may struggle to compete with pay, conditions and chances for development that large firms can offer
    
    
• Supply chains become focused on meeting the needs of large businesses and may lack the flexibility required by smaller domestic businesses

Cultural, social and environmental concerns

• Adapting products and services to diverse cultural preferences can be challenging and expensive
   
• Businesses need to be sensitive to local customs, languages, and social norms to avoid cultural misunderstandings that could harm their reputation
  
  
• Businesses need to understand and comply with different environmental regulations and address concerns from customers about sustainability of their global operations