Globalisation (Edexcel IGCSE Business)

• 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

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

Diagram: Reasons for Increased Globalisation

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

An Explanation of the Reasons for Globalisation

• 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

• 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