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Business · Growing the business

Business and globalisation

Globalisation means the world's economies are becoming more connected. Businesses import and export, move production abroad and become multinationals - and they face barriers such as tariffs and trade blocs.

  • 7 key terms
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Teacher resources

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Student handouts

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Last Lesson

Answer from memory before the answers appear.

  • Give two reasons why business objectives change.

    Any two of: market conditions, technology, performance, legislation, internal reasons.

  • What does exiting a market mean?

    Stopping selling in a location or segment.

  • What is profit maximisation?

    Aiming to make as much profit as possible.

  • From Topic 1: what does SPICED mean?

    Strong Pound, Imports Cheap, Exports Dear.

Learning Objectives

  1. 1Explain what globalisation is.
  2. 2Explain imports and exports and their impact on businesses.
  3. 3Explain why businesses change location and what multinationals are.
  4. 4Explain barriers to international trade: tariffs and trade blocs.
  5. 5Explain how businesses compete internationally.

What Is Globalisation?

Globalisation is the process by which the world's economies are becoming increasingly connected.

  • Trade

    Goods and services are bought and sold between countries more than ever before.

  • Communication

    The internet lets businesses sell and communicate worldwide instantly.

  • Transport

    Container ships and air freight move goods around the world cheaply.

  • For businesses

    Globalisation means new markets and cheaper supplies - but also new competition from around the world.

Imports and Exports

Imports

  • Goods and services bought from other countries.
  • Give businesses access to cheaper or better materials and products.
  • Give customers more choice.
  • But: UK businesses face competition from foreign imports.

Exports

  • Goods and services sold to other countries.
  • Give businesses access to much bigger markets.
  • Can increase sales and allow growth.
  • But: harder to understand foreign customers, and exchange rates add risk.

Changing Business Location

Globalisation lets businesses locate parts of their operations abroad.

  • Lower costs

    Wages, rent and taxes may be much lower in other countries.

  • Closer to customers

    Producing near a big overseas market cuts transport costs and time.

  • Access to materials and skills

    Some countries have raw materials or skilled workers the business needs.

  • The downsides

    Jobs lost in the home country, longer supply chains, language and cultural differences, and damage to reputation if working conditions are poor.

Multinational Companies (MNCs)

A multinational company has its headquarters in one country and operates in several others.

  • Examples

    Coca-Cola, Toyota, Unilever and McDonald's all make or sell products in many countries.

  • Benefits to MNCs

    Huge markets, economies of scale, and the chance to locate each activity where it is cheapest.

  • Benefits to host countries

    Jobs, investment, taxes and new skills and technology.

  • Drawbacks for host countries

    Local businesses may struggle to compete, and profits may leave the country.

Tariffs and Trade Blocs

Governments can make international trade easier or harder.

  • Tariff

    A tax on imported goods. It makes imports more expensive, protecting home businesses from foreign competition.

  • Impact of tariffs

    A business importing materials pays more, raising its costs; a business exporting may sell less if other countries put tariffs on its goods.

  • Trade bloc

    A group of countries that agree to trade freely with each other, with few or no tariffs between them, such as the European Union (EU).

  • Impact of trade blocs

    Businesses inside the bloc trade easily with each other, but businesses outside may face tariffs and extra rules when selling into it.

Competing Internationally

How businesses win customers in other countries.

  • Using the internet

    E-commerce lets even a small business sell worldwide from its own website or online marketplaces.

  • Changing the marketing mix

    Adapting the product, price, promotion and place for each country - different flavours, sizes, languages and prices.

  • Understanding local culture

    Names, colours and adverts that work in one country may offend or confuse in another.

  • Keeping costs down

    Competing with businesses in low-cost countries means being efficient or offering something they cannot.

Case study

Dyson: Moving Production Abroad

James Dyson first made his vacuum cleaners in Malmesbury, Wiltshire. In 2002 Dyson moved most of its manufacturing to Malaysia, where costs were lower and it was closer to its suppliers and to fast-growing markets in Asia. Around 800 production jobs were lost in the UK, although Dyson kept its research and design in Britain. The move shows the trade-off of globalisation: lower costs and access to new markets, against job losses at home and criticism in the UK press.

2002 Dyson moves manufacturing to Malaysia
800 UK production jobs lost

Going Global

A UK company makes premium dog food and wants to start selling in Japan and the USA. Suggest how it should adapt each part of its marketing mix for these markets, and identify one barrier to trade it might face.

1. Product changes.

2. Price changes.

3. Promotion changes.

4. Place changes.

5. One barrier to trade.

A good answer shows: A specific change to each of the 4Ps for an overseas market, plus a trade barrier such as a tariff or product rules.

Can I...?

  1. 1Explain what globalisation is.
  2. 2Explain imports and their impact.
  3. 3Explain exports and their impact.
  4. 4Explain why businesses change location.
  5. 5Explain what a multinational is.
  6. 6Explain the impact of tariffs.
  7. 7Explain the impact of trade blocs.
  8. 8Explain how businesses compete internationally.

Summary & Exam Focus

  • Globalisation connects the world's economies through trade, communication and transport.
  • Imports give cheaper supplies but more competition; exports give bigger markets but more risk.
  • Businesses move production abroad for lower costs and to be closer to markets; MNCs operate in many countries.
  • Tariffs and trade blocs affect the cost of trade; businesses compete internationally online and by adapting the marketing mix.

Exam focus

Explain one impact on a UK business of a tariff being placed on the materials it imports. (3 marks) (3 marks)

Tariffs raise the price of imports. Take the chain through to costs, prices, sales and profit.

Key terms

The vocabulary this lesson expects you to use. Each one is linked from the first place it appears above.

Globalisation
The process by which the world's economies are becoming increasingly connected.
Import
A good or service bought from another country.
Export
A good or service sold to another country.
Multinational company (MNC)
A business with its headquarters in one country that operates in several countries.
Tariff
A tax on imported goods.
Trade bloc
A group of countries that trade freely with each other, with few or no tariffs between them.
Free trade
Trade between countries without barriers such as tariffs.

Questions and answers

7 questions set on this lesson, with the mark schemes and model answers open.

1. Exam question Define 1 mark Foundation

Define the term 'tariff'.

Mark scheme — 1 mark available

  • A tax on imports — 1 mark

Model answer

A tax placed on imported goods.

2. Exam question Outline 2 marks Foundation

Outline one benefit to a business of exporting its products.

Mark scheme — 2 marks available

  • A benefit identified, e.g. bigger market / more sales / spread risk — 1 mark
  • Developed — 1 mark

Model answer

It can reach a much larger market (1), increasing its sales beyond what it could achieve in the UK alone (1).

3. Exam question Explain 3 marks Foundation

Explain one impact on a UK business of a tariff being placed on the materials it imports.

Mark scheme — 3 marks available

  • An impact identified, e.g. higher costs / higher prices / lower profit / switch suppliers — 1 mark
  • First linked point of explanation — 1 mark
  • Second linked point of explanation — 1 mark

Model answer

Its costs would rise (1). The tariff makes each imported material more expensive (1). The business must either raise its prices, which could reduce sales, or accept a lower profit on each product (1).

4. Exam question Justify 9 marks Stretch

Source: Highland Knitwear Ltd makes wool jumpers in Scotland. Its UK sales are falling. Option 1: Start exporting to Japan, where there is strong demand for Scottish wool, selling through its website and a Japanese department store. Option 2: Move production to a factory in Asia, where wages are much lower, to cut its prices in the UK. Justify which one of these two options Highland Knitwear Ltd should choose.

Mark scheme — 9 marks available

  • AO2 (Application, 3 marks): uses the context - Scottish wool, Japan, the department store, Asian production — Level 1-3
  • AO3a (Analysis, 3 marks): chains of reasoning about each option — Level 1-3
  • AO3b (Evaluation, 3 marks): a justified choice with a supported judgement — Level 1-3

Model answer

Option 1 would give Highland Knitwear access to a new market with strong demand, replacing its falling UK sales. Its Scottish origin is part of the product's appeal in Japan, so it could charge a premium price. However, it would need to adapt its marketing mix, and changes in the exchange rate could make its jumpers more expensive for Japanese customers. Option 2 would cut costs sharply, letting it compete on price in the UK. But moving production would mean its jumpers are no longer made in Scotland, which could destroy its brand's appeal, and Scottish workers would lose their jobs, damaging its reputation. On balance Highland Knitwear should choose Option 1, because its "made in Scotland" heritage is its unique selling point, and Option 2 would throw it away. This depends on the Japanese department store agreement giving it enough sales to make exporting worthwhile.

5. Multiple choice 1 mark Foundation

A UK business buys coffee beans from Brazil. For the UK, this is:

  1. A An export
  2. B An import Correct
  3. C A tariff
  4. D A trade bloc

Why: Goods bought from another country are imports.

6. Multiple choice 1 mark Core

What is a trade bloc?

  1. A A tax on imports
  2. B A company operating in many countries
  3. C A ban on all exports
  4. D A group of countries that trade freely with each other Correct

Why: A trade bloc is a group of countries that trade freely with each other, such as the EU.

7. Multiple choice 1 mark Stretch

Why might a multinational locate a factory in another country?

  1. A To reduce costs and be closer to customers Correct
  2. B To pay higher taxes
  3. C To avoid selling to that country
  4. D To increase transport costs

Why: Lower wages and other costs, and being closer to customers, are the main reasons.