The impact of globalisation on businesses
Globalisation is the increasing connection between countries through trade, investment and communication — it has made it far easier to buy from, sell to and operate in other countries.
The specification names four impacts.
Multinationals are businesses that operate in more than one country. Globalisation has allowed them to grow very large, and their effect on the countries they enter runs both ways: they bring jobs, investment and skills, but they also compete with local businesses, may pay low wages, and can move on to a cheaper country later. That is the same argument you would use about transnational corporations in Geography 3.2.2 — the balance sheet is the same.
- Globalisation
- the increasing connection between countries through trade, investment and communication, which has made it far easier to buy from, sell to and operate in other countries
- Multinational
- a business that operates in more than one country
Barriers to international trade
The specification names two barriers.
Tariffs are taxes on imported goods. They make imports more expensive, which protects domestic businesses from foreign competition and raises money for the government. The cost falls on the importing business, which either absorbs it — reducing profit — or passes it on, raising the price to customers. Tariffs can also provoke retaliation, with other countries imposing their own.
Trade blocs are groups of countries that agree to trade with each other freely, usually removing tariffs between members. For a business inside the bloc this is a large advantage: easier, cheaper access to all member countries. For a business outside it, the opposite — it faces tariffs that members do not, so its goods are more expensive than a member's.
Other barriers exist and are worth mentioning: differences in language and culture, product regulations that differ between countries, and the cost and time of transport.
Common mistake
A tariff is paid by the importer, not by the exporting country. It raises the cost of bringing goods in, which is why it protects businesses in the importing country.
- Tariff
- a tax on imported goods, which makes imports more expensive and protects domestic businesses from foreign competition
- Trade bloc
- a group of countries that have agreed to reduce or remove barriers to trade between themselves
How businesses compete internationally
The specification names two routes.
The use of the internet and e-commerce. A website reaches customers in any country without premises there, which is why globalisation has been so much easier for small businesses than it once was. Online payment and international delivery services make it practical; digital promotion makes it affordable.
Changing the marketing mix to compete internationally. Selling abroad rarely works by simply offering the UK product unchanged:
• Product — adapted for local tastes, regulations, languages, plug types or sizes. • Price — set against local competitors and local incomes, which may be very different. • Promotion — translated, and adjusted for what appeals in that culture; an advert that works in the UK may not travel. • Place — different distribution, whether that is local retailers, an international courier, or a marketplace website that country uses.
Worked example
A UK snack manufacturer wants to start selling in Japan. Analyse two changes it may need to make to its marketing mix.
- Product: tastes differ between countries, so flavours popular in the UK may not sell — and packaging must carry Japanese labelling and meet local food regulations.
- That may mean developing new flavours specifically for that market, which costs money before any revenue arrives.
- Promotion: advertising must be in Japanese, and the humour or imagery that works in the UK may not appeal or may not translate.
- It may need a local marketing agency, adding cost but reducing the risk of an expensive mistake.
- Close with the trade-off, since these questions reward it.
Answer: Product — new flavours suited to local tastes, with packaging meeting Japanese labelling requirements. Promotion — advertising translated and adapted, since UK imagery may not appeal. Both cost money before any sales are made, so the business must judge whether the Japanese market is large enough to justify adapting rather than simply exporting the existing range.
Before you practise
- Globalisation is the increasing connection between countries through trade, investment and communication.
- Impacts: competition from imports, buying from overseas, exporting to new markets, and changing business locations.
- Multinationals operate in more than one country, bringing jobs and investment but competing with local businesses.
- Tariffs are taxes on imports, paid by the importer — they protect domestic businesses and raise government revenue.
- Trade blocs remove tariffs between members, which advantages businesses inside and disadvantages those outside.
- Businesses compete internationally through the internet and e-commerce, and by changing the marketing mix.
- Selling abroad usually requires adapting product, price, promotion and place rather than exporting unchanged.