6.3 Globalisation

Ways Businesses are Interconnected

• Global Buying and Selling: Businesses buy and sell goods and services in many countries.

• Global Production: Businesses may produce parts of a product in different countries to reduce costs.

• Global Movement of People: Employees may move between countries for work.

• Global Movement of Capital: Businesses may borrow money from international markets.

Reasons for Increased Globalisation

• Improvements to Transport: Larger ships and better road and rail networks reduce transport costs.

• Better Telecommunications and the Internet: Easier and cheaper to arrange international business or share plans and knowledge.

• Reduced Trading Barriers: Lower tariffs and quotas make international trade more accessible.

Impact of Globalisation on Businesses

Growth of Multinational Companies

Multinational companies (MNCs) operate in multiple countries and gain several advantages from this structure.

Benefit	Description
Increased sales	Each country provides potential customers, increasing overall sales.
Risk is spread	Dependence on a single country is reduced, spreading financial risk.
Lower Costs	Production can occur in countries with lower costs for labor or materials.
Tax Avoidance	Can benefit from paying lower taxes by operating in countries with favourable tax laws.

Influences on business location

Advantages of locating abroad	Disadvantages of locating abroad
Lower production costs	Difficult quality control if managers are remote
Access to expert/skilled workers	Higher transport costs for moving goods
Closer to international markets	Potential loss of sales if customers prefer local products
Availability of cheap labor and land	Productivity issues if local workers are unskilled

International Branding

Businesses must consider several factors when creating an international brand to ensure their goods and services meet the local market's expectations

For example:

1. Product Promotion: Advertising methods, PR, and promotions influenced by local culture.

2. Income Levels: Varying income levels dictate product pricing and target markets.

3. Language: Words used for products can have different meanings in different languages.

4. Legal Issues: Different countries have different laws on what can be sold and advertised.

5. Bribery: Practices regarding bribery differ; businesses must decide on their stance.

How Businesses Compete Internationally

Businesses that compete internationally sell goods and services abroad and face competition from overseas firms. Factors influencing international competition include:

Factor	Influence
Growth	Expanding overseas, opening shops in other countries.
Marketing	Adapting products and promotions to local markets, setting competitive prices.
Human Resources	Recruiting, training, and motivating local workers, complying with local labour laws.
Business Operations	Optimising production methods for local conditions, reducing costs through efficient logistics.
Exchange Rate	Managing the impact of currency value fluctuations on export and import prices.
Ethical and Environmental Influences	Ensuring ethical practices and sustainability in different markets.
Economic Climate	Responding to economic conditions in various countries to maintain sales.