Globalisation

What is Globalisation? 

• Globalisation is the growing integration of the world’s economies. 
• In business, globalisation refers to companies operating internationally or on a global scale. This involves most of the world’s economies working together to provide and produce goods and services. 
• Emerging Economies – rapidly growing economies have a lot of potential, but they also have a lot of risks. Brazil, for example. 

Key features of globalisation are outlined below: 

➔ Greater trade across borders in goods and services 

➔ Globalisation is a process of making the world economy more connected and interdependent ➔ Increasing spending on capital investment, innovation and infrastructure across large parts of the world 

➔ People are free to live and work in any country they choose 

➔ There is a free exchange of technology and intellectual property across borders 

Intellectual property – People’s knowledge or creative ideas that have commercial value and are protectable under different forms of copyright. 

Reasons for Globalisation 

➔ Developments in technology have helped globalisation to gather pace. E.g Toyota, Apple ➔ In recent years, international transportation networks have developed. Flying costs have decreased, while the number of flights and destinations served has expanded. 

➔ A great deal of deregulation has occurred. In several industries, privatisation has increased competitiveness. Furthermore, several trade restrictions have been eliminated. More and more economies are becoming more open, and more countries are abandoning local industry protection. In order to facilitate international trade, many countries have simplified their monetary and legal systems. 

Monetary system – system of money in a particular country or the world as a whole, and the way that is controlled by governments and central banks. 

➔ Tourism has also helped globalisation. Consumer preferences have shifted as a result of their international travel experiences. People are more willing to try goods and services produced in other countries. 

➔ Many businesses seek to sell internationally, sometimes because the native market is crowded. Large multinational corporations with a global vision dominate some markets. They gain a lot from having international customers and being able to produce items anywhere in the world when costs are low. 

Government and Globalisation 

• Globalisation can only flourish if governments are committed to it. For example: 
• Countries cannot trade if the government keeps international borders closed 
• International trade will be very limited if governments put up trade barriers 
• People cannot be free to live and work in overseas countries unless orders are kept open 
• Firms cannot develop their businesses overseas if planning permission is denied 

Opportunity of Globalisation for Businesses 

• Lower costs – some countries have much cheaper production, premises and wages. This allows businesses to operate with lower overall costs and increase their profit margins. Businesses may also be able to gain economies of scale. This would benefit shareholders, who will gain increased dividends. 
• Larger target market – operating on a global scale gives businesses a much larger potential target market. A larger potential target market is likely to increase the potential profit for shareholders.
• Access to labour – One of the benefits of globalisation is the free movement of labour. This means that people are free to move around the world and find employment in other countries. 
• Quicker expansion – businesses are able to quickly expand by opening overseas business locations. Consumers are often likely to welcome new businesses to operate in their country, as this will increase their options to purchase products. Suppliers are also likely to benefit from business expansion, as when businesses grow they will receive more orders. 
• Reduced Taxation – Businesses can reduce the amount of tax they pay by locating their base office in a country where business taxes are low

Threats of Globalisation for Businesses 

• Increased competition – operating in a global market provides a huge amount of competition for a business. If they chose to operate in another country, they may enter a crowded marketplace. Other businesses may also enter the UK market, making it difficult for UK businesses to achieve success. This may limit opportunities for employees and reduce the potential profit for shareholders. 
• Risk of takeovers – as businesses are able to operate on a global scale, larger businesses may make a hostile takeover of smaller UK businesses to reduce their level of competition. This could risk jobs for employees, and lead to large MNCs (multinational companies) controlling prices for consumers. 

Hostile takeover – takeover that the company being taken over does not want or agree to 

• Increased risk of exploitation – some of the world’s largest businesses have huge amounts of power over their suppliers and governments. These businesses can force suppliers to lower prices. They may also have leverage over governments in relation to taxes and business costs. Consumers may benefit from lower prices, but this threatens other, smaller UK-based businesses as they struggle to compete. In addition to this, large foreign businesses may also pay poor employee wages and have poor conditions.