2.1.3 Business and Globalisation

Globalisation is the process by which countries are becoming increasingly interconnected. This makes it easier for businesses to trade internationally.

Business is affected in 3 ways:

  1. Imports – money flows out of the UK. cheaper raw materials can be sourced, leading to lower costs. Adds to the competitive environment as a global marketplace means more competitors.
  2. Exports – money flows into the UK as foreign business buys from the UK.
  3. Business location – may locate overseas to take advantage of lower transport costs, lower business tariffs, labour costs.

A business which operates in more than one country is called a MULTINATIONAL. Multinationals often adjust their marketing mix in order to account for different cultures and tastes.

Barriers to trade

Governments often place barriers and restrictions on international trade in order to protect domestic (UK) businesses and jobs.

Tariffs – a tax on imported goods to make them more expensive for consumers. It is a protectionist measure which also raises tax revenue for the Government.

Trade bloc – a regional trade barrier set up by a group of countries e.g. the EU. Countries not in the trade bloc will find it more expensive to do business with countries in the trade bloc.

How businesses compete internationally

The Internet and e-commerce help with this. Selling online is helpful for newer, smaller businesses. Changing elements of the marketing mix will often be necessary to compete internationally.

Now try answering these exam style questions to test your understanding.