Globalisation

Globalisation is the process by which businesses, economies, and people around the world become increasingly interconnected. For businesses, this means both greater opportunities and greater competition.

Three forces have accelerated globalisation:

• Improved transport — containerised shipping has made moving goods between continents cheap and reliable
• Digital communication — the internet allows businesses to communicate, sell, and market globally with minimal additional cost
• Reductions in trade barriers — international agreements have lowered the tariffs and restrictions that once made cross-border trade expensive

For UK businesses, globalisation creates two immediate pressures. First, foreign firms can now enter the UK market more easily, increasing competition. Second, UK businesses can now sell abroad and source materials globally more easily than ever before.

Key term — globalisation: the process by which the world's economies become more closely integrated and interdependent through trade, investment, and communication.

The impact of globalisation is not uniform. A small independent café is affected very little. A UK clothing manufacturer faces intense competition from overseas producers with much lower labour costs. A tech startup can sell digital products globally from day one.

An import is a good or service purchased from an overseas producer and sold in the domestic market.

How imports affect UK businesses:

Competition from overseas producers

Overseas firms — particularly from countries with lower wage rates — can often produce goods at lower cost and sell them more cheaply in the UK. A UK clothing manufacturer paying UK wages and UK rents faces intense price competition from firms producing in countries with lower operating costs.

This can force UK businesses to:

• Lower their own prices, squeezing profit margins
• Differentiate on quality, branding, or customer service rather than competing on price
• Move production overseas themselves to reduce costs

Buying from overseas (importing materials)

Importing is not only a threat — it is also an opportunity for UK businesses to reduce their own costs by sourcing cheaper raw materials, components, or finished goods from overseas suppliers.

For example, a UK furniture retailer might source timber from Scandinavia and fabric from Portugal, reducing input costs and improving profitability.

Worked example: A UK trainer manufacturer sources leather from Brazil and soles from Vietnam. Both inputs cost 30% less than equivalent UK-sourced materials. The saving allows the business to either reduce retail prices to compete with imported trainer brands, or maintain price and improve profit margin. The decision depends on the business's strategy and target market.

Exam tip: When a question mentions imports, identify whether it is raising the issue of competitive pressure on UK businesses, or the opportunity for UK businesses to reduce costs by buying from abroad. The distinction affects your analysis.

An export is a good or service produced in one country and sold to customers in another country.

Why exporting matters:

Exporting allows a business to grow its revenue without being limited by the size of the domestic market. A UK business that sells only in the UK is restricted to UK consumers. By exporting, it can access hundreds of millions of additional potential customers.

Benefits of exporting:

• Increased sales and revenue — larger total market
• Spreading risk — if the UK economy slows, overseas sales can compensate
• Potential economies of scale from higher total output

Challenges of exporting:

• Language and cultural differences require marketing mix adaptation
• Exchange rate movements can make UK goods more or less competitive overseas
• Logistics (shipping, customs, returns) are more complex than domestic trade

How e-commerce enables exporting for small businesses:

Historically, only large businesses could export — the cost of establishing overseas offices, distribution networks, and marketing campaigns was prohibitive. E-commerce has changed this. A small UK ceramics studio can now sell to customers in Japan, Canada, and Germany through an online shop, with international postal services handling delivery. The barrier to entry for exporting has fallen dramatically.

Key term — export: a good or service produced domestically and sold to a customer in another country.

A multinational is a business that has operations in more than one country — not just selling overseas, but actually operating (manufacturing, distributing, or employing) in multiple countries.

Examples of characteristics: headquarters in one country, factories or offices in several others, selling to customers worldwide.

Benefits of multinationals to host countries (where they operate):

• Job creation — local employment
• Investment in infrastructure and facilities
• Tax revenues for host governments
• Transfer of skills and technology to local workers

Drawbacks of multinationals to host countries:

• Repatriation of profits — profits flow back to the home country rather than staying in the host country's economy
• Environmental concerns — multinationals may exploit weaker environmental regulations in host countries
• Exploitation risk — lower labour standards may be accepted to attract investment; wages, though higher than local averages, may still be low by global standards
• Local competitors may be driven out of business by the multinational's scale and resources

Worked example: A US fast-food multinational opens 200 restaurants in the UK. Benefits: thousands of new jobs, supply contracts with UK food producers. Drawbacks: profits are sent back to the US, local independent restaurants face intense competition and some close, and concerns arise about the health impact of the product.

Stakeholder	Benefit	Drawback
Host government	Tax revenue, inward investment	Profit repatriation reduces net benefit
Local workers	Employment, training	Wages may be lower than industry average
Local businesses	Supply chain opportunities	Competition threatens survival
Home country shareholders	Profits from lower-cost overseas operations	Reputational risk if exploitation occurs

Governments sometimes restrict international trade to protect domestic industries. Two key barriers are relevant to the specification.

1. Tariffs

A tariff is a tax imposed on imported goods. It raises the price of the imported good in the domestic market, making domestic producers more competitive by comparison.

• Who benefits: domestic producers (they face less price competition); domestic government (collects tax revenue)
• Who loses: importers; domestic consumers (who pay higher prices); overseas producers (whose goods become more expensive)

2. Trade Blocs

A trade bloc is a group of countries that agree to trade freely with each other while maintaining barriers against non-member countries.

The European Union (EU) is the most significant trade bloc for UK businesses. Within the bloc, goods, services, capital, and labour can move freely. For non-members (including the UK after Brexit), tariffs and customs checks apply.

• Within the bloc: reduced costs, easier trade, shared regulations
• Outside the bloc: tariffs and trade barriers increase the cost and complexity of exporting to member countries

Key term — tariff: a tax placed on imported goods, raising their price and making domestic goods more competitive.

Key term — trade bloc: a group of countries that have agreed to remove or reduce trade barriers between them.

Impact on a UK business: A UK car manufacturer that previously exported to EU member states freely now faces tariffs, making its cars more expensive relative to EU-manufactured competitors. It might respond by opening a manufacturing facility inside the EU — changing its business location to avoid the barrier.

Once a business decides to operate internationally — whether through exporting or establishing overseas operations — it must decide how to compete effectively.

Two key approaches:

1. E-commerce

The internet allows even small businesses to sell to customers anywhere in the world. An e-commerce website, combined with international payment processing and logistics, means a business does not need a physical presence in every market it serves.

Benefits: low cost of entry; ability to scale internationally without large capital investment; data on customer behaviour to guide marketing decisions.

2. Adapting the Marketing Mix

What works in the UK may not work in other markets. Businesses competing internationally often adapt elements of their marketing mix:

Element	Why it may need adapting
Product	Tastes differ — flavours, styles, or features may need localising
Price	Income levels vary; a price point acceptable in the UK may be too high in another market
Promotion	Language, cultural references, and media channels differ
Place	Distribution channels vary; e-commerce penetration differs by country

Worked example: A UK energy drink brand expands into Southeast Asia. It adapts its product (lower sugar to comply with local regulations), its price (lower price point reflecting lower average incomes), its promotion (local language social media influencers rather than UK-focused advertising), and its place (distribution through local convenience stores rather than UK-style supermarkets). This marketing mix adaptation is central to its international competitiveness.

Exam tip: On questions about competing internationally, both e-commerce and marketing mix adaptation are valid answers — but credit comes from explaining how each helps the specific business in the question compete more effectively, not just listing them.

Exam tip slide

Common mistakes to avoid:

• Treating globalisation as purely positive or purely negative. The exam rewards balanced analysis: globalisation creates opportunities (exporting, cheaper imports) and threats (foreign competition, exchange rate risk) simultaneously.
• Confusing imports and exports. An import enters the UK; an export leaves the UK. In exam questions, read carefully whether the business is buying from abroad or selling abroad.
• Stating that tariffs "protect" businesses without acknowledging the cost: higher prices for consumers and retaliatory tariffs from other countries.
• Assuming all businesses can compete internationally without adaptation. The marketing mix often needs significant adjustment for different cultural and economic contexts.
• Vague answers on multinationals. Name specific benefits and drawbacks and link them to the stakeholder group specified in the question (host country government, local workers, local businesses, etc.).

On 6-mark evaluate questions about globalisation:

Frame your answer around both sides of the trade-off the question implies (e.g. opportunities from exporting vs challenges of cultural adaptation; benefits of multinationals to the host country vs concerns about profit repatriation). Conclude with a clear judgement that explains which consideration carries most weight for the specific business or context described.