Business (9225) | Globalisation

🌍 Globalisation: Study Notes for OxfordAQA Business (9225)

Welcome to the World Market!

Hi there! In this chapter, we’re going to explore Globalisation. Don't worry if this seems like a huge topic; we’ll break it down step-by-step.
Globalisation simply means the world is becoming more connected—like one huge market where businesses can sell, buy, and operate almost anywhere. Since you are studying 'Influences on Business', understanding how this connection works is vital for seeing how companies succeed or fail in the modern world!

1. Understanding Globalisation

What is Globalisation?

Globalisation is the process by which the world’s economies, cultures, and populations are becoming increasingly interconnected due to cross-border trade in goods and services, technology, and flows of investment, people, and information.

Analogy Alert! 💡

Imagine your favourite food chain, like McDonald's or Starbucks. They don't just sell in one country; they sell everywhere! That ability to operate and sell globally is the direct result of globalisation.

Key Drivers of Globalisation (Why is it happening?)

Globalisation isn't just luck; it’s driven by major changes that make international trade easier and cheaper:

• Technology: The internet, email, and video calls make communication instantaneous and cheap, allowing companies in the UK to manage factories in Asia easily.
• Improved Transport: Container shipping and larger cargo planes have made moving goods across the world much faster and cheaper.
• Liberalisation of Trade: More governments are choosing to reduce trade barriers (we’ll look at these next!) to encourage international trade.

2. The Role of Trade Blocs

What is a Trade Bloc?

As countries trade more, they often realise it’s better to work together. A Trade Bloc is a group of countries within a geographical region that agree to reduce or eliminate trade barriers between themselves.

The goal is to encourage Free Trade among members, meaning goods can move between these countries without taxes or restrictions.

Example of a Major Trade Bloc:

• The European Union (EU) is a famous example. Member states enjoy easy access to each other's markets.

The Influence of Trade Blocs on Businesses

If a business is based inside a trade bloc (like a company in Germany selling to France):

• Opportunity: Larger Market Access - Businesses can sell to a much larger population without dealing with tariffs. This is a massive opportunity for growth.
• Opportunity: Reduced Costs - No customs duties or complicated paperwork means lower costs and faster delivery times.

If a business is outside a trade bloc (like a company in China selling to the EU):

• Threat: Barriers Remain - They still face the external taxes and rules (the Common External Tariff) set by the bloc, making their products more expensive than those made inside the bloc.

3. Understanding Trade Barriers (Protectionism)

Not all governments welcome global competition. Sometimes, they want to protect their own industries (like local farmers or manufacturers) from foreign competition. This is called Protectionism.

Governments use Trade Barriers to achieve this. These are government-imposed restrictions on the flow of international goods or services.

The Three Main Types of Trade Barriers

1. Tariffs (Taxes)

A Tariff is a tax or duty placed on imported goods or services.

• How it works: If a foreign product costs \$100 and there is a 10% tariff, the government adds \$10 tax. The product now costs \$110 in the local market.
• Influence on Business: This makes imported goods more expensive, encouraging local consumers to buy the cheaper, domestically produced alternative.
• Memory Aid: Think T for Tariff, T for Tax.

2. Quotas (Limits)

A Quota is a physical limit on the volume or quantity of a specific good that can be imported over a set time period.

• How it works: The government might say, "We will only allow 50,000 imported cars this year."
• Influence on Business: Even if a foreign company is very efficient, they cannot sell more than the allowed limit, which protects the market share of local businesses.

3. Subsidies (Help)

A Subsidy is financial support (money) given by the government to local businesses to help them compete against foreign imports.

• How it works: The government gives \$5,000 to a local farmer for every tractor they buy. This lowers the farmer's costs.
• Influence on Business: The local firm can sell their product at a lower price than foreign firms because their costs are artificially reduced by the government's financial help.

4. The Influence of Globalisation on Business Operations

Globalisation creates both fantastic opportunities and significant threats. Successful businesses must adapt to both.

A. Opportunities of Globalisation (The Good News)

1. Access to New, Larger Markets

A business is no longer limited to its home country. Globalisation allows firms to sell products to billions of potential new customers worldwide. (Example: A small software company in Canada can sell its app to customers in Brazil and India via the internet.)

2. Lower Costs of Production (Sourcing)

Businesses can move manufacturing or service operations to countries where costs are lower (often lower wages, cheaper land, or reduced environmental regulations). This is called Offshoring.

• The business saves money, leading to higher profit margins or allowing them to sell at a lower, more competitive price.

3. Access to Cheaper Raw Materials and Components

Firms can search globally for the highest quality raw materials or the cheapest components, rather than being restricted to local suppliers.

B. Threats of Globalisation (The Challenges)

1. Increased Competition

This is often the biggest threat. If you can sell globally, so can everyone else!

• Local businesses suddenly face giant international competitors (Multinational Corporations - MNCs) who have massive resources and economies of scale.
• Prices may be driven down, forcing local firms to become more efficient or risk failure.

2. Cultural and Language Barriers

Marketing a product in a new country requires understanding local customs, laws, and language.

• What sells well in one country might be offensive or irrelevant in another. This makes marketing and product adaptation difficult and costly.

3. Exchange Rate Risk

When trading internationally, businesses deal with different currencies. The value of these currencies changes (fluctuates) daily.

• If a UK company exports goods to the USA and the value of the US Dollar weakens, the UK company receives fewer British Pounds for its sales. This reduces its profit unexpectedly.

Final Encouragement!

You’ve covered some really significant topics here—the foundations of how the modern business world works. Remember the key terms (Tariff, Quota, Trade Bloc), and you’ll be ready to explain exactly how global influences shape the decisions of any business! Keep up the great work!