Business | Globalisation

Welcome to Globalisation: The Shrinking World of Business!

Hello future business leaders! This chapter, Globalisation, is absolutely critical because it explains how virtually every major company operates today. Don't worry if this topic feels large; we’re going to break it down step-by-step.

Think of globalisation as the world becoming a smaller, more interconnected place. Your smartphone might be designed in California, contain components from South Korea, be assembled in China, and sold to you in London. That's globalisation in action!

By the end of these notes, you will understand the forces driving this interconnectedness, the role of giant companies, and the benefits and drawbacks of operating on a global scale. Let’s dive in!

Quick Review: Why is this important?

• It dictates the competition a business faces.
• It creates huge opportunities (new markets) and serious threats (cultural differences).
• It is a mandatory concept for evaluation questions in your exams.

1. Defining Globalisation and its Characteristics

What is Globalisation?

Globalisation is defined as the increasing interdependence and interconnectedness of countries, economies, cultures, and populations around the world, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information.

Analogy: Imagine a world made of separate puzzles. Globalisation is the process of linking all those puzzles together with invisible threads, making it impossible to move one piece without affecting the others.

Key Characteristics of Globalisation

Globalisation isn't just about trade; it has four main pillars that interact with each other:

1. Increased Trade in Goods and Services: Tariffs (taxes on imports) are lower, making it cheaper and easier to move products across borders. (Example: Buying a car manufactured overseas.)
2. Increased Flows of Capital (Money): Investment moves freely. A pension fund in the UK might invest in a factory in Brazil. This is known as Foreign Direct Investment (FDI).
3. Increased Mobility of Labour: People moving from one country to another for work (e.g., highly skilled engineers or temporary seasonal workers).
4. Spreading of Culture and Information: Global brands (like McDonald's or Netflix) and shared communication platforms spread ideas and influence consumer tastes worldwide.

2. The Drivers (Causes) of Globalisation

Why has the world suddenly become so interconnected in the last few decades? The process has been fuelled by several powerful factors, often grouped into Technology, Policy, and Economics.

A. Technological Advancements

Technology has made distance irrelevant and reduced costs massively.

1. Communication Technology: The internet, email, and video conferencing allow managers in different continents to collaborate instantly and cheaply. This facilitates offshoring (moving production abroad) and outsourcing (hiring external firms abroad).
2. Transportation Technology: The use of standardised containerisation (shipping containers) has drastically reduced the cost and time of moving goods globally. Modern large cargo ships achieve massive economies of scale.
3. E-commerce: The growth of online platforms (like Amazon or Alibaba) allows small businesses to reach international customers immediately, bypassing traditional distributors.

B. Political and Trade Liberalisation Factors

Governments and international bodies have actively reduced the barriers to trade.

1. Trade Liberalisation: This is the movement away from protectionism (policies like tariffs and quotas) towards free trade.

• Organisations like the World Trade Organisation (WTO) promote global free trade by negotiating agreements to reduce these barriers.
• The formation of trading blocs (e.g., the European Union – EU, or ASEAN) removes barriers between member countries, fostering trade within the bloc.

2. Deregulation of Markets: Many countries have relaxed rules on how foreign companies can invest, making it easier for TNCs (covered next) to set up operations abroad.

C. Economic Factors

Businesses themselves are seeking better opportunities.

• Search for New Markets: Developed country markets (USA, Europe) often become saturated. Businesses must look overseas (especially emerging economies like China or India) to find new customers and maintain growth.
• Lower Labour Costs: Businesses move production to countries where wages are significantly lower to reduce unit costs and increase profits.

3. The Role and Growth of Transnational Corporations (TNCs)

The key players in the globalisation story are the Transnational Corporations (TNCs), sometimes called Multinational Corporations (MNCs).

What are TNCs?

A Transnational Corporation (TNC) is a large business organization that owns or controls production or services facilities in more than one country.

Did you know? Companies like Apple, Coca-Cola, Samsung, and Toyota are TNCs. They are the primary agents moving capital, technology, and products across the globe.

Motivations for the Growth of TNCs

Why do TNCs expand globally, rather than just selling their products internationally? They want to establish a permanent presence (FDI) to achieve core strategic aims:

1. Exploiting Economies of Scale: By producing massive quantities in centralized locations (often low-cost countries), TNCs reduce their average costs significantly.
2. Accessing Global Resources: They can access cheaper raw materials, specialised labour, or particular technologies that might not be available domestically.
3. Spreading Risk: If one national market suffers an economic downturn, the company can rely on sales in other markets to survive.
4. Tariff Hopping: By setting up production *inside* a foreign country or trading bloc (like the EU), the TNC avoids paying the import tariffs that would apply if they shipped the finished product from their home country.

4. Consequences of Globalisation (Impacts and Evaluation)

Globalisation is not simply "good" or "bad"; it creates massive opportunities alongside significant threats. When analysing consequences, it is vital to look at the impact on different stakeholders: businesses, consumers, and economies.

A. Opportunities for Business (Benefits)

Globalisation offers massive strategic advantages for companies willing to expand:

• Access to Larger Markets: TNCs can sell to billions of new customers, increasing sales revenue and total profit.
• Lower Costs of Production: Through offshoring to countries with low wages and reduced regulations, businesses can lower their marginal costs.
• Talent Acquisition: Access to a global pool of skilled workers (e.g., IT specialists in India or designers in Milan).
• Increased Competitiveness: By achieving greater economies of scale, businesses can sell at lower prices than local competitors, increasing their market share globally.

B. Threats for Business (Drawbacks)

The risks of operating globally are complex and often underestimated.

• Intense Competition: Domestic businesses suddenly face competition from large, highly efficient TNCs from around the world.
• Cultural and Language Barriers: Marketing strategies must be adapted for different cultures (customisation vs. standardisation). Failure to understand local customs can lead to PR disasters.
• Ethical and CSR Issues: TNCs face heavy scrutiny regarding labour conditions, environmental impact, and tax avoidance in host countries. This can damage brand reputation severely.
• Supply Chain Disruptions: Relying on a long, complex global supply chain (e.g., having components made in three different countries) increases the risk of delays due to political instability, natural disasters, or transportation blockages (like the Suez Canal incident).

C. Impact on Consumers and Economies

The flow-on effects of globalisation touch everyone:

1. For Consumers:
   • Benefit: Greater choice and lower prices due to competition and cost savings passed on by TNCs.
   • Drawback: Products can become homogenised (too similar) as global brands dominate, reducing local cultural diversity.
2. For Economies/Workers (Host Countries – e.g., developing nations):
   • Benefit: Increased FDI brings jobs, investment, new technology, improved infrastructure, and higher wages compared to local alternatives. This boosts the local economy.
   • Drawback: TNCs may exploit labour (poor working conditions, low pay) and pressure the government for tax breaks, meaning the host country benefits less than expected.
3. For Economies/Workers (Developed Nations):
   • Benefit: Access to cheaper imports helps keep inflation low and increases living standards.
   • Drawback: Significant job losses (structural unemployment) in traditional industries (manufacturing, call centres) as production is offshored.

You've made it through the core concepts of Globalisation! Keep practicing by finding TNC examples in your daily life—it makes the learning stick!