How UK Businesses Compete Internationally (AQA GCSE Business)

Globalisation & UK Business

• Globalisation is the business and economic integration of different countries

  • It has increased cross-border movement of people, goods, services, technology and finance

• Globalisation has occurred for a number of reasons

Diagram: Reasons for Globalisation

Globalisation has been driven by developments in technology, saturation of domestic markets and deregulation 

• Developments in technology have allowed for faster communication, transfer of data and online sales around the world

• Improved transport networks enable international business travel and improved distribution of products

• Deregulation, such as the removal of trade barriers, as well as simpler financial systems, has made trading internationally easier

• Governments have taken steps to increase trade so people, products and finance can move more easily across borders

• Market saturation in their home country means that growth can only be achieved if businesses find new target markets overseas

• The increase in tourism and access to overseas media has familiarised consumers with global brands

How UK Businesses Operate Globally

1. Importing and Exporting

• UK businesses trade internationally by importing and exporting goods and services

  • Imports are goods and services bought by people and businesses in one country from another country

    • Imports result in money leaving the country, which generates extra revenue for foreign businesses

      • In 2023, the UK’s biggest import good was cars, valued at approximately £41 billion

  • Exports are goods and services sold by domestic businesses to people or businesses in other countries

    • Exports generate extra sales revenue for UK businesses selling their goods abroad

      • In 2023, the UK's biggest export was business and financial services such as consultancy or insurance, valued at approximately £200 billion

  • On the whole, the UK imports more goods and services than it exports

2. Multinational Companies

• UK businesses can become multinationals to access markets and resources such as labour or raw materials overseas

• A multinational company (MNC) is a business that is registered in one country but has research, manufacturing or sales operations in different countries

  • E.g. AstraZeneca's headquarters are in Cambridge but they operate R&D centres in five countries and manufacturing sites across 16 countries

• MNC’s choose locations based on factors such as cost advantages and access to markets 

  • Slazenger is a UK-based sports brand whose manufacturing takes place in in the Philippines due to the country's lower production costs

• MNC's have access to a large customer base with potential for high levels of sales and can set up operations inside trade blocs to avoid import tariffs or quotas

3. Joint Ventures

• UK businesses can temporarily join with overseas businesses

• A joint venture is an agreement between two or more businesses to combine their resources and expertise to achieve a particular goal

  • E.g. Nestle and Starbucks entered into a joint venture in 2019 with a specific project to create a new line of coffee products

• Joint ventures reduce the risks involved in entering new overseas markets, as they usually involve a domestic partner that is familiar with the business environment

Competing with Overseas Rivals

• Globalisation means that UK businesses need to compete effectively with overseas rivals

  • British companies can rarely compete on price in overseas markets due to their relatively high wage and operations costs

Competing with Overseas Rivals

Benefits of Globalisation for UK Businesses

• Globalisation has provided many opportunities for British businesses to expand, access new markets and obtain new resources

The Benefits of Globalisation to UK Businesses

Drawbacks of Globalisation for UK Business

• Globalisation means that businesses face a range of complex challenges

  • Increased competition from international rivals may put domestic firms out of business

    • International firms also benefit from lower costs and greater economies of scale, so they can offer lower prices than smaller domestic businesses to consumers

    • Large overseas competitors can spend more on research, marketing and distribution than a small domestic business

    • Access to cheaper labour or materials allows them to sell products at lower prices

  • Domestic public limited companies risk being taken over by foreign rivals

    • Capital can flow easily across borders

    • Most countries allow foreign businesses to take ownership of domestic businesses

      • E.g. In 2009 UK confectionary company Cadburys was acquired by US company Kraft in a hostile takeover

  • Global distribution networks can be affected by natural disasters or other interruptions, such as accidents or terrorism

    • In 2021, the grounded container ship Ever Given blocked the Suez Canal for six days, causing delays to deliveries of goods such as semiconductors, which impacted technology manufacturing around the world