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GCSEBusinessEdexcelRevision Notes2. Building a Business2.1 Growing the BusinessBusiness & Globalisation

Business & Globalisation (Edexcel GCSE Business)

Revision Note

Steve Vorster

Written by: Steve Vorster

Reviewed by: Jenna Quinn

Imports & Exports

  • Globalisation is the economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology & finance

  • The past twenty years has been characterised by rapid globalisation and growing international business expansion

  • Businesses that trade internationally import and export goods/services

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

      • In 2022, the UK’s biggest import was cars valued at approximately £3.25 billion

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

      • In 2022, China’s biggest export was smartphone manufacturing valued at approximately $21.4 billion

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

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

Changing Business Locations

  • Globalisation has also presented opportunities for businesses to relocate to low-cost locations overseas

  • Businesses may choose to set up production facilities in other countries

  • This is a different process from choosing a country as a potential market for customers

  • In this sense, production includes both manufacturing and any services associated with the business e.g. call centres

    4-2-3-factors-to-consider-before-setting-up-production-locations-in-other-countries

Factors to assess when deciding considering setting up production facilities in another country

  • When setting up production facilities in another country, several factors need to be assessed to ensure a successful outcome

  • These include the costs of production, skills and availability of labour force, infrastructure, location in trade bloc, government incentives, the ease of doing business, political stability, natural resources available, and the likely return on investment

Factors when assessing production location

Factor

Why is this factor important?

Costs of production

  • Businesses want to keep costs of production low as this can help them increase their profit margin or allow them to sell at a lower price to gain a competitive advantage

Skills and availability of labour force 

  • The quality of the workforce is important as this will directly impact the quality of the goods and services produced in an economy

  • Businesses may choose to locate production in a market where the labour costs are lower

Infrastructure 

  • Businesses need to consider the infrastructure needed such as roads as this will affect the production process

Location in a trading bloc 

  • A business located in a market within a trade bloc will be able to access many advantages such as reduced protectionist measures 

    • E.g. Japanese companies Nissan and Toyota have invested in manufacturing facilities in the UK (prior to Brexit) to gain access to the EU market

Return on investments 

  • Assessing the return on investment in different markets will reduce the risk of the initial investment not being paid for

Natural Resources 

  • It is often important that a business has easy access to their raw materials as this can help to reduce transportation costs and help to reduce any potential delays to the production process

Political Stability 

  • Businesses may be at risk of not gaining a return on their investment in a country with political instability

  • An economy with a stable economy and government is seen as a less risky investment for a business

Ease of doing business 

  • A business will want to locate in an area where there is limited bureaucracy, so the process of establishing production facilities is not delayed or does not incur high costs

Government Incentives 

  • Businesses may be offered incentives (e.g. grants, business loans and tax breaks) by the government 

Multinational Corporations

  • A multinational corporation (MNC) is a business that is registered in one country but has manufacturing operations/outlets in different countries

    • E.g. Starbucks headquarters are in Washington, USA but they have 32,000 stores in 80 countries

  • Factors such as globalisation and deregulation have contributed to the growth of MNC’s

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

    • Nike originates from the USA but 50% of their manufacturing takes place in China, Vietnam and Indonesia due to the lower production costs in these countries

Advantages and Disadvantages of MNCs

Advantages

Disadvantages

  • The MNC can gain access to cheap labour and/or raw materials

  • Local residents may benefit from job opportunities and growth in the local economy

  • MNCs often invest to improve infrastructure

    • Better roads, transportation and access to water and electricity would help the local community in addition to helping the MNC operate more efficiently

  • MNCs may have to pay taxes and business rates to local councils/ authorities

    • These funds may be reinvested back into the local community

  • MNCs can establish charitable initiatives that have a positive effect on the local community

  • MNCs may cause damage to local habitats/environment during production process

    • E.g. Shell has a track record of oil pollution in vulnerable communities in Nigeria

  • MNC's may leave unsightly production facilities behind once they have extracted all of the resources and left the country

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    Author
    Reviewer
    Steve Vorster

    Author: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

    Jenna Quinn

    Author: Jenna Quinn

    Expertise: Head of New Subjects

    Jenna studied at Cardiff University before training to become a science teacher at the University of Bath specialising in Biology (although she loves teaching all three sciences at GCSE level!). Teaching is her passion, and with 10 years experience teaching across a wide range of specifications – from GCSE and A Level Biology in the UK to IGCSE and IB Biology internationally – she knows what is required to pass those Biology exams.