The Importance of Globalisation (Cambridge (CIE) O Level Business Studies)

The rapid development of communication technology has significantly reduced trade barriers

The internet has made it easier for businesses and individuals to connect and collaborate across borders

Many countries have adopted policies that promote free trade and signed trade agreements

The removal of quotas and tariffs on goods crossing borders has made global trade smoother

The formation and growth of trade blocs such as the EU and NAFTA have opened up trade between groups of countries

Containerisation and improvements in air and long-distance rail travel have made it more cost-effective and efficient to move goods and people across long distances

• In 2017, as part of China's One Belt, One Road programme, the first direct rail freight service carrying clothes and high-street goods completed its 18-day, 12,000km journey from China to the UK

Many countries have implemented economic and political reforms to open up their markets to foreign investment

This has created opportunities for businesses to operate in new markets and has contributed to global integration as overseas business practices are absorbed

• In recent years, Laos has implemented economic reforms that are more welcoming to foreign direct investment and encourage private ownership of commercial businesses

Increased awareness of other cultures through media, entertainment and education has encouraged a more interconnected world

This has led to the sharing of ideas, values and lifestyles across borders, which has increased consumer demand for diverse brands from around the world

Businesses can export their products to other countries

• Exporting can help a business spread risks by avoiding reliance on the economic stability of one country to achieve success 

They can also expand into new markets which is likely to lead to higher sales volumes and increased revenue

• E.g. Fashion brand Jack Wills opened its first retail store in Germany with a further 11 international stores planned over the year. This helped it to increase its sales revenue by more than 4%

Businesses can buy cheaper raw materials and components from abroad

• This reduces their direct costs and may lower the break even point and increase their competitiveness

Production can be located in countries with lower land and labour costs

• This reduces indirect costs which can help to increase profitability

• E.g. In 2023, Nike announced plans to relocate production of many of its sportswear items to Mexico as a result of rising labour costs in China where manufacturing had been located since the 1980s

Businesses can import and sell different goods and services in their home country

• This allows them to broaden their product range and increase their domestic customer base

• If they are the first or only business to offer these products, they may gain a competitive advantage over rivals, potentially leading to increased market share

Businesses may build production or processing facilities in countries where key resources or suppliers are located in order to reduce transportation costs and ensure supply

Businesses may struggle to compete with larger, more established international rivals who have lower costs, greater marketing power and more significant economies of scale

Domestic consumers may be more attracted to well-known international brands than domestic alternatives

Large international businesses may be more attractive as employers to the most highly-skilled workers

• Domestic businesses may struggle to compete with pay, conditions and chances for development that large firms can offer

Supply chains become focused on meeting the needs of large businesses and may lack the flexibility required by smaller domestic businesses

Adapting products and services to diverse cultural preferences can be challenging and expensive

Businesses need to be sensitive to local customs, languages, and social norms to avoid cultural misunderstandings that could harm their reputation

Businesses need to understand and comply with different environmental regulations and address concerns from customers about sustainability of their global operations