Globalisation : describe increases in worldwide trade and movement of people and capital between countries
There are several reasons for the increase in global trade and movement of products, people and capital ( globalisation ) :
Increasing numbers of free trade agreements an economic unions between countries have reduced protection for industries
--> consumer can purchase goods and services from other countries with few or no import controls ( tariff / quota )
Free trade agreements : exists when countries agree to trade imports/exports with no barriers such as tariffs and quotas
Imported and cheaper travels links and communications between all parts of the world have made it easier to transport products globally
Internet allows easy price comparisons between goods from many countries
Online or e-commerce is allowing orders to be placed from anywhere in the world
Many 'emerging market countries' are industrialising very rapidly. China and countries in South-east Asia used to import many of the goods they needed. Now their own manufacturing industries are so strong they can export in large quantities at very competitive pricing
Opportunities of globalisation for business:
Start selling exports to other countries to opening up foreign market
in country with fast selling market -> increase potential sales
be able to sell items online -> goods sent from abroad -> increase potential sale
However : it can be expensive to sell abroad ( culture classing , transportation ) -> lower potential sale even if the product is popular at home
become a multinational company by open factories / operation in other countries
could be cheaper to make goods in other country than at home -> reduce cost of good sold per unit
However : quality might not be good / culture class --> ethical issue
Import raw materials from other countries but the final product is still home product
raw materials are cheaper to buy oversea -> reduce cost of good sold
However : the raw materials might not be reliable --> lower quality --> bad reputation
the shipping cost might be too high --> might be higher than buying the raw material in the country --> increase cost of good sale --> increase selling price
Import product from other country and sell it home to make profit
With no trade restriction it could be more profitable to import goods and sell them domestically
However : if product need maintenance, such as repair producer might not be available
Threats of globalisation for business :
Increasing imports into home markets from foreign competitors
-->If these competitors offer cheaper products ( or of higher quality ) sales of local business might fall
But : the increased competition could force the local businesses to become more efficient
Increasing investment from multinationals to set up operations in home country
--> this will increase further competition and
-->multinational may have economies of scale-->will be able to afford the best employee-->
harder for local business to find employee
But : some local firm could become supplier to these multinationals--> their sale could increase
employees may leave the businesses that cannot pay the same or more than international competitors
in some profession, employees will now have more choice about where they work and business will have to make efforts to keep their best employees
But : this might encourage local businesses orange of motivation methods to keep their workers
Globalisation has led to more choice and lower prices for consumers
--> it has force businesses to look for ways of increasing efficiency --> inefficient producer have gone out of business
--> many firms have merge with foreign businesses to make it easier to sell in foreign market --> reasons for growth of multination organisations
Why governments might introduce import tariffs and import quotas?
Import tariffs : is tax placed on imported goods when they arrive into the country
usually leads to the price increase making them less competitive
--> local product become cheaper
Import quota : is a restriction on the quantity of a quantity of a product that can be imported
this reduces the amount of goods that can be imported --> less available --> increase in price of goods --> encourage consumer to buy local product
Multinational business : are those with factories, production or service, operations in more than one country ( transnational businesses )
Benefits of being a multinational
produce goods in countries with low cost --> lower cost good sold
extract raw material from other country
reduce transport cost --> as goods produce near market
avoid barrier
remain competitive with rival businesses
gain gov grants --> if locate in particular countries
Impacts on its stakeholders of a business becoming a multinational
shareholders : receive increase dividends from higher profit
employees : increase opportunities to gain promotion as the business get larger and opportunities to live and work aboard
Suppliers : may have increase or decrease sales to the multinational depends on where its locate
Government : may have receive higher tax or lose tax depends on where the company move
Potential benefits to a country's economy where a multinational operate
jobs are created --> low unemployment
increase investment --> increase output ( higher GDP ) --> new technology can benefit the country by bringing in new idea
increase export --> import reduce as goods are made in the country, extra output will be sold aboard
Increase funds for gov --> tax are paid by multinationals
increase consumer choices --> more competitions
Potential drawbacks to a country's economy where a multinational operates
The jobs created are often unskilled jobs
Reduced sales for local businesses --> multinational are more efficient ( lower cost than other business )
profits are often send back home and not keep in the country where it operate
use up scare and natural resources in host country
have lots of influence on the gov and the country's economy
Exchange rate : is the price of one currency in terms of another currency
Depreciation of the exchange rate : is when the exchange is work less against other currencies
make export cheaper
import more expensive
Appreciation of the exchange rate : is when the exchange rate is worth more against other currencies
raise the price of export
import price fall and demand might rise
Change in exchange rate affect businesses in several different ways:
Exporting business
When their country's currency appreciated, their product become more expensive --> less competitive in foreign market --> my lose saes, revenue and profits
Currency appreciation : occurs when the vale of a currency rise, it buys more of another currency than before
When their country's currency depreciated, their product become cheaper --> increase demand --> higher sale --> more profit
Currency depreciation : occurs when the value of a currency falls, it buy less of another country
Importing business
When their country's currency appreciated, the other country's product become cheaper --> lower cost of good sold
When their country's currency depreciated, the other country's product become more expensive --> increase cost of good sold
Comments