Unit 4 - Globalisation

Question 1

What is globalisation?

Answer 1

It is the growing interdependence and interconnectedness of the world’s economies, cultures and populations, driven by cross-border trade in goods and services, advances in technology and the movement of investment, people and information across countries,

Question 2

What is a global market?

Answer 2

It is a market in which goods and services are bought and sold worldwide, with businesses operating across many countries and treating the world as a single market.

Question 3

What is a developing/emerging market?

Answer 3

It is a country with a rapidly growing economy and rising consumer demand, often shifting from agriculture to industry and offering high potential for future growth

Question 4

What are some reasons why emerging markets are attractive to businesses?

Answer 4

. Rapid economic growth - rising demand for goods
. Growing middle class - more consumers with disposable income
. Large populations - huge potential market size
. Lower labour costs - reduced production costs

Question 5

What are the risks of operating in an emerging market?

Answer 5

. Political instability - uncertain business environment
. Currency fluctuations - unstable profits
. Lower infrastructure quality - distribution challenges
. Regulatory uncertainty - changing laws for example

Question 6

What are some reasons why high economic growth may not guarantee business success?

Answer 6

. Growth does not always translate into profits for firms
. Increased levels of competition
. Costs and risks may offset growth benefits

Question 7

What are some benefits of emerging markets to the global economy?

Answer 7

. Increased global trade and demand
. Provide new opportunities for investment
. Contribute to global economic growth

Question 8

What are some points for whether a business should expand into emerging markets (for, against and eval)?

Answer 8

For:
. high growth potential
. expanding consumer base
. lower production costs

Against:
. high risk and uncertainty
. political and economic instability
. infrastructure and legal challenges

Evaluation:
. size and resources of the business - large firms can absorb risks, costs and losses
. Nature of the product - standardised products are easier to sell globally
. Level of risk in the emerging market - politically stable countries are more attractive
. Consumer income and demand - if there is a growing middle class, there are higher chances of strong demand. Lower incomes suggest limited purchasing power
. Level of competition - highly competitive markets makes it harder for firms to succeed
. Exchange rate stability - stable currency results in predictable profits

Question 9

List and briefly explain some factors which have contributed to globalisation?

Answer 9

. Improvements in transport - faster and cheaper movement of goods worldwide have allowed for international trade to be more viable (reduced costs)
. Advances in technology - internet and communication systems allow instant global communication. It also enables e-commerce and coordination of global businesses
. Trade liberalisation (removal of trade barriers) - reduction of protectionism helps encourage free trade between countries (increases flow of goods and services globally)
. Growth of MNCs - drives integration of economies
. Increased FDI
. Migration - brings skills, knowledge and increases demand

Question 10

What are the pros of globalisation on stakeholders?

Answer 10

Consumers:
. Lower prices (global comp)
. Greater choice ( access to global goods)
. Improved quality - competitive pressures
. Access to innovative, new products

Employees:
. More job opportunities in growing industries
. Skill development from global firms
. Ability to work abroad

Businesses:
. Access to larger markets
. EoS
. Access to cheaper labour/resources
. Diversification of risk

Suppliers:
. Access to global customers
. Increased demand from MNCs
. Opportunity to grow and scale

Governments:
. Economic growth (higher GDP)
. Increased tax revenue
. Greater international cooperation
. Inward FDI

Shareholders:
. Higher profits from global expansion
. Increased dividends
. Growth in share prices

Local communities:
. Job creation from inward investment
. Infrastructure development
. Economic growth

Environment:
. Global cooperation on environmental issues
. Spread of green technology

Question 11

What are the cons of globalisation on stakeholders?

Answer 11

Consumers:
. Job losses - lower incomes
. Risk of lower safety/ethical standards
. Over-dependence on imports

Employees:
. Job losses due to outsourcing/offshoring
. Wage pressure in developed countries
. Job insecurity as firms relocate
. Poor working conditions in some countries

Businesses:
. Increased global comp
. Exposure to exchange rate risk
. Need to adapt products to local markets

Suppliers:
. Pressure to lower prices
. Risk of being replaced by cheaper suppliers abroad
. Dependence on large global firms

Governments;
. Loss of control over domestic industries
. Tax avoidance by MNCs
. Unemployment in declining sectors
. Environmental regulation challenges

Shareholders:
.Greater risk and volatility
. Exposure to global economic shocks
. Uncertainty from political/exchange rate changes

Local communities:
. Job losses if firms relocate
. Environmental damage
. Loss of local businesses and identity

Environmental:
. Increased pollution
. Resource depletion
. Carbon emissions

Question 12

What is glocalisation?

Answer 12

Glocalisation occurs when firms operate globally but modify their products to meet local tastes, cultures, laws and consumer preferences.

Question 13

What may be some strategies which firms may use to achieve global growth?

Answer 13

. Exporting
. Franchising - allowing foreign businesses to use your brand and business model
. Licensing - giving rights to a foreign firms to produce/sell your product
. Joint ventures
. FDI
. Mergers and acquisitions
. E-commerce/digital expansion

Question 14

What is a multinational company (MNC)?

Answer 14

It is a business that has operation in more than one country but is headquartered in its home country

e.g. Apple, Microsoft, Mcdonald’s, Coca-Cola and BP

Question 15

What is the structure of an MNC?

Answer 15

. Centralised head office (decision-making)
. Global subsidiaries in different countries - allows coordination of worldwide operations

Question 16

What are some reasons why MNCs are powerful?

Answer 16

. They have large turnovers
. Strong influence on governments
. Strong influence on labour markets
. Strong influence on global trade

Question 17

What are the advantages of MNCs?

Answer 17

Businesses:
. EoS - lower costs
. Access to global markets
. Diversification - reduces risk

Economies:
. Job creation
. FDI
. Tech transfer

Consumers:
. Lower prices
. Greater choice
. Improved quality

Question 18

What are the disadvantages of MNCs?

Answer 18

For host countries:
. Exploitation of labour (low wages)
. Environmental damage
. Profit repatriation

For domestic firms:
. Increased competition
. Risk of being forced out of the market

Question 19

What are some evaluation points for the impact of MNCs?

Answer 19

Depends on:
. Level of development of the host country
. Strength of regulation
. Nature of the industry
. Promote growth and development but also creates inequality and exploitation

Question 20

Explain what technology transfer is as an advantage of MNCs?

Answer 20

Technology transfer occurs when a MNC brings new skills, knowledge, machinery and processes to the countries where it operates

MNCs often introduce advanced production methods and modern management practices to their foreign subsidiaries. Local employees and firms learn from these innovation, improving efficiency and productivity

Adv:
. boosts local skills and knowledge - more competitive workforce
. improves productivity in the host country
. supports economic development by spreading innovation
. Can stimulate growth in local industries supplying the MNC