Business and Globalisation

Your competitor is four thousand miles away

Globalisation is the increasing connection between the world's economies, and for a business it cuts both ways at once. A UK firm can now sell to customers anywhere. A website and a courier account reach markets that once needed an office abroad. And anyone anywhere can now sell to its customers. The workshop that used to compete with three local rivals competes with the world. This module is about what businesses actually DO about that: importing and exporting, moving production, becoming multinational, dealing with the barriers governments put up, and changing what they sell so that it works somewhere else.

Six words that carry the topic

Get these precise and the evaluation questions become much easier to write:

Match each term to what it means

What a barrier actually does

Governments do not always want trade to be easy, and the two barriers you need are simple mechanisms rather than lists to memorise. A tariff is a tax on imports. It does not change what the foreign business charges. It adds to what the buyer pays, so the imported good becomes more expensive relative to the home-produced one. Domestic producers are protected, the government collects revenue, and customers pay more. All three happen together. A trade bloc is an agreement between a group of countries to lower the barriers between themselves. Inside the bloc, trading is easier and cheaper. Outside it, you face whatever barriers the bloc applies to everyone else - which is one of the strongest reasons a firm chooses to produce INSIDE a bloc rather than exporting into it. You are about to see exactly what a tariff does to a price.

What does the tariff cost?

A UK company wants to buy a machine from an overseas supplier for 4,000 pounds. The government charges a 15 per cent tariff on machines of that kind. These figures are an example, not real trade data. What is the TOTAL the UK company now pays, in pounds?

So what has the tariff done?

A UK-made version of that same machine sells for 4,500 pounds, and its price has not changed. What has the tariff achieved?

• The UK machine is now the cheaper option, even though it costs what it always did
• The overseas supplier now earns less on each machine it sells
• Nothing much: the imported machine is still the better value at 4,000 pounds
• The imported machine is still cheaper, so the tariff has failed

The same change, from two sides

An evaluation answer that only sees one side of globalisation cannot reach the top band. For any UK business, the same set of changes offers both of these at once.

Why become a multinational?

Select the TWO strongest business reasons for producing in another country rather than exporting to it.

• Producing inside a trade bloc avoids the barriers that apply to goods brought in from outside it
• Production costs such as wages, land or energy may be lower in the other country
• A business that produces abroad no longer has to obey any UK law
• Moving production abroad removes competition from the home market

Find the moment it goes multinational

Here is a short case about Northgate Tools, a company invented for this module. Tap the part that describes it BECOMING a multinational, rather than importing, exporting or selling online.

• Northgate Tools makes hand tools in Sheffield. Last year it
• began buying its steel from a supplier in Spain
• , and it now
• sells finished tools to trade customers in four European countries
• . To reach individual buyers it
• launched a website that ships worldwide
• . This spring it
• opened a small assembly plant in Poland, employing eleven people

Say it back

A good that a business buys in from another country is an _____, and one it sells abroad is an _____. A tax charged on goods entering a country is a _____, and it works by making the imported good more expensive than the one made at home. A group of countries that lowers the barriers between themselves is a _____, which is one reason a firm may choose to produce inside it rather than exporting into it. A business with operations in more than one country is a _____.

Launching in another country

Competing internationally usually means changing the marketing mix. Put the steps in a sensible order.

• Research the market: who buys this there, and who already sells to them
• Change the PRODUCT so it suits local tastes and meets local regulations
• Set a PRICE that fits local incomes and what competitors there charge
• Choose the PLACE: local retailers, a distributor, or shipping direct through e-commerce
• Build the PROMOTION in the local language, around what customers there respond to
• Launch, then review sales against the objective you set before you started

Advising Northgate Tools

Three decisions facing the invented Sheffield toolmaker from earlier.

• A country Northgate exports to announces a tariff on imported hand tools. What is the immediate effect on Northgate's position there?
• Northgate is considering opening a second plant inside that country instead of exporting to it. What is the strongest argument FOR?
• Its website sells worldwide, but almost no orders come from one large market. What should Northgate investigate FIRST?

Should they sell overseas?

A UK manufacturer is deciding whether to start selling overseas. Evaluate whether it should. Use the reasoning from this module on whatever business a question puts in front of you.

• Give two genuine opportunities that selling overseas would open up
• Give two genuine risks or difficulties it would take on
• Explain what a tariff would do to its prices in the country it sells to, and why
• Say what would have to change about the product, price, place or promotion
• Finish with a judgement, and say what your judgement depends on