Business and the international
economy
THE IMPORTANCE OF
GLOBALISATION
Learning objectives
• The concept of globalisation and the
reasons for it
• Opportunities and threats of globalisation
for businesses
• Why some governments might introduce
import tariffs and quotas
Globalisation
what is it, and
why is it
important?
Whilst watching this video see if you can explain what international trade means.
Remember the key terms.
Why is international trade important?
Globalisation is the process by which the world is becoming
increasingly interconnected as a result of massively
increased trade and cultural exchange.
Globalisation has increased the production of goods and
services. The biggest companies are no longer national firms
but multinational corporations with subsidiaries in many
countries.
Expand upon the points below…
Globalisation has resulted in:
• increased international trade
• a company operating in more than one country
• greater dependence on the global economy
• freer movement of capital, goods, and services
• recognition of companies such as McDonalds and
Starbucks in LEDCs
What
influenced
it?
• Improvements in transportation –
larger cargo ships mean that the cost of transporting goods between
countries has decreased. Economies of scale mean the cost per item can
reduce when operating on a larger scale. Transport improvements also
mean that goods and people can travel more quickly.
• Freedom of trade –
organisations like the World Trade Organisation (WTO) promote free trade
between countries, which help to remove barriers between countries.
• Improvements of communications –
the internet and mobile technology has allowed greater communication
between people in different countries.
• Labour availability and skills –
countries such as India have lower labour costs (about a third of that of the
UK) and also high skill levels. Labour intensive industries such as clothing
can take advantage of cheaper labour costs and reduced legal restrictions in
LEDCs.
Factors attracting companies to a country may include:
• cheap raw materials
• cheap labour supply
• good transport
• access to markets where the goods are sold
• friendly government policies
Imports and exports quiz
Imports and exports quiz
Paired activity
Opportunities and threats of globalisation for businesses
In your pair, one person needs to take the opportunities stance
and their partner will counter their argument.
Another pair will take the threats stance and their partner will
counter their argument.
Remember to link your arguments as you would for an
examination question.
Individual activity
Complete the opportunities and threats activity.
Match the positive and negative impacts with the example
opportunity or threat.
These
points
could be
used in an
exam
Barriers to free trade
• Tariffs
• Subsidies
• Quotas
• Embargos
In pairs, define each of these terms
Identify the pros and cons of using trade barriers.
Arguments for trade barriers
• Protect small businesses and new industries
• Prevent dumping
• Prevent over-specialisation by protecting a range of
different industries
Arguments against trade barriers
• Restrict consumer choice
• Limit opportunities for new businesses and business
growth
• Protect inefficient domestic businesses with higher costs
and often lower-quality products
• Other countries will retaliate by introducing their own
trade barriers
Think, Pair, Share…..
Complete the Import protection worksheet
Compare your answers with your partner
Share your answers with the rest of the group.
6.3.2 REASONS FOR THE IMPORTANCE AND
GROWTH OF MULTINATIONAL COMPANIES
(MNCS)
Learning objectives
• Benefits to a business of becoming a
multinational
• Potential benefits to a country and/or economy
where a MNC is located, e.g. jobs, exports,
increased choice, investment
• Potential drawbacks to a country and/or
economy where a MNC is located, e.g. reduced
sales of local businesses, repatriation of profits
What is a multinational company?
• Is a business that has operations in more than one
country.
• Not sufficient for a company to export and sell its
products abroad for it to be multinational.
• Must have production, sales or other facilities in more
than one country.
Reasons for becoming a multinational company
Cut costs
Improve
customer
service
Attract new
staff
multinational
Increase
sales
Maximise
profits
Global
market
Increase
efficiency
Paired work
Discuss the potential answers with your partner
Complete the Multinational worksheet individually.
This activity should develop your analytical skills.
The advantages and disadvantages of multinationals have
been identified, you must explain these points.