Globalisation and its causes; international trade, imports and exports; multinationals and foreign direct investment; trade barriers, protectionism and trading blocs; the opportunities and threats of operating globally; and assessing a country as a market or production location.

What this theme is asking

Eduqas wants you to understand globalisation and its causes, international trade and imports and exports, multinationals and foreign direct investment, trade barriers and trading blocs, the opportunities and threats of operating globally, and how a firm assesses a country as a market or production location. Globalisation is the headline force of Component 3 and a common synoptic essay topic.

Globalisation and its causes

International trade, imports and exports

International trade is the exchange of goods and services between countries. Exports are goods and services a firm sells to customers abroad (earning foreign revenue); imports are goods and services bought from abroad (often cheaper inputs, but competition for domestic producers). Trade lets firms reach far larger markets, source inputs where they are cheapest, and exploit each country's strengths, but it exposes them to exchange-rate movements and foreign competition (see the economic-environment dot point).

Multinationals and foreign direct investment

Trade barriers, protectionism and trading blocs

Opportunities, threats and assessing a country

Operating globally brings opportunities: vast new markets for exports, cheaper inputs and labour abroad, the chance to relocate or outsource production, economies of scale from worldwide sales, and access to global finance and technology. It also brings threats: intense competition from low-cost foreign producers in the home market, exchange-rate and political risk abroad, ethical and reputational risk in global supply chains, and the danger of losing out if the firm cannot compete internationally. When assessing a country as a market or production location, a firm weighs market size and growth, income levels, costs (labour, land, transport), political stability and risk, the legal and tax environment, infrastructure, and cultural fit. The decision balances opportunity against risk.

Examples in context

A car maker builds plants abroad (FDI) to access markets and cut costs. A UK retailer exports online to new countries. A firm faces a tariff that raises its import costs and prompts a switch of supplier. A manufacturer weighs a low-cost but politically risky country as a production location. Each shows globalisation reshaping where firms sell, source and produce.

Try this

Q1. State two causes of globalisation. [2 marks]

• Cue. Any two of: falling trade barriers, cheaper and faster transport, advances in communication and the internet, the growth of multinationals.

Q2. A firm imports a good priced at $\pounds 80$. A $25\%$ tariff is imposed. Calculate the new cost per unit. [2 marks]

• Cue. Tariff $= 80 \times 0.25 = \pounds 20$; new cost $= 80 + 20 = \pounds 100$.