What is globalisation, and why do businesses trade internationally?
The nature and causes of globalisation, the growth of international trade, the reasons businesses trade and expand overseas, the role of exchange rates in international trade, and the benefits and drawbacks of globalisation for businesses and stakeholders.
A focused answer to the OCR A-Level Business global theme on globalisation, covering the nature and causes of globalisation, the growth of international trade, the reasons businesses expand overseas, the role of exchange rates, and the benefits and drawbacks of globalisation for stakeholders.
Reviewed by: AI editorial process; not yet individually human-reviewed
Have a quick question? Jump to the Q&A page
Jump to a section
What this theme is asking
OCR wants you to explain what globalisation is, why it has grown, why firms trade and expand overseas, how exchange rates affect international trade, and the benefits and drawbacks for businesses and stakeholders. This theme dominates Component 3, the global business environment.
The nature and causes of globalisation
Globalisation has accelerated because of: trade liberalisation (the reduction of tariffs and barriers, partly through bodies such as the World Trade Organization); cheaper, faster transport (containerisation, air freight); communications technology (the internet, enabling global coordination and e-commerce); and the growth of multinational companies that organise production and sales worldwide. Together these have made it far easier and cheaper to trade and invest internationally.
Why businesses trade and expand overseas
The role of exchange rates
The aid SPICED captures it: a Strong Pound means Imports Cheaper, Exports Dearer; a weak pound flips this. A firm that exports gains from a weak home currency; one that imports its inputs loses; a firm that does both feels a mixed effect, depending on the balance.
Benefits and drawbacks of globalisation
For businesses, globalisation offers larger markets, cheaper inputs through global supply chains, and economies of scale, but brings intense foreign competition (cheaper imports), exposure to long, fragile supply chains and exchange-rate risk, and pressure over ethics and the environment. For stakeholders, globalisation can mean cheaper goods and more jobs in some places, but job losses to lower-cost countries, concerns over working conditions, and environmental costs in others. The balance is rarely one-sided.
Examples in context
Containerisation and the internet are the classic enablers of globalisation, slashing the cost of moving goods and coordinating production worldwide. UK manufacturers have faced intense competition from cheaper imports while also gaining access to global supply chains and export markets. The disruption of global supply chains during the pandemic showed the fragility that globalisation can bring, prompting some firms to shorten or diversify their supply chains.
Try this
Q1. State two causes of globalisation. [2 marks]
- Cue. Trade liberalisation, cheaper transport, communications technology, or the growth of multinationals.
Q2. Analyse one reason a firm might expand into an overseas market. [6 marks]
- Cue. For example, a larger market raises sales and spreads fixed costs over more units, lowering unit cost, developed as a chain in context.
Exam-style practice questions
Practice questions written in the style of OCR exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
OCR H431/03 20196 marksAnalyse two reasons why a UK business might choose to expand into overseas markets. (6)Show worked answer →
A Component 3 "Analyse" rewards two developed chains in context. Reason one, larger market: expanding abroad gives access to many more potential customers, so the firm can grow sales beyond a saturated or small home market and spread its fixed costs over greater volume, lowering unit cost. Reason two, spreading risk: operating in several countries means a downturn in one market can be offset by others, making revenue more stable. Markers reward two distinct reasons, each developed into a chain (larger market leads to higher sales and economies of scale; diversification leads to more stable revenue), anchored in a business context. A third common reason is access to cheaper resources or labour.
OCR H431/03 202316 marksEvaluate the impact of globalisation on a UK manufacturing business. (16)Show worked answer →
A 16-mark evaluation on a four-level grid. Benefits: globalisation opens larger export markets, gives access to cheaper inputs and labour through global supply chains, and allows economies of scale, raising competitiveness and profit. Chain: sourcing components globally lowers costs, letting the firm cut prices or raise margins. Drawbacks: globalisation also brings intense foreign competition (cheaper imports), exposes the firm to long, fragile supply chains and exchange-rate risk, and can pressure it on ethics and the environment. Chain: cheaper imports undercut the firm at home, threatening sales and jobs. Evaluation: whether globalisation is net positive depends on whether the firm is more an exporter or import-competitor, how exposed its supply chain is, and its ability to compete on quality or cost. A judged conclusion reaches the top band.
Related dot points
- The methods and effects of protectionism including tariffs, quotas and subsidies, the role and impact of trading blocs and free-trade agreements, and how protectionism and trading blocs affect business decisions and competitiveness.
A focused answer to the OCR A-Level Business global theme on trade barriers, covering the methods and effects of protectionism (tariffs, quotas, subsidies), the role and impact of trading blocs and free-trade agreements, and how they affect business decisions and competitiveness.
- The reasons for foreign direct investment and the growth of multinational companies, the methods of entering overseas markets including offshoring, outsourcing and joint ventures, and the impact of multinationals on host and home countries and the control of them.
A focused answer to the OCR A-Level Business global theme on multinationals, covering the reasons for foreign direct investment and the growth of multinationals, methods of entering overseas markets including offshoring, outsourcing and joint ventures, and the impact of multinationals on host and home countries.
- Global marketing strategy and the adaptation of the marketing mix for international markets, the standardisation versus adaptation decision, the role of global and niche markets, and the influence of cultural and social factors on marketing.
A focused answer to the OCR A-Level Business global theme on marketing, covering global marketing strategy, the adaptation of the marketing mix for international markets, the standardisation versus adaptation decision, global and niche markets, and the influence of cultural and social factors.
- The factors a business assesses when judging a country as a market or as a production location, including market size and growth, incomes, infrastructure, costs, skills, political stability and risk, and the use of this analysis in deciding whether and how to expand.
A focused answer to the OCR A-Level Business global theme on assessing a country, covering the factors a business judges when treating a country as a market or as a production location, including market size and growth, incomes, infrastructure, costs, skills, political stability and risk.
- The impact of the economic environment on business activity, including the economic cycle, economic growth, inflation, unemployment, interest rates and exchange rates, and how businesses respond to changes in these macroeconomic conditions.
A focused answer to the OCR A-Level Business external-environment theme on the economy, covering the economic cycle, economic growth, inflation, unemployment, interest rates and exchange rates, and how businesses respond to changes in these macroeconomic conditions.
Sources & how we know this
- OCR A-Level Business (H431) specification — OCR (2015)