How does globalisation create opportunities and threats for business?
The meaning and causes of globalisation, the role of multinational corporations, the opportunities and threats of international trade, and the reasons for and against operating in international markets.
A CCEA A-Level Business Studies answer on globalisation and international business, covering the meaning and causes of globalisation, the role of multinational corporations, international trade, trading blocs, and the opportunities and threats of operating in international markets.
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What this dot point is asking
CCEA wants you to explain what globalisation is and its causes, describe the role of multinational corporations, analyse the opportunities and threats of international trade, and evaluate the reasons for and against operating internationally.
What globalisation is
Causes of globalisation
Globalisation has been driven by:
- Improvements in transport - cheaper, faster shipping and air freight.
- Improvements in communication and technology - the internet and digital communication that let firms coordinate worldwide and trade online.
- Trade liberalisation - the reduction of tariffs and trade barriers and the growth of trading blocs such as the EU.
- The growth of multinational corporations investing across borders.
- Deregulation and the opening of markets in many countries.
Multinational corporations
MNCs can bring a host country investment, jobs, technology transfer and exports, raising incomes and skills. Concerns include their economic and political power, the risk of exploiting weak regulation or low wages, the ability to relocate quickly, and ethical issues over working conditions and tax. Their impact is therefore debated.
Opportunities of international business
- Larger markets - access to far more customers raises potential sales and growth.
- Cheaper sourcing and production - firms can buy materials and locate production where costs are lowest.
- Economies of scale - serving global markets increases volume and lowers unit costs.
- Spreading risk - selling in several markets reduces dependence on one economy.
Threats of international business
- Greater competition - from overseas rivals, including low-cost producers, in the firm's home and target markets.
- Exchange-rate risk - currency movements change the price of exports and imports.
- Supply-chain disruption - long global supply chains are vulnerable to delays and shocks.
- Cultural, legal and ethical challenges - different tastes, laws, languages and standards abroad.
Why globalisation matters
Globalisation reshapes the markets, competition and supply chains every business faces. Firms that understand it can reach larger markets, source efficiently and spread risk, but must manage stronger competition and new risks, linking closely to the competitive and economic environments and to social responsibility.
Try this
Q1. Define the term multinational corporation. [2 marks]
- Cue. A business that owns or controls production or service operations in more than one country.
Q2. Explain one opportunity globalisation offers a business. [3 marks]
- Cue. Access to much larger international markets raises potential sales and allows greater economies of scale.
Q3. Analyse two threats globalisation poses to a domestic business. [6 marks]
- Cue. Greater competition from overseas, including low-cost producers, and exchange-rate or supply-chain risk that raise uncertainty and pressure on margins.
Exam-style practice questions
Practice questions written in the style of CCEA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
CCEA 20194 marksExplain one cause of globalisation.Show worked answer →
Worth 4 marks. Markers want a named cause developed with how it drives globalisation.
Improvements in transport and communication: cheaper and faster shipping, air freight and the internet let firms move goods, services and information around the world quickly and cheaply.
This makes it practical to source materials, manufacture and sell across borders, and to coordinate global operations in real time.
As a result, firms can treat the world as a single market and supply chain, increasing the flow of trade and investment between countries, which is the essence of globalisation.
CCEA 20219 marksDiscuss the opportunities and threats that globalisation presents to a UK business.Show worked answer →
Worth 9 marks. Discuss needs both sides and a judgement.
Opportunities: access to much larger international markets raises potential sales; firms can source materials and locate production where costs are lowest; economies of scale grow; and global communication and e-commerce make exporting easier even for smaller firms.
Threats: domestic firms face more competition from overseas rivals, including low-cost producers; global supply chains can be disrupted; exchange-rate movements add risk; and operating abroad brings cultural, legal and ethical challenges.
Judgement: globalisation offers UK businesses larger markets and cheaper sourcing but exposes them to fiercer competition and new risks. Whether it benefits a particular firm depends on its competitiveness: efficient, distinctive firms can exploit global markets, while those reliant on a protected home market are most threatened.
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Sources & how we know this
- CCEA GCE Business Studies specification — CCEA (2016)