Globalisation: the integration of national economies into a single world market, its drivers (technology, transport, trade liberalisation, deregulation), and the opportunities and threats it creates for organisations.

What this key area is asking

Advanced Higher Business Management studies the organisation at a strategic level, and the first thing that shapes strategy is the external environment. Globalisation is the deepening integration of national economies into a single, interdependent world market for goods, services, capital and labour. For a large organisation it changes everything: where it sells, where it produces, who it competes with, and the risks it carries. You need to define globalisation precisely, explain what is driving it, and analyse the opportunities and threats it creates.

Defining globalisation precisely

The word is loose in everyday use, so define it tightly for marks. The key idea is integration and interdependence: a decision or shock in one economy now ripples quickly through others. A useful test is whether barriers between national markets, distance, cost, tariffs, regulation, information, are falling. When they fall, markets globalise.

The drivers of globalisation

Globalisation is not inevitable; it is driven by specific forces, each of which removes a barrier that once kept markets national.

• Technology. Information and communication technology lets a firm coordinate production, sell and source across the world instantly and at almost no marginal cost. The internet turns a local shop into a global one.
• Transport. Containerisation and cheap air and sea freight make moving physical goods internationally economic, so production can locate wherever it is cheapest.
• Trade liberalisation. Bodies such as the World Trade Organisation, and trade blocs such as the EU and ASEAN, have cut tariffs (taxes on imports) and quotas (limits on quantity), so goods cross borders more freely.
• Deregulation and opening of economies. Governments have removed controls on capital and investment, and large economies such as China have opened to trade and foreign investment, adding vast new markets and low-cost production sites.

Opportunities for the organisation

For a large organisation, globalisation widens the strategic horizon.

• Larger markets. Selling worldwide means far higher potential sales and the chance to grow beyond a saturated home market.
• Economies of scale. Bigger output across global markets cuts unit costs.
• Cheaper inputs. Sourcing materials and locating production where costs are lowest improves margins.
• Access to capital, talent and technology. Global financial markets and labour pools let the firm raise finance and recruit skills it could not find at home.
• Spreading risk. Operating across several economies reduces dependence on any one market's downturn.

Threats for the organisation

The same openness that creates opportunity also exposes the firm.

• Intense competition. Overseas rivals can enter the home market, so domestic firms face competitors they never met before.
• Exchange-rate risk. Earning revenue and paying costs in different currencies exposes profit to currency movements.
• Political and economic risk. Operating abroad means exposure to instability, expropriation, regulatory change and differing legal systems.
• Margin pressure. Customers can compare global prices, squeezing what the firm can charge.
• Reputational risk. A long global supply chain can hide poor labour or environmental practices that damage the brand when exposed.

Examples in context

Why globalisation sits first

Globalisation frames the rest of the external environment: it is why multinationals exist, why firms make foreign direct investment, why trade blocs matter, and why ethical and environmental issues have become global. Get the definition and drivers secure here, because every later external topic builds on them.

Try this

Q1. Define globalisation in one precise sentence. [2 marks]

• Cue. The integration of national economies into a single, interdependent world market for goods, services, capital and labour.

Q2. Explain two drivers of globalisation. [4 marks]

• Cue. Any two of: ICT lets firms coordinate and trade globally at near-zero cost; cheap containerised transport makes moving goods economic; trade liberalisation cuts tariffs and quotas; deregulation and the opening of economies add new markets, each developed with a because clause.