2.1.3 Business and Globalisation (1)
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2.1GrowingtheBusiness
2.1.3Impactofglobalisationonbusinesses
Keyelementstothistopic
ExportsImports
Changingbusinesslocations
Multinationals
Whatisglobalisation?
Thefreemovementofgoods,services,people,capital,
informationandtechnology,enablingbusinessestoselltheirproductsanywherein
theworld.
Differentaspectsofglobalisation
Benefitsanddrawbacksofglobalisation
Multinationals
Changingbusinesslocations
Importsandexports
Inrecentyears,theworldhasincreasinglybecomeonemarket.Newtechnology,economicdevelopmentand
improvedtravelhaveallmeantbusinessescanconsiderproducingand
sellinganywhereintheworld.
Developmentofglobalisation
Benefitsofglobalisation
• Increasedmarkets• Accesstocheaperlabour
andrawmaterials• Internationalspecialisation• Increasedlevelsof
efficiency,duetoanincreasedlevelofcompetition
• Transferofknowledge,skillsandtechnology
Drawbacksofglobalisation
• Internationalcompetitorswithcheapercosts
• Powerofmultinationalbrands
• Wholeindustryclosures• IntheUK,therehasbeen
movementawayfromthemanufacturingsectortothetertiarysector
• Effectsofeventsinothercountries
Whydoesinternationaltradematter?
InternationaltradereallymatterstotheUK.
About28%ofthegoodsandservicesweproducearesoldabroad(exports),while30%ofwhatwebuycomesfromothercountries(imports).
Exportsandimportsgeneraterevenueforbusinessesindifferentcountriesleadingtobusinessgrowth.
Whatareimports?
Importsaregoodsorservicesbroughtintoonecountryfromanother.Themostimportedgoodsaroundtheworldare
petrolandcars.
Theimpactofimports
ImportsForeign
importstotheUKincrease
competitionforUKfirms
Consumersareabletobuygoodsandservices
fromoverseas
leadingtoanincreaseinconsumerchoice
Whatareexports?
Exportsariseasafunctionofinternationaltrade,wherebygoodsandservicesproducedbyonecountryaresoldto
anothercountry.
Timeforsomebreakingnewsstories.Let’scrosstoourreporters…
AccordingtoStatista,whichcountrieswerethelargestexportersintheworldin2016.Rankinorder.
UK
SouthKorea
China
Netherlands
Germany
Japan
Italy
France
USA
HongKong
12345
678910
ChinaUSA
GermanyJapan
Netherlands
HongKongFrance
SouthKoreaItalyUK
In2016,whatweretheUK’smostpopularfoodanddrinkexports.Selectthetop5andrankinorder.
Softdrinks
Gin
Chocolate
Cheese
Whiskey
Beef
Beer
Wine
Wheat
Salmon
12345
678910Cheese
Chocolate
Wheat
Whiskey Wine
Softdrinks
Gin
SalmonBeefBeer
Thebiggestimportbycountry
ChocolatesalesboostUKexports
Themanufactureofcocoa,sugarandchocolateconfectionaryisnowworth£1.1bntotheUKeconomy.
IntheUK,morethan£680mofchocolatewasboughtbyforeigncustomers.
UKchocolateexportswereupby84%in2017,comparedtoadecadeago.
ExportingsuccessTheGrownUpChocolatecompanywasfoundedin2010byJamesEcclestone.Itsindulgent,handmadechocolatesareproducedinitsfactoryinEssex.ThebusinessisaBritishmanufacturerthatsellsitschocolatesbothintheUKandoverseas.25%ofitssalescomefromexportingoverseas.
ThisisanexampleofagoodthatisexportedfromtheUK.Asaresult,moneyflowsbackintotheUK.
Exportingcaninvolvephysicalproductsor“invisible”exports,suchasservices.Examplesincludebanking,tourism,educationorprofessionalservices,suchasaccountancyandlegalservices.
Exports
TakealookatthisinteractivemaptoseehowtheUKtradeswiththerestoftheworld
GlobalsuccessforRockfishWellies
Rockfish,anewCornwallbasedmanufacturer,isalreadyexportingitsbootstoover15countries,includingChina.
“TheUKhighstreetisquitesewnup,sobuildingabrandhereisverydifficult,butabroadtheyliketoseenewbrandscomingthroughallthetime.”
- RockfishMDExplainonebenefittoRockfishWelliesof
exportingtheirbootsoverseas.
Changingbusinesslocations
HJHeinzmovedproductionofHPsaucefromBirminghamto
Holland.
NestleplantomoveproductionofBlueRibandbiscuittoitsplantinPoland.
Toymaker,Hornby,ownerofbrandssuchasScalextric,Airfixand
CorgimovedproductiontoChina.In2013,Hornbybroughtthe
manufactureofit’sAirfixplanekitsbacktothe
UK.
Identifyonereasonwhybusinesseschoosetochangetheirbusiness
location
Justaminute…
Reasonsforchangingbusinesslocation
• Toaccesslowermanufacturingcosts(particularlyincountrieswhichenjoytheadvantageoflowerlabourcosts)
• Toaccesspotentiallybetterskilled&higherqualitysupply
• Tomakesuseofexistingcapacityoverseas• Totakeadvantageoffreetradeareasandavoid
protectionism(thiswillbecoveredlater)• Tomakeiteasiertotargetinternationalmarkets
(whereitisimportanttobelocatedin,ornearto,thosemarkets)
Nestleproposetomoveproductionoverseas
NestlerecentlyannouncedproposalstomoveproductionoftheiconicBlueRibandchocolatebarfromtheUKtoPoland,resultinginover300joblosses.ThisdecisionwasmadefollowingincreasingimportcostsandrisingUKlabourcosts,comparedtoPoland.
Thecompanyadded,“ourfactoryinKargowa,Poland,isthecentreofexcellenceforthistypeofwafer-basedproductandisthelogicalplaceforustoproposefutureBlueRibandproduction.”
Questiontime
1. Definetheterm‘imports’2. Outlinetwobenefitsto
NestleofmovingproductionofitsBlueRibandtoPoland
Whatisamultinationalcompany?
Amultinationalcompany(MNC)isabusinessthathasoperationsinmorethanonecountry.
Note:thatabusinessdoesnotbecomeaMNCsimplybecauseitsellsitsgoodsandservicestomorethanonecountry.ThekeytobeingaMNCisthatthebusinesshas operations intwoormorecountries.
AkeyfeatureoftheprocessofglobalisationhasbeentheincreasingimpactofMNCsastheyexpandtheiroperationsintomorethanonecountry.
Multinationals
Reasonsforbecomingamultinationalcompany
OperateclosertotargetinternationalmarketsProducingclosertotargetmarketsmayreducetransportcosts(whichwillbeimportantforbulkygoods).Operatingclosertothetargetmarketwillprovidebetterinformationonthelocalmarketanditsspecificneeds.
GainingaccesstolowercostsofproductionManyMNCshavetakenadvantageoflowerproductioncostsfromoperatingindevelopingeconomies.Forsomebusinesses,itismorebeneficialtosetuptheirownoperationsinordertomeetdomesticdemand,aswellassupplydemandinthehostandnearbycountries.
AvoidingprotectionismByproducinginahostcountry,aMNCmaybeabletoavoidrestrictionsonimports,suchastariffsandimportquotas.
BetheBusinessDetective…
YourchallengeistoinvestigateaMNCofyourchoiceandcreateabusinessprofile.
Theprofileshouldcontainthefollowing:
1. Whenthecompanywasfounded?2. Whatindustry/sectordoestheMNC
operatein?3. Whatgoodsorservicesdoesitoffer?4. Whatbrandsdoesthecompanyown?5. Howmanyemployeesdoesithave
worldwide?6. Identifytwobenefitstothisbusinessofit
beingaMNC
Nextlesson,youwillbegiven90secondstofeedbackyourfindings!
