2-1-6-Business-And-Globalisation

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Exam code:1BS0

Imports and exports

Globalisation is the economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology & finance
The past twenty years has been characterised by rapid globalisation and growing international business expansion
Businesses that trade internationally import and export goods/services
- Imports are goods and services bought by people and businesses in one country from another country
  - In 2022, the UK’s biggest import was cars valued at approximately £3.25 billion
- Exports are goods and services sold by domestic businesses to people or businesses in other countries
  - In 2022, China’s biggest export was smartphone manufacturing valued at approximately $21.4 billion
Exports generate extra sales revenue for businesses selling their goods abroad
Imports result in money leaving the country which generates extra revenue for foreign businesses

Changing business locations

Globalisation has also presented opportunities for businesses to relocate to low-cost locations overseas
Businesses may choose to set up production facilities in other countries
This is a different process from choosing a country as a potential market for customers
In this sense, production includes both manufacturing and any services associated with the business e.g. call centres

Assessing production locations abroad

When setting up production facilities in another country, several factors need to be assessed to ensure a successful outcome
These include the costs of production, skills and availability of labour force, infrastructure, location in trade bloc, government incentives, the ease of doing business, political stability, natural resources available, and the likely return on investment

Factors to consider when assessing production location

Factor	Why is this factor important?
Costs of production	Businesses want to keep costs of production low, as this can help them increase their profit margin or allow them to sell at a lower price to gain a competitive advantage
Skills and availability of labour force	The quality of the workforce is important, as this will directly impact the quality of the goods and services produced in an economy Businesses may choose to locate production in a market where the labour costs are lower
Infrastructure	Businesses need to consider the infrastructure needed, such as roads, as this will affect the production process
Location in a trading bloc	A business located in a market within a trade bloc will be able to access many advantages, such as reduced protectionist measures E.g. Japanese companies Nissan and Toyota have invested in manufacturing facilities in the UK (prior to Brexit) to gain access to the EU market
Return on investments	Assessing the return on investment in different markets will reduce the risk of the initial investment not being paid for
Natural resources	It is often important that a business has easy access to their raw materials, as this can help to reduce transportation costs and help to reduce any potential delays to the production process
Political stability	Businesses may be at risk of not gaining a return on their investment in a country with political instability An economy with a stable economy and government is seen as a less risky investment for a business
Ease of doing business	A business will want to locate in an area where there is limited bureaucracy, so the process of establishing production facilities is not delayed or does not incur high costs
Government incentives	Businesses may be offered incentives (e.g. grants, business loans and tax breaks) by the government

Multinational corporations

A multinational corporation (MNC) is a business that is registered in one country but has manufacturing operations/outlets in different countries
- E.g. Starbucks headquarters are in Washington, USA but they have 32,000 stores in 80 countries
Factors such as globalisation and deregulation have contributed to the growth of MNC’s
MNC’s will choose locations based on factors such as cost advantages and access to markets
- Nike originates from the USA but 50% of their manufacturing takes place in China, Vietnam and Indonesia due to the lower production costs in these countries

Advantages and disadvantages of MNCs

Advantages	Disadvantages
The MNC can gain access to cheap labour and/or raw materials Local residents may benefit from job opportunities and growth in the local economy MNCs often invest to improve infrastructure Better roads, transportation and access to water and electricity would help the local community in addition to helping the MNC operate more efficiently MNCs may have to pay taxes and business rates to local councils/ authorities These funds may be reinvested back into the local community MNCs can establish charitable initiatives that have a positive effect on the local community	MNCs may cause damage to local habitats/environment during production process E.g. Shell has a track record of oil pollution in vulnerable communities in Nigeria MNC’s may leave unsightly production facilities behind once they have extracted all of the resources and left the country

Advantages

Disadvantages

The MNC can gain access to cheap labour and/or raw materials
Local residents may benefit from job opportunities and growth in the local economy
MNCs often invest to improve infrastructure
- Better roads, transportation and access to water and electricity would help the local community in addition to helping the MNC operate more efficiently
MNCs may have to pay taxes and business rates to local councils/ authorities
- These funds may be reinvested back into the local community
MNCs can establish charitable initiatives that have a positive effect on the local community

MNCs may cause damage to local habitats/environment during production process
- E.g. Shell has a track record of oil pollution in vulnerable communities in Nigeria
MNC’s may leave unsightly production facilities behind once they have extracted all of the resources and left the country

Business GCES EDEXCEL

2-1-6-Business-And-Globalisation

Imports and exports

Changing business locations

Assessing production locations abroad

Factors to consider when assessing production location

Multinational corporations

Advantages and disadvantages of MNCs

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