External Influences On Business Activity: International (Copy)
6.1 External Influences On Business Activity
6.1.6 International
Importance Of International Trading Links
- Access to larger markets → expands sales beyond domestic demand.
- Economies of scale → higher production levels reduce average cost (Average cost = Total cost ÷ Output).
- Diverse sources of supply → businesses can access cheaper or higher quality raw materials.
- Risk spreading → reliance not only on one market, but multiple global markets.
- Specialisation and comparative advantage → countries/companies focus on products/services they produce most efficiently.
- Innovation & learning → exposure to international competitors encourages improvements in technology and processes.
Example:
- Samsung and Apple sell globally, benefiting from vast customer bases.
- Textile industries in Bangladesh depend on international demand for exports.
Impact Of International Trade On Businesses
| Impact | Positive Effects | Negative Effects |
|---|---|---|
| Market Expansion | Increases sales and profits. | Higher competition from foreign firms. |
| Economies Of Scale | Lower costs per unit at higher output levels. | Risk of overproduction. |
| Access To Resources | Import of raw materials and technology. | Vulnerable to global price fluctuations. |
| Exchange Rates | Depreciation makes exports cheaper. | Appreciation makes exports expensive. |
| Competition | Encourages efficiency and innovation. | Domestic firms may lose market share. |
| Brand Growth | Global presence improves brand value. | Cultural misunderstandings may harm brand image. |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course
International Trade Agreements And Their Impact
Meaning:
- Treaties between countries to encourage trade by reducing barriers (tariffs, quotas, subsidies).
Types Of Agreements:
- Free Trade Areas (FTA) → Countries remove tariffs and quotas between members.
- Customs Unions → Free trade among members + common tariff on non-members.
- Common Markets → Free trade, free movement of labour/capital, common policies.
- World Trade Organization (WTO) → Promotes free trade and resolves disputes.
Impact On Businesses:
- Positive: Larger markets, economies of scale, access to cheaper imports, increased efficiency.
- Negative: Greater competition, risk of business closure, pressure on domestic firms.
Example:
- European Union (EU) single market allows free movement of goods, labour, and capital.
- NAFTA/USMCA allows free trade between USA, Canada, Mexico.
Role Of Technology In International Trade
- E-commerce platforms (Amazon, Alibaba) allow global sales.
- Digital marketing (SEO, social media ads) reaches international customers.
- Online payments (PayPal, Stripe, NayaPay) make cross-border trade easier.
- Logistics technology → containerisation, GPS tracking, AI for supply chains.
- Communication technology → video conferencing, email, cloud computing enable global coordination.
- Automation & AI → increases efficiency, lowers costs, makes exports more competitive.
- Data analytics → better forecasting of international demand trends.
Example:
- Amazon uses algorithms to recommend products worldwide.
- DHL uses tracking systems to manage global delivery networks.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course
Advantages Of Multinational Companies (MNCs) To A Country
- Job Creation → MNCs provide employment opportunities.
- Technology Transfer → Advanced technology and skills brought into host country.
- Infrastructure Development → Investment in transport, utilities, training facilities.
- Export Earnings → MNCs boost foreign exchange reserves.
- Improved Standards → Better quality products and services.
- Increased Competition → Drives local firms to improve efficiency and quality.
- Global Integration → Encourages foreign trade and investment links.
Example:
- Coca-Cola, Nestlé, and Unilever create jobs and transfer skills in many developing countries.
- Toyota plants in the UK provide employment and boost exports.
Disadvantages Of Multinational Companies (MNCs) To A Country
- Profit Repatriation → Profits sent back to home country, not retained locally.
- Exploitation Of Workers → Low wages, poor working conditions.
- Environmental Damage → Pollution, resource depletion.
- Market Domination → Local firms struggle to compete.
- Cultural Erosion → Local traditions replaced by global consumer culture.
- Political Influence → MNCs may pressure governments for favourable policies.
Example:
- Oil companies in Nigeria accused of pollution and environmental harm.
- McDonald’s criticised for influencing food culture globally.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course
Relationships Between Multinationals And Governments
Why Governments Support MNCs:
- Provide employment opportunities.
- Bring foreign investment and tax revenue.
- Enhance economic growth.
- Improve skills and technology transfer.
- Boost exports and foreign currency earnings.
Why Governments Might Restrict MNCs:
- To protect local businesses from competition.
- To prevent exploitation of workers.
- To control environmental damage.
- To stop profit repatriation that reduces national income.
- To limit foreign influence in domestic policy.
Examples:
- India encouraged foreign direct investment (FDI) by tech companies to boost jobs.
- Some African countries imposed stricter rules on mining firms to protect local resources.
Strategic Implications Of International Influence On Businesses
- Expansion Opportunities → Entering global markets increases revenue and brand recognition.
- Adapting Products → Businesses must adapt products to local tastes, cultures, and languages.
- Exchange Rate Risk → Strategies to hedge against currency fluctuations (e.g., forward contracts).
- Compliance Costs → Adapting to international laws, tariffs, and regulations.
- Supply Chain Management → Ensuring global suppliers are reliable and ethical.
- Reputation Management → CSR becomes vital in global operations.
- Competitive Advantage → Firms must invest in technology, R&D, and differentiation.
Quick Revision Examples
| Aspect | Example |
|---|---|
| International Trade | Alibaba connects buyers & sellers worldwide. |
| Trade Agreements | EU single market allows free movement of goods and people. |
| Technology In Trade | Amazon uses AI to recommend products globally. |
| MNC Advantage | Unilever creates jobs in developing countries. |
| MNC Disadvantage | Oil spills in Nigeria by Shell damage environment. |
| Government Relations | Apple negotiates with Ireland over tax benefits. |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change A2 Level Business Full Scale Course
Exam Pointers
- Define international trade and multinational companies (MNCs) clearly.
- Link trade agreements to opportunities and challenges for firms.
- Show how technology reduces costs, improves efficiency, and expands markets.
- Discuss advantages and disadvantages of MNCs with real-world examples.
- Evaluate government actions → balance between supporting growth and protecting local interests.
- Always connect economic, social, political and legal influences together for higher marks.
- Use clear examples:
- WTO rules affecting trade tariffs.
- UK firms impacted by Brexit trade barriers.
- Samsung’s global supply chain and technology investment.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course