Business And The International Economy (Copy)

6.3.1 Globalisation

• Definition: The process where the world’s economies, cultures, and businesses become increasingly interconnected.
• Reasons for globalisation:
  • Improvements in transport and communication.
  • Growth of international trade and free trade agreements.
  • Expansion of multinational companies (MNCs).
  • Development of internet and e-commerce.
  • Liberalisation of economies (fewer trade restrictions).
• Opportunities for businesses:
  • Access to larger markets.
  • Economies of scale (lower average costs).
  • Cheaper raw materials and labour from abroad.
  • More investment opportunities.
  • Global brand recognition.
• Threats for businesses:
  • More competition from foreign firms.
  • Risk of dependency on global supply chains.
  • Exchange rate fluctuations.
  • Cultural differences affecting marketing.
  • Loss of market share for small/local businesses.
• Government trade restrictions:
  • Import tariffs: Taxes on imported goods to make them more expensive.
  • Import quotas: Limits on the quantity of goods that can be imported.
  • Purpose: protect domestic industries, save jobs, reduce trade deficits.

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 Business Studies Full Scale Course

6.3.2 Multinational Companies (MNCs)

• Definition: Large businesses operating in more than one country.
• Benefits to the business:
  • Access to larger markets and customers.
  • Closer to raw materials and cheaper production.
  • Lower transport costs.
  • Spread risks across countries.
  • Gain government incentives in host countries.
• Impact on stakeholders:
  • Shareholders: Higher profits from global markets.
  • Customers: Wider product range and lower prices.
  • Employees: More job opportunities but sometimes poor conditions.
  • Governments: More tax revenue but risk of profit repatriation.
• Benefits to host country/economy:
  • Jobs created.
  • New technology and skills introduced.
  • More exports increase foreign exchange earnings.
  • More consumer choice.
  • Infrastructure development.
• Drawbacks to host country/economy:
  • Local firms may lose sales (competition).
  • Profits may be repatriated (sent back to MNC’s home country).
  • Exploitation of workers with low wages.
  • Environmental damage.
  • Too much influence on local government policies.

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 Business Studies Full Scale Course

6.3.3 Exchange Rate Changes

• Exchange rate: The value of one country’s currency compared to another.
• Depreciation: When a currency loses value compared to others.
• Appreciation: When a currency increases in value compared to others.
• Impact on businesses:
  • Exporters:
    • If currency depreciates → exports become cheaper → more competitive → higher sales.
    • If currency appreciates → exports become more expensive → lower demand abroad.
  • Importers:
    • If currency depreciates → imports become more expensive → higher costs.
    • If currency appreciates → imports become cheaper → lower costs.
  • Overall effects:
    • Profitability depends on whether the business relies more on imports or exports.
    • Exchange rate fluctuations create uncertainty in business planning.

Quick Recap Keywords

• Globalisation = interconnected world markets.
• Tariff = tax on imports.
• Quota = limit on imports.
• MNC = multinational company.
• Repatriation of profits = sending profits back to home country.
• Depreciation = currency value falls.
• Appreciation = currency value rises.

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 Business Studies Full Scale Course