Globalisation

What globalisation is, its causes, and impact on businesses

Understanding Globalisation

Globalisation refers to the increasing interconnectedness of the world's economies, cultures, and societies. It involves the growing integration of markets, free movement of goods and services, and greater collaboration between countries and businesses across borders. The world has become increasingly "flatter" with businesses operating in multiple countries and competing on a truly global scale.

What Is Globalisation?

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Globalisation describes how the world has become more interconnected and integrated. Trade flows freely between countries; communication happens instantly across continents; people travel regularly for work and leisure; and technology enables real-time collaboration between teams on opposite sides of the planet.

Key aspects of globalisation include:

Trade Integration: Removal of barriers allowing goods and services to move freely between countries. Businesses import raw materials and export finished products to global markets.

Communication and Technology: The internet, email, video conferencing, and social media enable instant global communication. Companies can coordinate activities across multiple time zones effortlessly.

Travel and Movement: Easier access to international travel means people can relocate for work, tourism, and education. This supports business expansion and cultural exchange.

Cross-Border Business Operations: Companies increasingly operate across borders through subsidiaries, partnerships, and supply chains that span multiple continents. A smartphone might contain components from 50 different countries.

KEY TERM

Globalisation

The process of increasing worldwide integration and interdependence of economies, cultures, and societies through trade, technology, communication, and movement of goods, services, capital, and people across borders.

Causes of Globalisation

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Several factors have driven the rapid globalisation of business in recent decades:

Improvements in Transport: Containerisation revolutionised shipping by making cargo movement cheaper and faster. Air freight enables rapid delivery of high-value goods. Efficient supply chains mean goods can be manufactured where costs are lowest and shipped worldwide.

Communication and Technology Advances: The internet removed distance as a barrier. Email replaces postal correspondence; video calls enable face-to-face meetings without travel; cloud technology allows teams to collaborate instantly. This allows companies to coordinate global operations from anywhere.

Trade Liberalisation: The World Trade Organisation (WTO) has negotiated reductions in tariffs and trade barriers. Countries have removed quotas on imports. Trade agreements between nations make it easier for businesses to operate internationally with fewer restrictions.

The Role of the WTO

The World Trade Organisation (WTO) was established in 1995 and has 164 member countries. Its primary aim is to promote free trade by reducing barriers between nations. The WTO achieves this through negotiating trade agreements, settling trade disputes between countries, and monitoring national trade policies. Without the WTO, individual countries could impose any restrictions they wished on imports, making international trade unpredictable and costly for businesses.

KEY TERM

World Trade Organisation (WTO)

An international body that promotes and regulates free trade between nations by negotiating agreements, settling disputes, and monitoring trade policies across 164 member countries.

Growth of Trading Blocs: Regional agreements like the European Union, ASEAN (Association of Southeast Asian Nations), and USMCA (United States, Mexico, Canada Agreement) create large internal markets with reduced trade barriers. This encourages businesses to expand within these regions.

Deregulation of Financial Markets: Governments removed restrictions on money moving between countries. This allows companies to access capital globally and investors to diversify internationally. Multinational companies can easily transfer money between subsidiaries.

Political Changes: The fall of communism opened Eastern Europe and Russia to international business. China's economic reforms in the 1980s and 1990s created massive markets and low-cost manufacturing hubs. These geopolitical shifts expanded global business opportunities dramatically.

Structural Change in Economies: Many developed economies have shifted from manufacturing to service based industries. The UK, for example, moved from heavy industry to financial services, technology, and creative industries. This structural change means developed countries now import manufactured goods from developing nations while exporting services, knowledge, and technology. This interdependence drives globalisation as countries specialise in what they do best.

Growth of the Global Labour Force: The world's working age population has grown significantly, particularly in developing countries. India, for example, has a very young population with hundreds of millions entering the workforce. This expanding labour supply attracts multinational companies seeking workers, while also creating new consumer markets as these workers earn income and increase their spending power.

KEY TERM

Trading Bloc

A group of countries that have agreed to remove trade barriers between themselves, making it easier for businesses to operate across member nations. Examples include the EU and ASEAN.

Types of Trading Blocs

Trading blocs vary in their level of economic integration. The deeper the integration, the more barriers are removed between member countries:

Free Trade Area (FTA): Members remove tariffs and quotas on goods traded between themselves, but each country keeps its own trade policies with non member countries. Example: USMCA (United States, Mexico, Canada Agreement).

Customs Union: Like a free trade area, but members also adopt a common external tariff on imports from non member countries. This prevents goods entering through the country with the lowest tariff. Example: The EU operates as a customs union among other things.

Common Market: Goes beyond a customs union by also allowing the free movement of labour and capital between member countries. Workers can live and work in any member state. Example: The European Single Market.

Economic Union: The deepest level of integration. Members share common economic policies, regulations, and sometimes a single currency. This requires significant political cooperation and loss of national sovereignty. Example: The Eurozone (EU countries using the euro).

Benefits of Trading Blocs

Free trade between members: No tariffs or quotas means lower costs and higher profits for businesses trading within the bloc
Larger market access: Businesses can sell to millions more consumers without trade barriers, enabling economies of scale
Increased FDI: Companies outside the bloc invest within it to avoid external tariffs, creating jobs and economic growth
Greater bargaining power: A bloc negotiates trade deals as one unit, giving smaller countries more influence than they would have alone
Political cooperation: Economic ties encourage stability and reduce the likelihood of conflict between member nations

Drawbacks of Trading Blocs

Trade diversion: Members may buy from less efficient bloc partners instead of cheaper non member producers, increasing costs
Loss of sovereignty: Members must follow common rules and regulations, reducing their ability to set independent trade and economic policies
Unequal benefits: Larger, stronger economies within the bloc tend to benefit more than smaller or less developed members
Dependency: Heavy reliance on bloc partners makes countries vulnerable if a major member experiences economic difficulties
Exclusion of non members: External tariffs can harm developing countries outside the bloc by making their exports less competitive

EXAM TIP

When discussing drivers of globalisation, prioritise the ones most relevant to the industry in question. For manufacturing, reduced trade barriers and cheaper transport matter most. For services, advances in communication technology and the internet are key drivers. Tailor your answer to the context to show deeper understanding.

Impact of Globalisation on Businesses

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Globalisation presents both significant opportunities and serious challenges for businesses:

Opportunities

Larger Markets: Sell to billions of consumers instead of just the home country; market size determines growth potential and global markets are vastly larger
Economies of Scale: Producing in huge volumes reduces per unit costs; a factory producing 1 million units costs less per unit than producing 100,000
Access to Cheaper Labour: Manufacturing in countries with low wages reduces production costs significantly; a garment factory in Bangladesh costs far less than one in the UK
Access to New Suppliers: Source materials from anywhere, ensuring competitive pricing and backup suppliers if one becomes unavailable
New Sources of Finance: Global capital markets mean businesses can borrow from banks and investors worldwide, accessing cheaper and larger amounts of finance

Threats

Increased Competition: Facing competitors worldwide increases competitive pressure and can reduce market share and profit margins
Cultural and Language Differences: Products, marketing, and operations must be adapted to local preferences; what sells in one country may fail in another
Political and Legal Risks: Different laws, regulations, and political systems; government changes and political instability threaten assets and operations
Ethical Concerns: Pressure to cut costs can lead to poor working conditions, child labour, and environmental damage, creating reputational risk
Exchange Rate Risk: Currency fluctuations affect profits unpredictably; a weaker foreign currency reduces profits when converting back to home currency

Global Supply Chain Issues

Globalisation has created complex supply chains stretching across multiple countries and continents. While this reduces costs, it also creates significant vulnerabilities:

Disruption risk: Natural disasters, pandemics, or political instability in one country can halt production worldwide. The 2021 Suez Canal blockage disrupted global shipping for weeks, causing shortages across industries.

Quality control: Managing product quality across suppliers in different countries with different standards is challenging. A single faulty component from one supplier can affect millions of products.

Lead times: Shipping goods internationally takes weeks or months, making it difficult to respond quickly to changes in demand or unexpected shortages.

Ethical concerns: Companies face reputational risk if suppliers in their chain use child labour, pay poverty wages, or cause environmental damage. Monitoring distant suppliers is difficult and costly.

Dependency: Over reliance on a single country or supplier creates vulnerability. Many technology companies discovered this during the COVID 19 pandemic when Chinese factories closed, disrupting global electronics supply.

REAL WORLD EXAMPLE

Apple's Global Supply Chain

Apple illustrates globalisation perfectly. iPhones are designed in California, manufactured in China (and Vietnam), with components sourced from multiple countries including Japan (cameras), South Korea (displays), and the UK (semiconductors). This global supply chain keeps costs low through economies of scale and cheap labour, while accessing specialist suppliers. However, Apple faces risks including currency fluctuations affecting its yen-denominated chip costs, geopolitical tensions between the US and China, labour concerns in Chinese factories, and competition from global rivals like Samsung. The COVID-19 pandemic exposed supply chain vulnerability when lockdowns disrupted component supplies worldwide.

KEY TERM

Multinational Corporation (MNC)

A company that operates in multiple countries, with offices, factories, and subsidiaries across different nations. MNCs benefit from globalisation but face greater complexity in operations.

EXAM TIP

Globalisation creates both winners and losers in business. A UK manufacturer may lose out to cheaper imports, while a UK design consultancy gains access to a global client base. Avoid blanket statements about globalisation being good or bad; instead evaluate who benefits and who faces greater competition.

Impact of Globalisation on Consumers and Workers

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Impact on Consumers:

Globalisation has largely benefited consumers in developed countries. Greater choice means access to products from worldwide. Lower production costs (especially from countries with cheap labour) translate to lower prices. Global brands like Nike, McDonald's, and IKEA are available everywhere, giving consumers familiar options. Technology globalisation means consumers access services instantly; you can use Spotify (Sweden), watch Netflix (USA), and shop Zara (Spain) from your phone.

Impact on Workers:

Globalisation's effect on workers is mixed and creates clear winners and losers.

Job Creation in Developing Countries: Millions in China, India, Vietnam, and similar nations have moved from agriculture into factory work. While wages are low by developed-country standards, these jobs lift people from poverty and create economic opportunities.

Job Losses in Developed Countries: As manufacturing moves to cheaper locations, developed countries lose factory jobs. UK manufacturing employment fell dramatically as production shifted to Asia. Workers face redundancy and struggle to find comparable employment.

Wage Competition: Global labour supply creates downward pressure on wages in developed countries. Why employ UK workers at GBP 25,000 yearly when overseas workers earn GBP 5,000? This drives wage stagnation for lower-skilled workers in wealthy nations.

Working Conditions Concerns: Workers in developing countries often face long hours, unsafe conditions, minimal rights, and poverty wages. High-profile scandals include the Rana Plaza factory collapse in Bangladesh (killing 1,134 workers in 2013) and Apple supplier Foxconn's poor conditions.

Globalisation has created a world where some prosper greatly (skilled workers, capital owners, managers) while others struggle (factory workers in developed countries, low-wage workers everywhere). Geography and skills determine winners and losers.

REAL WORLD EXAMPLE

UK Manufacturing Decline

In 1970, manufacturing employed 7 million UK workers. By 2020, this fell to under 2.5 million. Globalisation enabled companies to move production to countries with lower wages. Manchester and Birmingham, once mighty industrial centres, saw factories close and unemployment rise. Post-industrial towns struggle with deprivation. However, some UK workers benefited through imports of cheap goods reducing their living costs. Service sector jobs (especially finance) replaced some manufacturing jobs, but often requiring different skills and paying less for displaced workers. This unequal impact of globalisation created political backlash, contributing to Brexit.

Free Trade and Protectionism

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Benefits of Free Trade:

Comparative Advantage: Countries specialise in producing goods where they have relative cost advantages. Portugal grows oranges cheaper than Sweden; Sweden builds ships cheaper than Portugal. Both benefit from specialisation and trade, consuming more than if both tried self-sufficiency.

KEY TERM

Comparative Advantage

The ability of a country to produce a good or service at a lower opportunity cost than another country. Even if one country is more efficient at producing everything, both countries benefit from specialising in what they produce relatively most efficiently and trading.

Efficiency and Competition: Open markets force producers to be efficient or face bankruptcy. Competition drives innovation. Consumers access the cheapest goods regardless of origin. Global competition rewards efficiency and punishes waste.

Consumer Choice: Free trade means access to global selection. No tariffs or restrictions means lower prices. You can buy clothes from Bangladesh, electronics from China, and watches from Switzerland all affordably.

Protectionism:

However, governments sometimes restrict free trade through protectionist measures:

Tariffs: Taxes on imports making foreign goods more expensive. A 25% tariff on imported cars makes them costlier, encouraging consumers to buy domestic cars instead.

Quotas: Quantity limits on imports. A government might allow only 100,000 cars yearly from Japan, restricting supply and supporting domestic manufacturers.

Subsidies: Government payments to domestic producers lowering their costs. Subsidising wheat farmers lets them sell cheaper, undercutting foreign competitors.

Regulations and Standards: Strict regulations can act as protectionism. Very high environmental or safety standards might exclude foreign competitors unable to meet them cost-effectively.

Arguments For Protectionism

Infant Industry Protection: New industries need protection until they achieve scale and competitiveness; without tariffs, established foreign competitors destroy emerging local industries before they mature
Strategic Industries: Countries protect industries critical for national security; food production, energy, and defence sectors are often protected to ensure independence and security
Job Protection: Keeps jobs domestic rather than moving abroad; popular politically, especially in regions facing unemployment from factory closures
Dumping Prevention: Prevents foreign companies from selling abroad below production cost to unfairly destroy domestic competitors and gain market share

Arguments Against Protectionism

Reduced Efficiency: Protected industries become inefficient without competition, leading to lower quality products and slower innovation
Higher Consumer Prices: Tariffs and quotas increase the cost of imported goods, meaning consumers pay more for everyday products
Retaliation Risk: If the UK increases car tariffs, other countries increase tariffs on UK goods, harming exporters and reducing trade overall
Inefficient Resource Allocation: Resources are tied up in protected industries rather than flowing to sectors where the country has a genuine comparative advantage, reducing total output

KEY TERM

Tariff

A tax imposed on imported goods, making them more expensive and less competitive against domestic alternatives. Used as a protectionist tool.

KEY TERM

Quota

A limit on the quantity of a product that can be imported, restricting supply and protecting domestic producers from foreign competition.

KEY TERM

Free Trade

Commerce between countries without tariffs, quotas, or other barriers. Allows goods and services to move freely based on market forces.

KEY TERM

Protectionism

Government policies restricting imports or protecting domestic industries through tariffs, quotas, subsidies, or regulations. Opposite of free trade.

EXAM TIP

Globalisation is complex with winners and losers. Avoid simplistic "globalisation is good" or "globalisation is bad" answers. Instead, analyse specific effects on specific groups. Is it good for consumers? Yes, lower prices and choice. Is it good for UK factory workers? No, job losses and wage pressure. Show balanced understanding that explains who benefits and who loses.

EXAM TIP

Examiners love applications to real companies. Know Apple, IKEA, or Nike supply chains. Understand how Brexit represents protectionist sentiment against globalisation. Be able to discuss specific examples of trading blocs and their impact on member nations.

EXAM TIP

Evaluate the extent to which globalisation benefits developing countries. While foreign investment creates jobs and transfers technology, it can also create dependency on multinational corporations that may relocate if cheaper labour is found elsewhere. The long term impact depends on whether the host country develops its own industries and skills alongside foreign investment, or simply becomes a low cost production base with little value retained locally.

Knowledge Check

Test your understanding of globalisation concepts

1. Which of the following is NOT a cause of globalisation?

A Improvements in transport and containerisation

B Increased restrictions on international trade

C Trade liberalisation and removal of tariffs

D Advances in communication technology like the internet

Correct. Increased trade restrictions would work against globalisation, not cause it. Globalisation results from removing barriers, not creating them.

Incorrect. Think about what drives globalisation. Trade liberalisation, technology, and transport improvements all fuel globalisation. What would work against it?

2. A country imposes a 40% tariff on imported steel to protect its steel industry from foreign competition. This is an example of?

A Free trade policy

B Protectionism

C Comparative advantage

D Trade liberalisation

Correct. Tariffs are a classic protectionist tool, restricting imports to shield domestic industries from international competition.

Incorrect. A tariff restricts trade and protects a domestic industry. This is the opposite of free trade and trade liberalisation. Think about whether this policy opens or closes the market.

3. Which of the following is an advantage of globalisation for businesses?

A Reduced access to international suppliers and capital

B Access to larger markets and economies of scale

C Elimination of exchange rate risk

D Reduced competition from international competitors

Correct. Larger global markets enable higher sales volumes, leading to economies of scale that reduce per-unit costs and increase profitability.

Incorrect. Globalisation actually increases competition, creates exchange rate risk, and expands rather than restricts supplier options. Think about what larger markets means for business growth.

Key Takeaways

Globalisation is the increasing integration of world economies through trade, technology, communication, and business operations across borders.
Major causes include transport improvements, technology advances, trade liberalisation, trading blocs, financial deregulation, and political changes opening new markets.
Globalisation creates business opportunities (larger markets, lower costs, economies of scale) and threats (competition, cultural differences, political risks, exchange rate risk).
Consumers in developed countries benefit from greater choice and lower prices; workers face mixed outcomes with job losses offset by lower import costs.
Free trade promotes efficiency and comparative advantage but creates localized losses for some industries and workers.
Protectionism (tariffs, quotas, subsidies, regulations) shields domestic industries but typically reduces overall economic efficiency and consumer welfare.
Globalisation creates clear winners (global companies, consumers, developed-country investors) and losers (displaced workers, small local businesses).

4.2

Global Markets and Expansion

Entering and operating in global markets

Overview

Businesses expand into global markets for many strategic reasons. This topic covers why companies go international, the different entry methods available, how to assess new markets, and the barriers they face. Understanding global expansion is essential for success in the modern business world.

Reasons for Entering Global Markets

Companies choose to enter global markets for several compelling reasons:

Growth Opportunities

International markets offer access to new customers and revenue streams. Developing countries with growing middle classes present huge potential for sales growth, allowing businesses to expand beyond saturated domestic markets.

Market Diversification

Operating in multiple countries reduces reliance on a single market. If one economy enters recession, the company can rely on revenues from other regions where economic conditions are stronger. This spreads risk across different geographical areas.

Economies of Scale

Global operations allow companies to produce larger quantities, reducing average production costs. Increased production volumes lead to lower unit costs, making products more competitive and profitable.

Access to Resources

Different countries offer access to raw materials, skilled labour, and specialized expertise. A fashion company might manufacture in countries with lower labour costs; a tech firm might locate offices in areas with advanced talent pools.

Following Competitors

When competitors expand internationally, a company must follow to maintain competitive advantage and market share. Failure to globalize can result in losing customers and market position to rival firms.

Spreading Risk

Global operations mean that business problems in one country do not threaten the entire organization. Exchange rate fluctuations, political changes, or economic downturns in one region are offset by stable performance elsewhere.

Accessing Talent

Global expansion allows recruitment of specialized workers from around the world. Technology companies particularly benefit from accessing computer scientists, engineers, and developers from countries with strong technical education systems.

EXAM TIP

A business may expand globally for offensive reasons (to exploit new markets) or defensive reasons (because domestic demand is declining). The motive shapes the strategy; offensive expansion allows careful market selection, while defensive expansion may force a business into unfamiliar territory under time pressure.

Methods of Entering Global Markets

Businesses use different strategies to enter international markets. Each method has distinct advantages and disadvantages, varying in risk, investment required, and level of control.

Market Entry Methods Comparison

Interactive

Low Risk / Low Control

High Risk / High Control

📦

Exporting

Low Risk

📄

Licensing

Low Risk

💻

E-Commerce

Low Risk

🍔

Franchising

Med Risk

🤝

Joint Venture

Med Risk

🏢

Wholly Owned

High Risk

Click any entry method to explore its advantages and disadvantages

Exporting

Exporting means producing goods domestically and selling them abroad. It requires the lowest initial investment and carries least risk.

Direct exporting: The company handles all export activities itself, giving it greater control and higher profit margins but requiring more expertise and resources.

Indirect exporting: Using intermediaries like export agents or distributors. This requires less resources and expertise but provides lower profit margins since intermediaries take a cut.

Advantages: Low initial investment; limited risk; ability to test market before further expansion; company retains full control of production quality and brand.

Disadvantages: Transport costs reduce profit margins; slower delivery times may damage competitiveness; limited understanding of local customer needs; vulnerable to exchange rate fluctuations.

Licensing

Licensing allows a company to grant another business the right to use its product, brand, or technology in exchange for fees or royalties. The licensor retains intellectual property rights while the licensee manufactures and sells locally.

Advantages: Very low investment and risk; rapid market entry; licensee handles manufacturing and distribution; generates income with minimal effort; beneficial for technology or brand companies.

Disadvantages: Less control over product quality and brand image; lower profit margins than other methods; other firms profit from company's intellectual property; risk of licensee creating competition after contract ends.

Franchising

Franchising grants businesses the right to operate using a company's brand, business model, and systems. Franchisees pay initial fees plus ongoing royalties and operate according to strict brand guidelines. Common in fast food, retail, and hospitality.

Advantages: Rapid expansion with minimal capital investment; franchisee bears most financial risk and operational responsibility; consistent quality control through brand standards; rapid market penetration; generates ongoing royalty income.

Disadvantages: Less direct control than full ownership; franchisees represent the brand; conflict may arise over quality standards or operational decisions; reputational risk if franchisees perform poorly; cannot easily remove underperforming franchisees.

Joint Ventures

Two or more companies form a new entity together, sharing ownership, control, investment, and profits. Often used when companies lack local knowledge or want to share risk.

Advantages: Shares financial burden and risk with partner; access to partner's local knowledge, contacts, and market expertise; faster market entry through partner connections; cultural and regulatory understanding from local partner.

Disadvantages: Shared control can create decision making conflicts; profits must be split between partners; difficult to dissolve partnerships; disagreements over strategy or culture; requires extensive management time and negotiation skills.

Wholly Owned Subsidiaries

The company establishes a new business entirely owned and controlled by the parent organization, either through establishing new operations (greenfield investment) or acquiring existing companies. Most expensive entry method but provides maximum control.

Advantages: Complete ownership and control; full access to profits; ability to implement exact corporate strategy and values; easier to maintain brand consistency; long term commitment signals confidence to local stakeholders.

Disadvantages: Highest investment and financial risk; requires substantial capital expenditure; takes longest to establish and become profitable; greatest legal and regulatory exposure; vulnerable to political instability; difficult and costly to exit if unsuccessful.

Foreign Direct Investment (FDI)

Investment in physical assets like manufacturing plants, offices, or infrastructure in another country. Represents direct ownership stake and operational control. Includes wholly owned subsidiaries and joint ventures.

E-Commerce

Using online platforms to sell directly to customers internationally without physical presence. Internet enables rapid global reach with minimal infrastructure. Companies can test markets before committing to major investments.

Advantages: Very low setup costs; instant global reach; minimal physical infrastructure needed; rapid customer feedback; ability to scale quickly; flexible approach to testing markets.

Disadvantages: Requires robust logistics and shipping infrastructure; customs and import regulations create complexity; international payment processing challenges; currency exchange complications; intense online competition; customer support across time zones and languages.

EXAM TIP

No single entry method is best for all situations. Joint ventures reduce risk but mean sharing profits and control. Wholly owned subsidiaries give full control but require massive investment. Evaluate the method against the business's financial strength, risk appetite, and knowledge of the target market.

Reasons for International Mergers, Joint Ventures and Strategic Alliances

When expanding globally, businesses often combine with other companies rather than going it alone. The reasons for this include:

Access to local knowledge: A local partner understands the culture, regulations, consumer preferences, and business customs that a foreign company would take years to learn independently.

Sharing financial risk: International expansion requires enormous investment. Sharing costs with a partner reduces the financial exposure for each company and makes ambitious projects viable.

Overcoming barriers to entry: Some countries restrict foreign ownership or require local partnerships. A joint venture or alliance with a domestic company satisfies legal requirements and eases market entry.

Combining complementary strengths: One company may have superior technology while the other has an established distribution network. Combining these strengths creates a competitive advantage neither could achieve alone.

Achieving economies of scale: Merging operations or cooperating on production allows combined companies to produce at larger volumes, reducing per unit costs and improving competitiveness.

Speed of entry: Building operations from scratch takes years. Acquiring an existing company or partnering with one provides immediate market presence, customer base, and operational capability.

KEY TERM

Foreign Direct Investment (FDI)

Investment in physical assets and business operations in another country, giving the investor ownership and control. Includes building factories, buying companies, or establishing subsidiaries. Represents long term commitment to international operations.

Assessing Global Markets

Before entering any new market, businesses must conduct thorough market research and assessment. Proper analysis prevents costly mistakes and poor investment decisions.

Market Size and Growth

Understanding the market's current size and growth rate is fundamental. Large markets offer revenue potential; growing markets offer future expansion opportunities. Companies analyze population, income levels, consumer spending, and market projections.

Political Stability

Political instability creates unpredictability and risk. Companies assess government stability, legal consistency, likelihood of coups or revolutions, and continuity of policy. Unstable countries carry higher operational and investment risk.

Legal Framework

Each country has different laws regarding foreign ownership, employment, taxation, intellectual property protection, and business operation. Strong legal frameworks protect business interests; weak frameworks expose companies to unfair treatment or theft of intellectual property.

Infrastructure

Quality of roads, ports, electricity, internet, telecommunications, and transportation networks affects operational efficiency. Poor infrastructure increases costs and limits business operations. Manufacturing requires reliable utilities and transport; e-commerce requires strong internet connectivity.

Cultural Factors

Customer preferences, values, communication styles, and business practices vary significantly by culture. Products and marketing messages must be adapted to cultural preferences. Understanding cultural differences prevents expensive mistakes and improves market acceptance.

Competition

The competitive landscape affects profitability. Entering markets with entrenched competitors requires strong competitive advantage. Analyzing competitor strength, market share, pricing, and distribution helps companies understand competitive position.

Economic Development

Developed economies offer wealthy customers but saturated competition. Developing economies offer growth but lower purchasing power and higher risk. The level of economic development affects potential customer base, infrastructure quality, and regulatory sophistication.

Measuring Economic Development

Businesses and governments use several indicators to assess a country's level of development beyond just GDP:

GDP per capita: Total economic output divided by population. Gives a basic measure of average wealth, but does not show how income is distributed across the population.

Human Development Index (HDI): A composite measure combining life expectancy, education levels, and income per capita. HDI provides a more rounded picture of development than GDP alone because it considers health and education alongside wealth.

Literacy rate: The percentage of adults who can read and write. High literacy rates indicate an educated workforce capable of skilled employment, making a country more attractive for investment in higher value industries.

Health indicators: Life expectancy, infant mortality rates, and access to healthcare reveal the overall wellbeing of a population and the quality of public services.

Infrastructure quality: Access to electricity, internet penetration, road quality, and port capacity indicate how well a country can support business operations.

KEY TERM

Human Development Index (HDI)

A United Nations measure of development combining life expectancy, education (mean and expected years of schooling), and gross national income per capita. Scored from 0 to 1, with higher scores indicating greater development.

BRICS Economies

BRICS refers to the group of major emerging economies: Brazil, Russia, India, China, and South Africa. These countries are significant because of their large populations, rapidly growing economies, and increasing influence in global trade and politics.

Why BRICS matters for business:

Massive consumer markets: China and India alone account for over 2.8 billion people. As incomes rise, demand for consumer goods, technology, and services grows enormously.

Low cost production: Several BRICS nations offer significantly lower labour costs than developed economies, attracting manufacturing investment from global companies.

Resource wealth: Russia has vast energy reserves, Brazil has agricultural resources, South Africa has minerals, and India has a huge educated workforce. These resources attract specific types of foreign investment.

Growing middle class: Rising incomes in BRICS nations are creating large middle class populations that demand branded goods, financial services, education, and healthcare.

Challenges: Political instability, corruption, infrastructure gaps, and regulatory unpredictability remain significant barriers to doing business in some BRICS nations. Income inequality within these countries means wealth is concentrated in urban areas while rural regions remain poor.

KEY TERM

BRICS

An acronym for the group of major emerging economies: Brazil, Russia, India, China, and South Africa. These nations represent significant opportunities for businesses due to their large populations, growing economies, and increasing global influence.

Push and Pull Factors

Push factors: Domestic problems that encourage leaving home market, such as saturated markets, declining demand, intense competition, or limited growth opportunities. Push factors make companies seek new markets.

Pull factors: Opportunities in target markets that attract investment, such as rising demand, large populations, growing middle class, untapped markets, or premium pricing opportunities. Pull factors make specific markets attractive.

Successful market entry combines positive pull factors (attractive opportunities) with manageable push factors (domestic pressures). Markets with strong pull factors but severe barriers to entry may still be avoided.

Characteristics of Growing Economies

Businesses look for specific indicators when identifying attractive growing economies:

Rising GDP per capita: Indicates increasing wealth and consumer spending power, meaning more potential customers who can afford products and services.

Expanding middle class: A growing middle class creates demand for consumer goods, branded products, and services that were previously unaffordable for most of the population.

Urbanisation: People moving from rural areas to cities creates concentrated consumer markets, making distribution and marketing more efficient and cost effective.

Young population: Countries with a large proportion of young people have a growing workforce and consumer base, providing both labour supply and future demand.

Improving infrastructure: Investment in roads, ports, electricity, and internet connectivity makes business operations more feasible and reduces costs.

Increasing foreign investment: Growing economies attract FDI, which brings technology, skills, and further economic development, creating a positive cycle of growth.

Applying Porter's Five Forces Globally

Porter's Five Forces framework is particularly useful when assessing international markets. Each force takes on additional complexity in a global context:

Threat of new entrants: In global markets, new competitors can emerge from any country. Low barriers in developing economies may attract many new entrants, while established markets may have high barriers protecting existing firms.

Bargaining power of suppliers: Global supply chains mean businesses can source from multiple countries, potentially reducing supplier power. However, if key components come from only one region, supplier power increases significantly.

Bargaining power of buyers: Global consumers have more choice than ever. The internet allows price comparison across countries, increasing buyer power and forcing companies to remain competitive on price and quality.

Threat of substitutes: Operating globally exposes businesses to substitute products from different industries and different countries that may not exist in the home market.

Competitive rivalry: International markets often have intense rivalry from both local firms with cultural advantages and other MNCs with financial strength. Understanding the competitive dynamics of each market is essential before entry.

KEY TERM

Market Research

Systematic investigation of a market's characteristics, customers, competitors, and conditions. International market research assesses whether a market is suitable for entry and how to succeed there. Includes quantitative data analysis and qualitative understanding of local preferences and practices.

Barriers to Entry in Global Markets

Many obstacles prevent or complicate international expansion. Successful global businesses understand these barriers and develop strategies to overcome them.

Language and Cultural Barriers

Different languages require translation services and multilingual staff. Cultural differences in communication, business practices, and customer preferences require adaptation. Misunderstanding cultural norms causes marketing failures and poor customer relationships. Companies overcome these through hiring local staff, cultural training, and local research.

Legal and Regulatory Differences

Different countries have different laws regarding taxation, employment, product safety, environmental protection, and business operation. Compliance requires specialized knowledge. Companies must hire local legal experts, modify products to meet standards, and adapt business practices. Non compliance risks lawsuits, fines, or business closure.

Tariffs and Trade Barriers

Import tariffs increase product costs, reducing competitiveness. Some countries impose quotas limiting import quantities. Trade barriers exist to protect local industries. Companies overcome tariffs by manufacturing locally rather than exporting, negotiating trade agreements, or absorbing costs through lower profit margins.

Logistical Challenges

International shipping is expensive and time consuming. Poor transportation infrastructure increases costs and delivery times. Customs clearance causes delays. Companies must develop robust logistics networks, warehousing systems, and distribution channels. E-commerce businesses particularly suffer from high shipping costs across long distances.

Exchange Rate Volatility

Currency values fluctuate constantly. A company earning revenue in weak currencies earns less when converting to home currency. Conversely, strong foreign currency earnings increase home currency value. Exchange rate movements affect profitability unpredictably. Companies hedge currency risk through financial instruments or pricing strategies.

Political Risk

Political instability threatens business operations. Changes of government, wars, terrorism, or civil unrest disrupt supply chains, damage property, or prevent business operations. Extreme political risk includes nationalization of assets without compensation. Companies assess political risk through specialists and insurance mechanisms.

Corruption

In some countries, paying bribes or engaging in corrupt practices is expected to obtain permits, contracts, or favorable treatment. Western companies face ethical and legal limits on such activities. Corruption increases costs and creates compliance risks. Companies avoid corrupt markets or work through ethical intermediaries.

Strategies for Overcoming Barriers

Strategic partnerships: Partnering with local firms provides cultural knowledge and relationships while sharing risk.

Local adaptation: Modifying products and marketing strategies for local preferences demonstrates commitment and improves acceptance.

Gradual entry: Starting with low risk methods like exporting or licensing before committing to major investment reduces exposure.

Local employment: Hiring local staff reduces cultural barriers, improves local acceptance, and leverages local knowledge.

Research and planning: Thorough market research and strategic planning identify challenges before major investment.

EXAM TIP

When discussing barriers to entering global markets, distinguish between those a business can overcome with investment (like language differences or distribution networks) and those largely outside its control (like government protectionism or political instability). This distinction shows the examiner you understand relative significance.

KEY TERM

Tariff

A tax imposed on imported goods by governments. Tariffs increase import costs, making foreign products more expensive and protecting domestic industries. High tariffs can prevent or limit international trade, acting as barriers to market entry for foreign companies.

Global Niche Markets

Technology enables small businesses to serve specialized global markets previously inaccessible to them.

What Are Global Niche Markets?

Global niche markets are small, specialized customer groups worldwide with specific needs or interests. Unlike mass markets, niches serve specific demographics, interests, or product requirements. Examples include left handed products, rare comic books, specialist sporting equipment, or organic luxury goods.

Previously, niche markets were limited to local areas because finding dispersed customers was difficult. The internet revolutionized niche market accessibility.

Technology Enablement

The internet enables small businesses to reach global niche customers affordably. E-commerce platforms connect sellers with buyers worldwide. Social media allows targeted marketing to specific interest groups. Online payment and shipping systems handle international transactions efficiently. A small business making specialty camera equipment can now sell globally through websites and social media, reaching photographers worldwide without expensive physical retail networks.

Advantages of Global Niche Marketing

Reduced competition: Few competitors serve small niche markets, allowing higher profit margins and market dominance.

Premium pricing: Niche customers often accept premium prices for specialized products meeting specific needs.

Customer loyalty: Niche customers are dedicated to specific product types and become loyal repeat buyers.

Scalability: Once established online, global reach requires little additional investment or infrastructure expansion.

Accessible to small firms: Small businesses compete on equal terms with large corporations since success depends on product quality and service, not size.

Examples

A small UK company manufactures specialty fishing equipment for a specific fish species. Through e-commerce, it reaches fishing enthusiasts worldwide, becoming the market leader despite tiny global demand.

A furniture maker produces handcrafted sustainable wooden products. Online marketing reaches environmentally conscious consumers globally, commanding premium prices despite limited production volume.

Adapting the Marketing Mix (4Ps) for Global Niche Markets

Serving global niche customers requires careful adaptation of each element of the marketing mix:

Product: Niche products must meet very specific customer needs. Quality and specialisation matter more than mass appeal. Products may need minor adaptations for different regions (e.g. voltage differences for electronics, sizing adjustments for clothing) while maintaining the core specialist features that define the niche.

Price: Niche customers typically accept premium pricing because few alternatives exist. However, pricing must account for international shipping costs, import duties, and currency differences. Transparent pricing builds trust with dispersed global customers.

Promotion: Targeted digital marketing through specialist forums, social media groups, and influencer partnerships is more effective than mass advertising for niche products. Content marketing demonstrating expertise builds credibility within the niche community.

Place: E commerce platforms and direct to consumer websites are the primary distribution channels for global niche businesses. Reliable international shipping and clear delivery information are essential. Some niches benefit from presence on specialist marketplaces like Etsy for crafts or Reverb for musical equipment.

KEY TERM

Global Niche Market

A small, specialized market segment with specific customer needs or interests, served globally through the internet. Technology allows small businesses to reach dispersed niche customers worldwide, competing effectively against larger companies by specializing deeply in customer needs.

REAL WORLD EXAMPLE

Starbucks Entering China

Starbucks initially struggled entering China's huge market because coffee culture was weak and tea dominated beverages. Rather than importing its standard American model, Starbucks studied Chinese culture extensively, adapting menus with local teas alongside coffee, designing stores reflecting Chinese aesthetics, and partnering with local companies for distribution. This cultural adaptation transformed Starbucks into a premium lifestyle brand in China, demonstrating that successful global expansion requires understanding and respecting local preferences rather than imposing standard global models.

REAL WORLD EXAMPLE

Uber's Global Expansion Challenges

Uber faced severe barriers entering various international markets. In Europe, strict employment laws prevented treating drivers as independent contractors. In Germany and France, established taxi regulations restricted Uber's operations. In China, fierce local competition and regulatory restrictions led Uber to sell its operations to local competitor Didi. These examples show that even successful global companies face severe barriers requiring strategic adaptation, and sometimes must withdraw from markets where barriers prove insurmountable or competition too intense.

EXAM TIP

When answering questions about entering global markets, structure your answer by identifying the entry method, discussing its advantages and disadvantages, and explaining why it suits the specific business situation. For instance, if asked how a small tech startup enters a new market, you might suggest exporting or licensing to minimize risk and capital requirements, rather than expensive greenfield subsidiary investment suitable for large multinational corporations.

EXAM TIP

Questions about barriers to entry often require explaining multiple barriers and how businesses overcome them. Structure answers by identifying specific barriers relevant to the scenario (e.g., tariffs for manufacturing businesses, cultural differences for consumer products), explaining why they're problematic, and describing practical strategies to overcome them. Combining barrier discussion with solutions demonstrates thorough understanding and gains higher marks than simply listing barriers.

EXAM TIP

Assess whether financial resources or cultural understanding is more important when entering a new global market. A business with deep pockets but no understanding of local consumer preferences, business customs, or regulatory requirements is likely to fail. Conversely, strong cultural knowledge without sufficient capital limits scale and speed. The most successful global expansions combine both, but if forced to choose, understanding the market often matters more than outspending competitors.

Key Takeaways

Companies enter global markets for growth, diversification, economies of scale, resource access, and competitive necessity
Entry methods range from low risk exporting and licensing to high control wholly owned subsidiaries; each has distinct advantages and disadvantages
Market assessment requires analyzing market size, political stability, legal frameworks, infrastructure, culture, competition, and economic development
Barriers to entry include language, cultural differences, legal regulations, tariffs, logistics challenges, exchange rate fluctuations, political risk, and corruption
Successful global businesses overcome barriers through partnerships, local adaptation, gradual entry, local employment, and thorough research
Global niche markets enable small businesses to serve specialized customer groups worldwide through internet technology and e-commerce platforms
Cultural adaptation is essential; successful global expansion requires understanding local preferences rather than imposing global standardization

Knowledge Check

Test your understanding of global markets and expansion

Q1. Which entry method into global markets carries the lowest financial risk but requires less control over quality?

A Wholly owned subsidiary

B Indirect exporting using intermediaries

C Joint venture with local partners

D Foreign direct investment

Correct. Indirect exporting through agents minimizes investment and risk, though margins are lower and control is limited.

Incorrect. Consider the method requiring least financial commitment and carrying least risk.

Q2. A company assessing entry into a new market discovers strong consumer demand for its products and favorable purchasing power. What would this primarily represent?

A Pull factors attracting market entry

B Push factors encouraging market entry

C Barriers to market entry

D Legal regulatory requirements

Correct. Pull factors are attractive opportunities in target markets that encourage investment.

Incorrect. Consider whether this represents opportunities in the new market rather than problems in the home market.

Q3. How does technology particularly benefit small businesses operating in global niche markets?

A It eliminates cultural and language barriers completely

B It allows large corporations to crush small business competition

C It enables affordable global reach to dispersed specialty customers without expensive physical retail networks

D It removes tariff and regulatory barriers to entry

Correct. E-commerce and internet technology allow small businesses to serve global niche markets economically, reaching customers worldwide from simple websites.

Incorrect. Consider how internet and e-commerce specifically enable affordable global reach for small specialist businesses.

4.3

Global Marketing

Adapting marketing strategies for international markets

Standardisation vs Adaptation

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Companies operating internationally face a key decision: should they use the same marketing approach worldwide (standardisation), or adapt their strategies for each market (adaptation)? The answer is not always obvious and most successful businesses use elements of both.

Standardisation means using one global marketing mix across all markets. Companies produce one set of advertisements, use consistent pricing, and maintain unified distribution channels. This creates a consistent brand identity worldwide and significantly reduces costs through economies of scale. However, it ignores differences in consumer preferences, cultural values, and local regulations, which can limit effectiveness in individual markets.

Advantages of Standardisation

Cost Savings: One set of advertisements, consistent pricing, and unified distribution channels reduce marketing spend significantly
Brand Consistency: Creates a consistent and recognisable brand identity that customers trust worldwide
Simpler Operations: Easier to manage one marketing strategy than coordinating multiple localised versions
Economies of Scale: Producing identical products and materials in bulk reduces unit costs across markets

Disadvantages of Standardisation

Ignores Local Preferences: Consumer tastes, values, and buying habits vary significantly between cultures and countries
Regulatory Issues: Different countries have different advertising laws, product standards, and labelling requirements
Missed Opportunities: A one size fits all approach may underperform in markets where localised competitors better meet customer needs
Cultural Insensitivity: Marketing messages that work in one country may confuse or offend consumers in another

Adaptation means customising the marketing mix for each country or region. Companies change product features, pricing, advertising messages, and distribution methods to suit local needs. This approach respects cultural differences and can boost sales in individual markets, but it increases costs and complicates operations significantly.

Advantages of Adaptation

Local Relevance: Products and marketing tailored to local cultural preferences, values, and consumer tastes
Higher Sales Potential: Meeting specific local needs can significantly boost revenue in individual markets
Regulatory Compliance: Ensures products and advertising meet different national laws, standards, and restrictions
Competitive Edge: Localised marketing resonates more strongly with consumers than generic global campaigns

Disadvantages of Adaptation

Higher Costs: Creating different products, packaging, and advertising for each market is expensive and resource intensive
Operational Complexity: Managing multiple localised strategies across many countries is difficult to coordinate
Brand Dilution: Too much variation can weaken the global brand identity and confuse international customers
Slower Rollout: Adapting for each market takes time, delaying product launches and campaigns compared to standardised approaches

KEY TERM

Glocal Approach

Thinking global but acting local; companies use the same core brand values and strategy globally while adapting specific elements (like products or advertising) to suit local markets.

The glocal approach tries to balance standardisation and adaptation. Companies maintain consistent brand messaging and core values worldwide, but adapt specific elements like products, packaging, and promotions to local preferences. This combines cost efficiency with local relevance.

Marketing Orientations in International Business

Companies adopt different philosophical approaches to how they manage marketing across countries. These orientations reflect the degree to which a business centralises or localises its decision making:

Ethnocentric approach: The company believes its home country methods are superior and applies them everywhere. Marketing strategies, products, and management practices from the home country are imposed on all international markets with minimal adaptation. This is cost efficient but risks ignoring local preferences and can lead to marketing failures in culturally different markets.

Polycentric approach: The company treats each country as a unique market and allows local subsidiaries to develop their own marketing strategies independently. Local managers make decisions based on their understanding of the local market. This maximises local relevance but increases costs, reduces brand consistency, and makes coordination across markets difficult.

Geocentric approach: The company takes a global view, combining the best ideas from anywhere in the world regardless of their country of origin. Marketing strategies are developed collaboratively between headquarters and local teams, blending global efficiency with local insights. This is the most sophisticated approach but requires excellent communication and coordination across the organisation.

EXAM TIP

The ethnocentric, polycentric, and geocentric approaches link directly to the standardisation versus adaptation debate. An ethnocentric company standardises; a polycentric company adapts fully; a geocentric company takes the glocal approach. Use these terms in exam answers to show deeper analytical understanding.

EXAM TIP

The standardisation versus adaptation debate is not all or nothing. Most successful global businesses standardise their core brand identity while adapting specific elements like flavours, sizing, or advertising campaigns. Coca Cola's logo is the same everywhere, but its product range and advertising vary significantly by country.

KEY TERM

Standardisation

Using the same marketing mix (product, price, promotion, place) across all international markets without significant adaptation.

KEY TERM

Adaptation

Customising the marketing mix for different markets to suit local consumer preferences, cultural norms, and market conditions.

Cultural Differences in Marketing

Culture deeply influences how consumers think and buy. Marketing messages that work in one country may fail or offend in another. Understanding cultural differences is essential for successful international marketing.

Language is the most obvious cultural issue. Words can have different meanings, and translations sometimes create unintended messages. Companies must ensure advertising copy is culturally appropriate and grammatically correct in each language.

Religious and social norms shape what products people buy and how they expect to be marketed to. For example, some cultures emphasise family values in advertising while others focus on individual achievement. Religious beliefs affect attitudes towards certain products, colours, and images.

Cultural mistakes in marketing can damage a company's reputation. These errors happen when companies fail to understand local customs, religious sensitivities, or taboo subjects. Colour symbolism varies; white represents purity in Western cultures but mourning in some Asian countries. Animal symbolism differs too; owls symbolise wisdom in Europe but death in some cultures.

REAL WORLD EXAMPLE

McDonald's Menu Adaptation

McDonald's operates in over 100 countries but uses the same brand identity globally. However, it adapts its menu significantly: in India, where many people don't eat beef or pork, McDonald's offers the Maharaja Mac made with chicken. In Japan, it features teriyaki burgers and seasonal items like cherry blossom shakes. In Brazil, it sells acai bowls. This glocal approach maintains the McDonald's brand while respecting local dietary preferences and cultural tastes.

EXAM TIP

Cultural mistakes in global marketing can be extremely costly. A colour, symbol, or slogan that works in one country may be offensive or meaningless in another. Always argue that cultural research is not an optional extra but a fundamental requirement before entering any new market.

The Global Marketing Mix

Global Pricing Strategies

Setting prices for international markets is complex because costs, competition, and customer purchasing power vary significantly by country.

Standardised pricing means charging the same price (in local currencies) everywhere. This is simple and maintains a consistent brand image, but it ignores local market conditions.

Adapted pricing adjusts prices for different markets based on local factors. These factors include production and transportation costs (which vary by location), exchange rate fluctuations (currencies strengthen or weaken), local competition intensity, demand levels in each market, tariffs and import duties imposed by governments, and local taxes and regulations.

Price skimming in new markets means setting high prices initially to target premium customers and recover research and development costs quickly. As competition increases and the market matures, companies lower prices to attract more customers.

Predatory pricing involves setting very low prices to drive competitors out of a market, then raising prices once competition is eliminated. This practice is often illegal under competition laws.

REAL WORLD EXAMPLE

Coca Cola Pricing Strategy

Coca Cola uses adapted pricing globally. In developed Western countries, a can costs significantly more than in developing nations. The company adjusts prices based on local purchasing power, competition from local brands, and manufacturing costs. In India, smaller bottle sizes at lower prices suit consumer budgets and consumption patterns. This pricing flexibility helps Coca Cola maintain market share while maximising profits across diverse economies.

EXAM TIP

Global pricing must account for factors beyond simple cost plus calculations. Exchange rate fluctuations, local purchasing power, competitor pricing, and import duties all affect what price is viable in each market. A price that generates healthy margins in the UK may be unaffordable in developing markets or uncompetitive in low cost economies.

Global Distribution and Promotion

Distribution channels and promotional methods differ widely across countries based on consumer behaviour, infrastructure, and regulations.

Distribution channel adaptation is essential. Some countries have advanced retail infrastructure with large supermarkets and online shopping; others rely on small family shops, street markets, and door to door sales. Companies must select distribution channels that match how local consumers prefer to shop.

Digital marketing and social media offer global reach but require local customisation. Facebook, Instagram, and TikTok are dominant in Western countries, but in China, WeChat and Douyin (Chinese TikTok) are more popular. Advertising regulations vary; some countries restrict certain claims or ban specific advertising practices. Media availability differs too; television is important in some markets while radio or online platforms dominate in others.

Promotional methods must adapt to local preferences. Some cultures respond well to emotional appeals; others prefer factual product information. Sales promotions like discounts and free samples work in most markets, but their effectiveness varies. Some countries have regulations limiting promotional offers or restricting certain sales tactics.

EXAM TIP

Evaluate whether a business can realistically manage its own global distribution or whether local partners are essential. Companies like Amazon have built proprietary logistics networks, but most businesses lack the scale to do this and must rely on local distributors who understand the infrastructure and regulations of each market.

Ansoff's Matrix in a Global Context

Ansoff's Matrix helps businesses assess growth strategies by considering whether they are targeting existing or new markets with existing or new products. In an international context, each strategy takes on a different dimension:

Market Penetration (Existing Products, Existing Markets): A business focuses on increasing its market share in countries where it already operates. This could involve more aggressive pricing, increased advertising spend, or expanding distribution channels within those markets. This is the lowest risk global strategy because the business already understands the market and its customers.

Market Development (Existing Products, New Markets): A business takes its current products into new countries or regions. This is the most common form of international expansion. For example, a UK retailer opening stores in Asia or a European car manufacturer entering the South American market. The risk is moderate because the product is proven, but the new market may have different consumer preferences, regulations, and competitive conditions.

Product Development (New Products, Existing Markets): A business develops new products specifically for international markets where it already has a presence. This could mean creating products tailored to local tastes, religious requirements, or climate conditions. For example, a fast food chain developing vegetarian menus specifically for the Indian market. Risk is moderate as the business knows the market but is investing in unproven products.

Diversification (New Products, New Markets): A business enters a completely new country with a product it has never sold before. This carries the highest risk because the business lacks experience with both the market and the product. However, the potential rewards are significant if successful, as it opens entirely new revenue streams in untapped markets.

EXAM TIP

When evaluating global marketing strategies, always consider the trade off between standardisation (cost efficiency) and adaptation (local relevance). Use real examples to show you understand this tension. McDonald's is a perfect case study because it balances both approaches so clearly.

EXAM TIP

Remember that pricing decisions in global markets are influenced by multiple factors beyond just production costs. Exchange rates, tariffs, local purchasing power, and competition are all critical. When answering pricing questions, mention at least two or three of these factors to show comprehensive understanding.

EXAM TIP

Evaluate whether any global brand can truly standardise its marketing across all markets. Even the most iconic global brands like McDonald's and Coca Cola adapt their products, messaging, and pricing to local conditions. The real strategic question is not standardisation versus adaptation, but which specific elements to standardise for efficiency and which to adapt for local relevance. A strong answer identifies these elements rather than treating it as an all or nothing choice.

Knowledge Check

Test your understanding of global marketing strategies.

What is the main advantage of standardised global marketing compared to adaptation?

A It reduces costs by using the same marketing approach everywhere

B It guarantees higher sales in developing markets

C It eliminates the need for market research

D It removes all language barriers in advertising

Correct! Standardised marketing reduces costs through economies of scale, using one set of advertisements and maintaining consistent operations globally.

Incorrect. The main advantage of standardisation is cost reduction, not sales guarantees. Adaptation respects local preferences and may actually increase sales in individual markets.

Which of the following is an example of the glocal approach?

A Selling exactly the same product at the same price in every country

B Maintaining the same brand identity globally while adapting product menus for local tastes, like McDonald's

C Creating completely different brands for each international market

D Only operating in countries with the same cultural values

Correct! The glocal approach balances global brand consistency with local market adaptation. McDonald's is the classic example.

Incorrect. Glocal means thinking global but acting local. It maintains consistent brand values while adapting specific elements to local markets, not creating completely different brands or selling identical products everywhere.

A company sets a very high price for its new product when entering an international market, planning to lower prices as competition increases. What is this pricing strategy called?

A Penetration pricing

B Price skimming

C Predatory pricing

D Transfer pricing

Correct! Price skimming sets high initial prices to target premium customers and recover development costs, then lowers prices over time as the market matures.

Incorrect. Price skimming means setting high prices initially when the product is new, targeting early adopters, then lowering prices as competition increases. Predatory pricing is setting low prices to eliminate competitors (and is usually illegal).

Key Takeaways

Standardisation reduces costs but may ignore local preferences; adaptation respects cultural differences but increases complexity
The glocal approach balances consistency with local relevance; McDonald's and Coca Cola exemplify this strategy
Culture shapes marketing success through language, religious norms, tastes, and values; failing to understand cultural differences can lead to costly marketing mistakes
Global pricing reflects exchange rates, tariffs, local competition, and purchasing power; price skimming targets premium customers before lowering prices
Distribution and promotion methods must suit local retail infrastructure and consumer behaviour patterns
Ansoff Matrix applies internationally: market penetration, product development, market development, and diversification strategies

4.4

Global Industries and Multinational Corporations

The role of MNCs, FDI, and global competitiveness

Multinational Corporations (MNCs)

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A Multinational Corporation (MNC) is a company that operates in multiple countries, with offices, factories, and subsidiaries across different nations. These companies combine operations across borders under unified management and ownership.

MNCs are huge. Apple, Microsoft, Amazon, Samsung, and Nestle are among the world's largest corporations, generating revenues that exceed the GDP of many countries. They employ millions of workers worldwide and control vast supply chains stretching across continents.

Companies become MNCs for several reasons: to access larger markets and reach billions of consumers; to reduce costs by manufacturing where labour is cheap; to access raw materials and resources unavailable in their home country; to establish multiple markets so if one struggles, others compensate; and to build global brand recognition and influence.

KEY TERM

Multinational Corporation (MNC)

A company that operates and conducts business in multiple countries, typically with significant operations, investments, and subsidiaries spread across different nations.

Benefits and Drawbacks of MNCs for Host Countries

When an MNC establishes operations in a country (the host country), it brings both opportunities and challenges.

Benefits for Host Countries

Job Creation: MNCs build factories and offices, creating thousands of direct and indirect jobs through suppliers and service providers
Investment and Capital: Billions invested in factories, infrastructure, and technology strengthens the economy and balance of payments
Technology Transfer: Advanced technology and expertise raises the overall technological capability of the host nation over time
Tax Revenue: Corporate taxes, employee income taxes, and property taxes fund public services and education
Infrastructure Development: MNC presence drives government investment in roads, electricity, ports, and communications
Skill Development: Training in modern production methods, management, and technology raises workforce quality

Drawbacks for Host Countries

Profit Repatriation: Profits are sent back to the home country rather than reinvested locally, removing wealth from the host economy
Worker Exploitation: Minimal wages, excessive hours, and poor working conditions, especially in countries with weak labour laws
Environmental Damage: Production methods banned in home countries may be used because they are cheaper, causing pollution and harm
Crowding Out Locals: MNCs use resources and consumer spending that might otherwise support local businesses, which cannot compete
Tax Avoidance: Complex transfer pricing and offshore accounts minimise taxes, reducing revenue for host countries
Cultural Erosion: Global brands and Western consumer culture can erode local traditions, language, and cultural identity

EXAM TIP

The impact of MNCs on host countries depends heavily on the regulatory environment. In countries with strong labour laws and environmental standards, MNCs tend to bring genuine benefits. In countries with weak regulation, the same MNCs may exploit workers and natural resources. The host government's policies are the decisive factor.

KEY TERM

Transfer Pricing

The price at which one division of an MNC sells goods or services to another division within the same company, often across borders. Used to shift profits to low tax countries, reducing the overall tax bill but depriving host countries of tax revenue.

Benefits and Drawbacks of MNCs for Home Countries

MNC operations also affect their home countries, creating distinct advantages and disadvantages.

Benefits for Home Countries

Profit Repatriation: Profits from foreign operations flow back, increasing national wealth and funding corporate expansion and shareholder returns
Global Influence: Global companies extend their home country's cultural and political influence, spreading brands, values, and ideas worldwide
Brand Prestige: Successful MNCs enhance international reputation, demonstrating economic strength and innovation capability

Drawbacks for Home Countries

Job Losses from Offshoring: Home country factories close as manufacturing moves to cheaper locations; entire regions suffer prolonged unemployment
Tax Revenue Decline: Transfer pricing and profit shifting overseas reduces home country tax revenue, cutting funding for public services
Brain Drain: Talented workers and researchers are attracted to opportunities abroad, removing skilled talent from the home economy

EXAM TIP

A common exam argument is that MNCs moving production overseas destroys jobs at home. This is sometimes true, but consider that lower production costs can make the business more competitive globally, potentially creating higher skilled jobs in the home country in areas like design, marketing, and management.

REAL WORLD EXAMPLE

Amazon's Global Operations and Tax Practices

Amazon exemplifies both benefits and drawbacks of MNCs. When Amazon opens fulfillment centres in new countries, it creates thousands of jobs and invests heavily in infrastructure and technology. However, investigations reveal that Amazon pays minimal corporation tax despite huge revenues through complex structures routing profits through low tax jurisdictions. Workers in Amazon warehouses report poor conditions and low wages despite the company's enormous wealth. As Amazon's e commerce dominance expands, traditional retailers close and local businesses struggle to compete, eliminating jobs they previously provided.

Controlling MNCs

Because MNCs operate across borders, no single government can easily control them. This creates challenges for regulating their behaviour and ensuring they benefit society.

Government Regulation: Governments establish laws and regulations within their borders. However, MNCs can shift operations to countries with weaker regulations. An MNC can move production to escape strict environmental laws. This creates a "race to the bottom" where countries weaken regulations to attract investment.

International Agreements: Countries negotiate treaties and agreements attempting to regulate MNC behaviour. Trade agreements, labour standards agreements, and environmental conventions aim to set minimum standards. However, enforcement is weak; countries often prioritise MNC investment over regulatory compliance.

Pressure Groups and NGOs: Non-governmental organisations campaign against MNC exploitation. Campaigns expose poor working conditions, environmental damage, and tax evasion. Public pressure has forced companies like Nike, Apple, and Primark to address supply chain labour practices.

Consumer Action: Consumers can boycott companies engaged in unethical practices. Fair trade movements encourage consumers to buy products certified as ethically produced. Consumer pressure has driven some MNCs toward better practices.

Corporate Social Responsibility (CSR): Many MNCs publish CSR commitments addressing labour standards, environmental protection, and community development. However, critics note that CSR is often more about public relations than genuine change.

Media Scrutiny: Investigative journalism exposing MNC misconduct creates reputational damage and forces change. The Rana Plaza factory collapse in Bangladesh (killing 1,134 garment workers) received global media attention and prompted apparel companies to improve supplier monitoring.

EXAM TIP

Evaluate whether individual governments can realistically control MNCs that operate across dozens of countries. If one country tightens regulation, the MNC may simply shift operations elsewhere. This is why international cooperation through bodies like the OECD and WTO is increasingly seen as necessary to hold MNCs accountable.

Foreign Direct Investment and Reshoring

Foreign Direct Investment (FDI) is investment by companies or individuals in businesses located in another country. This is the primary mechanism by which MNCs establish and expand operations globally.

Types of FDI:

🌱

Greenfield Investment

Building new factories, offices, or infrastructure from scratch in a host country. Creates entirely new assets, jobs, and economic activity.

Creates maximum new employment opportunities
Builds purpose designed, modern facilities
Generates significant economic activity during construction
Signals strong long term commitment to the market
Higher cost and longer time to become operational

🏗

Brownfield Investment

Investing in and upgrading existing facilities or infrastructure. Buying an existing factory and upgrading its technology rather than building from scratch.

Faster to become operational than greenfield
Lower initial investment costs
Existing workforce and local knowledge available
Less disruptive to the local community
Fewer new jobs created compared to greenfield

KEY TERM

Foreign Direct Investment (FDI)

Investment by a company or individual from one country in productive assets or businesses located in another country, typically with intent to control or significantly influence the business.

KEY TERM

Greenfield Investment

Building new factories, facilities, or infrastructure from the ground up in a host country, creating new assets and employment.

KEY TERM

Brownfield Investment

Investing in and upgrading existing facilities or infrastructure in a host country, rather than building new assets from scratch.

Factors Attracting FDI:

Stable Government and Political Environment: Companies invest in countries with stable governments, rule of law, and low corruption. Political instability, civil war, and regime changes deter investment.

Skilled Workforce: Countries with educated, trained workers attract higher value investments. Manufacturing requires technical skills; technology and finance sectors need highly educated workers.

Skills Shortages as Competitive Pressure: A lack of skilled workers in specific industries or regions can significantly affect a country's ability to attract and retain investment. When there are not enough trained workers in areas like technology, engineering, or healthcare, businesses face higher wage costs, slower growth, and reduced productivity. Skills shortages can push companies to relocate operations to countries where suitable workers are available, or to invest heavily in automation to reduce their dependence on human labour. Governments address skills shortages through education reform, apprenticeship programmes, and immigration policies that attract skilled workers from abroad.

Good Infrastructure: Roads, electricity, ports, and communication networks enable efficient operations. Underdeveloped infrastructure increases costs and complications.

Low Labour Costs: Companies seek locations where labour is cheap, reducing production costs and boosting profits. This is why garment, electronics, and manufacturing MNCs locate in Asia.

Low Taxes: Countries offering low corporate tax rates, tax holidays, and other incentives attract FDI. Companies naturally prefer locations where more profit goes to them rather than to taxes.

Market Size: Large consumer populations attract companies wanting to sell their products. China and India attract massive FDI because of their huge populations and growing middle classes.

Natural Resources: Countries rich in oil, minerals, timber, and agricultural land attract investment in extractive industries and processing.

Impact of FDI on Economic Development:

FDI can significantly advance economic development. Capital inflows finance investment in infrastructure and business. Technology transfer raises productivity. Employment creation reduces poverty. Integration into global supply chains provides export opportunities and increases incomes.

However, FDI is not automatically beneficial. Much FDI goes to extractive industries (mining, oil) that deplete natural resources without creating sustainable development. Profit repatriation and transfer pricing mean little wealth remains in host countries. Countries can become dependent on foreign investors, losing policy independence. Without strong governance and regulations, FDI benefits are minimal.

REAL WORLD EXAMPLE

Foxconn and Apple's Supply Chain

Foxconn, a Taiwanese MNC, operates the world's largest electronics manufacturing factories in China, Vietnam, and India. As Apple's primary supplier, Foxconn manufactures iPhones and iPads for global markets. This represents massive FDI in these countries and has created hundreds of thousands of jobs. However, Foxconn factories become symbols of exploitative practices; workers report excessive overtime, low wages, dangerous conditions, and suicide epidemics from stress and depression. Environmental pollution from factories damages local communities. While FDI has technically created jobs and brought capital, critics argue these benefits are outweighed by worker exploitation and environmental damage that the host countries must bear.

KEY TERM

Offshoring

Relocating business operations or production to another country, typically to reduce costs; a key reason for MNC expansion to developing nations.

Reshoring

Reshoring is the process of bringing business operations and manufacturing back to the company's home country after previously offshoring them. This is an increasingly significant trend that reverses the earlier movement of production to low cost countries.

Reasons for reshoring:

Rising overseas labour costs: Wages in countries like China have risen significantly, narrowing the cost gap between domestic and foreign production. The savings from offshoring are no longer as large as they once were.

Quality control: Managing quality at a distance is difficult. Bringing production home allows closer oversight, faster problem solving, and higher product consistency.

Supply chain risks: The COVID 19 pandemic and other disruptions exposed the vulnerability of extended global supply chains. Shorter, domestic supply chains are more resilient and predictable.

Faster response times: Domestic production allows businesses to respond more quickly to changes in consumer demand, fashion trends, or market conditions without weeks of shipping delays.

Automation and technology: Advances in robotics and automation mean that domestic production can be cost competitive with overseas manual labour, while maintaining higher quality and consistency.

Brand and reputation: Consumers increasingly value locally made products. "Made in Britain" or "Made in USA" labels can command premium prices and build brand loyalty.

Government incentives: Some governments offer tax breaks, grants, or subsidies to encourage companies to bring production back, creating domestic jobs and reducing trade deficits.

KEY TERM

Reshoring

The process of returning business operations and manufacturing to the company's home country after previously moving them overseas. Driven by rising foreign costs, supply chain risks, quality concerns, and advances in automation technology.

KEY TERM

Profit Repatriation

The transfer of profits earned in a host country back to the MNC's home country, reducing wealth remaining in the host economy.

EXAM TIP

When analysing MNC impacts, always consider multiple perspectives. A factory bringing 5,000 jobs is beneficial for workers and the host country economy, but if workers are exploited and the company avoids taxes, the overall assessment becomes much more negative. Show balanced analysis by discussing both positives and negatives.

EXAM TIP

FDI questions often ask about greenfield vs brownfield investment. Remember: greenfield creates more new jobs and assets; brownfield is less disruptive and less costly. Both can be beneficial depending on the circumstances and what the host country needs most at that moment.

EXAM TIP

Consider whether governments should do more to regulate multinational corporations or whether regulation risks driving investment away. Stricter regulation on tax avoidance, environmental standards, and labour conditions protects citizens but may make a country less attractive to foreign investors compared to nations with looser rules. This creates a race to the bottom dilemma, where countries compete by lowering standards. Evaluate this tension by considering which approach delivers the greatest long term benefit to the host economy.

Knowledge Check

Test your understanding of MNCs and foreign direct investment.

Which of the following is a major benefit of MNC investment for host countries?

A Job losses in traditional industries

B Job creation, technology transfer, and infrastructure development

C Guaranteed profits for local businesses

D Elimination of all environmental concerns

Correct! MNCs create jobs, bring advanced technology and expertise, and invest in infrastructure that benefits the entire host country, not just the MNC.

Incorrect. While MNCs do create jobs, they may also displace local workers. The main benefits are job creation, technology transfer, infrastructure investment, and tax revenue, not job losses or guaranteed local profits.

What is the main difference between greenfield and brownfield FDI?

A Greenfield builds new facilities from scratch; brownfield upgrades existing ones

B Greenfield is less expensive than brownfield

C Brownfield investment creates more jobs than greenfield

D Greenfield is only used in developing countries

Correct! Greenfield means building new facilities from the ground up, creating new assets and more new jobs. Brownfield means investing in existing facilities, which is often less disruptive but creates fewer new positions.

Incorrect. Greenfield involves constructing new facilities from scratch, while brownfield involves upgrading existing ones. Greenfield typically creates more new jobs and is more expensive than brownfield.

Which of the following does NOT typically attract Foreign Direct Investment to a country?

A Stable government and rule of law

B Good infrastructure and skilled workforce

C Political instability and poor infrastructure

D Low tax rates and labour costs

Correct! Political instability and poor infrastructure deter FDI because they create risks and increase operational costs. Companies avoid investing in unstable environments.

Incorrect. FDI is attracted to stable, well-governed countries with good infrastructure, skilled workforces, low taxes, and low labour costs. Political instability and poor infrastructure are major deterrents to foreign investment.

Key Takeaways

MNCs are large corporations operating in multiple countries; they become global to access markets, reduce costs, and build international influence
For host countries: MNCs create jobs, bring technology and capital, but may exploit workers, damage environment, and repatriate profits
For home countries: MNCs return profits and increase global influence, but cause job losses and tax erosion through offshoring and tax avoidance
Government regulation, international agreements, NGO pressure, and consumer action attempt to control MNC behaviour, but enforcement remains weak
FDI takes two forms: greenfield (new construction) and brownfield (upgrading existing facilities); both impact host economies differently
FDI is attracted by stable governments, skilled workers, infrastructure, low costs, and market size; benefits host countries but depends on strong governance

Global Business

Understanding Globalisation

What Is Globalisation?

Globalisation

Causes of Globalisation

The Role of the WTO

World Trade Organisation (WTO)

Trading Bloc

Types of Trading Blocs

Impact of Globalisation on Businesses

Global Supply Chain Issues

Apple's Global Supply Chain

Multinational Corporation (MNC)

Impact of Globalisation on Consumers and Workers

UK Manufacturing Decline

Free Trade and Protectionism

Comparative Advantage

Tariff

Quota

Free Trade

Protectionism

Key Takeaways

Overview

Reasons for Entering Global Markets

Growth Opportunities

Market Diversification

Economies of Scale

Access to Resources

Following Competitors

Spreading Risk

Accessing Talent

Methods of Entering Global Markets

Market Entry Methods Comparison

Exporting

Licensing

Franchising

Joint Ventures

Wholly Owned Subsidiaries

Foreign Direct Investment (FDI)

E-Commerce

Reasons for International Mergers, Joint Ventures and Strategic Alliances

Foreign Direct Investment (FDI)

Assessing Global Markets

Market Size and Growth

Political Stability

Legal Framework

Infrastructure

Cultural Factors

Competition

Economic Development

Measuring Economic Development

Human Development Index (HDI)

BRICS Economies

BRICS

Push and Pull Factors

Characteristics of Growing Economies

Applying Porter's Five Forces Globally

Market Research

Barriers to Entry in Global Markets

Language and Cultural Barriers

Legal and Regulatory Differences

Tariffs and Trade Barriers

Logistical Challenges

Exchange Rate Volatility

Political Risk

Corruption

Strategies for Overcoming Barriers

Tariff

Global Niche Markets

What Are Global Niche Markets?

Technology Enablement

Advantages of Global Niche Marketing

Examples

Adapting the Marketing Mix (4Ps) for Global Niche Markets

Global Niche Market

Starbucks Entering China

Uber's Global Expansion Challenges

Key Takeaways

Knowledge Check

Standardisation vs Adaptation