Globalisation & Exchange Rates
The World Has Shrunk
A pair of Nike trainers is designed in the United States, made in Vietnam, shipped through China, sold in a Manchester JD Sports and tracked on an app built in India. That journey used to be science fiction. It is now routine. Globalisation has turned the whole world into a single marketplace — with opportunities and threats for every UK business.
Three forces have accelerated globalisation: cheaper transport (container shipping, air freight), faster digital communication (email, video calls, e-commerce), and lower trade barriers (fewer tariffs and quotas). UK firms like Dyson, JCB, Burberry and BrewDog sell in dozens of countries.
How UK Businesses Compete Internationally
UK firms cannot compete on cheap labour alone — wages are far lower in many emerging markets. Instead, they compete through three main routes: better designs, higher quality products, and clever pricing that makes quality feel affordable. Dyson built a global brand on engineering and design innovation. JCB sells diggers worldwide on reputation for reliability. Burberry charges premium prices backed by heritage and craftsmanship.
Smaller firms compete too. A Yorkshire tea blender sells through Amazon.com to customers in Texas; a Bristol cycling-kit maker takes orders from Australia through its Shopify store. Digital tools and cheap international delivery have opened export markets that used to require a sales team in each country.
Access to larger markets means higher potential sales — a UK firm reaching 450 million customers in the EU has far more room to grow than one selling only to 67 million Britons. Global supply chains also lower costs. Instead of using only UK materials, firms can buy steel from Germany, circuit boards from Taiwan and packaging from China at the best price.
Specialisation is another gain. Firms focus on what they do best — design, R&D, marketing — and outsource the rest. Economies of scale from global volumes drive unit costs down, which lets them compete on price as well as quality.
UK firms now compete with imports from all over the world — often cheaper due to lower labour costs abroad. British factories closed in large numbers through the 1990s and 2000s because Asian manufacturers undercut them. Globalisation also creates supply-chain risk: the 2021 Ever Given container ship that blocked the Suez Canal held up billions of pounds of goods for a week. The pandemic showed how a shortage of microchips made in Taiwan could halt car production in Sunderland.
Currency swings, political shocks (wars, tariffs, sanctions) and cultural differences (what sells in Japan may flop in Brazil) all add complexity. Firms need to manage risks they never faced when their entire market was local.
Exchange Rates
An exchange rate is simply the price of one currency in another. If £1 = $1.25, then UK goods priced at £100 cost an American customer $125. If the pound strengthens to £1 = $1.40, the same UK goods now cost the American $140. Nothing has changed for the UK firm — but its products suddenly look more expensive abroad.
A useful acronym is SPICED — Strong Pound, Imports Cheaper, Exports Dearer. A weak pound reverses this: imports get more expensive (bad for a UK car plant importing steel), but exports get cheaper for foreign buyers (good for UK whisky sold in the US).
A strong pound makes UK exports dearer for foreign buyers (usually reducing sales) but imports cheaper for UK buyers (usually cutting costs for firms that bring in materials). A weak pound does the opposite.
Who Wins and Who Loses
The impact of an exchange-rate change depends on what a business trades. After the 2016 EU referendum the pound fell sharply. UK tourism boomed as overseas visitors found the country cheap — hotels and attractions benefited. But UK holiday firms taking customers abroad saw costs rise because hotels in Spain and France cost more in sterling. UK whisky exporters gained; UK car makers importing components from the EU lost.
The key skill is spotting which side of the trade the case-study business sits on. Then a chain of reasoning follows: strong pound → UK goods dearer for US buyers → US orders fall → UK revenue drops. Exam answers that just recite ‘strong pound bad for exports’ without applying the rule to the business will lose marks.