Globalisation and International Trade
What Is Globalisation?
Globalisation is the process by which national economies have become linked into a single global market. Goods, services, capital and people move more freely across borders than at any previous point in history. For businesses, globalisation creates both opportunities — access to vast new customer bases and cheaper inputs — and threats — competition from overseas rivals with lower cost structures. A balanced view of globalisation is essential for high-mark extended-response answers.
Globalisation creates opportunities (new export markets, lower import costs) and threats (overseas competition, currency risk). One-sided answers that treat globalisation as only a threat will not reach the Mastering tier on a 6-mark Discuss response.
Imports and Exports
Imports are products brought into a country from abroad. UK businesses import raw materials, components and finished goods from countries where production is cheaper or where the resource is simply unavailable domestically. This reduces costs but also exposes domestic producers to intense price competition. Exports are products a UK business sells to overseas customers. Exporting broadens the customer base beyond the limits of the domestic market and can extend the life cycle of a product that is maturing at home.
Multinational Companies
A multinational is a business that operates across multiple countries. Multinationals are attracted to lower labour costs, proximity to raw materials or access to large consumer markets. For the host country, a multinational brings investment and employment, but may also repatriate profits overseas and undercut local producers. UK consumers benefit from the products and competitive prices multinationals create; UK producers may struggle to compete with their scale. Examples include Amazon, Toyota and Unilever — each with UK operations but global ownership structures.
Globalisation makes it easier for businesses to move production to lower-cost countries. This is called offshoring. A UK clothing brand that manufactures in Bangladesh benefits from lower wages; however, it faces risks around quality control, long supply chains and the reputational damage if suppliers are found to have poor labour conditions. Some businesses have reversed offshoring decisions — “reshoring” production closer to home — after supply chain disruptions revealed the vulnerability of long global supply lines.
Barriers to International Trade
Not all trade flows freely. Governments use trade barriers to protect domestic industries. A tariff is a tax on imported goods. By raising the price of imports, tariffs make domestic products look more competitive. However, they also increase costs for businesses that rely on imported components and can trigger retaliatory tariffs from trading partners, harming export-oriented businesses.
Trade blocs are groups of countries that reduce or remove trade barriers between their members. The European Union is the most significant trade bloc for UK businesses. After Brexit, UK businesses trading with the EU faced new customs checks and new paperwork. Goods that meet the agreed origin rules still cross without tariffs, but goods that do not meet those rules now face tariffs. Trade blocs benefit member businesses with frictionless access to large markets, but also mean non-member countries face higher barriers when trying to sell inside the bloc.
Tariffs protect domestic producers from cheap foreign competition but raise input costs for businesses that import components. Trade blocs remove internal tariffs between members, making trade easier — but create barriers for businesses outside the bloc.
How Businesses Compete Internationally
Two main strategies help businesses compete in international markets. First, e-commerce and the internet dramatically lower the cost of entering overseas markets. A small UK craft business can now sell to customers in Japan or Canada through an online marketplace with minimal investment, something that would have required a physical distributor network in the past. Digital marketing through social media allows global brand awareness to be built at relatively low cost.
Second, businesses must adapt their marketing mix for each international market. A product sold successfully in the UK may need to be reformulated (different taste preferences), repriced (lower average incomes), distributed differently (fewer online shoppers in some countries) and promoted in a different language and through different channels. For example, McDonald’s adapts its menus significantly by country — serving vegetarian options in India and different product ranges in Japan — while maintaining global brand recognition through its core promotional identity.
Many students treat globalisation as something that only hurts UK businesses by bringing in cheap imports. In reality, globalisation creates genuine opportunities: UK businesses can access cheaper raw materials from abroad, reducing their costs; they can export to growing middle classes in emerging economies; and they can recruit specialist talent from a global labour pool. On a 6-mark Discuss question, a one-sided answer treating globalisation as purely negative will stall in the Developing tier regardless of how detailed it is. Always explore both sides before reaching a reasoned conclusion.