9.3 Globalisation and Internationalisation (AQA A Level Business): Flashcards
Exam code: 7132
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Define globalisation.
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Define globalisation.
Globalisation is the economic integration of countries through freer cross-border movement of people, goods, services, technology and finance.
Give two characteristics of globalisation.
Increasing foreign ownership of companies and free trade in goods and services (also movement of labour/technology and capital flows).
Give two reasons globalisation has increased.
Political change and reduced transport/communication costs (also transnational companies, FDI, migration and structural change).
How did China joining the WTO in 2001 affect globalisation?
It led to a significant increase in exports.
Give two ways globalisation benefits businesses.
Larger markets and cheaper/better inputs (also risk spreading, knowledge/technology transfer and access to finance).
How does globalisation help with economies of scale?
Bigger output spreads fixed costs (R&D, marketing) over more units, lowering average costs.
How does globalisation spread risk?
Weak demand in one region can be balanced by strength in another, making overall sales less volatile.
What are emerging economies?
Fast-growing, less-developed economies with a growing middle class and rising incomes.
What does BRICS stand for?
Brazil, Russia, India, China and South Africa.
What does MINT stand for?
Mexico, Indonesia, Nigeria and Turkey.
Give one opportunity emerging economies offer UK businesses.
New customers (also cheaper production bases, access to natural resources, joint-venture partners and market diversification).
Give one threat emerging economies pose to UK businesses.
Stronger competition (also political/currency volatility, IP risks, supply chain uncertainty and cultural hurdles).
Why are emerging economies a competitive threat to UK firms?
Their lower cost base — especially lower labour costs — lets their firms compete on price.
The acronym BRICS stands for Brazil, Russia, India, China and South .
The acronym BRICS stands for Brazil, Russia, India, China and South Africa.
True or False?
Globalisation only brings benefits to businesses, with no added risks.
False.
It also brings greater competition, more complex operations and risk.
True or False?
Emerging economies can be both an opportunity and a threat for UK businesses.
True.
They offer new customers and cheaper production, but also stronger competition and greater risk.
Give two reasons for targeting international markets.
Sales growth in larger/faster markets and spreading risk (also economies of scale and extending the product life cycle).
How can international markets extend the product life cycle?
A product mature at home may be in its introduction/growth phase abroad, generating extra revenue.
Define exporting.
Exporting is selling goods or services produced in one country to customers in another country.
Why is exporting the simplest step into international trade?
The product is still made at home; only marketing and delivery cross national borders.
Give one advantage and one disadvantage of exporting.
Advantage: extra sales revenue and economies of scale; disadvantage: transport costs, complex paperwork and exchange-rate risk.
Define licensing (international).
Licensing grants a foreign company the right to make/sell a product, use a brand or technology in return for a fee or royalty.
Give one disadvantage of licensing.
Less control over quality/brand, the risk of creating a competitor, and only a limited share of profit.
Define a strategic alliance.
A strategic alliance is a formal agreement where two or more businesses team up on a specific task while each keeps full ownership.
How does a strategic alliance differ from a joint venture?
In an alliance the firms stay independent and do not set up a new joint company.
Give one advantage of a strategic alliance.
Pooled skills (also quicker market entry, shared costs/risks and learning from the partner).
Define direct investment (FDI).
Direct investment is when a business sets up or buys assets — factories, offices or shops — in another country.
What is greenfield investment?
Building a brand-new site from the ground up in another country.
Give one advantage of direct investment.
Full control (also keeps all profits, is closer to customers/avoids tariffs, and accesses local resources).
Give one disadvantage of direct investment.
Very high cost (also risk exposure, management complexity and cultural/legal hurdles).
Exporting is often the simplest first step into international .
Exporting is often the simplest first step into international trade.
True or False?
In a strategic alliance, the partners set up a new joint company together.
False.
They stay independent under a contract; setting up a new joint company would be a joint venture.
True or False?
Direct investment gives a business full control over its overseas operations.
True.
The parent company decides on quality, branding and day-to-day running — but it is costly and risky.
Name three factors that make an international market attractive.
Market size/growth, economic/political stability and cultural similarity (also the legal environment, competitive intensity and infrastructure quality).
Why does economic and political stability matter when choosing a market?
Low inflation, steady policies and no conflict reduce the risk of sudden losses or business disruption.
Why does cultural and consumer similarity make a market attractive?
Similar tastes, language and habits let a business adapt its product and marketing with less cost and risk.
Why does the quality of infrastructure matter?
Reliable transport, power, internet and supply networks cut delays and costs.
Define offshoring.
Offshoring is setting up operations in another country to carry out business processes — often for lower labour costs.
Give two reasons for offshoring.
Lower labour costs and access to specialised skills (also expanding into new markets).
Give one advantage of offshoring.
Lower labour costs (also access to skilled labour, 24/7 operations across time zones and local market insights).
Give one disadvantage of offshoring.
Communication/language differences (also harder quality control, data/IP security concerns and domestic job losses).
Define reshoring.
Reshoring is bringing production activities back to the home country from abroad — reversing a decision to offshore.
Give two reasons a business might reshore.
Rising offshore costs and better quality control (also IP protection, supply chain resilience and market proximity).
How did COVID-19 encourage reshoring?
It exposed the vulnerability of global supply chains (delays and shortages), so firms reduced dependence on foreign suppliers.
Why can offshoring allow 24/7 operations?
Operating across different time zones lets a business run round-the-clock work and customer support.
A business may reshore to improve quality control and protect its intellectual .
A business may reshore to improve quality control and protect its intellectual property.
True or False?
Offshoring always improves a business's quality control.
False.
Quality control can be harder to maintain when operations are moved offshore.
True or False?
Reshoring reverses a previous decision to offshore production.
True.
Reshoring brings production back to the home country, reversing earlier offshoring or outsourcing.
Define a multinational company (MNC).
A multinational company is registered in one country but has manufacturing operations or outlets in different countries.
Why do MNCs choose particular locations?
For cost advantages and access to markets — e.g. Nike manufacturing in China, Vietnam and Indonesia for lower costs.
Give two advantages of operating as a multinational.
Access to larger markets and economies of scale (also diversified risk and access to global talent/resources).
Give two disadvantages of operating as a multinational.
Cultural/language gaps and political risk (also complex coordination and greater ethical scrutiny).
How can a host country benefit from an MNC?
Through significant tax revenue to invest in public services and infrastructure.
What is transfer pricing?
A method MNCs use to shift profits to countries with lower tax rates — a form of tax avoidance.
What two competing pressures do international managers face?
Local responsiveness (adapting to local conditions) versus cost reduction (worldwide efficiency).
Give two ways international markets differ.
Customer tastes/habits and local laws/standards (also cultural sensitivities, government demands, local competitors and infrastructure).
How might a business respond to pressure for local responsiveness?
Decentralise decisions, let country managers adapt the marketing mix, and run multiple product versions.
How might a business respond to pressure for cost reduction?
Centralise R&D and production, design globally standard products, and use uniform marketing.
Give an example of a host government demand.
China (until 2022) required foreign carmakers to set up a 50:50 joint venture with a local partner.
A multinational is registered in one country but has operations or outlets in countries.
A multinational is registered in one country but has operations or outlets in different countries.
True or False?
Transfer pricing is a method multinationals use to increase the tax they pay in host countries.
False.
It is used to shift profits to low-tax countries, reducing tax paid — a form of tax avoidance.
True or False?
Multinationals face a trade-off between adapting to local markets and keeping costs low.
True.
Managers balance local responsiveness against worldwide cost reduction.
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