GCSEBusinessOCRRevision Notes6. Influences on Business6.3 GlobalisationThe Nature of Globalisation

The Nature of Globalisation (OCR GCSE Business): Revision Note

Exam code: J204

Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

Updated on

What is globalisation?

  • Globalisation is the economic integration of different countries through:

    • Increased freedom of movement of people

    • More cross-border trade of goods and services

    • Freer transfer of capital and finance

  • Globalisation has several impacts on domestic businesses that increasingly need to compete with global brands

Illustration of a globe with arrows and text boxes: "More Competition," "Transfer of Skills," "Emphasising a USP," and "Collaboration Opportunities."
Globalisation results in more competition, a transfer of skills, and helps firms to emphasise their USP collaboration opportunities, and

  • Domestic businesses face increased competition as a result of globalisation

    • This incentivises them to improve efficiency in order to remain competitive against global brands

    • Some domestic businesses may drastically cut staffing or require higher levels of productivity from workers 

  • The transfer of skills between global and domestic businesses can be mutually beneficial

    • Domestic workers can gain skills and knowledge from an international competitor

    • Global businesses will gain local knowledge, market insight and experience from domestic workers

  • Domestic businesses can compete by developing or emphasising a persuasive unique selling point (perhaps the fact they are local)

  • Both domestic and global businesses can benefit from close collaboration through joint ventures or strategic alliances

Imports and exports

  • Businesses that trade internationally import and export goods and services

    • Imports are goods and services bought by people and businesses in one country from another country

    • Imports result in money leaving the country, which generates extra revenue for foreign businesses

      • In 2022, the UK’s biggest import was cars, valued at approximately £34 billion

    • Exports are goods and services sold by domestic businesses to people or businesses in other countries

    • Exports generate extra sales revenue for businesses selling their goods abroad

      • In 2023, 56% of UK's exports were made up of services, including financial, education, legal and financial services, worth approximately £470 billion

Key reasons for globalisation

Reason

Explanation

Advances in communication technology

  • The rapid development of communication technology has significantly reduced trade barriers

  • The internet has made it easier for businesses and individuals to connect and collaborate across borders

Trade liberalisation

  • Many countries have adopted policies that promote free trade and signed trade agreements

  • The removal of quotas and tariffs on goods crossing borders has made global trade smoother

  • The formation and growth of trade blocs such as the European Union (EU) and USMCA (US, Mexico, Canada) have opened up trade between groups of countries

Transportation improvements

  • Containerisation and improvements in air and long-distance rail travel have made it more cost-effective and efficient to move goods and people across long distances

    • In 2017, as part of China's One Belt, One Road programme, the first direct rail freight service carrying clothes and high-street goods completed its 18-day, 12,000km journey from China to the UK

Political and economic reforms

  • Many countries have implemented economic and political reforms to open up their markets to foreign investment

  • This has created opportunities for businesses to operate in new markets and has contributed to global integration as overseas business practices are absorbed

    • In recent years, Laos has welcomed foreign direct investment from UK businesses such as Jaguar Land Rover and JCB

Cultural awareness

  • Increased awareness of other cultures through media, entertainment and education has encouraged a more interconnected world

  • This has led to the sharing of ideas, values and lifestyles across borders, which has increased consumer demand for diverse brands from around the world

Examiner Tips and Tricks

This topic contains a large number of key terms that you need to revise carefully so that you can use them correctly and with confidence in your explanations. You will not usually achieve marks for definitions.

The implications of Brexit

  • Brexit refers to the UK's decision to end its membership of the European Union (EU) in 2016

    • Following several years of negotiation, the UK ceased to be a member of the trading bloc on January 1st 2021

  • Post-Brexit agreements with the EU include:

    • Tariff-free trade of most goods and services will continue

    • Most product regulations and standards will remain in alignment

    • A level playing field between UK and EU businesses

      • Neither the EU nor the UK government can change regulations to give businesses an unfair advantage over competitors in other countries

    • UK citizens' freedom of movement is restricted, with visa requirements for those wishing to work in most parts of the EU

      • EU workers are also restricted from working in the UK

  • There is significant disagreement about the long-term impact of Brexit on the UK economy

  • A range of short-term benefits and drawbacks of Brexit have been reported

An evaluation of Brexit

Benefits

Drawbacks

  • The UK government has reached some free trade deals with countries outside of the EU, including Japan and Australia

    • Australian exports, such as wine, nuts and auto parts, can now be imported into the UK tariff-free

    • In return, UK citizens aged under 35 will be able to travel and work in Australia more easily

  • Difficulties in recruiting enough labour have impacted a range of sectors, including farming, social care and health

    • New nurses arriving from EU states slowed to near zero immediately following the 2016 referendum

    • In 2023, it was reported that more than 40% of UK farms reduced food production due to an inability recruit workers

  • Businesses with large UK markets have set up operations in the UK to ease trade, creating jobs

    • Research by the Financial Conduct Authority, found that over 1,000 financial firms intend to set up an office in the UK for the first time after Brexit

  • Checks at EU borders has slowed the transport of goods into and out of the trading bloc

    • In 2021, it was reported that lorry drivers are spending an average of 5% longer navigating UK borders as a result of post-Brexit rules

  • Following Brexit, the fall in the value of £ sterling has made British exports cheaper for EU buyers, partially offsetting sales lost due to new trade barriers

  • Increased paperwork required for imports and exports has increased business costs

    • In 2019, customs declaration processes cost UK businesses more than £7.5bn

  • Some business sectors benefit from government support

    • There is likely to be more investment in the food and advanced manufacturing sectors as a result of government subsidies

  • Some businesses have chosen to relocate operations to the EU to ease trading with key overseas customers, leading to UK job losses

    • Finance businesses Moneygram and AXA have moved their headquarters to Brussels and Dublin

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    Author
    Reviewer
    Lisa Eades

    Author: Lisa Eades

    Expertise: Business Content Creator

    Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

    Steve Vorster

    Reviewer: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.