What is a multinational company (MNC)?
One where it has its headquarters in one country and branches and factories in other countries around the world. The result has been a huge increase in international trade which has led to globalisation.
KEYWORD globalisation
The process by which countries are connected with each other because of the trade of goods and services.
What are the reasons for globalisation?
- The use of information and communication technology has helped to make international expansion easier for many companies
- Perishable food items such as fruits and vegetables can be shipped anywhere in the world
- Free trade agreements also assist business operations by improving economic and technical cooperation
How do governments see international trade?
- Many governments have realised the importance of international trade to their economies
- They’ve changed their policies to allow foreign companies to set up operations in their countries
- This has helped large companies to grow into multinationals
- Trade barriers have been removed or reduced so it’s easier for goods and services to move from one country to another
What are the 5 characteristics of globalisation?
- Growth in international trade
- Global recognition of brands
- Dependency on the global economy
- Companies operation in more than one country
- Greater movement of products, services, people and money
What factors have increased the pace of globalisation?
- Migration (movement of people from one place to another)
- Improvement of technology (leading to faster and more effective telecommunication and transportation)
- The development of countries being held together by free trade agreements
What are the benefits of free trade agreements?
- Important way of opening up foreign markets
- Most aim to reduce trade barriers between member countries by creating favourable trade and investment policies
- Economic cooperation
What’s a trade bloc?
Countries wanting to trade with each other form a trade bloc and reach a common agreement to lower trade barriers within the member countries.
Opportunities of globalisation
- Businesses can access more markets, which may lead to an increase in sales
- Labour may be cheaper in host nations so businesses can gain from lower costs
- Due to increased competition, businesses operate more efficiently and reduce costs due to cost-effective innovations and economies of scale
- This reduction leads to greater profits
- Can offer products at reduced price’s, encouraging sales
Threats of globalisation (Card 1)
- Local businesses in the host country may suffer as foreign companies start to sell their products at a cheaper price
- Exchange rate fluctuations may cause lowering of profits
- Competition will increase for both local and international businesses
Threats of globalisation (Card 2)
- The marketing and distribution costs for the international business will increase
- People in the home country may lose their jobs if a company decides to move its operations to a country with a cheaper labour force
KEYWORD: Tariff
A tax applied to the value of imported and exported goods.
KEYWORD: Quota
A physical limit on the quantity of goods that can be imported and exported.
Why do governments place tariffs on imports?
- To reduce imports into the country
- The tariff increases the cost of the imported goods
- Businesses then have to sell them at a higher price (since the tariff took money from them)
- Demand for the goods is reduced
- Local businesses benefit as they have less competition
What is an advantage of a quota on local producers?
- Fewer foreign goods in the market
- Face less competition
What is an disadvantage of a quota on customers?
They may be disappointed as there are limited supplies of popular products.
