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Globalization
Definition
Globalization: Increase in worldwide trade and movement of people and capital between countries.
Free Trade Agreements
Countries agree to trade with no barriers (no tariffs, no quotas).
Reasons for Globalization
More free trade agreements and economic unions → fewer import restrictions.
Cheaper, faster transport and improved communication → easier global distribution.
Internet & e‑commerce → global price comparison and online ordering.
Rapid industrialization of emerging economies (e.g., China, SE Asia) → large-scale, low-cost exports.
Opportunities & Impacts of Globalization for Businesses
Export to foreign markets: higher sales, access to fast‑growing markets
Become a multinational: lower costs, access to resources, closer to markets
Import goods to sell domestically: lower prices, more variety for customers
Import materials/components: lower production costs
Threats & Impacts of Globalization for Businesses
More imports from foreign competitors: loss of sales for local firms
Multinationals entering home market: strong competition, economies of scale
Workers leaving for better global jobs: harder to retain skilled employees
Why Governments Use Tariffs & Quotas
Definitions
Import tariff: Tax on imported goods.
Import quota: Limit on quantity of imports.
Protectionism: Protecting domestic industries from foreign competition.
Why Governments Use Them
To protect local industries from cheaper imports.
To prevent job losses.
To support economic stability.
Effects
Tariffs → imported goods become more expensive.
Quotas → imported goods become less available.
Domestic firms gain higher sales.
Multinational Businesses (MNCs)
Definition
A business with production or service operations in more than one country.
Examples:
Shell, BP, Toyota, General Motors, British American Tobacco.
Benefits to a Business of Becoming a Multinational
Lower labor costs in some countries.
Access to raw materials.
Production closer to markets → lower transport costs.
Avoid trade barriers.
Spread risk across countries.
Increase market share.
Government grants from host countries.
Impact on Stakeholders When a Business Becomes a Multinational
Shareholders
Higher profits → higher dividends.
Employees
More promotion opportunities.
Chance to work abroad.
Suppliers
Could gain or lose depending on where the MNC sources materials.
Government
Gains tax revenue (if profits are repatriated).
Could lose revenue if HQ is located elsewhere.
Benefits to Host Countries
Job creation.
Increased investment in buildings, machinery, technology.
Higher exports, fewer imports.
More tax revenue.
Greater consumer choice and competition.
Drawbacks to Host Countries
Jobs created are often unskilled.
Local businesses may close due to competition.
Repatriation of profits → money leaves the country.
Use of scarce natural resources.
MNCs may influence government decisions.
Exchange Rates
Definition
Exchange rate: Price of one currency in terms of another (e.g., £1 = $1.50).
Appreciation
Currency value rises
Exports become more expensive → fewer foreign sales.
Imports become cheaper → lower costs for importers.
Depreciation
Currency value falls
Exports become cheaper → more competitive abroad.
Imports become more expensive → higher costs for importers.
Impact on Exporters
Appreciation → exports less competitive → lower revenue/profit.
Depreciation → exports cheaper → higher sales.
Impact on Importers
Appreciation → imports cheaper → lower costs.
Depreciation → imports more expensive → higher costs.
Why Exchange Rates Matter
Affects prices, competitiveness, profitability, and business strategy.
Large fluctuations can seriously impact business performance.
NOTES DONE BY FARIDA SABET
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