Subject: Business | Level: GCSE | Exam Board: AQA
Globalisation is the process that connects businesses, economies, and cultures worldwide. This study guide covers how UK businesses navigate international markets, compete globally, and manage the impact of exchange rates.
Revision Notes & Key Concepts
Key Terms & Definitions
- Globalisation
- The trend for markets to become worldwide in scope.
- Multinational Company (MNC)
- A business that has operations in more than one country.
- Exchange Rate
- The price of one currency expressed in terms of another currency.
- Tariff
- A tax placed on imported goods.
- E-commerce
- The buying and selling of goods and services over the internet.
- Free Trade
- International trade left to its natural course without tariffs, quotas, or other restrictions.
Worked Examples
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Worked Example
Question: Explain how a strong pound might affect a UK business that imports raw materials from Europe. (3 marks)
Solution: A strong pound means that £1 buys more euros. Therefore, the cost of buying raw materials from Europe will decrease for the UK business. This will lead to lower production costs, which could allow the business to increase its profit margins or lower its prices to become more competitive.
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Worked Example
Question: Discuss the impact of globalisation on a UK clothing manufacturer. (6 marks)
Solution: One benefit of globalisation for a UK clothing manufacturer is access to cheaper resources. By sourcing fabrics or manufacturing garments in countries with lower labour costs, the business can reduce its overall costs and increase profit margins. However, a major drawback is increased competition. The UK manufacturer will face intense competition from foreign brands that may be able to sell similar clothing at much lower prices. To survive, the UK business might need to compete on higher quality or better design rather than price. Overall, while globalisation offers cost-saving opportunities, the threat of cheap foreign competition means the business must carefully differentiate its products to succeed.
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Worked Example
Question: Evaluate whether UK businesses should always aim to compete internationally on price. (9 marks)
Solution: Competing on price can be an effective strategy for UK businesses operating internationally, as it can attract a large number of customers who are looking for value for money. By achieving economies of scale or sourcing cheaper materials globally, a business can lower its prices and gain market share against foreign competitors. However, competing on price is often very difficult for UK businesses due to relatively high domestic costs, such as the National Minimum Wage and strict environmental regulations. Many foreign competitors, particularly in developing economies, have significantly lower cost bases and can easily undercut UK firms. Therefore, a better strategy for many UK businesses is to compete on non-price factors, such as better design or higher quality. For example, British luxury brands like Burberry compete successfully worldwide because consumers are willing to pay a premium for their perceived quality and heritage. In conclusion, while competing on price can work for some large retailers, it is generally not the most sustainable strategy for UK businesses. Most will find greater long-term success by differentiating their products through superior design, innovation, and quality, allowing them to charge higher prices and avoid direct price wars with lower-cost international competitors.
Practice Questions
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Question: State two ways a UK business could compete internationally.
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Question: Explain one way that e-commerce has helped UK businesses to operate globally.
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Question: A UK furniture retailer imports most of its wood from Sweden (which uses the Euro). The value of the pound (£) has recently fallen against the Euro. Explain the likely impact of this on the UK furniture retailer.
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Question: Discuss the benefits and drawbacks for a UK tech company of relocating its manufacturing to a country with lower labour costs.
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Question: Evaluate the importance of globalisation to the success of a small UK-based online clothing retailer.
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