Component 3: Globalisation — Eduqas A-Level Business

Markets differ in how far a single offer can travel: some are genuinely worldwide, where one specification and one brand work almost everywhere, while others stay stubbornly local because taste, regulation or climate force adaptation. Emerging economies such as India, Indonesia, Nigeria and Brazil matter because income per head is rising from a low base, populations are young and urbanising, and category penetration is thin, so volume grows faster than in saturated Western economies. The offsetting risks are currency swings, patchy infrastructure, political and legal uncertainty, and an addressable segment far smaller than the population total suggests. Unilever now earns most of its turnover outside developed markets, which is why sachet sized packs and local price points sit inside its strategy.

Each driver works in the same way, by removing a cost that once kept production and selling inside one country. Cheap bandwidth and online selling cut the cost of coordinating a distant supplier and of reaching a customer, so a small firm can trade overseas from one warehouse with no foreign branch. Containerisation and larger vessels cut freight to pennies per unit on many goods, which makes distance a minor component of price. Tariff reduction through the World Trade Organisation and regional agreements removed a legal cost, and capital market deregulation let firms move money to build plants abroad. Converging tastes, spread by travel, media and migration, then made one specification sellable in many places. Every one of these cuts both ways, since rivals reach the home customer just as cheaply.

The consequences run in two directions at once and the marks come from holding both. A wider addressable market spreads fixed costs over more units, lifting capacity utilisation, which is actual output divided by maximum possible output multiplied by one hundred, and unit cost falls as scale economies arrive. At the same time low cost overseas rivals compress prices, so a firm has to commit to cost leadership or to differentiation in Porter's generic strategies, because the middle ground is where margins disappear. Groups are affected unevenly: shareholders may gain from growth, consumers from choice and price, while employees face offshoring or reskilling and domestic suppliers are pressed to match import prices. Judge the net position against the firm's cost base and how distinctive its product really is.

Three routes, three different trade-offs. A single worldwide brand builds recognition, lets one campaign be reused across countries and lifts perceived quality, but it limits local adaptation, which is why many firms keep a common identity and vary the product, as McDonald's does with regional menu items around a standard core. Growing by acquisition or joint venture buys distribution, licences and local knowledge in one step and removes a competitor, yet it carries a purchase premium, integration risk and culture clash, the resistance Kotter and Schlesinger would meet with participation and communication. Deciding which countries to enter is market development in Ansoff terms, screened on market size, growth, competitive intensity and regulatory distance, and that grid says nothing about whether the firm can execute.

Ranking the routes needs criteria set out first: speed, control, capital required, risk carried and fit with stated objectives. Acquisition is fastest and gives control, but it is usually debt funded, so check gearing, which is non current liabilities divided by capital employed multiplied by one hundred, and ask whether the target will earn a return on capital employed, operating profit over capital employed as a percentage, above the cost of that borrowing. A joint venture halves the capital and the political risk while splitting profit and slowing decisions. Organic entry protects culture and cash but concedes first mover advantage. Speed is not everything: Tesco left the United States in 2013 and Walmart paid a very high price for control of Flipkart, so conclude on finances and management capacity rather than the size of the prize.

Selling abroad is market development in Ansoff's matrix, and marks come from the named firm rather than from a list. A larger addressable market spreads fixed costs, lifts capacity utilisation, which is actual output divided by maximum possible output multiplied by one hundred, and revives a product whose home life cycle has matured. Set against that are exchange rate movements, since a stronger pound raises the foreign price of an export, plus tariffs, differing safety standards, long lead times, cultural mismatch and inventory held far from the factory. Judgement turns on whether the firm competes on cost or on differentiation in Porter's generic strategies, and on whether its cash flow survives the loss making years before scale arrives. JCB and Burberry earn most of their revenue overseas, which proves scale is reachable, not that it is easy.

Glocalisation means selling a global brand through a locally tuned mix, and the exam rewards the reason behind each change rather than the change itself. Recipe, pack size, price point, media choice and store format shift to match income, taste, religion, law and language while the brand promise stays constant, so McDonald's sells the McAloo Tikki in India and Netflix commissions programmes in the local language. Working practices move too, as hours, negotiation style and how far staff expect to be directed reflect Hofstede's dimensions of power distance and uncertainty avoidance. The trade-off is blunt, because adaptation shortens production runs and destroys the economies of scale a standardised offer wins, so unit costs rise. Hofstede is blind to variation within a country and rests on dated data from a single employer.

This is a winners and losers question, so sort the effects by stakeholder before judging anything. Consumers gain choice and lower prices from imports; shareholders can gain from cheaper offshore production and wider markets; employees in tradeable sectors face wage pressure, relocation or redundancy while export success creates jobs elsewhere; suppliers meet tougher price benchmarks; government collects tax yet loses some control over where profit is booked. Mendelow's matrix helps by ranking each group on power and interest, so the answer says whose reaction actually changes the decision. Strong evaluation is conditional, since the effect depends on the sector, on the skill level of the workforce and on the time frame, and short run job losses in one town can sit beside a long run gain in national output.

The test is ownership or control of productive assets in more than one country, which means foreign direct investment rather than merely selling overseas. That matters in the exam because an exporter, a franchisor and a licensor all earn foreign revenue without owning foreign operations, and the capital at risk differs sharply between them. The usual structure is a headquarters that sets strategy and finance with subsidiaries running local operations, which immediately raises questions about centralisation, transfer pricing and which country receives the taxable profit. How international a firm really is can be described by the share of its assets, sales and employees held outside the home country. Unilever and Tesco qualify, while a firm shipping goods from one British factory does not, however large its export order book.

The motives group neatly under Dunning's four headings: market seeking, resource seeking, efficiency seeking and strategic asset seeking. Market seekers produce inside a trade bloc to jump its external tariff and shorten delivery times; resource seekers chase minerals, land or scarce skills; efficiency seekers move assembly where labour cost per unit is lower, which is not the same as the lowest hourly wage once labour productivity, output divided by the number of employees, is taken into account; asset seekers buy brands, patents and distribution they cannot build quickly. Add the spreading of currency and political risk, government grants, tax differentials and simple closeness to the customer. Nissan built at Sunderland to sell inside the single market, and Tata bought Jaguar Land Rover for brands and engineering, not for cheap labour.

Treat this as an investment appraisal with a cultural tail. Quantify first: payback shows how long the overseas project takes to recoup its outlay, average rate of return is average annual profit divided by the initial investment multiplied by one hundred, and net present value discounts each year's net cash flow before the outlay is subtracted. Where the plant is debt funded, gearing, non-current liabilities divided by capital employed multiplied by one hundred, shows whether interest can still be served if sales disappoint. Then weigh the qualitative case: political and exchange rate risk, Handy's clash of cultures between headquarters and subsidiary, reputational exposure along a long supply chain and whether managers exist to run it. Every appraisal is blind to one thing: its cash flows were estimated by the people proposing the project.

Balance the host economy's gains against its costs, then decide what the balance depends on. Inward investment brings jobs, training, technology transfer, tax revenue and a multiplier effect as wages are respent locally, and it can pull domestic suppliers up to international quality standards. Against that sit profit repatriation, transfer pricing that books profit in low tax jurisdictions, the crowding out of domestic competitors, pressure on pay and conditions, environmental damage and the footloose risk that the plant leaves once a grant expires or costs rise elsewhere. The verdict depends on the bargaining strength of the host government, on whether the jobs created are skilled and permanent, and on whether local firms are drawn into the supply chain or bypassed. Always state which group inside the host country you are judging for.