Globalisation and international trade
Globalisation is the increasing interconnection of the world's economies, made possible by improvements in transport, e.g. containerised shipping and air freight, communication technology, and the reduction of trade barriers between countries.
Method
- Identify whether the case describes an import (the UK buying from abroad) or an export (the UK selling abroad), since the two have opposite effects on a UK business.
- Identify the cause of globalisation being tested, e.g. cheaper transport, the internet enabling online selling abroad, or fewer trade barriers or tariffs.
- For questions on opportunities, identify how globalisation lets a UK business grow, e.g. selling to a much larger overseas customer base, or sourcing cheaper raw materials or labour from abroad.
- For questions on threats, identify how globalisation increases competition for a UK business, e.g. cheaper imported goods competing with a UK producer's products on price.
- For tariff questions, identify who imposes the tariff and on what goods, then explain that it raises the cost of importing those goods, which is usually passed on as a higher price to the customer in the country that imposed the tariff.
- For explain or analyse questions, link the globalisation factor to a specific, named effect on the business in the case, e.g. increased sales revenue from a new export market, or a lower profit margin from cheaper imported competitors.
- For evaluate questions on whether a business should trade internationally, weigh the growth opportunity, a larger market with more customers, against the added risk and cost, currency risk, tariffs, longer supply chains, and cultural or legal differences, and reach a judgement based on the case.
Worked example
Thistledown Toys is a UK manufacturer that currently sells only in the UK. It is considering exporting its toys to the USA for the first time, using an online store. Explain one way globalisation could help Thistledown Toys grow by doing this.
- Identify the change: moving from selling only in the UK to exporting to a new overseas market, the USA.
- Identify what has made this possible: globalisation, specifically the internet and e-commerce, which lets a small UK business sell directly to customers overseas without needing a shop or distributor there.
- Link this to the size of the market Thistledown can now reach: the US market has a far larger number of potential customers than the UK alone.
- Link this to a business outcome: a larger potential customer base can increase sales revenue beyond what is possible by selling in the UK market alone.
- Write the explained answer: globalisation, particularly the growth of e-commerce, allows Thistledown Toys to sell directly to customers in the much larger US market via an online store, increasing its potential customer base and sales revenue without the cost of opening a physical presence overseas.
Practice questions
Try each question, then tap to reveal the answer.
Q1Define globalisation.Show answer
Answer: The increasing interconnection of the world's economies, driven by improved transport, communication technology and fewer trade barriers.
Q2Define an export.Show answer
Answer: A good or service sold from a business's home country to another country.
Q3Define an import.Show answer
Answer: A good or service bought by a business or consumer in one country from another country.
Q4State what a tariff is.Show answer
Answer: A tax placed on imported goods.
Q5Explain one effect of a tariff on the price UK consumers pay for an imported good.Show answer
Answer: The tariff adds to the cost of importing the good, which is usually passed on to consumers as a higher price than before the tariff.
Q6Give one reason globalisation has increased competition for UK businesses.Show answer
Answer: Because UK consumers can now easily buy similar or cheaper products imported from, or sold online directly by, overseas businesses.
Q7State one way improved transport has supported globalisation.Show answer
Answer: For example, containerised shipping and air freight have made it faster and cheaper to move goods internationally.
Exam-style questions
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Explain two reasons why a government might impose a tariff on imported steel.
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Free printable worksheet
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