These comprehensive notes cover the whole of Theme 4 (Global business) and are structured using the actual Pearson exam specification for ease of use. Themes 1, 2, and 3 also available for download.
Theme 4: Global business
4.1 Globalisation
4.1.1 Growing economies
A) Growth rate of the UK economy compared to emerging economies
GDP - Gross Domestic Product is the value of a country's income or output, measuring economic activity.
Mature markets/developed economy - An economy which has already undergone high growth, with
high incomes per capita. This type of economy often exists in a highly industrialised country, which
offers a high standard of living.
Emerging markets - Country where there is already rapid growth and further scope for potential growth
(e.g. productive capacity, market opportunities and competitive advantage), with low incomes per
capita. Examples include China, Indonesia, Nigeria and Turkey.
Benefits of emerging markets to businesses:
Higher production means more surplus to sell on, and therefore a potential for economies of
scale.
Businesses from mature markets can reach a large pool of customers in these emerging
markets.
Increase brand awareness across the globe and can spread risk.
Good for firms in saturated markets or for products that are obsolete/at the decline stage.
Economic growth - An increase in the value of a country's income/output i.e. its GDP.
Why is economic growth important?
More income per capita means a higher standard of living (e.g. more disposable income, can buy
(more) luxury goods etc.).
Higher incomes mean the government can receive more in taxes, which may be invested back
into public services to benefit society. Alternatively, the government may decide to lower taxes
to help businesses.
Lower unemployment rates.
UK economy compared to emerging economies - :
Country Growth Rate (%) as of 2017
United Kingdom 2
China 6
India 7.2
The UK economy has grown at around 2.25% a year for over two decades.
According to stats from the USA, by 2030 the UK will remain one of the world's biggest
economies, but increasingly falling behind emerging markets: China and India.
Brazil, Indonesia, Mexico, Turkey and Nigeria are also expected to grow significantly.
B) Growing economic power of countries within Asia, Africa and other parts of
the world
,Economic superpowers - Countries (or groupings of countries) with global influence (economically,
culturally and geopolitically) and power. They shift over time, with some declining and others emerging.
BRIC - Brazil, Russia, India and China: classed as emerging superpowers because they share one or more
of the following; a large population, access to key resources, regional influence/power and economic
growth.
MINT - Mexico, Indonesia, Nigeria and Turkey: all have favourable demographics for at least the next 20
years and interesting economic prospects.
Factors to explain the development of emerging markets:
Greater willingness to accept inward investment from wealthy/multinational companies.
More stable governments than before - especially in India and Bangladesh.
Greater ease of exporting to continents such as North America and Europe due to globalisation
and the World Trade Organisation, which contributes to their overall GDP.
C) Implications of economic growth for individuals and businesses: trade
opportunities for businesses, employment patterns
Trade opportunities for businesses - Consumption is likely to be growing during times of economic
growth, which is good for firms looking to invest or sell their products. Usually disposable incomes rise
with growth, and so there is an overall increase in demand providing greater opportunities for increased
revenues and profits.
Employment patterns - Economic growth allows us to witness a change in employment patterns
including more women working, migration, the rise of the multi job, home working and the search for a
work/life balance for individuals.
Further implications of economic growth for individuals:
As labour moves from agriculture to modern economic activities, overall productivity rises and
incomes of individuals rise.
Rise of the service sector means increased job opportunities for individuals (e.g. hairdressing,
cleaning, gardening etc.).
Greater opportunities for a higher standard of living and a wider range of goods/services to
enjoy for individuals.
Greater tax revenues for the government can mean greater investment into public services,
which are beneficial to the individual.
However, economic growth doesn't mean everyone will benefit. Some individuals may experience no
change in income; others even a fall. This results in greater inequalities.
Further implications of economic growth for businesses:
Firms can exploit growing economies to expand their businesses, leading to high growth, sales
and profits.
Some firms may have a natural competitive advantage in terms of having a product or offering a
service which appeals to the growing economy's consumer base.
Carefully planned ventures into growing economies by firms can prove to be successful.
However, setting up in overseas economies can be risky - products may need to be localised to meet
target market demands in terms of incomes and cultural differences, which limits opportunities for
(global) economies of scale.
,Diversification - Selling new products in new markets.
Saturated market - Point at which a market is no longer generating new demand for a particular product
or service due to factors such as obsolescence, competition and/or decreased need. This is why some
firms enter a new overseas market...
Factors leading to success in emerging markets (e.g. Starbucks):
Localisation - This is achieved by recognising different customer needs in a given location using market
research and adapting your product/service to meet these needs as required.
Joint venture - When firms work collaboratively on a project in a particular market.
The ability to recognise a gap in the market (e.g. with unfamiliar Western goods) and to
persuade customers of new concepts.
Having a well-thought out strategy.
Factors leading to failure in emerging markets (e.g. Tesco):
Not localising a product/concept/brand or localising when not needed.
Undertaking a joint venture too late or not at all.
Not understanding depth and scale of customer needs.
Not investing in teams drawn from the local working population.
D) Indicators of growth: Gross Domestic Product (GDP) per capita, literacy,
health, Human Development Index (HDI)
GDP per capita - This is all the goods and services produced by an economy in a year divided by the
number of people within that economy. Businesses can look at this figure and see what direction the
trend is heading, using it as a basis to decide which country to invest in.
Literacy - These rates are measured by looking at the percentage of adults that can read and write (e.g.
Russia = 100%, South Korea = 100% and China = 94%). The quality of employees (as workers and
potential consumers) is important. Businesses looking to invest in a country will want to hire from a pool
of literate employees.
Health - This acts as a key indicator into the level of development of an economy (e.g. IMR, life
expectancy, access to clean water etc.). Norway were ranked 1st in the world for health and wellness;
Britain were placed at 27.
HDI - The Human Development Index combines life expectancy, education and income of the population
for any particular country, thereby assessing a country's people/skills, rather than just economic
conditions. A business looking to expand may use this indicator of growth in order to look for a potential
market or location for investment.
4.1.2 International trade and business growth
A) Exports and imports
Exports - Goods that are produced by a country and are sold to another. Exports add to the country's
GDP.
Imports - Goods that enter a country from abroad. Imports detract from the country's GDP.
B) The link between business specialisation and comparative advantage
,Specialisation - Refers to the process of concentrating on a limited scope goods/services, which can be
provided most effectively. It results in greater efficiency by the business or economy only focussing on
what they do best. This allows for goods and services to be produced at a lower unit cost, which then
allows a business to reduce its prices or increase its profit margin by keeping prices the same.
However, specialisation may lead to over-reliance in a particular area and over-specialisation may result
in structural unemployment (skills gap) if demand falls.
Comparative advantage - Occurs when one country can produce a good or service at a lower
opportunity cost than another. This means a country can produce a good relatively cheaper than other
countries. The theory of comparative advantage states that, if countries specialise in producing goods
where they have a lower opportunity cost, then there will be an increase in economic welfare.
From a country's perspective, it is beneficial to specialise according to their comparative
advantages; each should specialise and produce according to what they do best.
For example, India has a high number of IT graduates from its universities that can speak
English. Therefore, they choose to specialise in IT, and set up call centres for overseas
companies, staffed by these graduates who accept lower wages than their UK equivalents.
Overall, this means that the Indian call centre industry has comparative advantage over the next
best country.
However, if this comparative advantage grows too big, then it could result in diseconomies of scale
through lack of communication and co-ordination.
C) Foreign direct investment (FDI) and link to business growth
FDI - Foreign direct investment is the flow of investment from one country to another. It occurs when a
business with its head office in one country sets up factories, offices or distribution outlets in another
country. It allows a business to grow by;
Avoiding problems in export - ease of supplying customers locally.
Avoiding protectionist trade barriers - tariffs and quotas are no longer a problem.
Reducing transport costs - it takes time and money to move products overseas, so profit margins
will suffer less by this factor.
Allowing access to natural resources - moving to resource-rich countries can prove fruitful; oil,
gas and minerals are required by North America and Europe.
This is why some firms choose FDI over exporting or licensing.
Advantages (to host country):
Brings new, high-paying jobs.
Brings new technology.
Creates new markets.
Increases exports.
Multinational company - A firm that operates in more than one nation. This means that they have
undertaken FDI.
4.1.3 Factors contributing to increased globalisation
A) Reduction of international trade barriers/trade liberalisation
, Globalisation - The process through which an increasingly free flow of people, goods, services and
capital leads to the integration and interconnectedness of economies and societies.
Key features:
Goods and services being traded throughout the world.
People living and working in a country of their choosing.
High level of interdependence between countries - events in one economy are likely to affect
other economies.
Capital flowing freely between different economies.
Interchange of technology and intellectual property across borders.
Trade liberalisation - The process of reducing trade barriers (anything that stops, restricts or impedes
trade between counties and reduces the total amount of trade taking place e.g. tariffs and quotas) so
that economies can move closer to free trade.
It makes markets more competitive and creates more opportunities for businesses by allowing
more firms to import and export goods without as many restrictions, which drives down market
prices.
Some governments have joined together into trading blocs, such as the EU.
Advantages:
The process of trade liberalisation has meant that the consumer can benefit from lower prices.
Allowed more businesses to trade in other countries without as many barriers.
Disadvantages:
Domestic firms are losing their ability to charge a lower price due to lower/less tariffs on foreign goods.
No advantage for smaller firms not looking to trade overseas.
B) Political change
There have been radical changes in political regimes (e.g. China's move away from its previous
hard line communist approach).
This has led to increased globalisation of markets by allowing countries to open up and trade
with other nations.
As a result of political change, businesses have been impacted by having a wider potential
market size to target, such as potentially lucrative overseas emerging economies.
C) Reduced cost of transport and communication
Larger ships and containerisation have significantly reduced transportation costs. Television,
mobile phone technology and the internet have allowed information to travel quickly.
This has led to increased globalisation of markets by making travel quicker, more affordable and
more accessible for more people. Furthermore, businesses are able to communicate more
effectively with suppliers and other individuals, leading to greater efficiency.
As a result of reduced cost of transport and communication, businesses have been impacted by
allowing production overseas to become competitive compared with domestically produced
goods and services.
D) Increased significance of global (transnational) companies
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