1.5.1 - Globalisation opportunities and threats

Connected economies

Globalisation makes economic activity across countries increasingly connected rather than confined within separate national markets.

An import is a good or service bought from another country; an export is sold to another country. These flows can connect stages of production: an illustrative electronics business designs a product in one country, buys components from another and sells to customers in several markets. Changes at one stage can affect the others.

Improved transport and communication can make cross-border activity easier. The internet allows customers to find overseas sellers and businesses to communicate with suppliers. Reduced trade barriers can also support international trade. These forces encourage globalisation, but distance, border rules and different languages or customer preferences still matter.

A business does not have to own operations abroad to be affected. An illustrative small Kenyan clothing shop may face overseas online competitors and buy imported fabric, even if it sells only locally. A large multinational participates directly through its operations in several countries. Globalisation is the wider process; a multinational is one type of business operating within it.

International opportunities

Access to customers and resources abroad can expand a business's choices and support growth.

A larger potential market can increase sales when the business offers something customers want and can reach them. An illustrative small Sri Lankan tea retailer uses a website to sell gift packs overseas. Customers outside its home market create opportunities for extra revenue. However, delivery costs, promotion and unfamiliar tastes may prevent those opportunities from becoming profitable sales.

International sourcing can provide lower-cost inputs, specialist materials or skills unavailable locally. An illustrative large bicycle business buys suitable components from overseas suppliers. If quality and delivery are reliable, a lower input cost can allow a lower selling price or leave more revenue after costs. Comparing the supplier's price alone is inadequate: freight, tariffs, quality failures and delays can change the total benefit.

Selling in several markets can reduce dependence on demand in one country. If demand weakens in one market, sales elsewhere may partly offset it. It does not eliminate risk because markets can weaken together. Higher output serving a wider market may also spread costs such as product design across more units. Those savings depend on the business actually selling the additional output.

Access to international ideas and technology can improve products or methods. Competitors also have such access, so the advantage may be temporary. For a small business, international selling may be achievable through online orders without immediately building a foreign factory; a large business may have resources to establish local operations abroad.

International threats

Global connections can expose a business to stronger competition and risks beyond its home market.

Overseas rivals may offer lower prices, better products or a well-known brand. An illustrative small local shoe retailer may lose customers to international websites. Matching their price may reduce the money left after costs; keeping the price may lose sales. A specialist product or helpful local service could protect demand, so closure is not an inevitable consequence.

International supply chains can create dependence on distant suppliers. Transport disruption, border delays or a supplier's failure may prevent materials arriving. A large producer without substitute components may stop production, lose sales and disappoint customers. Using another supplier or holding extra inventory may reduce that risk but adds costs.

Operating across borders also introduces differences in regulation, language, culture and customer preferences. A successful product at home may need changes before it suits another market, increasing development or promotion costs. A business must check relevant rules and payment arrangements rather than assume all countries work alike. Exchange-rate movements can change the home-currency cost of imported inputs or value of foreign sales; the next lessons explain how.

Conditional business effects

The same global connection can help one business and harm another, depending on what it sells and what it can manage.

An illustrative local café may benefit from access to distinctive imported coffee but face higher delivery risks. An illustrative large clothing business may reach more customers abroad but spend heavily adapting products and coordinating suppliers. Neither can assume that access alone guarantees growth or profit.

Compare the opportunity with the resources needed to use it. The tea retailer needs delivery and customer trust as well as a website. The bicycle producer needs reliable quality as well as a low component price. A locally focused shop may respond to global competition by specialising, improving service or using online selling itself. Which response is suitable depends on demand, costs and its available skills and finance.