Globalisation, multinationals and trade barriers

Globalisation is the increased connectivity of national economies — through trade, investment, technology, migration and shared culture. Modern businesses operate in a global marketplace whether they want to or not.

Drivers of globalisation

• Lower transport costs — container shipping (since 1956) cut sea-freight by 90 %.
• Internet and digital communications — collaborate, sell and pay across borders instantly.
• Trade liberalisation — WTO, EU Single Market, UK trade deals (CPTPP 2024).
• Multinational corporations — Apple, Toyota, Unilever co-ordinate production in dozens of countries.
• Travel and migration — talent, customers and ideas flow between countries.

Opportunities of globalisation

Bigger market

A UK firm can sell to 8 billion potential customers, not 67 million. Even niche products find audiences.

Lower production costs

Outsource to lower-wage countries — clothing in Bangladesh, electronics in Vietnam, software in India.

Access to skilled labour

Recruit globally — UK tech firms hire EU and Indian engineers; Premier League clubs sign players worldwide.

Wider supplier base

Get the best ingredients/components/services from anywhere. Apple sources from 200+ suppliers in 50+ countries.

Economies of scale

Selling globally allows higher volumes and lower unit costs.

Knowledge transfer

Best practices, technology and management ideas spread fast.

Threats of globalisation

Foreign competition

Cheap imports undercut UK firms — UK clothing manufacturers largely vanished as Asian production rose.

Currency risk

Profits in foreign currency can fall if the pound strengthens.

Cultural differences

Marketing that works in the UK may flop abroad. Walmart's German venture failed partly because Germans hated being smiled at by checkout staff.

Political risk

Sanctions, war (Ukraine 2022 forced Western firms out of Russia), changing visa rules, foreign policy shifts.

Supply chain fragility

Long supply chains break easily. COVID-19 and Suez Canal blockage (2021) caused chaos.

Reputational risk

Western brands criticised for using sweatshops, pollution, tax avoidance abroad.

Multinational corporations (MNCs)

A multinational is a business that produces or sells in more than one country. Examples:

• Apple — designs in California, manufactures in China/India, sells in 100+ countries.
• Unilever — Anglo-Dutch consumer goods giant; 400 brands in 190 countries.
• Toyota — Japanese; assembles cars in 28 countries.
• Nestlé — Swiss; 2 000+ brands; £80 bn+ revenue.

Why MNCs matter to host countries

Benefits:

• Jobs — direct (factory work) and indirect (suppliers).
• Tax revenue — corporation tax, VAT, payroll taxes.
• Skills transfer — training and modern management.
• Investment — factories, offices, infrastructure.
• Exports and FDI — strengthens balance of payments.

Drawbacks:

• Profits flow abroad — repatriated dividends.
• Tax avoidance — moving profits to low-tax jurisdictions (Apple's Irish structures).
• Local firms squeezed — small firms can't match MNC scale.
• Cultural homogenisation — high streets look the same everywhere.
• Environmental harm — outsourcing pollution.

Trade barriers

Governments use barriers to protect domestic industries.

Tariffs

Taxes on imports. Raise the price of imported goods.

• Example: Trump-era US tariffs on Chinese steel; EU tariffs on Chinese electric vehicles (45 % from 2024).

Quotas

Limits on the quantity of imports. Once the quota is filled, no more imports allowed for that period.

Subsidies

Government payments to domestic producers — make UK goods cheaper to compete with imports. Common in agriculture (EU CAP, US farm bill).

Embargoes

Total bans on trade with a specific country, often for political reasons (US trade embargo on Cuba; sanctions on Russia post-Ukraine).

Non-tariff barriers

• Standards — different safety/environmental rules block products.
• Regulations — EU CE marking, USA FDA approvals, Chinese 3C marking.
• Currency manipulation — keep currency low to make exports cheap.

Free trade agreements

Reduce or eliminate barriers between countries.

• EU Single Market — free movement of goods, services, people, capital across 27 members.
• CPTPP (Comprehensive and Progressive Trans-Pacific Partnership) — UK joined 2024 alongside Japan, Australia, Mexico, Vietnam etc.
• USMCA — North American free trade (replaced NAFTA).
• EU-UK Trade and Cooperation Agreement — post-Brexit zero-tariff/zero-quota for most goods if rules of origin met.

Examiner tips

For 6+ mark questions, balance opportunities and threats with named examples and link to a specific business decision (e.g. relocate production, raise prices, exit a market). Always close with a judgement.