Assessing globalisation and internationalisation

Welcome to Your Guide on Globalisation and Internationalisation!

Hello! In this chapter, we are looking at how businesses move beyond their home borders to go global. This is part of your Strategic Methods section, which is all about the "how" of business growth. We will explore why the world is becoming one big marketplace and the different ways a business can join in. Don't worry if this seems like a huge topic; we’ll break it down into simple steps!

1. What is Globalisation?

Globalisation is the process by which the world is becoming more connected. For a business, it means the whole world can be their market or their factory. Think of it like a giant shopping mall where every country has a store, and anyone can buy from anyone else.

Why is Globalisation Growing?

Several things have made it easier for businesses to go global:

• Better Transport: Large container ships and cheap air travel make moving goods around the world easy and affordable.
• Technology: The internet allows a small business in a UK village to sell to someone in Tokyo instantly.
• Reduced Trade Barriers: Governments have made it easier to trade by lowering taxes (tariffs) on imported goods.

Did you know? Many of the parts in your smartphone probably travelled through at least five different countries before reaching you!

The Importance of Emerging Economies

Emerging economies are countries that are seeing rapid growth (like China, India, or Brazil). They are important for two reasons:
1. New Customers: As people in these countries earn more money, they want to buy Western brands.
2. Low-Cost Production: These countries often have lower labor costs, making it cheaper to build factories there.

Key Takeaway: Globalisation isn't just a trend; it’s a strategy to find more customers and lower costs.

2. How to Enter International Markets

A business doesn't just "go global" overnight. There are different levels of risk and reward. Think of this like dating: you might start with a text (Exporting) before moving in together (Direct Investment)!

The Four Main Methods

1. Exporting: Selling goods produced in the home country directly to customers abroad.
Example: A UK gin distillery shipping bottles to New York.
Pros: Low risk. Cons: High transport costs and tariffs.

2. Licensing: Letting a foreign company produce your product in exchange for a fee.
Example: A UK clothing brand letting a factory in India use its logo and designs.
Pros: Very low cost for the UK business. Cons: Less control over quality.

3. Alliances (Joint Ventures): Two businesses working together on a project.
Example: A UK car company and a Chinese tech firm building electric cars together.
Pros: Sharing local knowledge. Cons: You have to share the profits!

4. Direct Investment (FDI): Setting up your own operations (factories or offices) in another country.
Example: A UK supermarket building 50 stores in Poland.
Pros: Full control. Cons: Very high risk and expensive.

Memory Aid: The "E-L-A-D" Ladder

To remember the methods from lowest risk to highest risk, remember ELAD:
E - Exporting (Easy)
L - Licensing
A - Alliances
D - Direct Investment (Difficult/Expensive)

Quick Review Box:
- Exporting: Lowest risk, lowest control.
- Direct Investment: Highest risk, highest control.
- Multinationals: Businesses that have operations in more than one country.

3. Producing and Sourcing Abroad

Sometimes businesses don't just want to sell abroad; they want to make things abroad. This leads to two big decisions:

Off-shoring and Re-shoring

Off-shoring is when a business moves its production or services to another country (usually to save money).
Example: A UK bank moving its call centre to India.

Re-shoring is when a business brings that production back to its home country.
Example: A UK toy maker moving production from China back to the UK to improve quality and speed.

Common Mistake to Avoid!

Don't confuse Off-shoring with Outsourcing.
- Off-shoring: Moving work to another country (wherever it is).
- Outsourcing: Hiring another company to do the work for you (even if they are in the same town!).

Key Takeaway: Businesses choose where to produce based on a balance of cost, quality, and speed of delivery.

4. Managing International Business

Once a business is operating globally, it faces a tough balancing act. This is often described as two competing "pressures":

1. Pressure for Cost Reduction

To keep prices low, businesses want to make the exact same product for everyone. This is called standardisation.
Analogy: Think of a standard iPhone. It’s the same hardware everywhere in the world to keep factory costs down.

2. Pressure for Local Responsiveness

Different countries have different tastes, laws, and cultures. A business might need to change its product to suit the local market.
Example: McDonald's sells the "McSpicy Paneer" in India because many customers don't eat beef.

How do they choose?

If the pressure for cost reduction is high, they standardise. If the pressure for local responsiveness is high, they adapt. It’s all about finding the "sweet spot" for that specific industry.

Quick Review:
- High Cost Pressure: Make everything the same.
- High Local Pressure: Change the product for every country.

Summary Checklist

To master this chapter, make sure you can:
- Define Globalisation and explain why it’s happening.
- Identify the importance of Emerging Economies.
- List and explain the four entry methods (ELAD).
- Explain the difference between Off-shoring and Re-shoring.
- Discuss the conflict between Cost Reduction and Local Responsiveness.

Keep going! You're doing great. International business is just about looking at the world as one big opportunity instead of many small boxes!