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26 Business and the
international economy
Introduction
Objectives
Countries that trade with each other contribute to the process of globalisation. Due
In this chapter you will
to technology, the world has become smaller, making international expansion much
learn about:
easier for companies. For many businesses, expansion into international markets is
■ globalisation an important growth strategy.
■ multinational companies The global recognition of brands is a sign of the growth of businesses internationally.
■ exchange rate changes. The international business environment and such things as tariffs and exchange
rate fluctuations greatly influence business activity.
The importance of globalisation
In the past, goods and services were often produced in one country and sold
KEY TERMS
locally. Nowadays, goods and services may be produced by a business in one
Multinational company: an country and then exported to countries all over the world. Yet another type of
organisation that has operations business is the multinational company, where a company has its headquarters
in more than one country.
in one country and branches and factories in other countries around the
Globalisation: the process by world. The result has been a huge increase in international trade which has led 327
which countries are connected
to globalisation.
with each other because of the
trade of goods and services.
Reasons for globalisation
The use of information and communications technology has helped to make
international expansion easier for many companies. More effi cient methods
of communication and international transportation have helped to break
down geographical and language barriers. For example
perishable food items such as fruits and vegetables can
be shipped anywhere in the world. Free trade agreements
also assist business operations by improving economic and
technical cooperation.
Many governments have realised the importance of
international trade to their economies, and have changed
their economic policies to allow foreign companies to set
up operations in their countries. This has helped some large
companies to grow into multinationals. Many governments
have also reduced or removed trade barriers, so that it is
easier for goods and services to move from one country
to another.
Characteristics of globalisation
With greater cultural, technological, social and political
interaction between countries (globalisation) and fewer
Goods being moved from one
barriers and regulations, there is greater trade (exchange of goods and services
country to another
between countries.) This makes the world a single market with the economies of
