Page 331 - Cambridge IGCSE Business Studies

26: Business and the international economy

ACTIVITY 26.1

Carlos owns a manufacturing business. He buys the raw material locally but he is concerned that it has become expensive
and the quality is not as good as before. He sells his products to the local market. His country’s government is planning
to join a free trade agreement with the neighbouring countries. The government says this would encourage more trade
between the countries.

1 How might joining the free trade agreement help Carlos with the problem he is facing with the raw materials?
2 How would joining the free trade agreement encourage more trade between the countries?
3 Do you think there are any disadvantages of the free trade agreement for Carlos and other businesses in his country?

KEY TERMS Opportunities and threats of globalisation
Globalisation affects people and businesses in the home country and host country

Home country: the domestic

country where a multinational in many ways. The home country is where a multinational first sets up its operations.
starts/first establishes its The host country is the foreign country where a multinational sets up its operations.

operations. Globalisation has a great impact on the people and the countries involved. People
Host country: the foreign benefit from a wider variety of products available to them at a lower cost. Also,

country where a multinational
multiculturalism promotes peace and understanding between people. Globalisation
sets up its operations.
is good for countries as it leads to increased cooperation between them. Reduction
in prices contributes to greater exports and incoming foreign currency. Attracting
more businesses to invest in their country can help governments achieve their
economic objectives, such as lower employment, and increase economic growth.
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Opportunities Threats
■ Businesses can access more markets, which may lead to an ■ Local businesses in the host country may suffer as foreign

increase in sales. companies start to sell their products at a cheaper price.
■ Labour may be cheaper in host nations and so businesses ■ Exchange rate fluctuations may cause lowering of profits.
can gain from lower costs. ■ Increased competition for both local and international
■ Due to increased competition, businesses operate businesses.
more efficiently and reduce costs due to cost-eff ective ■ The marketing and distribution costs for the international

innovations and economies of scale. Reduction in costs business will increase.
will lead to greater profits. They can also off er their
products at reduced prices, encouraging sales.

Table 26.1 Opportunities and threats of globalisation

There are risks and costs associated with globalisation. For example, people in
the home country may lose their jobs if a company decides to move its operations to

Economic growth: see a country with a cheaper labour force. This will increase unemployment rates in the
Chapter 24, page 300. home country.
Opponents of globalisation claim that increased globalisation has led to
increased demand for goods and services at the cost of environmental damage.
Globalisation forces companies to conform to a standard culture and this may lead
to a loss of individual cultures in the host countries.
TOP TIP
Despite the limitations mentioned in Table 26.1, entry to international
Globalisation is a growth strategy
and it poses both opportunities markets for some businesses is an important objective, as it will enable
and threats for businesses. the business to grow. Starbucks, Nike and Samsung are examples of companies
that have grown because of their expansion into other countries.