The Impact of Globalisation on International Business

Globalisation is the umbrella term for the interdependence, integration and interaction between people and companies in disparate locations that is the result of a complex series of economic, social, technological, cultural and political changes. International business plays a pivotal role within globalisation and is itself extremely sensitive to changes within the international system; as vividly demonstrated in the global financial crisis of 2007-08.

 

Despite these inherent vulnerabilities businesses that do succeed within the international arena can reap significant rewards. There are a number of ways of achieving international success, from the export of goods and services to moving production to a host country. Although 308,300 UK businesses engaged in international trade in the non-financial business economy in 2013, that’s still only 15.6% of registered UK businesses, which means there is untapped potential for international growth.

 

According to the UK Office for National Statistics the size of a business increases the likelihood of international trading of goods and/or services. Almost half (48.6%) of all large businesses, those employing 250+ people, imported goods and/or services and 40.7% exported. This is compared with small businesses, with fewer than 50 people, of which only a tenth imported or exported. Lack of capacity and resources is a primary reason for this difference, with large scale operations one of the main features of international business.

 

Globalisation with its origins in the new international order established after World War Two increased in pace and scope from the 1970s, received a boost with the end of the Cold War in the early 1990s and has been accelerating throughout the twenty-first century. In 1994 world exports as a share of world Gross Domestic Product (GDP) was less than 20%, by 2008 it was over 32%. It fell back in 2009 by more than 1% as a result of the global slowdown but from 2010 onwards it has been on the rise again.

However, the benefits of globalisation are distributed unevenly with developed countries, most notably those in the EU and North America, benefiting to a greater extent. Nevertheless there are benefits that can be enjoyed by all, if businesses operate in a responsible manner. The choice of location on offer to businesses means that governments are competing with each other to provide the most attractive and cost-effective locations. This can bring jobs and prosperity to a city, region and country if the business offers its workers a decent living wage, good working conditions and opportunities for career progression. These employee benefits can be provided and healthy profits still created.

And with the increase in competition, consumers’ expectations and employees’ wages standards should be raised across the board too, benefiting all. Of course, this does not always happen. But as globalisation continues apace consumers are savvier about the origins of their goods and are demanding better conditions for those who make them. A socially responsible business operating in the international arena can use their corporate social responsibility (CRS) credentials to great effect in their marketing.

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