Globalisation: is the process by which the world becomes interconnected as a result of increased trade and cultural exchange. For business, the world becomes one big market place.
Reasons for globalisation:
- Consumer demands
- Improvements in technology
- Economies of scale
- Freedom of trade
- Labour availability and skills
- Transport improvements
Consumer demands: a desire for more goods and services known as consumerism. Consumers demand greater choice and are able to afford more goods and services.
Improvements in technology: improvements in technology have enabled greater communication between people in different and allows businesses to trade internationally very easily.
Economies of scale: the production cost per item reduces when operating on a larger scale. Global businesses operate on a vast scale and have a very low unit cost of production.
Freedom of trade: organisations such as World Trade Organisation [WTO] and the EU encourage free trade between countries, which helps to remove restrictive barriers to trade between countries.
Labour availability and skills: countries such as India and China have lower labour costs and high skill levels among their workers. Manufacturing companies in particular, will take advantage of this cheap supply of labour.
Transport improvements: goods and people can travel quickly between countries. The cost of transporting goods between countries has decreased, eg. by using larger cargo ships or aircraft with longer ranges.