Impact of globalisation on businesses

This article discusses the impact of globalisation on businesses, including its advantages and disadvantages, and its effects on the domestic business sector. It also explores the Factor Proportions Theory and the International Product Cycle theory. Lastly, it examines the recent imposition of tariffs on Chinese imports by the US government.

Running head: IMPACT OF GLOBALISATION ON BUSINESSES
Impact of globalisation on businesses
Name of Student:
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Author Note:

1IMPACT OF GLOBALISATION ON BUSINESSES
Response to Question 1:
The term globalisation is defined as the assimilation of markets in the global
economy, which leads to increased interrelation of national economies (Baylis, Smith and
Owens 2017). Globalisation is common in some particular markets. These markets include
financial markets such as capital markets, markets of money and credit and markets of
insurance. Markets of commodity such as markets of oil, tin, coffee and gold, product
markets such as markets for motor vehicles and consumer electronics are also included in the
markets of globalisation. The concept of globalisation is not only restricted to business but
also has expanded to sports and entertainment.
Globalisation can offer multiple benefits to international organizations and national
economies. It provides incentives for countries to specialise and gain profitability from the
application of comparative advantage (Dunning 2015). Globalisation helps businesses to gain
access to larger markets. This helps the firms in experiencing higher demand for their
products and gain benefit from economies of scale that helps in the reduction of average cost
of production. Globalisation facilitates international access to sources of low cost raw
materials, and it enables organizations to become cost competitive in their respective markets
and market overseas. Globalisation helps in avoiding regulation by discovering production in
countries with lenient regulatory regimes like the Less Developed Countries (LCDs). There
are long-term benefits of globalisation in terms of creation of more employment opportunities
in the involved countries.
However, globalisation has multiple disadvantages contrary to the advantages. The
excess standardisation of products through branding global in nature counts as one of the
negative points of globalisation. Standardisation leads to a deficiency of diversity of products
and presenting barriers to entry to local producers of small scale (Bond and O'Byrne 2014).

2IMPACT OF GLOBALISATION ON BUSINESSES
Large multinational corporations can suffer from diseconomies of scale such as difficulties
that are associated with coordination of the activities of subsidiaries located in several
countries. The increase in power and influence of multinational companies is seen as a
disadvantage of globalisation. Large multinational organizations may shift their investments
between territories in quest of the most encouraging regulatory regimes. These corporations
can regulate wages of labourers even lower than the free market equilibrium (Makhlouf
2014). Globalisation can increase the speed of deindustrialisation, which is defined as the
slow erosion of the manufacturing base of an economy.
Globalisation affects the domestic business sector in many ways. It increases
competition in the market. Companies can relate the competition to cost of product, service,
price, target market, technological adaptation, sound response, and efficient production
(Woods 2014). Globalisation influences market behaviour because they have multiple
choices in the market. Globalisation facilitates the exchange of technology. Multinational
companies use the latest technology to explore new business opportunities. The use of latest
technology entails huge costs for a company, which is not possible at all times for a domestic
business.
Response to Question 2:
The Factor Proportions Theory was developed by Swedish economist Eli Heckscher
and expanded later by Bertil Ohlin. Ohlin formed the major theory of global trade, which is
acceptedeven today. According to the Factor Proportions Theory (Findlay and Lundahl
2017), factor intensities are dependent on the state of technology and the current method of
manufacturing of any given product. The theory has assumptions that the production of same
goods use the same technology in all countries. However, it cannot be applied in reality. The
classical theory assumed that technology or the productivity of labour is different in different

3IMPACT OF GLOBALISATION ON BUSINESSES
economies (Shafritz, Ott and Jang 2015). There would be a lack of logical explanation for the
reason of requirement of labour by one country to produce one unit of output is differentfrom
a different country. However, there are certain limitations of the Factor Proportions theory.
The theory of Ohlin is criticized because of over simplification of assumptions. The
criticisms state that the over simplified assumptions are unrealistic in nature. An assumption
underlying this theory is that relative prices of factor reflect relative factor donations.
The International Product Cycle theory was authorized by Raymond Vernon in the
year 1966. The theory was objectified to explain the cycle of a product in the international
market (Hellweg and Canals 2014). The cycle explains the maturity and decline of a product
because of internationalization.There are four stages in the life cycle of a product according
to this theory. These are introduction, growth, maturity and decline (Chang et al. 2014). The
introduction stage deals with the exposure of the product in the market. Investments are made
by the companies with respect to awareness of the consumer and promotion of the new
product for sales and create demand. The profits are low with less competitors at this stage.
The second stage is the growth stage where the demand for the product increases sales. There
is a decrease in the production cost and generation of high profits. As the product becomes
known, new competitors enter the market. The third stage is the maturity stage where the
product continues to create demand based on the popularity. The competition in the market is
intense and the company takes measures to maintain stability. Furthermore, the consumers
are likely to change their behaviour and replace their products with a new one. This is why
the marketing and promotional costs are high at this stage. The final stage for a product is the
decline stage. At this stage, the market becomes saturated and the popularity of the product is
lost. The occurrence of this stage can be natural or as a result of introduction of new and
innovative products in the market. However, there are limitations of the International Product
cycle Theory. The graph is completely dependent on data of sales (Gao et al. 2013). Hence, a

4IMPACT OF GLOBALISATION ON BUSINESSES
fluctuation in the sales data nullifies the graph. It then cannot be used for the prediction of the
product movement or the overall rise and decline of the product.For example, Philips light
bulb was a product that remained in the maturity stage for decades.
Response to Question 3:
Donald Trump, the president of United States of America imposed tariffs on 34
billion dollars worth of Chinese imports in the recent past. He has increased the percentage of
import duties on every goods up to twenty-five percent. According to Trump (Noland 2018),
the aim is to improve the foreign and economic policies of the United States of America.
Although this move is largely political, some of the economists are evaluating it as a reform
on the economic and financial policies and situation of the United States of America. The
American government believes that China has been dominating the market of the United
States with its range of products available at a cheap price (Bown 2017). The demand of
Chinese goods is high in the United States and this is why the domestic firms are running at a
loss. The logic and objective behind raising the trade war is to protect the interests of the
American economy by circulating funds inside the territory of the country. Imposition of high
tariff rates are likely to increase the price of Chinese products in the American market which
in turn will reduce the demand. Therefore, consumers will shift to American products only
and the outsourcing of funds will be reduced automatically.
The chief objective of Donald Trump behind increasing the import duties on Chinese
products up to 25% is domesticate American resources. It was aimed to protect the interests
of the American workers and the economy of the country. Although this move is likely to
help the domestic businesses in America, it might create a hindrance for the consumers. This
is because the American market is largely dominated by Chinese products of daily use. The
excessive import duties are likely to increase the price of these products and as opposed to the

5IMPACT OF GLOBALISATION ON BUSINESSES
belief of the government, the consumers are not likely to shift to domesticated American
products (Awan 2016). There are domestic businesses which import goods from China and
sell them in the American market. With the rise in import duties, these businesses will either
have to reduce their profits or extract the price from the consumers. Most businesses are
likely to imply the second option resulting in a price hike and ultimately leading to increased
inflation and a slowdown of the American economy. Hence, the domestic consumers do not
support the step by the American government to increase the rate of import duties on Chinese
products.

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