Impact of globalisation on businesses

Running head: IMPACT OF GLOBALISATION ON BUSINESSES
Impact of globalisation on businesses
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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