6.3 Business and the International Economy

2026 Syllabus Objectives

By the end of this topic, you should be able to:

6.3.1 — The Importance of Globalisation

  1. Explain what globalisation means and why it has happened
  2. Identify the opportunities and threats that globalisation brings for businesses
  3. Explain why governments might use import tariffs and import quotas

6.3.2 — Multinational Companies (MNCs)

  1. Explain the benefits to a business of becoming a multinational and the impact on its stakeholders
  2. Identify the potential benefits to a country where an MNC is located
  3. Identify the potential drawbacks to a country where an MNC is located

6.3.3 — Exchange Rate Changes

  1. Explain what appreciation and depreciation of an exchange rate mean
  2. Explain how exchange rate changes affect businesses that import and export goods

6.3.1 — The Importance of Globalisation

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What is Globalisation?

Globalisation is the process by which countries around the world are becoming more and more connected to each other — through trade, travel, technology, and communication.

Think of it this way: the phone in your pocket might have been designed in the USA, made with parts from South Korea, assembled in China, and sold in a shop in your country. That is globalisation in action.

  • Imports are goods and services that people or businesses buy from another country. For example, Pakistan importing cars from Japan.
  • Exports are goods and services that businesses in one country sell to people in other countries. For example, China exporting smartphones to the rest of the world.

Why Has Globalisation Increased?

Several factors have made globalisation grow faster over time:

1. Cheaper and Better Transport

  • Containerisation — a system where goods are packed into large, standard-sized metal containers — has made shipping much faster, safer, and cheaper.
  • Bigger and more efficient ships, cargo aeroplanes, and trains can now move huge amounts of goods around the world at low cost.
  • This means it is affordable for businesses to buy materials from or sell products to countries far away.

2. Technology and Communication

  • The internet lets businesses advertise to customers in any country, take orders online, and manage overseas branches from their home office.
  • Consumers can buy products from anywhere in the world without leaving their homes.
  • Managers of multinational companies can hold video meetings with colleagues in different countries, making it easy to run global operations.

3. Reduction in Trade Barriers

  • Governments have generally been reducing tariffs (taxes on imported goods) and quotas (limits on how much of a product can be imported).
  • When these barriers are lowered, it becomes cheaper and easier to trade between countries, encouraging more international business.

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