Revise International for Cambridge 9609 (6.1.6)

Globalisation is the process of growing economic integration and interdependence of countries worldwide, creating a single global market. It is driven by factors such as the liberalisation of international trade, significant developments in transport and communication technology (e.g., containerisation and the internet), and the increased power of multinational corporations (MNCs). For businesses, globalisation presents a dual-edged sword. It offers immense opportunities, including access to vast new markets, potential for economies of scale, and access to lower-cost labour or raw materials. However, it also brings significant threats, such as intense competition from domestic and international rivals, increased price transparency leading to downward pressure on prices, and the strategic challenge of managing complex international supply chains.

Exporting is the practice of selling domestically-produced goods or services to buyers in another country. It is often the first step a business takes into international trade due to its relatively low risk and investment compared to other methods. A firm can use direct exporting, where it handles its own export documentation and logistics, or indirect exporting, which involves using an intermediary like an agent or trading company based in the home country. While exporting allows a business to test foreign markets and increase sales, it has drawbacks. The business has less control over marketing and pricing, it may face trade barriers like tariffs, and transportation costs can erode profit margins. The choice between direct and indirect exporting depends on the firm's resources and international experience.

Foreign Direct Investment (FDI) represents a significantly higher level of commitment to an international market. It involves a business establishing its own operations or acquiring substantial assets (e.g., factories, retail outlets) in a foreign country. This strategy allows a business to bypass trade barriers like tariffs, gain detailed knowledge of the local market, reduce transport costs, and maintain full control over its operations and brand image. However, FDI is a high-risk, capital-intensive strategy. It requires substantial long-term investment and exposes the business to risks such as political instability, currency fluctuations, and cultural clashes. A failed FDI project can result in significant financial losses, making it a strategic decision reserved for well-resourced, experienced multinational corporations.

Tariffs are a form of protectionism, specifically a tax imposed by a government on imported goods. The primary purpose of a tariff is to increase the price of imported goods, thereby making domestically-produced goods more price-competitive. Governments may also use tariffs to raise revenue or as a political tool in trade disputes. For an international business, tariffs directly increase the cost of goods sold. This can force the business to either absorb the cost and accept lower profit margins, or pass the cost onto consumers through higher prices, which could reduce demand and market share. The strategic response to a significant tariff might involve switching sourcing to a country without the tariff or, in the long term, undertaking FDI to produce within the protected market.

Successfully operating in international markets requires more than just financial investment; it demands cultural intelligence. Cultural adaptation involves modifying a business's products, services, and marketing strategies to suit the distinct tastes, values, laws, and customs of a foreign market. This is the opposite of a standardised or 'pan-global' strategy. For example, a food company might alter its recipes to cater to local palates, or a retailer might change its store layout and promotional tactics to align with local shopping habits. This approach, sometimes called 'glocalisation', can lead to greater market acceptance and brand loyalty. However, it can also be costly, as it prevents the business from achieving full economies of scale in production and marketing.