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Unit 4: Globalisation in World Economy

Spending and consumption behaviour takes into account the way that people spend their income. Notes
For example, is all of a family’s income spent on basic necessities (food, clothing, shelter) or is
there enough left over to be spent on luxury goods (electrical appliances, cars, computers)? You
also need to look at the culture of spending. For example, do families save their disposable
income or do they like to spend it on products that define status in the developing world, like
brand name clothes, a car or a mobile phone?
By carefully analysing all of the issues and factors that influence market potential, you can work
out which markets you should target and what marketing strategies you can use to gain a
market share. There are barriers to entering many of the world’s emerging economies, however,
the potential for achieving international marketing success in these regions should not be
ignored.

The push towards global free trade has resulted in the establishment of many free trade
agreements between countries, the developed of regional trading groups and the creation of the
World Trade Organisation.
It is generally believed that opening up trade between nations and regions is better for consumers
as it allows prices to be set based on actual supply and demand. Protectionist policies generally
set prices at an artificial level. By preventing fair competition from international suppliers, they
keep prices inflated at a higher point than they would be under a free market.

Once international competitors are freely able to enter markets, their costs are reduced. These
cost savings are largely passed on to consumers driving demand for products and services. This
can have a positive impact on the local economy as more people are able to afford a wider range
of consumer goods.

Example: Market globalisation trend is followed by organisations: Coca Cola, Starbucks,
Sony PlayStation, and McDonald’s hamburgers.

4.2.1 Globalisation of Production

The globalisation of production refers to the sourcing of goods and services from locations
around the globe to take advantage of national differences in the cost and quality of factors of
production (labor energy, land, and capital).
The goal for companies is to lower their overall cost structure or improve the quality or
functionality of their product and gain competitive advantage.

Example: Production Globalisation trend is followed by companies like; Boeing and
Vizio.
Several global institutions have emerged to:
 Help manage, regulate, and police the global market place.
 Promote the establishment of multinational treaties to govern the global business system.

Notable global institutions include:
 The World Trade Organisation (WTO) which is responsible for policing the world trading
system and ensuring that nations adhere to the rules established in WTO treaties.

 In 2008, 151 nations accounting for 97% of world trade were members of the WTO.
 The International Monetary Fund (IMF) which maintains order in the international
monetary system.

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