## Globalisation — Why Companies Go Global

### Definition

Globalisation is the process by which businesses operate across national boundaries, integrating markets, production, finance, and technology on a global scale.

### Key Drivers: Why Companies Go Global

Reason	Explanation
1. Shrinking Time and Distance	Faster communication, speedier transportation, growing financial flows, and rapid technological changes make global operations feasible and cost-effective
2. Domestic Market Saturation	Domestic markets are no longer adequate or rich enough; firms seek advantage from opportunities available elsewhere
3. Market Development Path	A product gains acceptance locally → expands globally, initially through exports, then through overseas production facilities
4. Cost Advantages	Access to cheaper raw materials and lower labour costs in other countries reduces production costs
5. Technology and Knowledge Access	Globalisation enables access to technology, talent, and knowledge not available in the home country

### Stages of Internationalisation

1. Exports — Produce locally, sell globally (lowest commitment, lowest risk)

2. Licensing / Franchising — Allow foreign entities to use brand/technology for a fee

3. Joint Ventures / Strategic Alliances — Partner with a foreign firm, sharing risk and resources

4. Wholly Owned Subsidiaries — Full production or operations abroad (highest commitment, highest control)

### Strategic Insight

Globalisation is not always an offensive choice — it can be defensive. When global competitors enter the home market, firms may need to globalise to access scale, cost advantages, or resources needed to compete domestically.

### Exam Tip

When asked for 'five reasons why companies go global,' list them as five distinct points. Do not combine 'cheaper raw materials' and 'cheaper labour' into one point — they are separate drivers.

Worked example

### Example 1

Q23 — Five Reasons Why Companies Go Global:

Scenario: Why should companies go global? Mention any five reasons.

Answer:

1. Shrinking time and distance: Rapid advances in communication (internet, mobile), speedier transportation, growing financial flows, and rapid technological changes have made global operations practical and efficient.

2. Domestic market saturation: Domestic markets are no longer adequate or rich with opportunity. Companies realise they are missing out on opportunities available elsewhere.

3. Market development path: A new product may gain acceptance locally first, then gradually expand globally — initially through exports, and later through production facilities in other countries.

4. Cost advantages: Companies globalise to take advantage of cheaper raw materials and lower labour costs available in other countries, reducing overall production costs.

5. Access to technology and talent: Global operations provide access to advanced technologies, specialised skills, and innovative practices not readily available in the home market.

⚠️ Common exam mistakes

Combining 'cheaper raw materials' and 'cheaper labour' into a single point — these are two distinct cost advantages and count as separate reasons in the answer.
Listing fewer than the number of reasons asked — if five reasons are asked, provide exactly five distinct reasons, not three or four.
Treating globalisation as purely offensive (seeking new markets) — it is also a defensive strategy when foreign competitors invade the domestic market.
Confusing stages of globalisation (exports → licensing → JV → subsidiary) with reasons for globalisation — stages describe how companies go global; reasons describe why.

Reference:

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