Business activity and influences on business: Business and the international economy to What makes a business successful?: Edexcel IGCSE Business Complete Notes

Business and the international economy

The Pearson Edexcel IGCSE (4BS1) Business specification requires a thorough understanding of how businesses operate beyond national borders. This section of the course examines globalisation, multinational corporations, and the effects of exchange rate fluctuations on international trade. These edexcel igcse business revision notes address each of those areas with the precision the exam demands.

The topics covered here represent the second half of Section 1 in the specification. If you are studying edexcel igcse business business activity and influences on business: business and the international economy to what makes a business successful?, these notes provide the core knowledge and application techniques required.

Globalisation

Globalisation refers to the increasing interconnection of the world's economies, cultures and populations. For businesses, it means that markets, supply chains and competition are no longer confined to a single country.

Opportunities of globalisation for businesses:

• Access to larger markets. A British clothing brand can sell to customers in Asia, Africa and the Americas through e-commerce platforms.
• Access to cheaper labour and raw materials. Manufacturing in countries with lower wage costs can reduce production expenses.
• Economies of scale. Selling to a global market allows higher output, which can reduce the average cost per unit.
• Access to new ideas and innovation. Operating internationally exposes businesses to different approaches, technologies and consumer preferences.

Threats of globalisation for businesses:

• Increased competition. A local bakery now competes not just with the bakery down the road, but with international food brands distributing through supermarkets.
• Cultural differences. Marketing campaigns that succeed in one country may fail in another due to differences in values, language or taste.
• Supply chain vulnerability. Relying on suppliers in distant countries creates risk. The disruptions caused by the COVID-19 pandemic demonstrated how fragile global supply chains can be.
• Exchange rate risk. Revenue earned in foreign currencies can lose value if exchange rates move unfavourably.

Multinationals

A multinational corporation (MNC) operates in more than one country. Companies such as Toyota, Unilever and Apple maintain production facilities, offices or retail operations across multiple nations.

Benefits of a business becoming a multinational:

• Access to new markets and customers, increasing potential revenue.
• Ability to source cheaper raw materials or labour.
• Spreading risk across multiple economies. If one market declines, others may remain strong.
• Avoidance of trade barriers by producing within the target market rather than exporting to it.

Benefits and drawbacks to a host country:

Exchange rates

An exchange rate is the price of one currency expressed in terms of another. If 1 GBP = 1.25 USD, then one British pound buys 1.25 US dollars.

The specification requires you to calculate exchange rates. The formula is straightforward:

Amount in foreign currency = Amount in home currency x Exchange rate

For example, a UK business sells goods worth 5,000 GBP to a US buyer. If the exchange rate is 1 GBP = 1.30 USD, the US buyer pays 5,000 x 1.30 = 6,500 USD.

Impact of exchange rate changes:

• If the pound strengthens (rises in value), UK exports become more expensive for foreign buyers, making them less competitive. Imports become cheaper for UK businesses.
• If the pound weakens (falls in value), UK exports become cheaper and more competitive abroad. Imports become more expensive.

A useful mnemonic: SPICED - Strong Pound, Imports Cheaper, Exports Dearer.

Government objectives and policies

Governments intervene in business activity through spending, taxation, legislation and trade policy. The igcse 4bs1 business activity and influences on business: business and the international economy to what makes a business successful? section requires you to understand these interventions and their effects.

Government spending and taxation

Governments spend money on public services such as healthcare, education, defence and infrastructure. This spending is funded primarily through taxation. Businesses pay corporation tax on profits. Individuals pay income tax on earnings. Both pay indirect taxes such as VAT when purchasing goods and services.

Public spending is constrained. Governments cannot spend unlimited amounts without either raising taxes or borrowing. Higher taxes on businesses reduce their profits and may discourage investment. Higher taxes on individuals reduce their disposable income and may reduce consumer spending.

How governments affect business activity

• Infrastructure provision - building roads, railways, broadband networks and power grids makes it easier and cheaper for businesses to operate. A new motorway connecting a factory to a port reduces transport costs.
• Legislation - laws on minimum wage, health and safety, environmental protection and consumer rights all affect how businesses operate. Complying with legislation costs money, but it also protects workers and consumers.
• Trade policy - governments can encourage or restrict international trade. Membership of trading blocs such as the European Union or ASEAN reduces barriers between member countries. Tariffs (taxes on imports) protect domestic businesses from foreign competition but raise prices for consumers.

Interest rates

Interest rates are the cost of borrowing money and the reward for saving. When interest rates rise, borrowing becomes more expensive, businesses are less likely to take out loans for expansion, and consumers spend less because mortgage payments and loan repayments increase. When interest rates fall, the opposite occurs: borrowing is cheaper, businesses invest more, and consumer spending tends to rise.

External factors

The edexcel igcse business specification identifies four categories of external factors that affect business decisions. These are often remembered using the acronym STEP:

What makes a business successful?

The specification identifies several measures of business success and requires students to understand why businesses fail.

Measuring success

Success can be measured in different ways depending on the stakeholder perspective:

• Revenue - the total income from sales. Higher revenue suggests the business is selling well, but it does not automatically mean the business is profitable.
• Market share - a growing share of the market indicates competitive strength.
• Customer satisfaction - repeat purchases, positive reviews and low complaint rates signal that customers are happy.
• Profit - the surplus after all costs have been deducted from revenue. Profit is essential for long-term survival and growth.
• Growth - expansion into new markets, new products or additional locations.
• Owner/shareholder satisfaction - are the owners or shareholders receiving the returns they expected?
• Employee satisfaction - low staff turnover and high morale indicate a well-managed workforce.

Reasons for business failure

The specification identifies three main causes of failure:

1. Cash flow problems or lack of finance - a business can be profitable on paper but still fail if it runs out of cash. If a business cannot pay its suppliers or employees because money owed by customers has not yet arrived, it faces insolvency. This is the single most common reason why new businesses fail.
2. Not competitive - a business that charges higher prices than competitors, offers inferior products, or fails to market itself effectively will lose customers over time.
3. Failure to adapt to changes in the market - Blockbuster Video failed because it did not respond quickly enough to the shift from physical rentals to streaming. Kodak failed because it clung to film photography while the market moved to digital. Businesses that do not evolve with their customers' needs eventually become irrelevant.

Edexcel IGCSE Business practice questions for Section 1 (Part 2)

1. Explain two opportunities that globalisation creates for a small UK-based clothing manufacturer.
2. A UK exporter sells goods to Japan. The exchange rate changes from 1 GBP = 150 JPY to 1 GBP = 130 JPY. Calculate how much a product priced at 200 GBP now costs in Japanese yen. Explain whether this change benefits the UK exporter.
3. Discuss whether a multinational opening a factory in a developing country is always beneficial for that country.
4. Explain how a rise in interest rates might affect a small business that has recently taken out a large bank loan.
5. State one social, one technological and one environmental factor that might affect a fast-food restaurant chain.
6. Explain why a business can be profitable but still fail due to cash flow problems.

These business activity and influences on business: business and the international economy to what makes a business successful? edexcel igcse notes complete the second half of Section 1. The edexcel igcse business explained approach to these topics rewards students who can link theory to real-world business situations. Mastery of these edexcel igcse business notes ensures you can handle both the knowledge-recall and application-style questions that appear on the exam. The external factors and globalisation content connects directly to Paper 2's focus on large businesses, so these topics are particularly important for the second paper.