Unit 1.4 — Globalisation
Learning outcomes (from the 9587 syllabus). This note is complete when every bullet below is covered.
Learning outcomes
- Multinational business: reasons for growth of multinational business; importance in the global economy; influence on host country
- International connectivity: impact of how events in another country affect the business
Running example used throughout this note: Sunrise Bakery grows beyond Singapore — and we also use real Singapore multinationals like BreadTalk and SIA.
Big picture
In plain English: globalisation means the world’s economies are connected. A multinational business (MNC) operates in more than one country, selling or producing across borders. Because of this, what happens in one country (a war, a pandemic, a new law) now ripples to businesses everywhere.
Analogy: the world economy is like a spider’s web. Touch one strand (an event in one country) and the whole web vibrates (businesses everywhere feel it).
Core content
1. Multinational business
A multinational business (MNC) is a business that operates in more than one country — it may sell, manufacture, or source inputs across borders.
Reasons for the growth of multinationals:
- Access to larger markets — selling abroad means more customers and more sales.
- Lower costs — cheaper labour, materials or land in other countries.
- Spread risk — if one market is weak, another may be strong.
- Economies of scale — producing for many markets lowers unit costs.
- Avoid trade barriers — setting up inside a country avoids its import taxes.
- Be close to customers — to serve local tastes and deliver faster.
BreadTalk grew from one Singapore outlet into a multinational with hundreds of outlets across Asia, because it wanted more customers (larger markets), cheaper ingredients (lower costs), and to reduce its dependence on Singapore alone (spread risk).
Importance of MNCs in the global economy: they drive international trade, create jobs, invest huge amounts (foreign direct investment), and transfer technology and skills between countries.
Singapore’s economy depends heavily on MNCs — thousands of foreign MNCs (Apple, Google, ExxonMobil, Procter & Gamble) have regional offices or factories here, creating jobs and bringing investment and technology.
Influence of MNCs on the host country (the country they enter):
| Positive | Negative |
|---|---|
| Creates jobs and income | May pay low wages or have poor working conditions |
| Brings investment and tax revenue | May send profits back to the home country (profit repatriation) |
| Transfers technology and skills | May out-compete and force local firms to close |
| Increases competition and choice | May damage the environment |
| Improves infrastructure | May gain too much influence over the government |
When a foreign electronics MNC opens a plant in a host country, it creates jobs and trains workers (positive). But it may also pollute rivers, undercut local firms, and move to a cheaper country later (negative) — which is why host governments negotiate carefully.
2. International connectivity
Because businesses are connected globally, events in one country affect businesses in another.
- Supply-chain disruption — a factory shutdown or port delay in one country stops supplies elsewhere.
- Exchange-rate changes — a stronger/weaker currency changes import and export costs.
- Demand shocks — a recession in a big market reduces orders for exporters.
- Geopolitical events — wars, sanctions, and trade disputes change costs and markets.
- Natural disasters and pandemics — disrupt production and travel.
When the Russia–Ukraine war began, global wheat and energy prices soared, so even a Bedok bakery like Sunrise Bakery paid more for flour and electricity — an event far away directly raised its costs. Similarly, the COVID-19 pandemic shut factories worldwide and disrupted shipments to Singapore shops.
Analysis & evaluation points (AO3/AO4)
- MNCs are a double-edged sword for host countries — they bring jobs and investment but can exploit workers and squeeze local firms.
- Interdependence is risk. Global connectivity lowers costs but makes businesses vulnerable to far-away shocks (a chip shortage in Taiwan stops car factories in Germany).
- MNCs can play countries off against each other — threatening to move unless they get tax breaks, which reduces host-government power.
- Small local firms may not survive MNC competition, so the net benefit to the host depends on the industry and government policy.
- Globalisation can reverse (reshoring, trade wars), so relying on global supply chains is risky.
Language bank: however · on balance · it depends on · double-edged · in the short run … in the long run ·
Worked examples (PEEL)
PEEL = Point → Explain → Example → Link. Use this structure for every written answer.
Worked example 1 — “Explain” (6 marks)
Question: Explain two reasons why a business might become a multinational.
- P (Point): A business becomes multinational to reach larger markets.
- E (Explain): Its home market has a limited number of customers, so selling abroad allows it to grow sales and spread fixed costs over more units.
- E (Example): BreadTalk expanded across Asia because Singapore’s market alone was too small to keep growing.
- L (Link): This larger market increases revenue and profit.
- P (Point): A second reason is to lower costs.
- E (Explain): Producing where labour or materials are cheaper reduces the cost per unit.
- E (Example): Many electronics firms manufacture in lower-cost Asian countries to cut production costs.
- L (Link): Lower costs improve competitiveness and profit margins.
Worked example 2 — “Evaluate” (12 marks)
Question: Evaluate the impact of a multinational business on the host country.
- P (Point — benefit): MNCs bring jobs and investment to the host country.
- E (Explain): They build factories and offices, hire local workers, pay taxes, and train staff, raising incomes and government revenue.
- E (Example): Foreign MNCs in Singapore create thousands of jobs and bring in foreign direct investment.
- L (Link): This boosts the host country’s economic growth.
- P (Point — cost): But MNCs can harm the host country.
- E (Explain): They may pay low wages, send profits back home, out-compete local firms, and damage the environment.
- E (Example): A big foreign retailer may force small local shops to close because it can undercut their prices.
- L (Link): So local businesses and workers can lose out.
- Evaluate (AO4): On balance, the overall impact depends on government regulation — if the host government sets minimum wages, environmental rules and taxes MNC profits, the benefits usually outweigh the costs; without regulation, the negative effects dominate.
Application bank (Singapore quick reference)
| Idea | Singapore example |
|---|---|
| MNC host | Singapore hosts thousands of MNCs (Apple, Google, ExxonMobil, P&G) with regional HQs |
| Singapore MNCs | SIA, DBS, CapitaLand, BreadTalk, Charles & Keith, Wilmar |
| Global connectivity risk | COVID-19 shut supply chains; Russia–Ukraine war raised food & energy prices |
| Trade dependence | Singapore is a small, open economy heavily dependent on global trade |
| Technology transfer | MNCs bring advanced manufacturing know-how to Singapore |
Exam technique
- How it appears: case-study questions may describe an MNC entering a country and ask about the impact on local stakeholders.
- Model skeleton for “impact on host country”: split into positive and negative, link each to a specific stakeholder (workers, government, local firms, environment), then judge overall.
- Common pitfalls: only listing benefits or only costs; forgetting “international connectivity” (events abroad); no Singapore context.
Self-test checklist
Essay practice: “Evaluate the view that multinational businesses bring more benefits than harm to host countries.” (25 marks)