How has globalisation saved money for businesses?

Answer 1

Globalisation is the actions taken by numerous governments around the world in order to promote a freer trading environment by clearing tariffs. This promotes countries around the world to trade internationally with the freedom that their products will not be up priced and therefore be made more unattractive to buy.

Perhaps I made the local brands sound like the bad guys. Its far from that. In fact, many people object to globalisation and label it the big businesses fault. They're saving money which means they can lower the pricing, which leads to a sales increase, which means they gain more money, which means they can lower the pricing, which leads to a sales increase, which means that they save more money, which means...

... Getting out of that loophole there, the main reason why the largest corporations are pushing for globalisation is that their cheaper prices are easily enough to persuade many more customers to choose their product over their smaller more neutral competitors.

Consider the following scenario: A Korean car manufacturer (whoever, I don't know) can produce cars so they can be sold at a market price of AU $20,000. Meanwhile, down under, An Australian car manufacturer (with access to only some of the mass productive technology that the Korean's hold) can produce the same type of cars so they can be sold at a market price of AU$25,000. Ah, now you're beginning to see the light at the end of the tunnel. Why buy the more expensive Australian model when you can have exactly the same when you buy the Korean model. This is where tariffs come in. They are import taxes.

So say there's an import tax of 20%, equating to AU$4,000. This Korean car now becomes more expensive. Now its 24,000 vs 25,000. All of a sudden that Australian car is starting to give you a gentle nudge with its colourful "made in Australia" badge. With prices just about level, many governments promoting products made in their country swing the consumers decision the other way. If you think it doesn't seem so effective, you'd be surprised.

Tariffs are what prevented countries from freely trading with one another, and that's the problem big businesses had with these things. I mean, once they'd conquered their own country, they hit a big wall which there was rather inconveniently no door to pass through.

Its basically a race. The first company to dominate the national market in their country of origin can expand. Rapidly. Ever heard of Coles and Woolworths? They own 75% of the Australian groceries market between them. Doesn't sound so bad? This is what will probably prevent brands unique to Australia (such as IGA) from going international. Whats the point of growing a business when you haven't even got the biggest base in your company of origin. Sorry, but your business would fail.

The phasing out of the good ol' local brands is where the big boys save money. All the money spent on advertising will soon persuade one customer after another to change.

Lets go back to our Coles and Woolworth's friends. They intentionally carry out a strategy called predatory pricing. They deliberately lower the prices of common groceries like milk and bread drastically, so its way lower than their local competitors. This drives many to switch, and their market share grows and grows and grows and grows and grows and grows and grows and grows and grows and grows and grows and grows and grows and grows and grows...

... and grows.

(Check out the related links section for an awesome video on how Woolworths and Coles have dominated the Australian grocery market).