Global Business Strategy
International Trade & Multinational Corporations
Syllabus 6.1.5 & 6.1.6: Understanding competitive forces, multinational impact, and trade agreements
Competitive Forces & Global Players
Supplier Power
The ability of suppliers to influence prices and terms. Power increases when:
Few Suppliers: Limited alternatives = Higher prices
Unique Product: No substitutes available
High Switching Costs: Expensive to change suppliers
Strategic Response: Develop multiple suppliers, vertical integration, or long-term contracts to reduce dependency.
Competitor Rivalry
The intensity of competition between existing firms. High rivalry leads to:
Price Wars: Aggressive discounting to win market share
Lower Profit Margins: Reduced profitability across industry
Innovation Pressure: Must differentiate or compete on cost
Strategic Response: Differentiation through branding, quality, or niche targeting to avoid direct price competition.
Multinational Corporations (MNCs)
Definition:
A business that has operations (production facilities, offices, or subsidiaries) in more than one country. MNCs coordinate activities across national borders to achieve global economies of scale.
Benefits to Host Country
Employment Creation
Direct jobs + multiplier effect on local economy
Tax Revenue
Corporate taxes fund public services
Technology Transfer
Skills training and knowledge spillover
Infrastructure Investment
Roads, ports, utilities development
Drawbacks to Host Country
Labour Exploitation
Low wages, poor conditions in some cases
Profit Repatriation
Money sent back to home country reduces local benefit
Environmental Damage
Pollution if weak regulation enforced
Local Business Destruction
Cannot compete with MNC economies of scale
Trade Blocs & Free Trade Areas
Definition:
Agreements between countries to reduce or eliminate tariffs and trade barriers. Members enjoy free trade internally while maintaining external barriers to non-members.
European Union (EU)
27 member states, single market, customs union
ASEAN
Association of Southeast Asian Nations, 10 members
USMCA
USA, Mexico, Canada trade agreement
Benefits:
- • Lower prices for consumers (no tariffs)
- • Increased exports for member businesses
- • Economies of scale from larger market access
Challenges:
- • Trade diversion (less efficient members favoured)
- • Loss of sovereignty in regulation
- • Non-members face higher barriers
📋 Examiner's Strategic Insight
High-scoring A-Level responses demonstrate contextual judgment, not absolute rules. When evaluating MNC impact, supplier power, or trade agreements, always consider:
- • The specific industry context (tech vs agriculture vs services)
- • Economic development stage (developed vs developing economy)
- • Time horizon (short-term benefits vs long-term sustainability)
- • Stakeholder trade-offs (who wins, who loses, and by how much)
Remember: Business decisions are rarely purely good or bad - they involve strategic trade-offs that depend on circumstances. Your evaluation should reflect this complexity.
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