Globalisation as a driver of business evolution - global supply chains, offshoring and outsourcing, the influence of trade agreements and exchange rates, the opportunities and threats of globalisation, and the implications for how an Australian business evolves and competes

What this dot point is asking

QCAA wants you to explain how globalisation drives an Australian business to evolve: how global supply chains, offshoring and outsourcing, trade agreements and exchange rates change the way the business operates and competes, and how to weigh the opportunities against the threats. Unit 4 assessment commonly gives an evolving business in a global context and asks for an evaluative judgement.

The answer

What globalisation means for business

Globalisation is a major external driver of business evolution: it forces Australian businesses to change how they source, produce, sell and compete.

Global supply chains

A global supply chain spreads the stages of production across countries - inputs from one place, manufacturing in another, assembly and distribution elsewhere - to use the most cost-effective or capable source for each stage.

• Benefit. Lower cost and access to specialised capability the business could not match domestically.
• Risk. Dependence on distant suppliers and exposure to disruption (the pandemic and shipping bottlenecks exposed how fragile long supply chains can be). Many businesses have since pursued resilience through diversifying suppliers or near-shoring.

Offshoring and outsourcing

These are often confused but distinct.

They overlap as offshore outsourcing (contracting an overseas provider), but the dimensions are different. Offshoring lowers cost and accesses overseas capability but adds distance, time-zone, currency and reputational risk. Outsourcing lets the business focus on its core activity but means loss of control and dependence on the provider.

Trade agreements

Free-trade and economic-partnership agreements reduce tariffs and ease market access, lowering the cost and barriers of trading internationally. Australia is party to numerous agreements covering its major trading partners across Asia, the UK and the Americas, which make exporting and importing cheaper and more predictable. For an evolving business, a relevant trade agreement can open a new export market or cut input costs.

Exchange rates

The Australian dollar's value against other currencies directly affects globally engaged businesses.

• A lower AUD makes Australian exports cheaper and more competitive overseas, but makes imported inputs more expensive.
• A higher AUD makes imports cheaper but makes Australian exports dearer and less competitive.

Because exchange rates move constantly and unpredictably, a globally engaged business carries currency risk that it must manage (for example, through forward contracts or pricing in a stable currency).

Opportunities and threats

Implications for the evolving business

Globalisation pushes a business to evolve in several ways: it may reposition to compete with global rivals, redesign its supply chain for cost or resilience, enter export markets to grow beyond a small domestic base, and build the capability to manage currency and cross-border risk. Whether globalisation is net positive depends on the business - an exporter or input-importer with the capability to manage the risks gains, while a purely domestic business with no global advantage may mostly face the threat of new competition.

Examples in context

Example 1. Global supply chain and offshoring - an Australian apparel brand. A growing Australian fashion label designs in Melbourne but offshores manufacturing to factories in Asia to access lower production costs and specialised capability it cannot match domestically. The benefit is a competitive cost base; the risks are shipping disruption (felt acutely during pandemic-era port congestion), exchange-rate exposure when buying in US dollars, and reputational pressure to verify ethical labour standards. The business evolves by diversifying suppliers across more than one country to build resilience and by publishing a supplier code of conduct.

Example 2. Exchange rates and exporting - Australian resources and agriculture. Exporters such as miners and agricultural producers are highly exposed to the AUD. When the dollar falls, their Australian-dollar revenue from US-dollar-priced commodities rises and they become more competitive overseas; when it rises, margins compress. These businesses manage the currency risk with hedging and by competing on cost and quality, and trade agreements with major Asian partners have lowered the barriers to their export markets. This shows globalisation as both opportunity (large export markets) and risk (currency and price volatility).

Try this

Q1. Define globalisation and identify one opportunity and one threat it creates for an Australian business. [3 marks]

• Cue. Globalisation = growing integration of economies and markets across borders. Opportunity: access to larger overseas markets or cheaper inputs. Threat: foreign competition, exchange-rate exposure or supply-chain disruption.

Q2. Explain the difference between offshoring and outsourcing, with an example of each. [3 marks]

• Cue. Offshoring = moving an activity to another country (location), for example running a manufacturing plant in Asia. Outsourcing = contracting an activity to a third party (ownership), for example hiring an external IT support firm. Offshore outsourcing combines both.

Q3. Explain how a fall in the Australian dollar affects an Australian business that exports goods but imports its raw materials. [4 marks]

• Cue. Lower AUD makes exports cheaper and more competitive overseas, raising export competitiveness and AUD revenue; but it makes imported raw materials more expensive, raising input costs. The net effect depends on the balance of export revenue against import costs.