You are viewing a free preview of this lesson.
Subscribe to unlock all 21 lessons in this course and every other course on LearningBro.
Spec mapping: AQA 7138 Unit 3.3.3 — Strategy (refer to the official AQA specification document for exact wording). This lesson develops the international-environment dimension of strategic-position analysis at A-Level depth — the analytically loaded set of drivers of globalisation (trade liberalisation, communication technology, transport cost, capital mobility), the equally analytically loaded set of recent reversals of globalisation (Brexit, US-China tensions, Russia-Ukraine, COVID supply-chain rethink, friend-shoring and near-shoring), and the strategic-choice consequences for UK firms. The 15-mark Evaluate prompt on this lesson asks whether a hypothetical mid-market manufacturer should accept higher cost and lock in supply-resilience or maintain low-cost offshore production with diversification — the canonical 2020s "globalisation in retreat" strategic decision. Phase 2 depth here requires moving beyond the textbook "globalisation = integration" framing to engage the structurally important globalisation slowdown of the 2016-2025 period.
Connects to:
Definition: Globalisation is the increasing integration and interdependence of the world's economies, cultures and populations — measured by cross-border flows of goods, services, capital, people, information and ideas. For businesses, it means that markets, supply chains, competition and opportunities are increasingly international rather than national. Crucially, globalisation is not a one-way ratchet — the 2016-2025 period has seen a structural slowdown and partial reversal in several globalisation dimensions, with consequential implications for business strategy.
Three features of contemporary globalisation are strategically essential at A-Level depth:
The 1980-2015 period was the most rapid globalisation phase in economic history. Six drivers compounded:
| Driver | Mechanism | Worked example |
|---|---|---|
| Trade liberalisation | WTO (founded 1995, succeeded GATT), regional trade agreements (NAFTA, EU single market, ASEAN), bilateral free-trade deals dismantled tariffs and quotas | China's WTO accession in 2001 accelerated its integration into global supply chains; UK-EU tariff-free trade through single-market membership underwrote 30+ years of integrated supply chains |
| Communication technology | Internet, email, video conferencing, mobile telephony reduced the marginal cost of coordinating internationally distributed activity to near-zero | A UK firm can manage a Vietnamese supplier through Zoom, track shipments through GPS, and process payments through SWIFT instantly |
| Transport cost reduction | Containerisation (Malcolm McLean's 1956 innovation), increasing ship size (the largest container ships now carry 24,000+ TEU), air-freight capacity expansion | Container shipping cost from China to the UK fell by over 90 % between 1970 and 2020 (the post-2020 spike is the exception, not the trend) |
| Capital-market liberalisation | Deregulation of financial markets allowed capital to flow internationally to seek the highest risk-adjusted returns | London's growth as a global financial centre depended on openness to international capital from the 1980s "Big Bang" onwards |
| Multinational-corporation growth | Large firms built integrated global supply chains, sourcing components and finished goods from multiple jurisdictions | Apple designs in California, manufactures in China and Vietnam, sources components from Japan, South Korea, Taiwan and Germany, and sells in 175+ countries |
| Political opening | Fall of communism (1989-91), China's economic reforms (from 1978), India's 1991 liberalisation, EU enlargement opened previously closed markets | China's manufacturing-led growth from 1978 onwards transformed global manufacturing geography |
The cumulative effect was the China shock in developed-country manufacturing: UK, US and European manufacturing employment declined as production moved to lower-cost jurisdictions, while consumer prices for manufactured goods fell, real wages stagnated in some Western middle-income brackets, and corporate profits rose. The political economy of these distributional consequences is now central to the globalisation slowdown.
The 2016-2025 period has seen a structural shift. Six interacting drivers explain the slowdown:
| Driver | Mechanism | Strategic consequence |
|---|---|---|
| Brexit (2016-2020) | UK withdrawal from EU single market and customs union reintroduced tariffs, customs paperwork and regulatory divergence | UK-EU trade volumes fell materially; many UK firms shifted to EU production or distribution to maintain frictionless access |
| US-China trade tensions (2018-) | Trump-era tariffs on Chinese imports (Section 301, ~25 % on $370bn of goods); Biden-era continuation and selective expansion; second Trump-administration 2025 tariff escalation | US firms diversified supply chains away from China toward Vietnam, Mexico, India ("China + 1" strategy) |
| COVID supply-chain shock (2020-2022) | Semiconductor shortage, shipping-container scarcity, port congestion, lockdown-driven production stoppages | Firms realised that just-in-time, single-source international supply chains carry catastrophic-failure risk that exceeded their pre-COVID risk pricing |
| Russia-Ukraine war and sanctions (2022-) | Western sanctions on Russia; Russian gas-supply weaponisation in Europe; broader recognition of geopolitical supply-chain risk | European energy strategy restructured rapidly; firms with Russian operations or supply exposure exited at substantial cost |
| Friend-shoring and near-shoring | US Inflation Reduction Act (2022) and CHIPS Act (2022) subsidise domestic and allied-jurisdiction production; EU Critical Raw Materials Act (2023); UK Critical Minerals Strategy | Manufacturing investment is increasingly directed toward politically aligned ("friend") and geographically proximate ("near") jurisdictions |
| Sustainability and ESG (Annex 8 #d9) | Carbon-emission disclosure requirements, scope-3 supply-chain emissions accounting, and consumer/investor pressure for ethical sourcing | Long, opaque international supply chains face structural sustainability-cost pressure; shorter, more visible chains command pricing premium |
The cumulative effect is a strategic-frame shift from "minimise cost through global integration" to "balance cost against resilience, geopolitical exposure and sustainability". This shift is not a return to autarky — globalisation in digital services, financial flows and high-value manufacturing remains substantial — but it materially changes the calculus for offshore-vs-near-shore supply-chain decisions.
flowchart TD
Drivers["Globalisation drivers:<br/>trade liberalisation,<br/>communication tech,<br/>transport cost,<br/>capital mobility"] --> Integration["Integration phase<br/>1980-2015:<br/>cost-minimisation default"]
Integration --> Shock["Structural shocks 2016-2025:<br/>Brexit, US-China tensions,<br/>COVID, Russia-Ukraine,<br/>friend-shoring policy"]
Shock --> Rebalance["Strategic rebalance:<br/>cost vs resilience"]
Rebalance --> Offshore["Continue offshoring:<br/>lowest unit cost,<br/>highest geopolitical exposure"]
Rebalance --> NearShore["Near-shore / friend-shore:<br/>higher unit cost,<br/>shorter chain, lower exposure"]
Rebalance --> Reshoring["Re-shore to domestic:<br/>highest unit cost,<br/>maximum control and resilience"]
Offshore --> Outcome["Strategic outcome:<br/>cost structure,<br/>resilience profile,<br/>stakeholder exposure"]
NearShore --> Outcome
Reshoring --> Outcome
style Integration fill:#15803d,color:#fff
style Shock fill:#b91c1c,color:#fff
style Outcome fill:#1d4ed8,color:#fff
The diagram captures the structural shift: pre-2016 strategic default was integration-for-cost-minimisation; the 2016-2025 shocks have forced an explicit rebalancing between cost, resilience, geopolitical exposure and sustainability that earlier generations of strategy took for granted.
Emerging economies (also called emerging markets) are countries experiencing rapid economic growth and industrialisation but that have not yet reached the income levels and institutional maturity of developed economies. They are simultaneously production locations (low-cost manufacturing, services off-shoring), consumer markets (rising middle class) and competitive challengers (emerging-market multinationals expanding internationally).
| Country/group | Strategic significance |
|---|---|
| China | World's second-largest economy; dominant global manufacturing hub through 2000s-2010s; rapidly growing consumer market; centre of US-China tariff tensions; technology-policy frontier with the EU and US |
| India | World's fifth-largest economy (now overtaking the UK on some measures); young population (1.4bn+); strong IT services sector; emerging electronics-manufacturing hub for "China + 1" diversification |
| Brazil | Largest South American economy; rich in natural resources (agricultural commodities, iron ore); large domestic market |
| Russia | Major energy and mineral exporter; heavily sanctioned since 2022; structurally diminished as a Western trade partner |
| MINT (Mexico, Indonesia, Nigeria, Turkey) | Large, young populations; growing middle classes; significant economic potential |
| Vietnam | Major beneficiary of "China + 1" supply-chain diversification; rapidly growing manufacturing base |
| Mexico | Major beneficiary of near-shoring for US-market production; USMCA membership underwrites tariff-free North American access |
| Factor | Mechanism |
|---|---|
| Large and growing consumer markets | Rising incomes create demand for consumer goods, branded products, financial services, technology and education |
| Low-cost production | Wage rates in many emerging economies remain materially lower than in the UK/EU; manufacturing-cost advantage persists despite recent wage inflation |
| Natural-resource endowment | Many emerging economies are rich in raw materials critical to industrial and energy-transition supply chains |
| Diversification opportunity | Operating in multiple emerging-market geographies reduces dependence on any single market |
| Competitive-challenger emergence | Emerging-market multinationals (Chinese, Indian, Brazilian) are increasingly significant competitors in developed-country markets |
| Challenge | Mechanism |
|---|---|
| Political instability | Government policies may change unpredictably; regulatory unpredictability raises investment risk |
| Weak institutional frameworks | Intellectual property protection, contract enforcement and regulatory standards may be unreliable |
| Infrastructure gaps | Roads, ports, energy supply and telecommunications may be inadequate in some regions |
| Cultural distance | Business practices, negotiation norms and consumer preferences vary significantly |
| Currency risk | Exchange-rate volatility affects the value of foreign-currency revenues, costs and asset positions |
| Ethical-sourcing concerns | Labour standards, environmental regulation and human-rights protections may fall below developed-country norms — and create reputational risk under Carroll's CSR pyramid (Annex 8 sophisticated concept #a11) |
| Reason | Mechanism | Worked example |
|---|---|---|
| Access to larger markets | The UK domestic market is too small for many UK firms to achieve their scale potential | ARM Holdings (Cambridge-based chip designer) earns the vast majority of its revenue outside the UK — the domestic market alone could not sustain its R&D spend |
| Economies of scale | Selling internationally allows fixed costs to be spread over larger output | Rolls-Royce sells aero engines globally because the UK airline market alone could not justify the engineering investment |
| Risk diversification | Operating across multiple international markets reduces dependence on any single economy | Unilever generates revenue in 190+ countries; a UK or EU recession is partially offset by emerging-market growth |
| Access to cheaper inputs | Raw materials, components and labour may be cheaper internationally | UK clothing retailers source production from Bangladesh, Vietnam, Pakistan; UK food retailers source agricultural produce globally |
| Exploiting unique capabilities | Firms with internationally valued capabilities (engineering, branding, IP) capture premium returns from international sales | Rolls-Royce engineering, Burberry branding, ARM chip design, AstraZeneca drug development |
| Following internationalising customers | Service firms internationalise to serve multinational clients | Deloitte, PwC, Linklaters and other professional-services firms operate globally to serve multinational corporate clients |
| Government incentives | Host countries may offer tax breaks, grants or regulatory concessions to attract foreign investment | Nissan's Sunderland plant has historically benefited from UK regional-development incentives |
| Extending product life cycles | Products in mature or declining UK markets may find growth in less-developed international markets | UK tobacco firms have grown in developing-country markets as smoking declines in the West |
Highmeadow Components is a hypothetical UK mid-market manufacturer of precision automotive components, established 1991, currently turning over £74m a year with three production sites — a Birmingham-based UK production facility (£26m revenue, 180 employees), a Wuxi (China) facility opened in 2011 (£32m revenue, 420 employees), and a Polish facility opened in 2017 (£16m revenue, 95 employees). The 2024-2025 trading position is challenging: Chinese unit-production cost has risen ~22 % over five years (wage inflation, energy cost); container-shipping rates from China are 35-50 % above 2019 levels with structural volatility; the firm's largest UK customer (a Tier-1 automotive supplier) has notified Highmeadow that from 2026 it will preferentially source from UK-or-EU production for "supply-chain resilience" reasons; UK-China tariff exposure increased materially after 2024 trade policy shifts; the Birmingham plant is operating at 78 % capacity utilisation; Polish wage costs have risen ~18 % over three years. The board is debating two strategic responses for 2025-2028. Option A — accept higher cost and lock in supply-chain resilience: invest £14m in expanding the Birmingham plant by ~40 %, scale down Wuxi production by ~30 % over 36 months (with ~120 Wuxi redundancies and £4m one-off restructuring cost), and reposition the firm as a UK-and-EU-near-shore-anchored supplier; total programme cost £18m; expected 5-7 year payback; gearing rises from 28 % to ~48 %. Option B — maintain low-cost offshore production with diversification: maintain Wuxi at current scale, invest £6m in a new Vietnamese production facility (60 employees, £5m incremental revenue capacity) to diversify the Asian production base and reduce single-country-China exposure, accept the Tier-1 customer's preference-shift as a manageable revenue risk; total programme cost £7m; expected 4-5 year payback; gearing rises from 28 % to ~36 %.
Figures and company are fabricated for illustrative purposes; not affiliated with any actual business.
Evaluate whether Highmeadow Components should pursue Option A (accept higher cost, lock in supply-chain resilience) or Option B (maintain low-cost offshore production with diversification) in response to the 2024-2025 trading position. (15 marks)
| AO | What the question rewards | Mark weighting on this 15-mark item |
|---|---|---|
| AO1 | Knowledge of globalisation, near-shoring, offshore vs onshore production, supply-chain resilience | ~3 marks |
| AO2 | Application to Highmeadow — £74m revenue, three-site structure, Chinese cost inflation 22 %, container rate inflation, Tier-1 customer preference-shift, gearing trajectories | ~3 marks |
| AO3 | Analytical chain — capital structure consequences, stakeholder consequences (Wuxi redundancies), customer-relationship consequences, geopolitical-exposure analysis | ~5 marks |
| AO4 | Evaluative judgement — structurally specific recommendation, conditional fall-back, ≥2 Annex 8 concepts in Top-band | ~4 marks |
Highmeadow Components must decide whether to accept higher cost and lock in supply-chain resilience (Option A — £18m UK expansion, Wuxi scale-down, Birmingham plant expanded ~40 %) or maintain low-cost offshore production with diversification (Option B — £7m Vietnamese facility, Wuxi maintained, Tier-1 customer preference-shift accepted as managed risk). Both are legitimate strategic responses to the trading position, but they have very different financial and stakeholder profiles.
Subscribe to continue reading
Get full access to this lesson and all 21 lessons in this course.