UK businesses now compete against — and sell to — the whole world, not just the local high street. Exchange rate movements alone can turn a profitable year into a difficult one, with no change to the business itself.
Globalisation is the growing connection between economies, businesses and consumers across the world — goods, services, money and ideas now move across borders more easily and cheaply than ever before. For a UK business, this cuts both ways: it opens up customers on every continent, but it also means competitors from every continent can just as easily sell into the UK.
You've already met one side of this in 3.1.3 and 3.1.7 — international expansion as a business objective, and exporting or overseas growth as a method of expansion. This topic looks specifically at how UK businesses actually compete once they're operating internationally, and at the exchange rate risk that comes with trading across currencies.
It's worth remembering that globalisation isn't simply "good" or "bad" for UK businesses — it depends heavily on whether a specific business is well placed to compete internationally, and whether it primarily buys, sells, or both across borders.
AQA identifies two broad strategies UK businesses use to win customers in a global marketplace, and a well-placed business often blends both.
Competing on innovation, styling or engineering that overseas rivals can't easily match — winning customers who are willing to pay more for something genuinely different or higher-performing.
Combining strong quality control and efficient production (often through the economies of scale covered in 3.1.7) to offer better value than international competitors, without relying purely on being the cheapest option.
The flip side of this is just as important for your exam answers: globalisation also brings overseas competitors into the UK market, often able to offer much lower prices thanks to lower labour costs abroad. A UK business competing purely on price against overseas rivals with a significant cost advantage is often fighting a losing battle — which is exactly why design and quality tend to matter so much for UK businesses trying to hold their ground internationally.
An exchange rate is the value of one currency expressed in terms of another — for example, how many US dollars £1 will buy. AQA won't ask you to calculate an exchange rate conversion, but you do need to understand the direction of the impact when the pound strengthens or weakens against other currencies.
The key distinction to get right is that exporters and importers are affected in opposite ways by the same currency movement — a very common source of confusion in exam answers.
Many UK businesses are affected by exchange rates from both directions at once, exporting some of what they sell while importing some of what they need to produce it — which is exactly why a currency movement can help one part of a business while hurting another part of the very same business.
To see why the direction of the effect works this way, imagine a UK exporter selling a machine part priced at £1,000. If £1 buys $1.30, that part costs an American customer $1,300. If the pound then weakens so that £1 only buys $1.10, the same £1,000 part now costs the American customer just $1,100 — cheaper in their own currency, without the UK exporter having changed its price at all. The reverse happens for a UK importer: if a shipment of materials priced at $1,300 cost a business £1,000 when the pound was strong, that same $1,300 shipment now costs it roughly £1,182 once the pound has weakened — a real increase in cost purely from the currency movement, again with nothing else about the deal having changed.
Drag each consequence into the currency movement most likely to cause it.
State two ways globalisation can affect a UK business.
Structure guide: two correctly identified effects — 1 mark each, no explanation required.
State and explain two ways the weaker pound might affect Elden Engineering.
Structure guide: state an effect grounded in the case study (1 mark), explain it (1 mark) — repeated twice over.
Analyse how the weaker pound might affect Elden Engineering's overall profit, considering both its exports and its imported steel components.
Structure guide: a single developed line of reasoning that follows the effect through, grounded in the case study (eg: the weaker pound makes Elden Engineering's exports cheaper for its German and US customers, who make up 60% of its sales → likely boosting export revenue → but the same weak pound raises the cost of its dollar-priced imported steel components → meaning the net effect on profit depends on which impact is larger).
Recommend what Elden Engineering could do in response to the weaker pound to protect its profit. Justify your answer using the case study.
Structure guide: a "recommend" question needs a justified judgement — consider options such as sourcing steel components from a UK supplier instead, raising export prices slightly while remaining competitive, or accepting the situation given that 60% of output is exported and likely benefiting overall, before reaching a clear final recommendation.