Economic Impacts on Companies

Higher profits

With FTAs, the countries involved will have to allow MNCs to enter and benefit from the terms of the FTA. MNCs will be able to set up operations in other countries – gaining access to raw materials, land, labour and also markets to sell their finished goods. Very often, MNCs will then be able to lower their costs and increase profits.

Example

• Apple able to reap higher profits due to globalisation
• Assembly done in China
• Camera sourced from Japan
• Processor from Korea

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• Developments in technology and transportation:
  • Take advantage of lower cost of labour and raw materials in other economies
• Sell their products to many markets around the world

Lower profits

While globalisation increases access for companies to shift production and sales overseas, they are also exposed to increased competition from other companies in the global economy. Companies have to think of innovative ways to increase their market share and try ways and means to lower their cost of production. When FTAs are signed or in an open economy such as Singapore, companies are not protected by artificial barriers. If they are not innovative and bring down costs (adapt), they will have to close down or be sold to bigger players.

Example

• Carrefour - French hypermarket chain
• 2012 - Carrefour closed its only branch in SG after 15 years

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• Unable to compete with other companies offering similar products
• Lost market share
• Forced to close down