1.2 Globalisation Flashcards
What is globalisation?
Increasing interconnectedness and interdependence of the world economically, culturally and politically
Features of globalisation
- Urban
- Economic - increased trade
- Social/cultural - food and clothing (westernization)
- Languages
- Political
- Demographic (migration)
- Environmental (pollution)
Who are the winners of globalization?
- TNCs higher profit margins and market size
- Consumers cheap goods and choice
- NICs wages and opportunities however economic leakage
- Costs lower
- TNCs seek out lowest cost location
- High volume production reduce inflation
- Improve efficiency
- Economies of scale
- Brands
Losers of globalization
- Local markets flooded with cheap goods low quality
- Workers exploited
- Deindustrialisation in HICs - jobs lost
- LICs miss out on FDI, lose competitiveness and have low growth rates
- Environment
- Primary sector loss
- Brain drain in LICs
What are the causes of globalisation?
- Decreased barriers to trade
- Transport costs down 65%, air freight down 88%
- 800m Chinese out of extreme poverty
- Connectivity in transport and communication
- Exports up 3000%
- FDI 13bn in 1970, 1.8tn today
- 7000 tncs in 90s - now 65,000
- Rising migration
- Outsourcing
- NICs
- Brands
- Tourism
- Cultural diversity
- Capitalism
- Transportation and political alliances
- NIDL
What is the NIDL
Spatial reorganization of the world economy where countries specialize what they are good at and import what they aren’t - HICs shifted most of manufacturing to developing countries
Factors may include low cost labour intensive industries, nearness to growing markets, tax incentives, favourable labour and environmental laws, development of containerisation
What are the patterns of the NIDL?
- Manufacturing decline in HICs imports cheap so uncompetitive
- HICs work in teriary sectors, more profitable
- Many regulations make cost of labour too high
- Raw materials tend to have been exhausted
- NICs attractive to low factors of production cost, heavy export based economies with policies encouraging manufacturing and agglomeration - profit
- Subsidies
- QE
- Low interest - capital investment
- High population growth
- Trade and transport links cheap and easy
-LICs lack infrastructure, state provision, trade links and healthy workforce so often left out.
Costs and benefits of the NIDL
Costs:
- Secondary lost in HIC
- Specialised work boringn and repitive
- Interdependent - risk of shock
- Dumping - countries undercut surplus goods
- More emissions
- Wastage of goods
- Extraction of resources
Goods:
- Higher productivity, cheaper products and more exports
- SOL and growth
- companies grow, innovate
- Lower cost
- Higher wages
- Workers efficiently allocated and trained
- Economic growth reinvested into industry and infrastructure
- Less environmental degradation from HICs as industries shut down
What is FDI and TNCs?
FDI is when a company or individual buys a company in another country or expands an existing business in the country. May be added to the national account. Does not include investment in stocks and bonds, may include M&As of existing companies in host company
TNCs are the main source as they invest to make profit. Capitalist enterprises in multiple countries.
- Influence on the global economy - major role in what and where goods are bought and sold
- FDI up to $1.8tn - 39% in HICs, 54% into MICs, 7% in LICs
Positives and negatives of FDI
Pros:
- Capital
- Infrastructure
- RnD
- Tax revenues
- Skills
- Productivity and Efficiency
- Corporate government standards
Cons:
- Few skilled workers
- Repatriated profits
- Cost of manufactured goods too high for locals to buy
- Imported products increase debt
- Local resources exploited
- Mechanisation reduces demand for labour
- TNCs shut down production in a country
Benefits/cons for countries, TNCs and origin country
Host:
- jobs, wages, tech, skills, multiplier
- poor conditions, exploited resources, environment, culture, leakage, repatriation
TNC:
- low cost, new resources, less regulations
- ethical issues, image, morality, reputation lost
Origin:
- Cheaper goods, specialise in quaternary, R&D, t and q
- Loss of manufacturing jobs, deindustrialisation, structural unemployment
Why may firms want to become transnational?
- EofS
- Cheap labour
- Supply of resources
- Converts to stronger currency
- Competitive advantage
- Pollution elsewhere
- Sells domestic goods producing elsewhere
- Avoids tariffs and regulations
- Bigger market access
- Higher profit margins - low cost higher revenues
- Higher demand
- Cheaper capital
- Investment and dynamic efficiency
What have caused growth of TNCs
- Middle class
- Containerisation
- Bigger markets
- Large low pay job markets
- SEZs
- Tech and comms
- FDI
- Freight costs down
- NICs
- BRICs
- Political stability and relations
What is the structure of a TNC
- HQ located in global city where founded - may be other regional or continental headquarters
- R&D and marketing similar but usually in same regions as HQ
- Production and branch plants located overseas divided into world regions
- Distribution plants also overseas
What are the different types of TNC?
Horizontal integration - common in motor industry - individual plants take advantage of EofS, taking over multiple of same firm e.g. VW owns Audi, Bentley
Vertical integration: each branch carries out separate part of production process and distributed by container to final assembly plant. Supply chain entirely owned by the company who sell the product so have full control over the supply chain
Closed: tightly integrated developed by the main TNC hub, e.g. Apple and Nestle - lack alternative suppliers for some of the key machinery as have monopsony power
Open: loosely integrated composed of supplies of generic parts for many companies - often cheaper and if one supplier fails many substitutes
