3.2: Impacts of Globalisation

Question 1

What is the definition of Globalisation?

(don’t need to memorise - just for context)

Answer 1

Globalisation is the growing interdependency among nations.

Question 2

What are the 5 impacts of Globalisation?

Answer 2

• employment levels in developing and developed countries
• global spread of skills and technology
• international cooperation
• domestic market
• tax minimisation (tax havens & transfer pricing)

Question 3

Explain the impact of globalisation on the employment levels in developing and developed countries

Answer 3

( cause )
- globalisation often leads to increased foreign direct investment in developing countries, creating jobs, particularly in manufacutring, servce and techology sectors, which can boost local economies and reduce poverty levels
- there is a risk of labour exploitation, where multinational companies may take advantage of lower wage expectations and weaker labour regulations in developing countries, leading to poor working conditions and limited job security
( effect )

Question 4

Explain the impact of globalisation on the global spread of skills and technology

Answer 4

( cause ) - When businesses outsource overseas, work with foreign partners and/or release new products globally, the skills and technology utilised are exchanged.
( effect ) - By moving manufacturing processes abroad, the local labour force becomes skilled through ongoing support and training provided by business. Developed countries that are particularly strong in certain industries can export their resources to not only generate profit but benefit other nations and strengthen both economic and diplomatic ties.

Question 5

Explain the impact of globalisation on international cooperation

Answer 5

( cause ) - As a result of globalisation, different countries partake in a range of activities leading to international cooperation. Governments can develop free trade agreements to positively improve international cooperation, leading to further globalisation.
( effect ) - With improved international cooperation, it makes the opportunities to trade in and with other countries
more attractive and easier for businesses.

Question 6

Explain the impact of globalisation on domestic markets

Answer 6

( cause ) - The activity of international businesses and globalisation opportunities presented to Australian businesses can be both detrimental and beneficial for domestic markets. With reduced trade barriers imposed by globalisation initiatives, it becomes easier for foreign businesses to be introduced in Australia to compete against domestic businesses.
( effect ) - Foreign businesses sometimes may compete at a loss in order to gain market share due to their other multinational locations being able to mitigate the losses. This in return can diminish domestic businesses’ market share.

Question 7

Explain the impact of globalisation on tax minimisation

Answer 7

( cause ) - Tax minimisation is the right of businesses to reduce their tax obligations through legal means. A business may globalise their operations to a certain country for the sole purpose of tax minimisation; through either a tax haven and/or transfer pricing.
( effect ) - This allows for the business to manipulate its profits by paying the consequent reduced amount of tax.

Question 8

What are two examples of Tax Minimisation?

Answer 8

Tax Havens and Transfer Pricing.

Question 9

Explain Tax Havens

Answer 9

Tax havens are an example of a way for a business to legally reduce their tax obligations. Businesses create parents companies or engage in complicated accounting arrangements to allow their earnings to be transferred to another country that has secretive taxation and low to no tax for foreign residents and businesses.

Question 10

Explain Transfer Pricing

Answer 10

Transfer pricing is the practice of tax minimisation where a multinational business sells goods or services to another part of the same company in a different country. The prices set from the selling company to the middleman company is generally low to minimise the business’ tax obligation. The middleman company is situated typically in a tax haven and attains large, tax-free profit. It resells the goods at a higher price to another internal company in the destination of their choosing. The destination company incurs the high costs and as such obtains a lower profit which is used to minimise the business’ tax obligation