4.1.1 Globalisation Flashcards
Globalisation
A process in which national economies have become increasingly integrated and inter-dependant.
Characteristics of globalisation
● Globalisation refers to the growing interdependence of countries and the rapid rate of change it brings about.
● geographic dispersion of industrial and service activities, for example research and development, sourcing of inputs, production and distribution and the cross border networking of companies, for example through joint ventures and the sharing of assets’.
● It can also be defined as the increasing integration of the world’s local, regional and national economies into a single international market.
● There is movement towards free trade of goods and services, free movement of labour and capital and free interchange of technology and intellectual capital.
Factors contributing to globalisation
• Improvements in transport infrastructure and operations have meant there are quick, reliable and cheap methods to allow production to be separated around the world.
• Improvements in IT and communication allow companies to operate across the globe
• Trade liberalisation and reduced protectionism has made it cheaper and more feasible to trade; this has been occurring since 1945. The breakdown of the soviet bloc and the opening of China has shown a whole area of the world for business to expand into.
• International financial markets have provided the ability to raise money and move money around the world, necessary for international trade.
• TNCs (large companies operating around the world) have led to globalisation by acting to increase their own profit as they want to take advantage of low labour costs. They sell and produce their goods all around the world and have the power to lobby governments (influencing or attempting to influence legislative action or non-action through oral or written communication or an attempt to obtain the goodwill of a member or employee of the Legislature, Congress or covered Executive branch official).
Impacts of globalisation and global companies on: Consumers
Consumers have more choice since there are a wider range of goods available from all around the world, not just those produced in the UK.
• It can lead to lower prices as firms take advantage of comparative advantage and produce in countries with lower costs, for example low labour costs.
● In other cases, it is leading to a rise in prices since incomes are rising and so there is higher demand for goods and services.
● Many consumers worry about the loss of culture.
Impacts of globalisation and global companies on: Workers
● In terms of employment, some people have gained whilst others have lost. There have been large scale job losses in the western world in manufacturing sectors as these jobs have been transferred to countries such as China and Poland.
● Increased migration may affect workers by lowering wages but migrants can also provide important skills and an increase in AD which increases the number of jobs.
● International competition has led to a fall in wages (or reduced growth) for low skilled workers in developed countries whilst increased those in developing countries.
● The wages for high skilled workers appear to be increasing, since there is more demand for their work; this is increasing inequality.
● TNCs tend to provide training for workers and create new jobs.
● Those working in sweatshops (workplace in which workers are employed at low wages and under unhealthy or oppressive conditions) will see poor conditions and low wages, but this is
better than other alternatives.
Impacts of globalisation and global companies on: producers
● Firms are able to source products from more countries and sell them in more countries. This reduces risk since a collapse of the market in one company will have a smaller impact on the business.
● They are able to employ low skilled workers much cheaper in developing countries and can exploit comparative advantage and have larger markets, both of which can increase profits.
● Firms who are unable to compete internationally will lose out.
Impacts of globalisation and global companies on: government
● The government may be able to receive higher taxes, since TNCs pay tax and so do the people they employ.
Eval: However, they could lose out through tax avoidance.
● TNCs also have the power to bribe and lobby governments, which could lead to corruption.
Eval: If the government uses the correct policies, they can maximise the gains and minimise the losses.
Impacts of globalisation and global companies on: environment
● The increase in world production has led to increased demand for raw materials, which of which is bad for the environment.
● Increased trade and production has also led to more emissions.
Eval: However, globalisation means the world can work together to tackle climate change and share ideas and technology.
Impacts of globalisation and global companies on: economic growth
● Globalisation increases investment within countries; the investment of TNCs represents an injection into the economy, and which will have a larger impact due to the multiplier. It creates an incentive for countries to make supply-side improvements to encourage TNCs to operate in their countries.
● TNCs may bring world class management techniques and technology which can have knock on benefits to all industries as these techniques and technologies are available for them too.
● Trade will increase output since it allows exploitation of comparative advantage.
● However, the power of TNCs can cause political instability as they may support regimes which are unpopular and undemocratic but that benefit them or could hinder regimes which don’t support them
● Comparative cost advantages will change over time and so companies may leave the country when it no longer offers an advantage which will cause structural unemployment and reduce growth.
Globalisation synoptic point *
Globalisation has clear microeconomic effects: it has impacts on consumers and producers as well as leading to negative externalities for the environment. It has also contributed to the increasing contestability of markets.
