4.1.3 Factors Leading to Increased Globalisation

Question 1

Define ‘globalisation’

Answer 1

• The economic intergration of different countries through increasing freedoms in cross boarder movement of people, goods/services, technology & finance

Question 2

What is one of the main reasons why speed of globalisation has increased?

Answer 2

Trade liberalisation
- This is the removal or reduction of barriers to trade between different countries

Question 2

What are the benefits & drawbacks of trade liberalisation?

Answer 2

Benefits:
- Increased international trade allows businesses to increase their market size - this leads to increased output & countries can benefit from economies of scale
- Freer trade helps businesses to reduce costs as imported raw materials & components can be sourced more cheaply

Drawbacks:
- Domestic firms in particular, infant industries may not be able to compete against international firms
- Some industried may be subject to dumping as businesses abroad may sell excess products at unfairly low prices

Question 3

What are the rest of the main reasons for increasing gloablisation?

Answer 3

• Reduction of trade barriers/liberalisation
• Political change
• Reduced cost of transport & communication
• Increased significance of global transnational companies
• Increased Investment Flows
• Migration (within & between economies)
• Growth of global labour force
• Structural Change

Question 3

How can political change lead to increased globalisation?

Answer 3

• Changes in the government of a country can influence the country’s attitude to trade

Question 4

How can reduced cost of transport & communication lead to globalisation?

Answer 4

• Economies of scale due to innovation in containerisation on large ships has reduced business costs
• Technological advancements due to the internet/mobile technology have improved made it easier for buyers & sellers to connect with one another

Containerisation is a system of freight transport for use in sea shipping that has reduced the transport costs of moving thousands of different goods across the globe

Question 5

How can increased significance of transnational companies lead to globalisation?

Answer 5

• A transnational company is a business that operates in more than one country
• But does not have a single home base. It treats all markets as equally important.
• Decisions & strategies are decentralized, meaning they adapt operations to each country rather than following a single global strategy.

With increasing numbers of transnational companies operating globally, there is an increased pressure by countries to engage in free trade

Question 5

How does increased investment flows (FDI) lead to globalisation?

Answer 5

• FDI is important for job and wealth creation within an economy
• It allows businesses to establish themselves in countries where they may face trade barriers

Question 6

How can migration (within & between economies) lead to globalisation?

Answer 6

• Migration is the movement of people from one location to another

Migration has led to increased globalisation as better transportation & deregulation have allowed workers to have more flexibility when looking for work

Question 7

How can growth of the global labour force lead to increased globalisation?

Answer 7

Global labour force has grown significantly esp due to the growth of emerging economies such as India & China

This has increased globalisation due to the following reasons:

• More people in work means more income to spend on goods/ services boosting global demand
• An increased supply of labour leads to falling wages which is beneficial in reducing business costs (often due to increased competition for jobs- giving employers greater bargaining power offering lower wages since workers are willing to accept less to secure employment
• More people working generates increased levels of entrepreneurship

Question 8

How can structural change lead to globalisation?

Answer 8

• Occurs when a country, industry or market changes which sector of industry they operate in
• E.g. the UK has shifted from the manufacturing sector to the tertiary sector over the last 50 years

Offshoring is common practice and speeds up the process of globalisation
Businesses set up operations in different countries, creating more international trade.
- allows companies to expand internationally, increasing their global presence.

offshoring occurs when a company takes part of its production process & relocates it to a lower cost country