4.2.6.1 Globalisation

Question 1

Define globalisation

Answer 1

• Increasing integration and interconnectedness between the countries of the world

Question 2

Causes of globalisation and its increasing speed

Answer 2

1) Communication improvements, in terms of speed, availability and falling cost of international communications (e.g. online and mobile tech)
2) Transport improvements, in terms of speed and cost reduction
3) Containerisation
4) Increased free trade - reduction of trade barriers has increased the benefits fo foreign trade
5) Closer political ties between countries
6) Abolition of capital controls

Question 3

Define containerisation

Answer 3

• Use of uniform-sized containers for transportation of goods, which significantly reduces the cost of transportation through increased efficiency
• Has generated massive increases in efficiency for firms transporting goods globally

Question 4

Main characteristics of globalisation

Answer 4

• Greater trade between countries
• Higher levels of labour migration between countries
• Increasing capital (money) transfer between countries through FDI and portfolio investment
• Increased regional specialisation - i.e. greater division of labour
• Greater use of outsourcing/offshoring
• Increases in global brands

Question 5

Define outsourcing

Answer 5

• Part of a firm’s production if performed by another firm

Question 6

Consequences of globalisation for more-developed countries

Answer 6

• More ability to outsource production to low-cost countries
• Potential for higher sales by targeting products at fast-growing, less-developed economies
• Exploitation of EoS by producing on a global scale
• Increased competition for firms in developed economies from low-cost producers
• Need to diversify away from manufacturing as less-developed economies utilise absolute and comparative advantage in manufacturing
• Ability for firms to recur globally - may push down wages in the local economy
• Possible ‘brain drain’ - skilled workers seek opportunities overseas

Question 7

Consequences of globalisation for less-developed countries

Answer 7

• Increasing dominance by global brands from developed economies
• Issues of treatment of local workforces - being potentially exploited by global corporations
• Having to adopt free market macroeconomic policies in order to attract FDI
• Having to open up markets to foreign competition, placing local businesses at risk of failure

Question 8

Define multinational corporations (MNCs)

Answer 8

• Businesses that operate in at least 2 countries (AKA TNCs - transnational corporations)

Question 9

Benefits of MNCs to economies

Answer 9

• Employment - MNCs often generate many new jobs and provide a boost to GDP
• Wages - may have to offer higher wages to attract workers
• Tax revenue for govt - from profits generated, Y earned and any extra spending

Question 10

Drawbacks of MNCs to economies

Answer 10

• May pay lowest wage possible
• Impact on employment may be limited - they may bring in skilled labour from developed economies and recruit locally only for less-skilled jobs
• Vague property rights and other regulations in less-developed economies - can be exploited by depleting natural resources
• Tax revenue may not rise if profits are minimised through tax avoidance schemes
• Workers may be treated unethically - may not be provided with clear protection