EQ1- 3.3 Flashcards
Measures of globalisation
- AT Kearney
- KOF index
AT Kearney index
Measures how globalised a city has become by looking at different factors such as FDI. It involves an annual survey that tracks the impact of different factors.
It measures factors across 4 categories:
- Economic integration: such as trade and FDI flows
- Technological connectivity: such as number of internet users
- Political engagement: such as IGO memberships
- Personal contact: such as tourism
The lowest value is given a 0, the highest is given a 1 and then relative values are given to the ones in between. FDI, internet and telephone traffic is weighted double. All scores are then summarised.
AT Kearney index
- strengths/weaknesses
Strengths:
- Allows for a comparison between countries and a comparison over time
- It is considered more holistic than the KOF index. For example, it looks at the number of web servers rather than just internet communications
- It covers 96% of the worlds GDP and 84% of the world population.
Weaknesses:
- Hard to measure cultural trends
- Only 64 countries are included in the index
- Who decides on the weightings?
- Smaller countries tend to take the top places in the index due to higher importance of FDI, therefore suggesting an over importance of the size of a country
- Not statistically significant
KOF index
Measures the rate of globalisation in different countries using a scale from 1-100, 100 being the most globalised, using the following indicators:
- Political (39%) such as membership of IGOs and trade blocs
- Economic (37%) such as FDI and flows of goods, services and capital
- Social (24%) such as information flow through internet users and tourist numbers
KOF index
- strengths/weaknesses
Strengths:
- 24 variables that cover the three main areas of globalisation (economic, social and political) so it covers a wide range of globalisation data
- Data is collected from a variety of sources, which increases the reliability
- It has been calculated for a large number of countries over a long period of time
- Employs a weighting system that reduces the affect that missing data would otherwise have on the total score given for a country
- Variations in data are prevented from impacting the overall value by using principal components analysis to determine the weighting of the sub-indices
Weaknesses:
- It is manipulated differently by different countries such might make it an unreliable way to compare the globalisation of different countries as data is collected from a variety of sources.
- It doesn’t take into account all aspects such as the environment
- Not all measures are accurately found such as internet usage
- Results are sometimes driven by extreme outlying observations and missing values
Other measures of globalisation
- GNI (Gross National Income) is the value of goods and services by a country
- PPP (Purchasing Power Parity) is the expenditure of a country’s population
- Income per capita is the mean average income per person
- GDP (Gross Domestic Product) measures the total value of goods and series produced in a country.
Types of reasons why some locations might remain switched off from globalisation
- Physical (landlocked/long distance from economic cores)
- Political (corrupt government/conflicts/dictatorship)
- Economic (low education levels which reduces worker skills)
- Environmental (harsh climate leading to low agriculture potential)
Switched off definition
Places that are poorly connected to other places through production and consumption of goods and services
Switched on definition
Places that are strongly connected to other places through production and consumption of goods and services
Examples of switched off places
North Korea and The Sahel region
Switched off case study: North Korea
Location: East Asia, sharing borders with China, Russia and South Korea
Leader: Kim Jong-un
Political reasons:
- Run by a dictatorship which allows limited access to the outside world. People are not able to access the internet and many sites are banned such as Facebook.
- Completely state owned, everything censored. People have no benefit from most cheap goods that could be imported from abroad.
- Tourism is banned as people are not able to move abroad
Economic reasons:
- Minimalised trade with countries
- Mismanagement of resources and economy
However, it does trade with China, employing 52,000 people on border with South Korea
Switched off case study: Sahel region
Location: an area of North Africa that consists of a group of countries such as Mali
Physical reasons:
- Most of its countries are landlocked, they rely on poor quality roads and need to pass through neighbouring countries to access coastal ports. This makes them switched off from global trade flows.
- High transport costs may make exports unattractive in foreign markets and deter FDI
Environmental reasons:
- Semi-arid climate makes agricultural exports reliant on a good rainy season
- Climate change increasing aridity, leading to desertification, leading to reduced land area available for producing agricultural exports
Economic reasons:
- Poor infrastructure and low literacy levels of the working age population make it unattractive for offshoring FDI
- Low income levels mean a lack of market size to attract FDI. Only a few households can afford to purchase imported goods or engage in foreign tourism
However, some TNCs have invested in primary resource extraction e.g. cotton production in Mali.
Role of TNCs in globalisation
-production networks
TNCs help globalisation to spread through their global production networks or global supply chains. TNCs do different parts of their operations in different countries to benefit from things like cheaper labour or more relaxed environment rules.
Role of TNCs in globalisation
- Offshoring defintion
Is where a TNC moves parts of its production process to other countries.
This is often developing countries where production costs e.g. labour are lower.
Role of TNCs in globalisation
- Outsourcing definition
Is where a TNC gives a contract to another company to complete part of their work.
For example, they might outsource their call-centres to parts of the world where labour costs are lower.
Many global TNCs do not make all of their products themselves and outsource the production. They simply attach their branding and logo to the good.
Risks of outsourcing
Outsourcing and having a global production network also brings risks with it. The TNC loses some of its direct control over the production of its goods.
For example, the horse-meat scandal in the UK in 2013, where UK supermarkets were unaware of horse-meat being used in some dishes.
Offshoring example
Apple IPhones are assembled by Foxconn in China, but IPhones are ‘Designed in California’.
Outsourcing example
BT outsources some of its call centre work to India to benefit from lower labour costs there. The large English-speaking population of India means that it is possible to have the call-centres of a British TNC in another country.
Role of TNCs in globalisation
- glocalisation
TNCs use glocalisation to help spread globalisation. This means that they adapt their products to the needs of local consumers.
For example, lots of global food TNCs offer a different menu in India where beef is not eaten. Since 2012, McDonald’s has served the McVeggie and McSpicy Paneer in India.
Sometimes glocalisaiton reflects the different laws in different countries. For example, BMW makes right-hand drive cars for the UK because we drive on the left, whereas in Germany cars are left-hand drive.
Role of TNCs in globalisation
- new markets + glocalisaiton
TNCs use the development of new markets to benefit from glocalisaiton. As countries develop and their populations have higher disposable incomes to spend on ‘luxury’ items. TNCs are able to across new markets and sell their products in these countries.
Role of TNCs in globalisation
- economic liberalisation
TNCs take advantage of economic liberalisation. They take advantage of the removal of barriers to trade to earn more profit and increase their market share.
TNCs use outsourcing and offshoring to make sure that they are able to maximise their profits by minimalizing the costs of producing their goods.
Role of TNCs in globalisation
- spreading goods
TNCs promote globalisation by spreading their goods (products) around the world which in turn also spreads their culture to other areas in the world. This is known as cultural diffusion.
TNCs importance in globalisation
- TNCs are very influential to a country’s level of globalisation and interconnectivity; some TNCs have larger revenues than entire countries GDPs.
- TNCs create links between countries
