Global systems and global governance Flashcards
Globalisation
A process by which national economies, societies and cultures have become increasingly intergrated through the global network of trade, communication, transportation and migration
International capital flows
The movement of money for the purpose of investment, trade, or business production across international borders
- Deregulation of world financial markets meant that the activities of financial institutions like banks and insurance companies were no longer confined within national boundaries
BRIC
Acronym used to identify a group of four countries
Brazil Russia India China
Economies rapidly advancing since 1990’s
MINT
Acronym referring to more recently emerging economies
Mexico Indonesia Nigeria Turkey
Emerging economies
Rapid growth of large and medium developing countries means there is a more continuum of development
Foreign direct investment
Investment mainly made by TNCs based in one country, into the physical capital or assets of a foreign enterprises. Investing company may make this investment in a number of ways e.g setting up a subsidiary company, acquiring shares
Repatriation of profits
TNCs investing in overseas production will normally take any profit made from investment back to their home country (economic leakage).
Majority of these flows return to companies based in richer countries
Economic leakage
A loss of income from an economic system. Income ‘leaked’ from a country recieving investment to its base country by transnational companies.
Aid
Important source of financial support for poor countries, taking many forms
- Can be provided by UN (multilaterally) from richer countries contributions (ODA- Official Development Assistance)
- Provided bilaterally from one government to another with mutual co-operation conditions applied
Migration
Majority of out-migration of labour takes place from poorer to richer countries.
- Exacerbates disparities as less developed nations lose their most skilled and talented labour who now pay taxes and spend much of their earnings in destination country
Remittance payments
Transfers of money made by foreign workers to family in their home country.
- India is the world’s top recipient of remittances with its diaspora sending US $79 billion back home in 2018
Flows of labour
The movement of people who move to work in another country.
- Not as free flowing as financial markets as people move less easily due to restrictions by immigration
- Phenomenal rise in migrants over few years for employment opportunities
Flows of products
The movement of goods and assets
- Increased significantly in recent years by demand from affluent countries combined with low production costs in exporting regions of China and south east Asia
Faciliation of product movement
- Reduction of transaction costs by improvements in flows of data and the ease by which capital can be transferred to pay
- Reduction of transport and time by the process of containerisation enabling more complex and long distance flows. Air transport also speeds delivery reducing costs of more valuable or perishable cargo
- Reduction of tariffs in global trade by World Trade Organisation decreasing regulatory barriers of trade
- Regional trading blocs provide tariff free trade to member nations in bloc
What is containerisation?
A system of standardised transport that uses large standard sized steel containers to move goods.
- Containers transferred by ships, trains and lorries in a cheaper, efficient method
What is protectionism?
A deliberate policy by government to impose restrictions on trade in goods and services with other countries by protecting home based industries from foreign competition
Tariffs
A tax or duty placed on imported goods intending to make them more expensive to consumers so they dont sell cheaper than home based goods (protectionism)
Flows of services
The movement of economic activities traded without the production of material goods e.g financial or insurance services
Sub divisions of services
High level services
Low level services
High level services
Services to businesses such as finance, investment and advertising
- concentrated in more developed cities (London, New York) in major centres of global finance
Low level services
Services to consumers such as banking, travel and tourism, call centres and communication services
- Most have decentralised to the developing world e.g call centres moving from UK to India where labour costs are 20% lower attributing to India’s economic success
Footloose services
Many services such as banking and advertising depend on communication and the transfer of information and so they are footlose, able to locate anywhere and serve the needs of customers worldwide with advancing technology
Flows of information
The movement of people through migration and the speed of data and communication transfers. This transfers cultural ideas, language, industrial technology and management support.
How has digitisation and satellite technology transformed flows of information?
- Improved global telephone networks making communication cheaper and easier
- Mobile telecommunication technology
- Email and the internet enabling large amounts of info to be exchanged instantly across the globe
- Media coverage available on a global scale
Knowledge-intensive goods and services
Quaternary sector of an economy expanded by flows of information. They include things with intensive research and development (R&D) required with highly skilled and educated labour.
- high tech products like pharmaceuticals
- computer technology
- business services like international law and accounting
What is marketing?
The process of promoting, advertising and selling products or services
Global marketing
A company becoming a global marketeer means it views the world as one single market and produces products that fit various regional marketplaces. It develops a recognisable ‘brand’ and employs one marketing strategy to advertise the same or similar products to customers globally
- Generates economies of scale reducing their costs
Example of a global marketeer
- Coca Cola
Single product
Minor elements tweaked for different market
Uses same formulas for all its markets
Bottle design recognisable in every country yet sizes and shapes conform to country’s standard
International division of labour
Created by globalisation with two recognisable groups
- The highly skilled, highly paid, decision making, research and managerial occupations largely concentrated in more developed countries
- The unskilled, poorly paid assembly occupations located in newly industrialising countries with lower labour costs
Economies of scale
The cost advantages that result from larger size, output or scale of an operation.
- Savings made by spreading costs or by rationalising operations
Newly industrialised countries
Previously less economically developed
- Developed their own industrial and commercial bases and markets for goods and services
- TNCs also emerged from these countries extending their global influence
(BRIC + tiger)
- This is leading to the development of regions surrounding these new ‘cores’ particularly south east Asia
Asian tiger
Four asian economies
Hong Kong Singapore South Korea Taiwan
Changes in patterns of production
Over last 40 years, manufacturing has decentralised moving away from highly developed economies to emerging economies
Factors for the patterns of production
- Global shift
- lower land and labour costs
- government incentives (tax breaks, special economic zones) encouraging TNCs to invest and relocate production abroad
- transfer of technology by TNCs enabling developing countries to increase productivity without raising wages
Factors for the patterns of production
- Entrepeneurs of large manufacturing companies and locational decisions
- availability of a skilled and educated workforce
- opportunity to built new plants with latest and most productive technology
- access to large markets without tariff barriers
- availability of infrastructure like power supply, roads and ports
Ways HICs attempt to reduce deindustrialisation in the manufacturing sector
- encourage TNCs to invest in deindustrialised regions by offering incentives
- encourage investment in skills and technology to upgrade manufacturing globally
- adopting more protectionist policies such as import tariffs, to protect domestic production (can make home industries uncompetitive globally so counterproductive)
Impacts of the global shift
Rise in political reaction, populist and nationalist movements in HIC’s attributed to decline of living standards in areas suffering from deindustrialisation
- Key driver of 2016 Brexit vote in UK and Donald Trumps election win
Populism movement
Populism is a range of political stances that emphasise the idea of the common people and often position this group in opposition to a perceived elite group.
Changing patterns of distribution and consumption
Product consumption still lies predominantly in the richer countries of the developed world with products manufactured in NEEs largely exported to Europe, North America and Japan.
This is beginning to change however, with more NEEs gaining affluent populations they are demanding similar consumer products to those in HICs
- Dyson in UK moved manufacture of products to Malaysia iin 2002 and itss HQ too Singapore in 2019. 75% of its significant growth came from Asia in 2017
Factors in globalisation
communication technologies
financial systems
transport systems
security systems
management and information systems
trade agreements
Factors in globalisation
- Communication technologies
The digital age has made very few barriers to prevent the sharing of information and the flow of data globally, links between nations have significantly grew by
- development of computer technology
- advent of the internet enabling speedy 24/7 global communication
- the use of mobile phones (nearly 7 billion mobile phone subscribers worldwide)
- computer control and robotics technologies intergrating manufacturing technology
- computerised logistics systems evolving to support supply chain distributions
Factors in globalisation
- Financial systems
- the world became increasingly financially intergrated in the 80s and 90s due to financial deregulation, making it easier to move finance across borders to trade and invest in other countries
- the Global Financial System GFS provides a framework to facilitate flows of capital for the purposes of financing investment and trade
- intergration of developing countries into GFS helped reshape international trade
- high speed electronic transmission systems and global exchange connectivity means that transactions of trade can be secure with fewer concern of rates
(negative of deregulation and the free movement of capital is that it leaves the system exposed to volatile capital flows, which triggered the global bnaking crisis in 2008-2009
Factors in globalisation
- Transport systems
Products and commodities being shipped more quickly in larger quantities to ease international trade
- increased aircraft size and air traffic network
- growth of low cost airlines
- use of standardised containers by sea, rail, road and air
- handling and distribution efficiencies
- high speed rail networks
Factors in globalisation
- Security systems
Globalisation has caused several security issues, easier travel means more fluid flows of products and people but also a number of threats
- terrorism
- food imports
- biosecurity
- cybercrimes
- supply chains
Initiative have been put in place to mitigate these threats, Interpol enables police all around the world to fight international crime and The World Security Customs Organisation has introduced ‘Authorised Economic Operaters’ to tackle issues relating to trade security
Factors in globalisation
- Management and information systems
- higher order business activities (research and development, marketing and advertising) based at corporation headquarters and strategic hubs around world
- lower order activities (production and assembly) located at low production cost locations or near large markets
- global corporations focusing on key strategic activities increasingly outsourcing non strategic activities
- rapid growth of the logistics and distribution ‘solutions’ industry
Factors in globalisation
- Management and information systems
(information)
Global value chains have been enabled by information systems giving businesses
- virtually free telecommunications and video conferencing
- intergrated ICT management supplied by third party service providers (Infor Nexus) to facilitate greater supply chain organisation
Factors in globalisation
- Management and information systems
management
Large companies operating to produce and distribute goods and deliever services worldwide, in manufacturing to benefit from this these companies invest in
- large production and assembly plants capable of exploiting the most advanced technology
- global marketing and distribution networks to ensure sales keep pace with increased production
What is a global value chain?
The full range of activities that economic actors engage in to bring a product to market. The global value chain does not only involve production processes, but preproduction (such as design) and postproduction processes (such as marketing and distribution).
Factors in globalisation
- Trade agreements
A formal agreement between two or more countries that removes trade barriers between them
There are a number of regional trade blocs formed around the world however they are not all such as OPEC
Global advantages
- improving global peace and security, reducing conflict
- increasing global trade and economic co operation
- encouraging social and economic development in LICs and NEEs
OPEC
Organisation Of Petroleum Exporting Countries
Focuses on the trading of oil globally, the single most important traded commodity
- Made from mainly Middle East but also South America and Africa
(not regionally based)
Examples of global trading blocs
EU- monetary union
USMCA- US, Mexico, Canada
CARICOM- 20 countries of Caribbean
Advantages of being in a trade group agreement
Trade creation
Economies of scale
Investment
International status
Employment
Exchange rates
Support for regions and ssectors
Social, political
Regional co operation
Disadvantages of being in a trade group agreement
Trade diversion
Loss of sovereignty
Legislation
Employment
Finance/currency
Dependance
Over exploitation of resources
USMCA
- formerly North American Free Trade Agreement (NAFTA)
Signed by countries involved in 1994, its main aims were to remove all trade barriers, increase investment and improve economic co operation. (in 2017 the members generated $22 trillion in GDP)
Interdependancy of global systems
Each country depends on each other, anything that happens in one country with nevertheless have impacts on other countries having social, economic and political impacts
(COVID-19 of 2020-21 spreading from Wuhan, China)
- environment interdependence
- social interdependence
- political interdependence
- economic interdependence
Economic interdependence
Trade- In trading relationships, countries rely on others to supply their needs and to buy exported products. Also can have consequences for others (Russia’s gas supply)
Technology advances- Competing with foreign businesses may bring new innovations and approaches improving quality of products and services
Employment- Countries relocating to other countries creating jobs (Dyson)
Economic migration- in 2019, international migrants accounted for 20% of total population in 48 countries. Provides jobs and sends remittance back to home country (UAE and The Philippines)
TNCs and investment- outsource services and operations to foreign businesses. May also form joint ventures with local companies bringing technology, employment and infrastructure development
Supply chains- products produced at different locations and brought together for assembly before distributing products globally
Industrialisation- globalisation has helped countries like Brazil and India to industrialise, also led to deindustrialisation and unemployment in Europe and North Ameirca
Political interdependence
Intergovernmental organisations- established to provide stability, dialogue and consensus between nations ( IMF, WTO, UN)
Security and stability- nations co operate more with each other making it easier for governments to work together on common goals
World peace- wars less likely to happen and their economies and cultures are more interlinked
Social interdependance
Health- WTO
Culture- social ties strengthened through migration (India diaspora in UK)
Education- More student foreign exchange programmes (Erasmus in EU) benefitting students and institutions involved
Environmental interdependance
Global commons
Global climate change- more international summits and establishment of international agencies (UNFCC + UNEP) encouraging nations and citizens to work towards shared goals of mitigating climate change protecting biodiversity
Unsustainable practices- challenge environmental interdependency by unsustainable nature and impacts affecting more than one country such as the deforestation of the Amazon or south east Asia
Issues associated with interdependency
- Unequal flows of people
- Unequal flows of money
- Unequal flows of ideas
- Unequal flows of technology
- Inequality issues
Unequal flows of people
(positive)
- Reduced unemployment in places where there is a lack of work because of opportunities to work elsewhere
- Addresses important skill and labour shortages in places
- Reduces some inequality as foreign workers earn higher wages in HICs
- Remittances sent back to developing countries provide stability and opportunity for growth
- Migrant workers increase workforce, pay taxes and spend money, which promotes growth and reduces dependency in HICs with ageing populations
- Some workers return to their country of origin equipped with new skills and ideas
- Reduces population pressure on resources, such as food and water, and services, such as healthcare, in developing
countries
Unequal flows of people
(negative)
- Developing countries lose younger, more talented workers attracted by higher wages, this ‘brain drain’ reinforces inequality and dependency
- Loss of skilled workers adversely impacts on productivity, growth and development
- Developing countries become over-dependent on remittances
- Migrant workers and families may put pressure on health and education
services in HICs; they may be treated differently in these systems - If only workers are allowed to settle, families may be separated, which
is unjust - Migrants may be segregated formally or informally into certain areas.
- Resentment towards migrants may lead to ethnic and cultural conflict
- Greater movement of labour may contribute to the risk of disease
pandemics
Unequal flows of money
Remittances – money sent home by migrants working overseas is an important source of income for developing economies
Loans – developing countries borrow from the World Bank to fund projects, such as improving transport connectivity or for health and education programmes that increase standards, access and inclusion which needs to be paid back
Inflows of foreign direct investment (FDI) –
investment from TNCs or governments in Europe, Japan and the US to developing countries has raised average incomes and reduced poverty (over one billion people have escaped poverty in Asia in the last 30 years.) Difficult to achieve without inflows of FDI for investment in key projects, but it can create dependency. Workers dependent on higher wages may be subject to poorer working conditions.
Growth of TNCs – capital investment and taxes paid by successful global businesses to their host governments have stimulated economic growth. However, TNCs may pressure host governments to alleviate taxes or relax social and environmental laws.
Loss of profits (‘leakages’) – the repatriation of profits by TNCs to their home country undermines the benefits gained from investment in developing countries. There may be limited ‘trickle-down’ from the FDI into the developing economy and this may
exacerbate global inequalities in wealth.
Foreign aid – aid will help low income countries in times of need, but it can reduce incentives for governments to help their own countries
Unequal flows of ideas
Privatisation- dismantling state ownership of corporations can benefit consumers in LICs by lowering prices however Profits are retained (rather than re-invested as is the case for nationalised industries), causing greater inequality and potentially inhibiting economic growth
Deregulation- reducing government regulation and intervention can encourage enterprise yet can lead to more relaxed social and environmental laws in LICs, causing social injustices and environmental
degradation
Free trade- allows global markets to develop and thrive and may help some LICs to attract investment however it may not always be beneficial to some LICs; they
may be disadvantaged as infant domestic industries may be outcompeted by free trade so some protection needed
Multi-culturalism- enables developing countries to integrate into the global economy and to access markets but citizens may see it as a dilution of their culture and even a threat to their national sovereignty and identity
Unequal flows of technology
Information and data flows – access to mobile and internet services is transforming people’s lives in less developed economies. (e.g the ‘Village Phone’ microfinance model pioneered in Bangladesh now being used in Uganda) It enables access to the internet even in remote rural areas, improving people’s quality of life.
Technology manufacture – access to technology, such as computers and smartphones, in less developed countries is limited as technology is unaffordable to many, this is unjust as the assembly of consumer technology products is often based in developing countries and employees receive relatively low wages compared with the selling price of the goods.
Inequality issues of globalisation
Indicators suggest that globalisation is reducing global inequality through the transfer of capital and income from richer to poorer economies. However it may increase inequality within countries as richer members of societies cope better with the changes in jobs and technology.
What is the Gini Index?
The statistical measure that is usually used to indicate levels of inequality of income
distribution within a country, it aggregates the inequalities in people’s incomes into a single measure, giving a coefficient score of between zero and one. The higher the score within this range means greater income inequality.
Unequal power relations in global
systems
In general, wealthier developed countries wield more power, which enables them to steer global systems to their own advantage. There are a number of factors that reinforce this imbalance of power:
- more wealth, advanced technology and more military power to use on a global scale. They provide aid, investment and
transfers of technology and medical knowledge to assist developing countries relying on geopolitical support in return.
- Wealthier countries have close relations with each other in groups such as the G7, G20 and the OECD. By cooperating in these intergovernmental economic groups, they can synergise their efforts to be more influential in driving global economic and political systems.
- Developed countries have more influence in global governance through intergovernmental organisations such as UN, IMF, the World Bank and WTO improving stability and development led by the more powerful nations whose vested interests cause them to influence change to
their own advantage.
- Developing countries have less influence and limited power to intervene so they have to depend on decisions made by wealthier countries
What is G7?
The ‘Group of Seven’ is an intergovernmental organisation made up of the world’s seven largest advanced IMF economies: Canada, France, Germany,
Italy, Japan, the UK and the US.
What is G20?
The G20 group is an international forum for the governments of 20 major economies. It includes the G7 countries and the EU as a single member. It was established in 1999 to give a voice to the major developing economies. This group includes China.
What is OECD?
The Organisation of Economic Co-operation and Development is a group of 34 of the richest and most influential countries globally.
Geopolitics
Geopolitical issues are typically political or economic conflicts between two countries or two groups of countries based on resource shortages or on strategic territorial claims, exploration rights or supporting political allies and minority groups within countries (e.g the US permanent position on the UN Security Council may have shielded Israel from wider UN criticism for policies disadvantaging Palestinians)
What is comparative advantage?
A theory suggesting that countries should specialise in providing goods and services that they excel at producing. They trade these for the things they are not so good at producing making trading exchanges easier if there are fewer barriers. This means that theoretically production should increase in each country, and globally, because each country is concentrating on what it does best
Barriers to trade and protectionism
Import licence- a document issued by a national government authorising the importation of certain goods from a specific source.
Import quotas- quotas set a physical limit
restricting the quantity of a particular commodity that can be imported into the country within a specific period of time.
Subsidies- these are grants or allowances usually awarded to domestic producers to reduce their costs and make them more competitive against imported goods.
Sanctions- restrictions on exports
implemented for political reasons by countries and international organisations to maintain international peace and security.
Embargoes- the partial or complete prohibition of commerce and trade with a particular country usually for political rather than commercial reasons.
Regulatory or technical restrictions- These are restrictions placed on imports based on obstacles such as the quality standards of goods or how they are produced (e.g the EU
puts restrictions on the import of goods produced using child labour)
What is a Free Trade Area? (FTA)
Trade barriers between the member countries are
eliminated but each member country
maintains its own tariffs against nonmember countries
- ASEAN
What is a Customs Union?
The same as an FTA but with the addition that
member countries impose a common external tariff against non-member countries outside the bloc
- CARICOM
What is a Common Market?
The same as a customs union but with the additional agreement to allow the free flow of goods, services, capital
and eventually labour
(the ‘four freedoms’) between the countries
without any restrictions
- EU
What is an Economic/Monetary Union?
Economic union can take different forms, but members will operate as a common market with the additional integration of a common tax system or currency
- EU Eurozone
The volume and pattern of trade
The growth of international trade has stalled in recent years. In 2018, the value of world trade in goods was US $19.48 trillion, only US $0.50 trillion more than
its value in 2013. The total value of services traded
globally in 2018 reached US $5.8 trillion, a slightly
larger increase from five years earlier.
Causes for current patterns of global change
Comparative advantage – countries specialise in producing and exporting goods that they can produce more efficiently at a lower cost
Proximity – countries are more likely to trade
with their neighbours, for little transport costs but also for cultural, historic
or linguistic reasons. This is why trade is often
organised on a regional basis
Agglomeration – some industries tend to cluster in geographical areas as sharing of regional skills and specialist information saves costs
Market size and strength – exporters are drawn
to larger, more affluent and growing markets where there is potential to increase volume and value of sales
Geopolitical relationships – political alliances are important in determining which countries co-operate and trade with each other; conversely, conflict may lead to sanctions or embargoes
Trends in investment found by UN Conference on Trade and Development
- Developing countries receive almost twice as much FDI as they initiate.
- FDI from North America has slumped.
- The Asia-Pacific region accounts for 40 per cent of
FDI inflows. - Eight of the top 20 recipients of FDI were developing economies.
- The largest FDI investors were Japan, China and France.
Attractions for FDI investment
Manufacturing industries – (foreign motor companies investing in the USA and UK or offshoring and outsourcing investment in China and India)
Natural resource development – investment from mining corporations,
like in Brazil, Congo, Guyana and Mongolia
Financial business services – attract investment in
Singapore and Hong Kong
Large and accessible consumer markets – attract both manufacturers and service providers ( the EU is a single market of 500 million people)
Lower business taxes – attract investment to
Ireland and Cyprus, which have relatively low taxes
and are also part of the large EU market
Also demonstrates that in some cases it is a combination of factors that attracts foreign investment.
What is Fair Trade?
A social movement whose goal is to help producers in LICs achieve better trading conditions. The movement focuses mainly on agricultural-based products including coffee, tea, cocoa, sugar, bananas,
cotton and chocolate
Argument for Fair Trade
They argue that those producing the commodities do not get an equitable deal from the organisations they supply their produce to. Buyers such as TNCs, food processing companies or supermarket chains from developed countries are able to force down the prices because the individual suppliers:
● have little market influence
● are extremely reliant on the income from their
goods.
Advocacy of Fair Trade
The fair trade movement advocates the payment of higher prices to producers, as well as helping them to achieve improved social and environmental standards. They assist producers to form into co-operatives giving them more influence in governing market conditions and the power to negotiate better deals with buyers or to supply direct. The goods are labelled as ‘fair trade’ with the International Fairtrade Certification mark, so that ‘ethical consumers’ can recognise that they are buying goods for which the producer received a fair price.
Differential access to markets across the globe
Each country’s access to markets is determined by its ability to trade with other countries. Access to international markets is limited by any barriers that might be in place, such as tariffs, quotas or trade regulations, and this will depend on the degree of protectionism used by other countries or trading blocs
HICs access to markets
- They can afford to pay higher tariffs on exported goods
- they can increase access by investing into foreign markets (TNCs can relocate their production inside foreign markets to avoid tariffs)
- HICs often group together to form trading blocs and customs unions, such as the EU, to allow free trade
with each other but impose barriers on countries outside the union.
LICs access to markets
- LICs struggle to pay high tariffs or invest in foreign markets and have difficulties entering into trading agreements with richer countries.
- They often focus on exporting primary products that are traditionally subject to price volatility.
Advantages of trade agreements
- Gives more leverage when trying to gain access to other markets
- Agreements between two or more trading groups can open up wider markets, especially for LICs
- Non-inclusion reinforces a position of isolation and having to overcome trade barriers to gain access.
Disadvantages of trade agreements
They may also remove the protection given to growing domestic industries before they are strong enough to compete
Trade sanctions
Used by nations as a political and
economic ‘weapon’ against individual countries with whom there is a dispute.
- In 2006, the UN Security Council imposed sanctions against Iran because of its refusal to suspend its nuclear programme. This severely
harmed Iran’s economy until a deal was made to lift sanctions in 2016
Impacts of trade sanctions
- Limited revenue from exports and business taxes means lack of money for investment or development.
- Poor access to markets deters foreign investment.
- Balance of payment problems will increase debt and restrict economic growth.
- Limited investment, growth and development will cause unemployment and poverty.
- There is a limited range and a lack of affordability of imported goods for consumers.
- In the worst situations, a lack of ability to trade can even threaten food or energy security.
Measures to combat differential access
- Special and differential treatment agreements (SDTs)
- Trade
What are special and differential treatment agreements
Agreements of the WTO’s multilateral trading system for the past sixty years to provide developing countries with support measures to overcome their trading disadvantages. It have LICs preferential access to developed markets in trade agreements.
- enjoy privileged access to the markets of their trading partners, particularly developed countries
- have the right to restrict imports to a greater degree than developed countries
- be allowed additional freedom to subsidise exports
Disadvantages of special and differential treatment agreements
- The WTO Doha Development round of trade talks made little progress in making SDT measures more effective for developing countries
- Richer nations are concerned that non-reciprocal preferential trading agreements cause unfair trade as many emerging economies (China) still have ‘developing country’ status yet refuses to give up their SDT rights and is still able to subsidise exports fearing that this will result in cheap imports, flooding markets and undermining their own industrial base.
-The agreements are difficult to apply in a fair or standardised manner and the lack of reciprocity in the agreements has deterred some developed countries from participation.
Outcome of special and differential treatment agreements
Replaced by bilateral trade agreements between poorer countries and richer trading partners. (Mexico was previously a beneficiary of preferential access to Canadian and US markets but has arguably benefited more as a member of USMCA).
What are Transnational Companies (TNCs)?
Companies that operate in at least two countries, with a headquarters
based in one country but with business operations usually in a number of others
- take many different forms and are based in different economic sectors
- can develop in both HICs and NEEs
- have considerable political influence
Reasons TNCs may operate in more than one country
To escape trade tariffs (Nissan’s decision to produce cars in Sunderland to gain barrier-free access to the EU market)
To find the lowest cost location for their production (Hewlett-Packard in Malaysia)
To take advantage of foreign exchange rates that make exports cheaper (Dyson in Malaysia)
To reach foreign markets more effectively (McDonald’s)
To exploit mineral or other resources available in foreign countries (BP in Azerbaijan)
Characteristics of TNCs
- maximising global economies of scale by organising production to reduce costs
- sourcing raw materials or components at the lowest cost
- controlling key supply chains
- control of processing at each stage of production
- branding of products/services so they are easily recognisable
Offshoring
Involves relocating a part of the
organisation, such as manufacturing operations, to an overseas location to take advantage of lower costs
or alternatively to access foreign markets. This includes TNCs locating factories in higher wage economies, such as Toyota in the UK and US to
access these wealthier markets.
Outsourcing
A strategy that involves subcontracting part of the business operation to another company, usually in another country where
costs are lower.
What is agglomeration?
When companies in similar industries
locate near to each other because of the benefits gained by sharing ideas and resources – called ‘agglomeration
economies’.
Primary sector of TNCs
Based wherever there are unexploited resources (developing economies as reserves in more developed countries have largely been depleted)
Secondary sector of TNCs
largely been located in the
manufacturing regions of developing countries (especially in South East Asia)
- labour costs are lower
- investment in education, which makes it easier to train workers
- work ethic means workers are willing to work long hours, with relatively few holidays, in a non unionised labour environment
- there may be government incentives such as taxfree breaks, special economic zones (SEZs) with
low business rates or less restrictive environmental regulations
Tertiary sector of TNCs
Service-based are more footloose and will locate operations either where there are relatively low labour costs balanced with good education or in proximity to their markets. Language is another important consideration here: lower level services, such as call centres, are outsourced to India because of the high proportion of well educated English-speaking workers, who offer a lower cost alternative.
TNCs and linkages
Links with other countries can be made by investing in them and by
establishing joint ventures with national or state controlled companies.
Intergration of TNCs types
Vertical intergration
Horizontal intergration
Intergration of TNCs
- Vertical intergration
An arrangement in which the supply chain of a company is owned entirely
by that company, from raw material through to the finished product. This gives the TNC control over its supplies and stocks and reduces costs because of economies of scale.
(BP negotiated exploration and production rights in over 50 oil and gas fields worldwide, which it calls its upstream activities. It owns or jointly owns with other energy companies
11 oil pipelines and has its own shipping fleet. The company owns refineries, usually based in the
countries where end products are sold, and globally has nearly 19,000 retail service stations. These are
BP’s ‘downstream’ activities. )
Intergration of TNCs
- Horizontal intergration
A strategy where a company diversifies its operations by expansion, merger or takeover to give a broader capability at the same stage of production. Either complementary or competitive to its existing business. (Kraft Foods’ takeover of Cadbury in 2010 gave them a more diverse base in the grocery and confectionery market.)
Benefits of outsourcing and offshoring
For the host country
- generates jobs and income
- brings new technology
- gives workers new skills
- has a multiplier effect
- improved energy and transport
infrastructure
For the TNC
- lower costs because of cheaper land
and lower wages
- greater access to new resources and
markets
- fewer controls such as environmental legislation
For country of origin (TNC base)
- cheaper goods
- specialise in management, financial
services, R&D and other higher skill
occupations
Problems of outsourcing and offshoring
For the host country
- poor working conditions
- exploitation of resources
- negative impacts on environment and local culture
- economic leakages/repatriation of
profits
For the TNC
- ethical issues such as the image of
environmental damage or ‘sweatshops’ can be detrimental to their reputation
- social and environmental conscience
For the country of origin (TNC base)
- loss of manufacturing jobs
- deindustrialisation
- structural unemployment
- demultiplier effect leads to spiral of
decline in former manufacturing areas
- can mean derelict factories, areas of
deprivation and poverty
Main beneficiaries from the process of globalisation of trade
Regional trading blocs
International organisations
Transnational corporations
Emerging economies
What is glocalisation?
A term used to describe products or
services that are distributed globally but which are fashioned to appeal to the consumers in a local market.
- Mcdonalds Mac Burrito in Mexico City
Global governance
The way in which global affairs that affect the whole world are managed. It regulates interconnected global economic, social, political and environmental systems to keep them stable and in balance.
What is ‘global commons’?
Resource domains or areas that lie
outside the political reach of any one nation state.
How are global systems being regulated and reproduced?
- the establishment of international legal agreements
- governance undertaken by intergovernmental institutions and agencies
- the extension and reinforcement of social norms on a global scale.
United Nations (UN)
The UN is an international organisation founded in 1945, made up of 193 member states whose aim is to promote international peace, security and cooperation. Due to its unique international status and the powers vested in its founding charter, the UN is the intergovernmental institution with the greatest political
authority at a global level.
Sustainable Development Goals
Following the largely successful achievement of the Millennium Development Goals (MDG), UN members
met at the Sustainable Development Summit in September 2015 and agreed a new Agenda 2030 for global sustainable development, which defined a set of 17
Sustainable Development Goals (SDGs) from 2015 to 2030
Principles of UN
- action on issues that face humanity in the twenty-first century, such as peace and security, climate change, sustainable development, human rights, poverty and many more
- fostering co-operation by facilitating dialogue and negotiations between nations; the UN is a mechanism for solving problems and finding areas of agreement.
Examples of UN special bodies
UN security council
UN general assembly
UN Development Programme (UNDP)
World Health Organisation
Sustainable development
Development which meets the needs of the present without compromising the ability of future generations to meet their own needs.
Criticisations of the UN
- a lack of agreement and subsequent inaction on many security issues
- limited power to enforce compliance to regulations
by national governments - its organisation and funding –in a way that supports the status quo, with more powerful nations setting the agenda for their own self-interest.
International Monetary Fund (IMF)
Established in 1945 at the end of the WWII to stabilise the global economy and to provide financial stability. Their functions are pivotal in regulating and acting as
intermediaries in the flow of international capital
- IMF funding is paid by members and influence is determined by their wealth. Developing countries criticise this as the larger contributions give wealthier nations a more powerful vote on decisions.
- As part of their conditions for loans, the IMF has been known to impose severe cuts on spending by governments in developing countries, adversely affecting education and welfare.
- Rescue loans are provided by the IMF only
to stabilise international trade; eventually the borrowing country has to pay the loan back at high interest rates.
The World Bank
Established in 1945 at the end of the WWII to stabilise the global economy and to provide financial stability. Their functions are pivotal in regulating and acting as
intermediaries in the flow of international capital
- Conditions attached to World Bank loans often insist on the reproduction of capitalist and free trade market models in the loanee’s economy, which do not always have the effect of reducing poverty
- The World Bank has also been criticised for funding
major ‘top down’ projects, such as large multipurpose dams to provide hydro-electric power, which have not helped to reduce poverty. The Bank now claims to support more sustainable ‘bottom-up’
development projects.
What is ‘bottom up’?
When local people are consulted and
supported in making decisions to undertake projects or developments that meet one or more of their specific needs.
What is ‘top down’?
When the decision to undertake projects
or developments is made by a central authority such as government with little or no consultation with the local people whom it will affect
The World Trade Organisation (WTO)
The WTO came into existence in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT), which was established in the wake of WWII. It currently has 164 members and covers 98% of world trade
It provides stability by:
- undertaking the liberalisation of trade by
encouraging the removal of barriers and
protectionist policies adopted by some governments and trading blocs
- resolving trade disputes between member governments
- providing a forum for trade negotiation
- administering trade agreements that become the ground rules for international commerce
Doha Development Round
Started in 2001 in Qatar and effectively ended in Nairobi in 2015
- focused on reforming trade in agricultural produce, especially between advanced and developing economies, with the aim of helping less developed nations out of poverty
Non Governmental Organisations (NGOs)
Any non-profit, non-commercial organisation with a common interest working independently of government
influence. NGOs can be organised on a local, national or international scale.
Four ‘global commons’
- the high seas
- the atmosphere
- Antarctica
- outer space.
Rights and benetfits of ‘global commons’
International law relating to the global commons is guided by the common heritage of mankind principle. This principle affirms that the natural resources in defined territories or spaces are held in common by all nations given equally to each. Advances in science and technology have given easier access to a range of resources however greater scarcity of resources, especially minerals, fuels and food has put increasing pressure on the global commons to provide resources for a needy and developing world. These changes mean that the concept of common heritage is being put under increasing pressure.
Protection of the ‘global commons’
Each of the global commons is covered by a number of international laws or treaties of one kind or another:
- the high seas by the UN Convention on the Law of the Sea (UNCLOS)
- the atmosphere by the United Nations Framework Convention on Climate Change (UNFCCC), plus other international environmental agreements, including the Paris Climate Accord
- Antarctica by the Antarctic Treaty Systems (ATS)
- outer space by the Outer Space Treaty (1967)
Evidence for migration patterns (flows of labour)
More than 5.1 million labour migrants entered OECD countries in 2018
(Organisation for economoc cooperation and development)
