Globalisation Flashcards
Globalisation impacts
- you can tap into any market, sell anything from anywhere
- national/local factories must compete with TNCs
- submarine cables mean financial transactions must occur faster than clicking a mouse
- iTunes is having to compete with streaming services like Spotify
- A38- and 797 have added capacity, but more for business class
- domestic football teams can be made up of foreign talent
Transnational corporation (TNC)
a firm operating in more than one country / many countries / spreading across borders operating internationally / working globally
- critics: process reinforces inequality between nations
- supporters: all countries that establish good governance, education, and training and openness to foreign investment and technology transfer will benefit
5 main drivers of globalisation
mobile phones internet social networking electronic banking fibre optics
Globalisation statistics
$26trillion flow of goods, services, and finance in 2012
$450billion added to global GDP growth each year by flows
up to $85trillion flow of goods, services and finance by 2025 - 3x value of 2012
500% increase in international Skype call minutes since 2008
90% of commercial seller on eBay export to other countries
1948 General Agreement on Tariffs and Trade (GATT)
initially 23 countries agreed 45,000
created after WW2 to build free trade to help economies grow after war
concessions affecting US$10bil of trade
rose to 102 countries agreeing tariff reductions worth US$300bil+
1994 The World Trade Organisation (WTO)
GATT became this
123 countries agreeing to major reductions in tariffs and agricultural subsidies
allowed full access for textiles and clothing from developing countries and extension to property rights
2001 - Now
Doha Development Round
Unsuccessful negotiations to reduce barriers to trade made by WTO
Main disagreement between developed economies (EU, US, Japan) and emerging economies (Brazil, India, China) over agricultural subsidies - seen as trade barrier
5 factors that have accelerated process of globalisation
TNCs Lower transport costs Computer and internet technology International organisations New Markets
World Trade Organisation
replaced the general agreement on tariffs and trade (GATT) in 1995
wants trade liberalisation- for goods and for countries to not just protect their own companies
Laos can trade directly with the EU now
BUT USA preferential treatment to own company Del Monte, making harder for Ecuador to export bananas to Europe
World Bank
lend money and give grants all around the world for poverty reduction
impose strict conditions
BUT poor countries will rely on aid, so they won’t bother to fix the economy themselves
International Monetary Fund (IMF)
channels loans from rich to poorer countries, but they have to agree to run free market economies and allow outside investment, e.g. sierra leone
governments might have to cut back on heath care, education, sanitation, housing programmes
encourages privatisation
structural adjustment programme
bailouts are on condition of structural adjustment programmes, which broadly expect countries to be more globalised / liberal etc.
based in Washington
IMF can be seen as a hindrance- LEDCs fall into debt with their industries privatised, profits leaving the country and environmental or workforce exploitation
countries who face debt- have to cut funding in areas such as education and healthcare- further damages economy and welfare
Role of TNCs in globalisation
would be no investment without them
they initiate development in different sectors
contribute to country’s GDP
TNCs benefit from cheap labour- costs are kept to a minimum so they are more productive, high profit so reinvest into product innovation and new technology
investment crushes all local/lesser companies = dominant
Role of developing countries in globalisation
need places to source and outsource from
used as a source of cheap labour
Foreign Direct Investment
Ownership of a business in one country by an organisation that is based in another, making it legal for foreigners to own and control businesses and property in another country
Inorganic FDI
where a foreign firm buys a company in another country
can lead to job losses
Organic FDI
FDI expanding operations of existing business into a new foreign country
creates jobs
and regenerates infrastructure
Offshoring
some TNCs build their own new production facilities in ‘offshore’ low-wage economies
e.g. USA opening plant in Mexico
Foreign mergers
two firms in different countries joining to create single entity
Foreign acquisitions
where a TNC launches a takeover of a company in another country
e.g. Cadbury taken over by US Kraft
Transfer pricing
some TNCs e.g. Starbucks and Amazon, have channeled profits through a subsidiary company in a low-tax country
ASEAN
Association of South East Asian Nations
10 member states
6 million people
promoted free trade and helped develop manufacturing and created jobs
call centre for workers in Philippines
EU
multi-governmental organisation with own currency
shared legislation
countries became eligible for funds
member states gave freedom of movement
Trade Block pros and cons
pros:
- market is bigger = companies can expand into other countries and source materials more cheaply from within trade bloc
- firms could merge together - creates economies of scale: lower costs and higher profits and more investment
- you protect yourselves from other parts of the world - forced consumers to buy locally sourced goods
cons:
- you lose some sovereignty - human rights legislation, CC treaties
- interdependence - economic problems in on country spread to another
- you have to compromise and concede - have to compete with foreign companies, own companies might go out of business, competition creates lower prices and more efficiency
British Airways
Offshoring-
- BA plans to off-shore many of its IT jobs to India
- this will affect BA Heathrow (700 job losses a Waterside), BA Newcastle (100 job losses)
- BA is transferring its UK IT jobs to Tata Consultancy Services (TCS) in India
- BA staff are angry – replacing them with another company’s cheap labour
- BA is enjoying huge profits, claims only about 200 UK jobs would be lost, and it employs 35,000 people in the UK
foreign mergers:
- BA merged with Iberia in 2011, creating the International Airlines Group - world’s 3rd largest airline group
Jebel Ali
- ME’s first big ‘free zone’, now 22 in Dubai alone
- world’s largest
- has own judicial system
- 1,225 companies with 14-18% growth per year
- $1bn of new development planned
- 5% VAT initiated in Jan 2018
- previously tax-free, increases product cost
- part of the GCC, Gulf Cooperation Council
- Jebel Ali port, the metro, Jumeirah Lakes towers (housing)
- attracts FDI
- US Navy 5th fleet
- governments can protect local cultures - Emirati citizenship
- expats make up 85% of citizens, hard to get citizenship
- main part of economy is tourism, sell oil
- worried about falling oil prices, won’t be a leading global player
- oil and gas industry makes up 40% of GDP
- want to grow in manufacturing industry
- currently nation sate- need to start relying on globalisation to sustain economic growth
KOF globalisation index
countries
measured over 36 years for 158 countries
to what extent are countries socially, politically and economically linked to each other
the more globalised = the more links to tourism, communication, trade, FDI and socio-political processes
composite indicators
political- 39% weighting- if they are members of international organisations and trade blocs, number of foreign embassies in country, participation in international treaties
economic- 37% weighting, flows of FDI, flow of goods
social- 24% weighting, personal contact through international phone calls, tourists, no. of internet users per 1000 people, number of McDonalds
AT Kearney Index
64 cities
measures business activity, human capital, information exchange cultural experience, and political engagement
notices growing countries
more business / economic related
Compare KOF and AT Kearney
KOF compares countries annually- reveals trends, up to date, and considers many factors
AT Kearney ranks future potential of cities, measures different features: e.g. offshoring, looks at global connections, builds a picture of where a TNC should invest
Global hubs
intense connections to the rest of the world
many host major TNCs and have increasingly diverse populations
flows of finance, trade and ideas
air travel and containerisation and telegraphs allow movement of people and goods between hubs
Physical geo affecting globalisation
natural hazards disrupt supply chains
dodgy meat products
poor local working conditions
location of factories- could affect production line if in a dangerous / vulnerable place
Abercrombie and Fitch
offshore- moved manufacturing operations to Bangladesh where there is cheap labour
opened as a joint venture in UAE- Majid Al Futtaim fashion
adapted to the local appeal in the UAE- no topless models
glocalisation - e.g. McD’s India inspired burger- chicken instead of beef
child labour is legal in China, Vietnam, India, Guatemala
company’s sales grew 87% overseas and from 1 store to 40 stores
TNCs getting away with what they want
YES:
- poor environmental reputations e.g. Apple in China with nets on balconies to prevent suicide
- countries desperate for FDI so use low taxes and licence agreements to encourage TNC investment
- workers depend on them for jobs- can threaten to leave any country (capital flight)
NO:
- want profit so they have to find labour that is cheap
- labour becomes more expensive over time
- might need better reputations with consumers - Rana Plaza fire in Dhaka
- consumer market always changing so need to adapt to this- don’t have complete control
- anti-globalisation groups
- physical geo disrupts supply chains e.g. Japanese tsunami, factories with cheap labour are where natural disasters occur
Pros and cons of TNCs
investment:
- bring money into country’s local economy
- wages paid exploit local workers
- tax incentives- most of profit taken out of developing country- minimal economic benefit
- growing global inequalities- cluster in selected economies
technology:
- development- brings in technology and knowledge
- but have to educate population otherwise country’s industry won’t benefit
- if they share too much info, could increase competition from local companies
transport:
- creates jobs for the locals
- invest in quality of transport
- transport links receive financial help from TNCs often only serve the direct routes and needs of that company not wider area
employment:
- create jobs for local population
- jobs are highly skilled so company brings own people
environment/safety:
- companies bring technology and expertise to reduce harmful pollution and create safe environment
- TNCs have poor records of pollution and worker safety- cut corners to keep costs down
- environmental degradation = many move manufacturing production out of the EU to avoid carbon taxes
- can bring good environmental practice into countries= rare
TNC stats
- many TNCs have higher annual income than some countries
- 119 McDs fast food outlets worldwide, 62 million customers every day
- 75% of world flows come from TNCs
- 67% of all exports are directly related to TNCs
- India processes 1% of food it grows, US- 70%
Mali
Spiral of decline
political:
- secular, freedom of religion
- north wants autonomy- self-governing
- Al-Qaeda control Timbuktu
- Coup d’état- government overthrown
- civil war = poverty = don’t focus on other issues, concerned about war
- landlocked with bad neighbours- would have to rely on agreements
- not part of a trade bloc- would cost TNCs extra money
- used to be colonised by France- but after they left = didn’t know how to function?
- weak education levels and poor workforce skills
economic:
- 64% live below poverty line
- Al-Qaeda placed ban on visiting historical shrines
- gold mining = 2nd main export - but extraction limited by corruption
- natural resource trap- need to rely on resources and forget the government
- cost of providing infrastructure outweighs the market profit potential
- wages will be low, and not viable markets so no one wants to invest
- vulnerable to commodity cycle
environmental:
- North = desert
- South = fertile savanna, population pressure
- River Niger in south = 1700km of land
- subsistence agriculture- cotton, cereal, rice
- can farm cotton for profit but then won’t have enough land space to farm for survival
- desertification, arid conditions
- physical isolation- extreme climate and low population density
social:
- food shortage encourages anger and extremism
- high rate of infant mortality
- 37,000 refugees fled to Burkina Faso
- food shortages = extremism
technological:
- little shelter, little water
- little roads, little hospitals
- telegraphs- bandwidth is low and cost of internet access is too high
Chad
- no coastline
- corrupt governance- 99% of cash earmarked by government for spending on health, disappeared before it even reached hospitals, money went to military instead
Pakistan
- new president in 2018, Imran Khan
- 45% of country’s annual budget has to be paid back to the IMF
- growing trade deficit
- GDP growth rate 3.5%, increasing but small
- interest rates = 10.5% very high, borrowing money is hard
- 12 previous IMF bailouts- previous loan total = $18.9bil
- structural adjustment programme, IMF
- $6 billion bail out package, given opportunity to sort out economy, but aren’t fixing economy on their own (become lazy) but can reduce spending and spend in the right area
- value of currency is weak- people can’t afford to buy stuff
- if they allow currency to rise with inflation = people will have more confidence in currency
- increasing value of currency = more investment
- widespread anger- think government has sold them to the IMF
- will have to privatise loss-making companies that are owned by the gov. e.g. energy companies- will stop investment and money wasted, and can now tax them
- Ivory Coast= similar structure adjustment programme and they are ‘on right track’
- WB and Asian Development Bank might agree to lend another $2bn, bad as they will rely on money and won’t ever become self-sufficient, more debt to overcome, could be influenced by China as they strengthen relationship with Pakistan (ally)
Role of national governments in FDI
- encourage FDI because influx of capital can boost economic growth, employment opportunities, tax revenues
- FDI leads to improvement in infrastructure and can benefit domestic firms
- greater competition = improves productivity gains and greater efficiency
- transfer of skills through job creation and advanced technology for research and development
Gov. mechanisms to encourage FDI
- low corporation tax and low individual income tax rates
- SEZs
- export processing zones
- free / subsidised land
- visas and approval for relocation
- subsidies for infrastructure spending
- subsidies for research and development
World’s shifting centre of gravity - the economist
rapid urbanisation in developing countries - e.g. China
people moving to cities- many becoming richer, driving further economic growth as they contribute to the economy
millions migrated to Asian cities for work opportunities in secondary sector
less people living on $1.25 per day, one of the UN MDG’s
less poverty = contribute to economy = initiate services
shift from primary to secondary
rapid rates of urbanisation = poverty + unemployment + poor public health care + overcrowding = too many people moving not enough jobs
infrastructure can’t cope with increasing population
can’t afford accommodation = slums
child labour large scale
high levels of pollution, exploitation of resources, dumping of waste
megacities= pollutants from traffic and inc. energy consumption
corruption= not meeting emission targets
Dhaka, Bangladesh
Rana plaza collapsed April 2013, killed 1,000 people
led to major structure, fireproof, electrical and safety reforms- sprinkler systems, electrical upgrades, stronger foundations
cheap labour - $40/month
pays more than subsistence
independence for women as they are able to work
life cost = $60/month
delta location = frequent flooding
bad QoL
gov. turning blind eye to practices going on
8 story building collapsed
Primark clothing factory
workers complained about safety of building hour before collapse- saw cracks in walls, told to go inside
ignore safety to feed demand of western market
100+ died in fire before this event
need to regulate factories better and establish rules/laws
17 people dying annually in factories = decreased
Scunthorpe / Redcar
2,200 jobs lost
owned by Tata steel industries (Thailand origin)
poverty
worried about becoming ghost town - deindustrialisation
UK iron/steel industry - 90% decline, few jobs, area decreased in population, decrease in services = multiplier effect
more high tech jobs, services industry growing = but people who worked in manufacturing don’t have skills for these jobs
Clark Fisher Model - model of economic change over time, shows job types
manufacturing- make lots of products = pollution = must pay extra tariffs or fines
factories in UK are old- to rebuild and make more modern is more expensive and harder, than relocating to areas like China
WTO and free trade = iron/steel can be made/exported anywhere in world
economic restructuring -> derelict land -> unemployment -> poverty
reduce no. of connections for FDI so forced to invest in different countries
cheap labour takes away job opportunities from employees who could be better skilled
increase laws and policies in China and India - will reduce amount of cheap labour and make more fair
newer technology needs less manual labour (robots)
Detroit
White population leave due to deindustrialisation, Afro-Americans remain in area, becomes less attractive for the white population.
Job losses, means population resorts to crime as a means of survival. Becomes an unattractive location = ghetto
can’t sell property for a decent price so stuck in area
