globalisation Flashcards
globalisation
the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transaction in goods, services, freer International capital flows and more rapid and widespread diffusion of technology
-started in the 60s
how have transport and freer markets accelerated globalisation
- transport and communication technologies have improved meaning that national governing market forces have been able to extend their reach internationally
- freer markets promote competition and the division of labour, improving efficiency, increases profit and allows wealth creation (capital formation)
- Imports offer consumers more choice at lower prices whist also providing strong incentives for domestic industries to be competitive
- exports can stimulate job creation and higher productivity
the shrinking world
- TNCs invest abroad, building links between the places that make goods and the places which consumer goods and services. TNC’s are the architects of globalisation
- lower transport costs makes it easier to move goods abroad (19th century railways, steamships and telegraphs, 20th century containerisation and aviation)
- global social media has led to the international recognition of brands
- international organisations help with cooperation (world trade organisation)
- the idea of a Digital economy arose in 1955 due to the creation of the internet. initially was focused on e business and e commerce yet has also extended the scope of the digital economy by changing the way people interact
- digital economy is now worth 1.5 trillion and this has demised certain businesses through competition
economic globalisation
- growth of TNCs accelerates cross border transactions and purchasing
- information and communications technology supports the growth of complex spatial divisions of labour for firms and a more international economy
- online purchasing using amazon on a smartphone
- very nature of trade is et up to disadvantage poor nations (frank’s dependency theories)
social globalisation
- international immigration has created extensive family networks that cross national borders (world-city societies became multi-ethnic and pluralistic)
- global improvements in education and health can be seen overtime with rising world life expectancy and literacy levels, although the changes are by no means uniform or universal
- social interconnectivity has grown overtime thanks to the spread of universal connections such as mobile phones, the internet and email
cultural globalisation
- successful western cultural traits come to dominate in some territories (e.g. the Americanisation or McDonaldisation of tastes and fashion)
- glocalisation and hybridisation are a more complex outcome that takes place as old local cultures merge and meld with globalising influences.
political globalisation
- the growth of trading blocs (e.g. EU, NAFTA) allows TNCs to merge and make acquisitions of forms in neighbouring countries while reduced trade restrictions and tariffs help the market to grow
- global concerns such as free trade, credit crunch and the global response to natural disaster (2011 Japanese tsunami)
- the world banks, IMF and WTO work internationally to harmonise national economies
glocalisation
adapt ones products to meet the demands of the local population and market as cultural they are at variance with other countries.
what flows are there?
- capital - companies can buy and sell currencies to make a profit. These companies can be investment banks or pension funds (TNCs), money moves through a data sense and fibreoptics so has only been relevant since the creation of the internet
- tourists - improvement in air travel has made it quicker and cheaper. low cost airlines have raised aspirations. ties in MC in emerging nations means more people are travelling (Chinese are wealthiest group of tourists) and emerging countries rely on this for the economy
- migrants - changed the face of many countries, this tends to be the flow that is most restricted. can create brain drain or a brain gain. creates remittances schemes leading to a loss of capital in the domestic country
- information - stored in the cloud (massive warehouse in Western Europe called server farms)
remittances
- A remittance is a transfer of money, often by a foreign worker to an individual in their home country.
- increased aspirations for people who natively live in the country as there is more conceptions and new perhaps improved foreign work ethics
- economic loss if profit goes back to the domestic country
- services can run more smoothly if labour shortages are alternated
factors that accelerate globalisation
- electronic banking
- internet
- social media
- fibre optics
- transport
- containerisation
- new markets (gave small businesses a local consumer base)
how have ships contributed to globalisation
- standardised containers are used in intermodal containers speeding up the process, making it more efficient. this is less labour intensive so less people have to be involved in the procedure, making it cheaper in the long run and meaning goods can be moved faster
- container trains can be quicker as they take a more direct route. moreover, it opens up new trade routes allowing more profit opportunities as commodities can be offloaded at different points on the way unlike ships
quota, protectionalism
- a set or agreed amount of stock that can be brought into a country in a set time period
- protect American trade, high quotas, import taxes, tariffs, domestic subsidies
world trade organisation
- the world has experienced a significant increase in trade volumes and both the stock and flows of FDI have expanded considerably at the same time
- previously WTO members were unsure on the idea of FDI due to the economic impact it had on the investor’s nation
world economic forum
- for almost 50 yeses the forum has been the catalyst for global initiatives, historic shifts, industry break throughs, economic ideas and thousands of projects/collaborations
- the G20 smart cities alliance will create the first global framework for smart city framework
- in late 2018, the WEF collaborated to launch the task force for closing the skills gap in India
world trade organisation
- facilitate global trade through the removal of taxes and tariffs (trade barriers)
- arbiter in trade disagreements, helping to make negotiations more effective
- encourages FDI due to benefits associated with quotas, tariffs and taxes
role of EU in globalisation and promoting trade
- the EU has economic partnership agreements with 69 American, Caribbean and pacific nations (most of whom are former European colonies)
- guarantees the free movement of goods capital and people
- a single currency whereby the euro has been adopted by 19 different countries
- uniform production labour and environmental regulations
- the original political aim was to integrate economies so that interdependence prevents war
- integrated economic policy areas provide structural funds to assist regions within member countries
- aims to be a distinct political and economic organisation. it operates within a distinct political entity with its own policies and laws
- largest free trade bloc in the world (500 million people and 20% of the global GDP)
- issues - migration, some countries pay more
the role of NAFTA in globalisation and promoting trade
- a treaty between 3 countries (Canada, Mexico and the US) making it the world’s largest free trade agreement, with an approved removal of barriers between these nations and the removal of tariffs
- allow countries to compete with the EU and china in the wield market
- aims to allow free trade between countries and migration
- US is the dominant country which can cause conflict (e.g. Trump wants a wall and this will hinder the free movement of people)
ghettoisation
large groups of similar people cluster in one place (e.g. based off race, ethnicity, religion)
ASEAN
- affiliated member is China who has orchestrated an agreement to have preferential conditions when trying to locate here. they also managed to get china on board with a bilateral free trade agreement
- free trade between countries, more FDIm movement of skilled workers
- 80% of trade outside of ASEAN countries
advantages of trade bloc membership
- bigger markets (but no extra taxes): the UK has a pop of over 65 million and the EU 508million. companies like TESCO have benefitted from expanding into other countries and sourcing their goods at the best prices from within the 28 member states
- national firms can merge to form transnational companies. TNCS can comets globally but they need the markets to generate economies of scale. increased sales lead to lower relative production costs and hence higher profits and consequent investment. e.g. Vodafone became the world’s largest mobile telecommunications company by merging with Germany’s Mannesmann in 2000
- protection from foreign competitor and political stability: for example, in 2007 the EU blocked £50 million of Chinese made clothes from entering the UK because the annual quota had already been filled (called ‘bra wars’ in the tabloid newspaper). the idea if to limit the import of cheap goods to protect domestic manufacturers. by limiting such confrontations, they are said to bring political stability
disadvantages of trade bloc memberships
- loss of sovereignty: for example, the EU deals not only with trade matters but also with human rights, consumer protection, greenhouse gas emissions and other issues only marginally related to trade
- interdependence: because trading blocs increase trade among participating countries, the countries become increasingly dependent on one another. a disruption of trade within a trading bloc may have severe consequences for the economies of all participating countries. (e.g. the current challenges facing the banking sector of all eurozone countries)
- compromise and concession: countries entering into a trade bloc must allow foreign firms to gain domestic market share, sometime at the expense of local companies. they do this expecting their consumers will benefit from better products and keener prices, as well as in the hope that their firms will also expand abroad.
what role does government play in economic liberalisation
- attracting FDI. this may be done through the privatisation of domestic companies, allowing overseas enterprises to bit or part own stores in thee organisations. the recent additions of industry encouraged the movement of people to facilitate this labour allowing for processes like ghettoisation and cultural globalisation
- business start ups
- liberalisation (deregulation of capital markets)
- trade blocks
advantages of economic liberalisation for national governments
- improved efficiency of services as private firms are often more concerned in making profit
- government will raise revenue from sales. sealing state owned assets in the private sector raises significant sums for the UK government. this does however lead to loses on future dividends from the profits of public companies
- might lower operating costs through the use of more flexible personal practices, job categories, streamlined operating procedures and simplified procurement
what is free market liberalisation
- removal of barriers to trading can increase investment and therefore employment, reducing the need for welfare schemes
- unrestricted flows if capital goods allows for the allocation of resources and competitive advantages
FDI
an investment made by a firm or an individual into business interests in another country
different types of FDI
- commercial loans which are primarily taken in the form of bank loans to foreign businesses or governments
- official flows which generally refer to the forms of development assistance that developed nations give to developing ones
- international investment
- purchase of stocks
- vertical FDI = when the multinational fragments the production process internationally, locating each stage of proaction in the country where it can be done cheapest
- horizontal FDI = when the multinational undertakes the same production activities in multiple countries
- conglomerate FDI investment in unrelated industry
advantages of FDI
- local economic benefits, creating new jobs and tax
- makes international trade easier to complete
- foreign income can appreciate. workers wages increase which can create new resources. For example, due to exchange rates and regulations workers may now operate at an above average domestic minimum wage.
- created educational opportunities improving Human Resources. for example, basic agricultural labour can become more qualified work, increasing job competitiveness
- investment via TNCs can lead to clustering and agglomeration which can stimulate trickle down as increased employment can benefit peripheral areas. this means less money from a nation’s sovereign wealth fund needs to be invested into a country
special economic zones
-an industrial area, often near a coastline, where favourable conditions are created to attract foreign TNCs. These conditions include low tax rates and exemption from tariffs and export duties.
china - special economic zone
- open door policy created in 1978 after the death of Chairman Mao
- rural farmers were given land and could run it for profit
- foreign trade was allowed
- huge surge of rural to urban migration (300 million people)
- cheap rural migrants created the ‘workshop of the world’
- 400 million people have escaped poverty via these schemes
china - open door approach to global flows
- FDI from china and its TNCs is predicted to total over 1 trillion between 2015-2025
- china agreed to export more ‘rare earth’ minerals to other countries, in line with the WTO regulations
- foreign TNCs are now allowed to invest in some sectors of china’s domestic markets, inkling its rail freight and chemical industries
China - closed door approach to global flows
- google and facebook have little or no access to china’s market. instead, Chinese companies like Youku provide social networking services
- china’s government sets a strict quota of only 34 foreign films to be screened in cinemas each year
- there are strict controls on foreign TNCs in some sectors. China blocked cocacolas acquisition of Huiyan juice in 2008
subsidies
- sum of money states give to a certain industry to keep the price of the product or service their selling lower than it would have normally been
- if one country produces hats for £10 and the second £5, a 6£ subside to the first country allows them to procure hats cheaper
types of subsides
- production subsides
- consumption subsidies
- export subsides
- employment subsides
- gov may do this to attract FDI, WTO usually prohibits subsidies to domestic firms as this acts as a trade barrier (the gov payment allows a firm to accept a lower market price, undercutting the price of imports)
- payments to to a company to promote a particular activity
advantages of subsides
- allows farmers to respond to problematic situations as it provides a safety net for anyone who might encounter problems
- provides revenues for government
- allows domestic workers to stay competitive with their international counterparts and also allows self sufficiency
disadvantages of subsides
- money offered through subsides often don’t go to the people who actually need it (e.g. disaster protection and price loss coverage, not the workers). they are often paid to large commercial bodies first
- government may raise taxes to pay for subsides
- can lead to a sudden rise in demand due to cheaper goods, meaning supply cannot be met
KOF index of globalisation
- produced annually by the Swiss institute for business cycle research
- it is a composite index combining 24 indicators spread across three categories (economic, social and political globalisation)
- a mean of the three categories is calculated to give the overall index
- economic measured by indicators of cross border trade, FDI and tariff rates
- social globalisation measured by tourist flows, resident populations, global affinity (presence of international TNC retail outlets)
- political globalisation measured by foreign embassies in a country, membership of international organisations, trade agreements with other countries
pros and cons of KOF
- calculated since 1970 so allows for comparisons overtime
- one of the only measures that takes politics into account
- many examples of missing or estimated data
- technological developments means that some of the indicators are now quite dated (international mail)
AT Kearney measure of globalisation
- us management consultancy produces an index value
- uses 12 indicators across four categories
- economic integration, technological connectivity, global cities index, personal contact, political engagement
- index value calculated for each indicator based on its relative position on the scale (things like FDI and IT is weighed double)
- USA is ranked 4th due to high IT connectivity
pros and cons of of AT Kearney
- includes 84% of the world’s global population and 96% of global GDP
- only 62 countries involved
- some factors are averages or weighed higher making it less holistic
IMF annual reports on exchange agreements and exchange restrictions (AREAER)
-records the existence of restrictions to trade in different countries
best method to measure globalisation
AT Kearney as it takes into account the broadest range of factors ranging from economic so social, cultural and political.
whilst KOF does this too, the variables used in At Kearney are more up to date and therefore provide a more accurate picture
-both are holistic measures, yet data is taken from government and therefore they are both only as good as these readings are. (extensive censorship in countries such as China and Korea may give a distorted impression)
economic reasons for being switched off to globalisation
- lack of money to invest into infrastructure, as it limited connectivity and trade due to a lack of transport and technology links (poorly developed telecommunications)
- high levels of government debt (e.g. Senegal)
- dependancy on one industry (natural resource curse = specialising in one industry based off one natural resource). all money invested into this leaving them subject to global circumstantial misfortune
political reasons for being switched off to globalisation
- governments have complete control over the country and do not allow movement into or out of it (e.g. North Korea). if there are controlled labour camps and detention centres in countries with totalitarian governments
- unstable governments as a consequence of Neo colonialism. e.g. the Sahel region. after colonising much of Africa, it was returned in the 1960s due to increasing expenses but also due to an increase in human rights making it politically unacceptable. following independence, many broke out in civil war between previously isolated and separated communities. this instability detracts TNCs
- lack of investment by government into infrastructure
- corruption/organised crime/terrorism (e.g. Zimbabwe where drug trades are rife and often run by gov)
- excluded from trade blocs as countries are often omitted if corrupt
environmental reasons for being switched off to globalisation
- arid conditions
- desertification started due to overpopulation, leading to greater consumption of resources, climate change and extreme weather
- trees are so important (water cycle, shade from cloud for livestock, building materials)
- lack of natural resources (coltan could lead to investment from technological TNC’s)
- landlocked countries prevent social globalisation and isolation from markets
- all of these hamper development and therefore economic globalisation and therefore social and cultural globalisation
do you need TNC’s to globalise?
- you cannot fully globalise without TNC’s
- outsourcing (fox con, apple - china)
- offshoring (dyson - Malaysia) was made possible by economic liberalisation
- global production markets (trade blocs)
- investment in new markets (Dyson used Monica from friends so advertise and sales went up by approximately 3000%)
- partial globalisation can occur through other means like religion
top 3 TNCs
- microsoft (technology)
- apple (technology)
- amazon (consumer services)
- all bar 3 of the top 10 TNCs are technology related
global shift
- the growth of the east’s economy compared to the west’s, especially with regard to manufacturing
- countries in the east generally have a faster growing economy than the west yet this doesn’t means they’re wealthier
- emerging countries have been able to maintain this despite the world economy having negative economic growth during periods like the 2009 global recession as a result of the American hosing market crash
- emerging countries have the fastest growth rates for megacities because of this
causes of the global shift
- globalisation and the ease at which countries can connect with each other making it easier to relocate. e.g. the aviation industry
- human development is also a reason as education is less advanced overseas. this means there is cheaper land and about providing a monetary incentive
why have companies been locating in India?
- former British colony so has English speaking region s
- infrastructure and education funded by the British government
- Time difference allows 24 house service
why have companies located in China?
- gov open door policy and special economic zones welcomed manufacturing jobs
- cheap labour with no promise of civil rights. no trade unions makes it easy to increase profit
- quick and effective transport links
china - global shift -infrastructure
- worlds largest highway network
- its rails systems links all provinces and cities
- its HRS has doubled in length in 10 years linking its major cities
- shanghai’s maglev is the faster commercial train (268mph) taking 8mins from the CBD to the airport
- 82 airports have been built since 2000 (now 250). it houses 8 of the top 12 airports by freight tonnage
china - global shift - reduction in poverty
- 300 million Chinese people are now considered middle class (equal to pop of USA)
- sales of consumer items have sharply risen, buying more TVs and laptops than Americans
- extreme poverty has reduced by over 80% in 1980 to 10% in 2016
- remittance payments have decreased rural poverty