globalisation LEAVE Flashcards
Globalisation:
The growing economic interdependence of countries worldwide through increasing volume and variety of cross - border transactions in goods and services, freer international capital flows and more rapid and widespread diffusion in technology’ - IMF
The connections shown between places represent different kinds of network flow. These flows are movements of:
Capital:
Commodities:
* Information:
Tourists:
Migrants:
Capital:
At a global scale, major capital (money) flows are routed daily through the world’s stock markets.
A range of businesses, including investment banks and pension funds, buy and sell money in different currencies to make profits.
In 2013, the volume of these foreign exchange transactions reached US$5 trillion per day.
Commodities
Valuable raw materials such as fossil fuels, food and minerals have always been traded between nations.
Flows of manufactured goods have multiplied in size in recent years, fuelled by low production costs in China and even lower-waged economies, such as Bangladesh and Vietnam.
In 2015, global gross domestic product (GDP) fell just short of US$80 trillion in value.
Of this, around one-third was generated by trade flows in agricultural and industrial commodities.
Information
The internet has brought real-time communication between distant places, allowing goods and services to be bought at the click of a button.
Social networks have ballooned in size and influence, with Facebook gaining 1.5 billion users by 2015.
On demand TV has increased data usage further. Information is stored in enormous ‘server farms’ such as the Microsoft Data Centre in Washington State and Facebook’s data centre in Lulea, Sweden (where cold temperatures reduce the cost of cooling the hard drives).
Tourists
Many of the world’s air passengers are holiday makers.
Budget airlines have brought a ‘pleasure periphery’ of distant places within easy reach for the moneyed tourists of high-income nations.
Increasingly, people from emerging economies travel abroad too, using budget airlines such as AirAsia and East Africa’s Fastjet.
China is now the world biggest spender on international travel, with 120 million outbound trips made in 2014.
Migrants
Of all global flows, the permanent movement of people still faces the greatest number of obstacles due to border controls and immigration laws.
As a result, most governments have a pick and mix attitude towards global flow: they embrace trade flows but attempt to resist migrant flows unless there is a special need (such as Qatar’s encouragement of Indian construction workers).
Despite restrictions, however, record flows of people are recorded every year.
The combined number of economic migrants and refugees worldwide reached almost one-quarter of a billion in 2013.
The same year, around US$500 billion of remittances were sent home by migrants.
The combined effect of these global flows has been to make places interconnected. One result of this is the increased interdependency of places.
Transport:
Communication and transport technologies have been improving for thousands of years. Each new breakthrough has helped trade to grow in geographical scale -
Technological progress brings unexpected changes to the ways in which companies can operate
Trade:
Capitalist economies are always seeking to increase profits.
One way to achieve this involves conducting research into transport technology to help build new global markets
Economic needs drive some technological changes when companies foster innovation
Time-space compression:
Heightened connectivity changes our conception of time, distance and potential barriers to the migration of people, goods, money and information.
This perceptual change is called time-space compression.
As travel times fall due to new inventions, different places approach each other in ‘space-time’: they begin to feel closer together than in the past.
This is also called the shrinking world effect
Important innovations in transport have included:
Steam power
Railways
Jet aircraft
Steam power
Britain became the leading world power in the 1800s using steam technology. Steam ships (and trains) moved goods and armies quickly along trade routes into Asia and Africa.
Railways
In the 1800s, railway networks expanded globally. By 1904, the 9000 km Trans-Siberian Railway connected Moscow with China and Japan.
Today, railway building remains a priority for governments across the world. The proposed High Speed 2 railway (linking London and northern England) will halve some journey times.
Jet aircraft
The arrival of the intercontinental Boeing 747 in the 1960s made international travel more commonplace, while recent expansion of the cheap flights sector, including easyjet, has brought it to the masses in richer nations.
Containerisation:
Containerisation was developed by Malcom Mclean and is a method in which goods and products are transported in containers, meaning that they can easily be transferred on and off ships onto trains or lorries.
The transport of goods via ships had previously been slow, due it being time - consuming to load and unload all of the products individually.
Due to the introduction of containerisation, it meant that it increased the speed at which the ships could be loaded and unloaded.
It also reduced the cost of storage, as businesses used the containers as storage spaces, meaning that they did not need to spend money on warehouses.
Important elements of the growth of ICT over time:
Telephone and the telegraph
Broadband and fibre optics
GIS and GPS
The internet, social networks and Skype
Telephone and the telegraph:
The first telegraph cables across the Atlantic in the 1860s replaced a three-week boat journey with instantaneous communication.
This revolutionised how business was conducted.
The telephone, telegraph’s successor, remains a core technology for communicating across distance.
In parts of Africa, where telephone lines have never been laid in many places, people are technologically ‘leap-frogging straight to mobile phone use.
Broadband and fibre optics:
With the advent of broadband internet in the 1980s and 1990s, large amounts of data could be moved quickly through cyberspace.
Today, enormous flows of data are conveyed across the ocean floor, by fibre optic cables owned by national governments or TNCs such as Google (Figure 12.10).
More than 1 million kilometres of flexible undersea cables, about the size of garden watering hoses, carry all the world’s emails, searches and tweets.
GIS and GPS:
The first global positioning system (GPS) satellite was launched in the 1970s.
There are now 24 situated 10,000 km above the Earth.
These satellites continuously broadcast position and time data to users throughout the world.
Deliveries can be tracked by companies using vehicle-tracking systems, helping the growth of global production networks to be managed.
The internet, social networks and Skype:
The internet began life as part of a scheme funded by the US Defence Department during the Cold War.
The early computer network ARPANET was designed during the 1960s as a way of linking important research computers in just a handful of different locations.
Since then, connectivity between people and places has grown exponentially.
By 2014, 5 billion Facebook likes’ were being registered globally every day.
Technology is used by different players in a vast array of ways which contribute to globalisation. Some of these include:
Economic globalisation: ICT allows managers of distant offices and plants to keep in touch more easily (for example, through video conferencing). This has helped TNCs to expand into new territories, either to make or sell their products. Each time the barcode of a Marks and Spencer food purchase is scanned in a UK store, an automatic adjustment is made to the size of the next order placed with suppliers in distant countries like Kenya.
Social globalisation: The maintaining of long-distance social relationships through ICT use is a factor that supports migration. Since 2003, Skype has provided a cheap and powerful way for migrants to maintain a strong link with family they have left behind.
Cultural globalisation: Cultural traits, such as language or music, are adopted, imitated and hybridised faster than ever before. During 2012, South Korean singer Psy clocked up over 1.8 billion online views of ‘Gangnam Style’, the most-watched music video of all time (Figure 12.11).
Political globalisation: Social networks are used to raise awareness about political issues and to fight for change on a global scale. Environmental charities like Greenpeace spread their message online, while the militant group Daesh (or ‘Isis’) has used social media to spread its message of terror globally, and to gain new recruits.
The mobile phone revolution and electronic banking in developing countries:
In countries where the lack of communications infrastructure has traditionally been a big obstacle to economic growth, mobile phones are now changing lives for the better by connecting people and places.
The scale and pace of change is extraordinary. In 2005, six per cent of Africans owned a mobile phone.
By 2015 this had risen more than ten-fold to 70 per cent due to falling prices and the growth of provider companies, such as Kenya’s Safaricom.
Rising uptake in Asia (in India, over 1 billion people are mobile subscribers) means there are now more mobile phones than people on the planet
IMF
Based in Washington, DC, the IMF channels loans from rich nations to countries that apply for help.
In return, the recipients must agree to run free market economies that are open to outside investment.
As a result, TNCs can enter these countries more easily.
The USA exerts significant influence over IMF policy despite the fact that it has always had a European president.
Evaluation
IMF rules and regulations can be controversial, especially the strict financial conditions imposed on borrowing governments, who may be required to cut back on health care, education, sanitation and housing programmes.
world bank
World Bank
The World Bank lends money on a global scale and is also headquartered in Washington, DC.
In 2014, a US$470 million loan was granted to the Philippines for a poverty reduction programme, for instance.
The World Bank also gives direct grants to developing countries (in 2014, help was given to the Democratic Republic of the Congo to kick-start a stalled mega-dam project).
evaluation:
cIn total, the World Bank distributed US$65 billion in loans and grants in 2014.
However, like the IMF, the World Bank imposes strict conditions on its loans and grants.
Controversially, all World Bank presidents have been American citizens.
WTO
The WTO took over from the General Agreement on Trade and Tariffs in 1995.
Based in Switzerland, the WTO advocates trade liberalisation, especially for manufactured goods, and asks countries to abandon protectionist attitudes in favour of untaxed trade (China was persuaded to lift export restrictions on ‘rare earth’ minerals in 2014).
Evaluation:
The WTO has failed to stop the world’s richest countries, such as the USA and UK, from subsidising their own food producers.
This protectionism is harmful to farmers in developing countries who want to trade on a level playing field.
Foreign direct investment:
A financial injection made by a TNC into a nation’s economy, either to build new facilities (factories or shops) or to acquire, or merge with, an existing firm already based there.
Different types of foreign direct investment
Offshoring:
Foreign mergers
Foreign acquisitions:
Transfer pricing:
Offshoring:
Some TNCs build their own new production facilities in ‘offshore’ low-wage economies. For instance, US guitars - maker Fender opened its Mexican plant at Ensenada in 1987
Foreign mergers
Two firms in different countries join forces to create a single entity. Royal Dutch Shell has headquarters in both the UK and the Netherlands.
Foreign acquisitions:
When a TNC launches a takeover of a company in another country.
In 2010, the UK’s Cadbury was subjected to a hostile takeover by US food giant Kraft.
The UK has few restrictions on foreign takeovers. In contrast, the Committee on Foreign Investment in the USA closely scrutinises inbound foreign takeovers.
Transfer pricing:
Some TNCs, such as Starbucks and Amazon, have sometimes channelled profits through a subsidiary company in a low-tax country such as Ireland.
The Organisation for Economic Cooperation and Development (OECD) is now attempting to limit this practice.
National governments become key players in globalisation when they adopt policies that allow TNCs to grow in size and influence
- These government policies include:
- Free-market liberalisation:
- Privatisation:
- Encouraging business start-ups:
Free-market liberalisation:
Also known as neoliberalism, this governance model is associated with the policies of Margaret Thatcher’s UK government during the 1980s.
Essentially, they followed two simple beliefs.
Firstly, government intervention in markets impedes economic development.
Secondly, as overall wealth increases, trickle-down will take place from the richest members of society to the poorest.
In practice, this meant restrictions being lifted on the way companies and banks operated.
The deregulation of the City of London in 1986 removed large amounts of ‘red tape’ and paved the way for London to become the world’s leading global hub for financial services and the home of many super-wealthy ‘non-dom’ billionaires.
Privatisation:
Successive UK governments have led the way in allowing foreign investors to gain a stake in privatised national services and infrastructure.
Until the 1980s, important assets, such as the railways and energy supplies, were owned by the state.
However, running these services often proved costly: they were sold to private investors in order to reduce government spending and to raise money.
Over time, ownership of many assets has passed overseas.
For instance, the French company Keolis owns a large stake in southern England’s railway network and the EDF energy company is owned by Électricité de France.
Since the global financial crisis, the UK government has approached Chinese and Middle Eastern sovereign wealth funds (SWFs) to help fund new infrastructure projects
Encouraging business start-ups:
Methods range from low business taxes to changes in the law allowing both local and foreign-owned businesses to make more profit.
When Sunday trading was introduced in 1994, the UK became a more attractive market for foreign retailers, from Burger King to Disney Store.
Italy has eased restrictions on Chinese investors wanting to start up textile companies inside the EU; as a result, the city of Prato now has the largest Chinese population in Europe
Trade Blocs
This is a type of intergovernmental agreement, where barriers to trade in a world region are reduced or eliminated among the participating states.
They can be stand - alone agreements between several states such as the Association of Southeast Asian Nations or part of a regional bloc such as the EU.
Governments within trade blocs recognise that innovation and branding add value to secondary and tertiary products over time.
Advantages of Trade Blocs:
- Protection from Foreign Competitors and Political Stability
For example in 2007, the EU blocked £50 million of Chinese clothes from entering the UK, because the annual quota had already been filled.
The idea is to limit the import of cheap goods to protect domestic manufactures.
By limiting confrontations, they also allow political stability. - National Firms can merge to form TNCS
TNCs can compete globally, but they need large domestic markets to generate enough profit.
Increased sales lead to lower relative production costs and hence higher profits and investment.
An example is in 2000 when Vodafone merged with Germany’s Mannesmann to become the world’s largest telecommunications company. - Bigger Markets but no extra taxes
The UK has a population of 65 million and the EU has a population of 508 million.
UK companies such as Tesco have benefited by expanding into other countries and sourcing their goods at the best price within the 28 member states.
Disadvantages of Trade Blocs:
- Loss of Sovereignty
A trade bloc is likely to lead to some 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
Due to trade blocs increasing trade among the participating countries, the countries become increasingly dependent on each other.
A disruption of trade within a trading bloc may have severe consequences for the economies of all the participating countries. - Compromise and Concession
Countries entering into a trade bloc must allow foreign firms to gain domestic market share, sometimes at the expense of local companies.
They do this in the expectation that their consumers will benefit from better products and keener prices, as well as in the hope that their firms will also expand abroad.
Trickle-down:
The positive impacts on peripheral regions (and poorer people) caused by the creation of wealth in core regions (and among richer people).
The European Union and ASEAN
The European Union (EU) has evolved over time from being a simple trade bloc into a multi-governmental organisation with its own currency (the Euro) and some Shared political legislation.
Member states are eligible for EU Structural Funds to help develop their economies, while agricultural producers in the region all benefit from farm subsidies issued under the Common Agricultural Policy (CAP).
The EU also helps cities gain a global reputation by awarding prestigious titles such as ‘Capital of Culture’ or ‘European Capital of Innovation’ (given to Barcelona in 2014).
The decision taken by European governments to hand power to the European Parliament was not taken lightly.
Two world wars prompted European countries to seek political unity and economic interdependency.
What better way to avert further armed conflict in Europe?
The EU is the only group of nations that grants all citizens of member states freedom of movement.
Elsewhere in the world, free flows of people do not take place as a result of trade bloc formation.
Most national borders were removed within Europe in 1985 when the Schengen Agreement was implemented (the UK and Ireland had remained outside the Schengen Area so were provided with opt-outs).
ASEAN (the Association of South East Asian Nations):
has ten member states and a combined population of 600 million people.
Established in 1967, ASEAN’s founding members include high-income Singapore and the emerging economies of Indonesia, Malaysia and the Philippines.
Over time, they have worked to eliminate tariffs in favour of free trade.
The enlarged ASEAN market has helped Indonesia’s manufacturing industries to thrive, while the Philippines has gained a global reputation for its call centre services.
ASEAN is now expected to develop further into a single market called the ASEAN Economic Community (AEC).
This will operate along similar lines to the EU and may ultimately allow free movement of labour and capital.
The ASEAN agreement also promotes peace and stability: its members have pledged to not have nuclear weapons
Special Economic Zone:
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 and its 1978 Open Door Policy:
prior to 1978, chinatas a poor and politically isolated country, Switched if from the global economy.
Under the communist regime of Chairman Mao Zedong-millions had died from famine.
Most people lived in poverty in rural areas. his changed in 1978 when Deng.
Xiaoping began the radical Open Door reforms which under one-party authoritarian rule allowed China to embrace globalisation while remaining
The earliest reforms occurred in rural areas.
Agricultural communes were dismantled and farmers were allowed to make a small profit for the first time.
Strict controls on the number of children were also introduced, to curb population growth.
China’s transformation into an urban, industrialised nation gained rapid momentum. Over the next 30 years, the largest migration in human history took place.
300 million people left rural areas in search of a better life in cities.
Only a strict registration system called hukou prevented rural villages from emptying altogether.
Soon there will be 200 Chinese cities with 1 million inhabitants or more. Many are new, rapidly built “instant cities.
An urban mega region of 120 million people has grown around the Pearl River Delta.
It includes the conjoined cities of Shenzhen, Dongguan and Guangzhou.
Initially, urbanisation fuelled the growth of the low-wage factories that gave China the nickname ‘workshop of the world’.
The world’s largest TNCs were quick to establish branch plants, or trade relationships with Chinese owned factories, in newly established coastal special economic zones (SEZs)
By the 1990s, 50 per cent of China’s GDP was being generated in SEZs. Since then, the Chinese economy has matured quickly.
By 2015, many workers were earning US$40 a day or more making quality goods, such as iPhones, for employers like Foxconn in the Shenzhen SEZ.
Today, China is the world’s largest economy.
With 400 million people said to have escaped poverty since the reforms began, China’s story lends support to the “hyper-global” View that global-scale free trade can sometimes cure poverty.
However, China is still not entirely open to global flows.
Government Subsidies:
Financial support from governments to specific industries.
Stimulates investment, research, and development.
Aims to enhance competitiveness and economic growth.
Common in sectors like technology, agriculture, and renewable energy.
Attitudes to Foreign Direct Investment (FDI) - China’s 1978 Open Door Policy:
Shift from a closed to an open economy.
Policies introduced to attract foreign investment.
Promotion of Joint Ventures and collaboration.
Key factor in China’s rapid economic growth and globalisation.
Indices and Indicators for measuring globalisation:
KOF Globalisation Index
AT Kearney
IMF
Some parts of the world have benefited far more than others from FDI from TNCs because:
not all places are suitable sites of production for goods, for a range of physical and human reasons (including accessibility, natural resources, government policies and levels of education)
not all places have enough market potential to attract large retailers (due to low incomes, or culture).
Other strategies come into play as TNCs attempt to build their global businesses.
Rather than investing directly in the offshoring of branch plants, or acquiring foreign firms, TNCs can instead forge business partnerships with existing companies in other countries.
Many of the world’s biggest brands do not, in fact, make their own products.
Instead, they use outsourcing as their strategy.
Large corporations ranging from Dell to Tesco have established tens of thousands of outsourcing partnerships while building their global businesses.
The resulting series of arrangements is called a global production network (GPN).
A TNC manages its GPN in the same way the captain of a team manages other players
As globalisation has accelerated, so too has the size and density of global production networks, spanning food, manufacturing, retailing, technology and financial services.
Food giant Kraft and electronics firm IBM both have 30,000 suppliers providing the ingredients they need.
An amazing 2500 different suppliers provide parts to assemble BMW’s Mini car, from the engine right down to the windscreen-wipers
Some parts are outsourced from suppliers within the EU (to avoid import tariffs). In contrast, the engine comes from an offshore factory in Brazil, owned by BMW.
GPN growth owes much to trade liberalisation and the changing attitudes of national governments
Developing countries have benefited from GPN growth because outsourcing arrangements are economically beneficial.
The local owners of factories in China’s SEZs have profited from the work that foreign TNCs have outsourced to them.
However, some TNCs have discovered that outsourcing brings new risks. A poorly monitored GPN can damage corporate profits and image:
Natural hazards, such as the 2011 Japanese tsunami, can disrupt global supply chains.
UK supermarkets were stunned to find horsemeat had entered their supply chains in 2013.
The collapse of the Rana Plaza textile factory in Bangladesh in 2013 killed 1100 people making clothes for Benetton and Wal-Mart, among others, as part of an outsourcing arrangement.
As a result of events like this, some TNCs are now ‘re-shoring’ their manufacturing closer to home.
Offshoring:
TNCs move parts of their own production process (factories or offices) to other countries to reduce labour or other costs.
Outsourcing:
TNCs contract another company to produce the goods and services they need rather than do it themselves.
This can result in the growth of complex supply chains.
Global production network:
A chain of connected suppliers of parts and materials that contribute to the manufacturing or assembly of the consumer goods.
The network serves the needs of a TNC, such as Apple or Tesco.l
Glocalisation
This refers to changing the design of products to meet local tastes or laws.
It is an increasingly common strategy used by TNCs in an attempt to conquer new markets.
Glocalisation makes business sense because of geographical variations in:
* people’s tastes
* religion and culture
* laws
* local interest
* Lack of availability of raw materials
Far from rolling out an undifferentiated product across the world, many TNCs actively view localising strategies as integral to globalisation.
evaluating the importance of glocalisation for TNCs
not all companies need to glocalise products.
For some big-name TNCs, the ‘authentic’ uniformity of their global brand is what generates sales
For others, including oil companies, glocalisation has little or no relevance for their industrial sector.
Glocalisation examples: Different approaches used by TNCs
The Walt Disney Company
In 2009, Disney released its first Russian film, Book of Masters, based on a Russian fairy tale and produced using local talent.
Disney acquired Marvel in 2009, gaining the rights to superhero characters that have sometimes been glocalised.
‘Spiderman India’ is an example.
In a story made for Indian children, Mumbai teenager Pavitr Prabhakar is given superpowers by a mystic being.
The story is different from the version UK and US children are familiar with.
McDonald’s
By 2012, McDonald’s had established 35,000 restaurants in 119 countries.
In India, the challenge for McDonald’s has been to cater for Hindus and Sikhs, who are traditionally vegetarian, and also Muslims who do not eat pork.
Chicken burgers are served alongside the McVeggie and McSpicy Paneer (an Indian cheese patty).
In 2012, McDonald’s opened a vegetarian restaurant for Sikh pilgrims visiting Amritsar, home to the Golden Temple.
environmental reasons for global isolation in North Korea:
Limited Arable Land
North Korea has mountainous terrain, 80% of its land consists of rugged mountains and hills.
The limited availability of flat and fertile land impacts agricultural productivity
As a result, North Korea has faced chronic food shortages and struggles to meet the nutritional needs of its population.
Limited Access to Water Resources:
Despite having several rivers, North Korea faces challenges in accessing and effectively utilising its water resources.
Unequal distribution of water resources and inadequate infrastructure for irrigation limit agricultural output and make the country reliant on rainfall for crop cultivation.
The scarcity of water resources also affects other sectors such as hydropower generation and industrial activities.
Air and Water Pollution
Old and inefficient industrial facilities emit pollutants into the atmosphere, contributing to poor air quality and potential health risks.
Inadequate wastewater treatment systems and industrial waste disposal practices contaminate water sources, negatively impacting both human health and ecosystem integrity.
political reasons for global isolation in North Korea
corruption
potential investors are concerned about the lack of transparency and accountability.
According to Transparency International’s Corruption Perceptions Index, North Korea consistently ranks among the most corrupt countries in the world.
limits its access to international trade and investment.
Exclusion from Trade Blocs
the country has been excluded from major regional trade blocs such as the Association of Southeast Asian Nations (ASEAN)
The absence of membership in trade blocs restricts North Korea’s access to preferential trade agreements.
This isolation impedes the country’s economic growth and integration into global markets.
Civil Conflict
North Korea has experienced internal conflicts, most notably the Korean War (1950-1953), which divided the Korean Peninsula into North and South.
The ongoing political tensions and unresolved conflict have contributed to the country’s isolation from the global community.
economic reasons for global isolation in North Korea
weak education and poor workforce
North Korea’s education system suffers from limited resources and a focus on ideological indoctrination rather than practical skills.
This results in a poorly trained workforce with inadequate knowledge and skills for modern industries.
Poor Transport and Telecommunications Infrastructure
limited and outdated transportation infrastructure, including poorly maintained roads, railways, and ports.
This hampers efficient movement of goods and services both domestically and internationally.
has limited access to modern telecommunications networks, with restricted internet access and limited connectivity.
This lack of connectivity inhibits participation in global markets and hinders communication with the outside world.
Dependence on Specific Industries:
heavily relies on specific industries such as mining, agriculture, and manufacturing, which limits its ability to diversify its economy.
These industries often suffer from outdated technology, lack of investment, and poor infrastructure.
nobody knew the song “yesterday” by the beatles when a journalist visited
Global Shift of Manufacturing to China:
world’s largest manufacturer.
due to low labour costs, a vast workforce, favourable government policies, and access to global markets.
Many multinational corporations have relocated their manufacturing operations to China to take advantage of these factors.
Outsourcing of Services to India:
emerged as a global leader in the outsourcing of services, particularly in the fields of information technology (IT) and business process outsourcing (BPO).
due to a large pool of skilled English-speaking professionals, cost advantages, and a supportive government framework.
Many Western companies have outsourced their customer service, IT support, data processing, and other services to Indian firms.
Costs and benefits for emerging
Asia:
Average incomes have soared for successive waves of new Asian ‘tiger’ economies. Japan’s success came first in the 1950s.
South Korea followed soon after.
Foreign investors began working with local firms called Chaebols.
As national revenues soared, so too did South Korea’s spending on education and health.
Today, the country is an OECD member with the world’s eleventh largest economy.
Between 2000 and 2010, most large Asian economies sustained exceptionally strong annual growth rates, in part due to global shift (Table 13.1).
More recently, growth has slowed but, in most cases, remains higher than in developed countries (Figure 13.1).
* Across Asia, urban environments have been transformed by rapid industrialisation and the establishment of SEZs (see Chapter 12).
Major economic, social and environmental changes are associated with globalisation:
Poverty reduction and waged work:
Education and training
Environment and resource pressure
Infrastructure, the built environment and unplanned settlements
Poverty reduction and waged work
Worldwide, 1 billion people have escaped US$1.25-a-day poverty since 1990.
The majority are Asian: over 500 million have escaped poverty in China alone.
The term ‘new global middle class’ is used to describe the growing mass of urban, working people who have escaped rural poverty.
Some work in the manufacturing sector in Bangladesh and China.
Others belong to service industries in India and the Philippines. Many earn between US$10 and US$100 per day (far more than their parents did). By 2030, it is predicted that Asia will be home to 3 billion middle-class people.
Education and training:
High school achievement in Singapore and Hong Kong is envied by governments around the world, including the UK.
Throughout Asia, education has improved in recent decades, albeit unevenly (illiteracy remains a problem in rural India and Bangladesh, for instance).
Around 2500 universities in China, India and South Korea award millions of graduate degrees each year.
China alone awarded 30,000 PhDs in 2012, and Asian countries now play a leading role in quaternary sector research in biotechnology and medical science.
Environment and resource pressure
The flip-side of global economic growth is the acceleration of environmental decline. Forested land has been sacrificed to urbanisation, logging and cash cropping.
Since 1990, Togo has lost 60 per cent of its forested area; Nigeria’s forest has halved in size.
Elsewhere, productive crop land has been ruined by over-exploitation, soil erosion or mining.
From 1990 to 2008, globalisation helped drive a ‘commodities supercycle’.
Demand for raw materials - from soy beans to iron ore - rose steeply each year.
However, global resource pressure has recently slackened, due to reduced demand in China (where economic growth has halved since 2008).
Infrastructure, the built environment and unplanned settlements
Alongside economic take-off, infrastructure development has taken place, bringing modern motorways, high-speed railways and airports to major cities including Jakarta.
There is a growing trend for extreme high-rise development in city centre ‘hotspots’ in many Asian cities, including Hong Kong, Singapore and Shanghai.
Often these developments are accompanied by the loss of recreational spaces and older, unplanned neighbourhoods. Beijing’s traditional hutongs (narrow lanes) are now all but lost.
Mumbai’s Dharavi slum is a cramped and chaotic place that is home to families who live on little more than £200 a month.
It is also the location of a thriving recycling industry worth as much as £700 million a year and employing 250,000 people.
However, city authorities are determined to replace the Dharavi slum with modern flats.
Global outsourcing of services to India:
By 2040, India is expected to be the second-largest economy in the world.
Some of its recent economic success is attributable to the call centre services that Indian workers provide (Table 13.2).
Why have US and UK businesses outsourced so much work to India, and to the city of Bangalore in particular?
- Many Indian citizens are fluent English speakers.
This is a legacy of British rule, which ended in 1947.
It gives India a comparative advantage when marketing call centre services to the English-speaking world. - Broadband capacity is unusually high in Bangalore.
This city is a long-established technology hub, thanks to early investment in the 1980s by domestic companies such as Infosys and foreign TNCs such as Texas Instruments.
Today, large independent Indian operators conduct contract work for all kinds of firms, from travel companies to credit card providers.
Dell, Intel and Yahoo have also built their own call centres here.
Evaluating India’s call centre success story
Costs
Some call centre workers complain they are exploited.
Their work can be highly repetitive.
Business is often conducted at night - due to time zone differences between India and customer locations in the USA or UK - sometimes in ten-hour shifts, six days a week.
Despite overall growth, the gap between rich and poor has widened sharply.
India has more billionaires than the UK, yet it also has more people living in absolute poverty than all of Africa.
In 2015, half a billion Indians lived in homes that lacked a toilet.
Evaluating India’s call centre success story
Benefits:
India’s call centre workers earn good middle-class wages by Indian standards.
Nightclubs and 24 shopping malls in Bangalore testify to the relatively high purchasing power of a new Indian ‘techno-elite’ typically earning 3500 rupees (£40) a week (Figure 13.2)
Indian outsourcing companies have become extremely profitable.
Founded in 1981, Infosys had revenues of US$9 billion in 2015. It is one of the top twenty global companies for innovation, according to the US business analyst Steve Forbes.
Global outsourcing of manufacturing to China:
The global shift of manufacturing has played an important role in extreme poverty in China falling from 60 per cent in 1990 to sixteen per cent by 2005 (Table 13.3).
China first gained its reputation as the ‘workshop of the world in the 1990s.
Cities like Shenzhen and Dongguan offered foreign investors a massive pool of low-cost migrant labour.
At this time it was common to hear stories of Chinese workers suffering in factory conditions similar to those of Victorian England.
Between 2000 and 2010, conditions improved markedly for many workers.
The disposable income of urban citizens rose threefold following a series of protests. In 2010, workers walked off production lines for Honda, Toyota, Carlsberg and other global brands.
Actions such as these led to wage increases of between 30 and 65 per cent (Honda employees now earn US$300 a month).
Since 2010, strategic planning by China’s government has helped some companies move further up the manufacturing value chain.
The country’s economy is maturing rapidly. ‘Hi-tech’ manufacturing is booming, bringing improved pay for skilled workers.
Increasingly, high-value products such as iPhones are made in China, not just ‘throwaway’ cheap goods.
Many less-desirable ‘sweatshop’ jobs have migrated to Bangladesh where labour costs remain much lower.
Evaluating China’s ‘workshop of the world’ status
Costs
In the early years, many workers were exploited in sweatshops.
Around 2500 metal-workers in Yongkang lost a limb or finger each year due to dangerous factory conditions.
It gained a reputation as China’s so-called ‘dismemberment capital’. Since then, conditions have improved for many Chinese workers.
The environment continues to suffer greatly.
Dubbed ‘airpocalypse’ by the Western media, air pollution in cities reduces Chinese life expectancy by five years.
The WHO is concerned with very high average levels of small particulate matter known as PM2.5.
These deadly particles settle deep in the lungs, causing cancer and strokes.
Evaluating China’s ‘workshop of the world’ status
Benefits:
As conditions improve, people are enjoying large income gains. More people can now afford smartphones and fridges.
Car ownership has grown from one-in-a-hundred families to one-in-five since 2000. Increasingly, China’s economic growth is driven by this domestic consumption, and not just by the value of its exports.
A transfer of technology has taken place since the early days of manufacturing-led industrialisation.
Local companies have adopted technologies and management techniques brought to China by TNCs.
Increasingly, Chinese companies are developing their own products.
A leading example is smartphone maker Xiaomi.
Chinese banks are now some of the world’s largest TNCs.
Environmental challenges for communities in developing countries:
It is not only China that has experienced an “airpocalypse.
Communities within many developing economies have experienced major environmental problems as a result of global shift.
Adverse impacts on the health and well-being of people have resulted from pollution, over-exploitation of resources and the dumping of industrial waste.
Global shift has, in part, been driven by TNCs seeking low-cost locations for their manufacturing and refining operations.
Weak environmental governance has sometimes been an attractive location factor. In high-income nations, bodies such as the UK Environment Agency have a well-funded remit to monitor industrial operations and fine polluters.
Elsewhere, there is less red tape:
China: In Dongguan, workers for Wintek - the firm that makes touchscreens for iPhones - were poisoned by chemicals used to treat the glass. In Hunan province, many people were poisoning by a lead-emitting manganese smelter (manganese is used to strengthen steel, one of China’s major exports).
Ivory Coast: Tens of thousands of Ivorians suffered ill health after toxic waste alleged to produce hydrogen sulphide was dumped by a ship in the employ of Trafigura, a European TNC. A £28 million cash settlement followed.
Indonesia: Land degradation and biodiversity loss are widespread in Indonesia, where an area of rainforest as big as 100,000 football pitches is lost each year. Room is being created for oil-palm plantations and mining operations. The scale of forest burning has created transboundary smoke pollution affecting neighbouring states.
More mammal species are threatened in Indonesia than in any other country. The government has been very slow to act and corruption remains widespread
Social and environmental problems for deindustrialised regions:
Global shift creates challenges for developed countries too.
Economic restructuring has brought a wave of economic and social problems to inner-city areas. These are also explored in detail in Chapter 16.
During the 1970s, many European and American factory workers lost their jobs.
Western factories closed in large numbers once Asia became the focus of global manufacturing.
As inner-city unemployment soared in places like Sheffield (UK) and Baltimore (USA), local communities abruptly ceased to be significant producers or consumers of wealth.
The worst-affected neighbourhoods were now home to ‘switched-off” communities who had become structurally irrelevant to the global economy.
Other cities remain caught in a spiral of decline (Figure 13.3). In the USA especially, the economic and social health of urban areas varies greatly
Particular challenges include:
High unemployment
Crime
Depopulation
Dereliction
