Globalisation

Globalisation

1. Definition: The geographic dispersion of industrial and service activities, and the cross-border networking of companies

2. KEY POINTS

   • Globalisation is a process in which economies have become increasingly integrated and inter-dependent
   • Globalisation is dynamic rather than an end state
   • Globalisation is not inevitable - it can reverse

3. KEY FEATURES

   • Trade : GDP ratios are increasing for most countries
   • Expansion of financial capital flows between countries
   • Foreign direct investment and cross border M&A
   • Rising number of global brands
   • Deeper specialisation of labour
   • Global supply chains & new trade and investment routes
   • Increasing levels of international labor and migration and migration within countries
   • Increasing connectivity of people and businesses through mobile and Wi-Fi networks

4. KEY CHARACTERISTICS

   • 1. Greater trade across borders in goods and services
   • 2. Increase in transfers of capital
   • 3. Development of global brands that serve markets in lower, middle and higher-income countries
   • 4. Greater use of outsourcing and offshoring in production
   • 5. High levels of labour migration both within and between countries
   • 6. New nations joining the trading system
   • 7. A shift in the balance of economic and financial power from developed to emerging economies and markets
   • 8. Increasing spending on capital investment, innovation and infrastructure across large parts of the world
   • 9. Globalisation is a process of making the world economy more connected and inter-dependent
   • 10. Many industrialising countries are winning a rising share of world trade and their economies are growing faster than developed nations

5. CONTRIBUTING FACTORS

   • Containerisation: costs of ocean shipping decreased - containerisation, bulk shipping + other efficiencies. lower unit cost of shipping products helps bring prices in country of manufacture closer to those in export markets + makes markets more contestable globally
   • Technological Change: rapid and sustained technological changed has reduced the cost of transmitting and communicating information, 'death of distance' - key factor behind trade in knowledge using web technology
   • Economies of scale: increase in minimum efficient sales associated with some industries, many emerging countries have own transnational corporations
   • Differences in Tax Systems: desire of businesses to benefit from the lower unit labour costs and other and other favourable production factors abroad has encouraged countries to adjust their tax systems to attract foreign direct investment.
   • Less Protectionism: borders have opened and average import tariff levels have fallen - in the last few years there has been a rise in non-tariff barriers e.g. import quotas as countries have struggled to achieve real economic growth as a response to persistent trade and current account deficits
   • Growth of MNCs and Transnational Cos: global businesses and brands have invested significantly in expanding internationally

6. BENEFITS AND GAINS

   • 1. Encourages producers and consumers to benefit from deeper division of labour and economies of scale
   • 2. Competitive markets reduce monopoly profits and incentivise businesses to seek cost-reducing innovations
   • 3. Enhanced growth has led to higher per capita incomes
   • 4. Advantages from the freer movement of labour between countries
   • 5. Gains from the sharing of ideas /skills/technologies across national borders
   • 6 Opening up of capital markets allows developing countries to borrow money to cover a domestic savings gap
   • 7. Increased awareness among consumers of challenges from climate change and wealth/income inequality
   • 8. Competitive pressures of globalisation may prompt improved governance and better labour protection

7. DRAWBACKS AND RISKS

   • 1. Inequality - has been linked to rising inequalities in income and wealth
   • 2. Inflation - strong demand for food and energy has caused a steep rise in commodity prices
   • 3. Vulnerability to external economic shocks - national economies are more connected and inter-dependent; this increases the risk of contagion
   • 4. Threats to the Global commons - irreversible damage to ecosystems, land degradation, deforestation, loss of bio-diversity and the fears of permanent shortage of water afflict millions of the world's most vulnerable
   • 5. Race to the bottom - nations desperate to attract inward investment may be tempted to lower corporate taxes, allows lax health and safety laws and limit basic welfare safety nets with damaging social consequences
   • 6. Trade imbalances - some countries are running big trade surpluses and these imbalances are causing tensions and pressures to introduce protectionist policies such as new forms of import control
   • 7. Unemployment - capital investment and jobs in advanced economies will drain away to developing countries as firms switch their production to countries with lower unit labour costs - can lead to higher levels of structural unemployment
   • 8. Standardisation - loss of economic and cultural diversity as giant firms and global multinational brands dominate domestic markets in many countries
   • 9. Dominant global brands - globalisation might stifle competition if global businesses with dominant brands and superior technologies take charge of key markets