Factors Contributing to increased globalisation

Trade Liberalisation

• Trade barriers include any measure that prevents or slows down the process of trade. Many countries have in the past used trade barriers to protect their own industries from foreign competition. This is called protectionism. As globalisation has increased, trade barriers have been reduced via trade liberalisation. Where there are fewer import controls, businesses with good products can export more. World trade in manufactured products has become very much freer.

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• Trade liberalisation means that buyers have much more choice about where they obtain the products they want. Many businesses find it harder to compete but the ones that do well have access to far larger markets. They are able to operate more efficiently than their weaker competitors and can exploit economies of scale. Struggling businesses may end in closing down or diversifying. Others adapt, learning how to cut costs.

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• Trade barriers can be used by governments to protect inefficient industries. Tariffs are taxes that increase the prices of imports; they allow inefficient industries to sell at prices above the world market level. Quotas put a limit on the level of imports of specific imports. By increasing competition, trade liberalisation keeps prices down, generally benefiting consumers. Vested interests often try to get Governments to enact trade protection measures that help them to stay alive but this does lead to slower economic growth.

Transport and Communication

• Falling costs of transport and communication have hastened globalisation. Advances in technology have made it much easier to co-ordinate business operations around the world. Conference calls between several countries can be conducted on mobile phones. Broadband facilitates complex information exchanges. Cheaper air travel makes it easier to negotiate complex deals. Businesses can make quick decisions, reacting swiftly to changes in dynamic markets and seizing opportunities ahead of the competition. Offshoring and outsourcing become much easier.

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• These developments cut the costs of international trade:
• - A single container can be used to take goods by road/rail to the docks, be lifted onto container ships by cranes and carry on similarly at the other ends until it reaches the final market. Containerisation has revolutionised global trade, cutting costs and reducing transit times. It has eliminated much labour intensive loading and unloading of cargoes.
• - Air freight prices have fallen far enough for perishable goods to be exported. Other products have high value in relation to their bulk. Speed reduces the need for finance to cover production costs until the sales revenue comes in. Automated freight handling at airports has helped too.

Increased Significance of TNCs

• TNCs (Transnational Companies) are the same as multinational companies are are inextricably linked with globalisation. TNCs are both a cause and consequence of globalisation.
• MNCS are sometimes described as TNCS. Such companies have offices or factories in different countries and usually have a centralised head office where they co-ordinate global management.

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• MNCs are nothing new. In recent years there has been a surge in the growth of MNCs. The spread of globalisation, the breaking down of trade barriers, the emergence of new markets, the liberalisation of existing markets and advances in information technology have all contributed to this.
• They can be very large organisations with turnover exceeding the GDP of many countries. Inevitably, this gives them great power and influence. Many MNCs have been accused of abusing their position and have attracted great criticism of their actions. But not all MNCs are large, powerful companies; many are small scale.

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• To their opponents, MNCs represent everything that is bad with global trade and globalisation. Their critics portray them as bullies, using their power to exploit workers and natural resources with scant regard for the economic or environmental well-being of any country or community.
• Their supporters see multinationals as a triumph for global capitalism, bringing employment and new technologies to poorer countries, driving up incomes and aiding development. In return, many consumers get cheaper goods.

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• In the past the largest MNCs were America, Japanese or European. But as globalisation has fostered the growth of economies such as India and China, they too have large MNCs which are growing rapidly.

Increased Investment Flows (FDI)

• Many bigger businesses don't just want to export; they want to invest in new markets. Much FDI goes to developed or fast growing emerging economies so that companies can product close to their markets. Many poor countries are not attractive to investors; it may not be easy to do business there. Setting up a new project may be costly and offer limited profits. However, poorer countries are gradually attracting a little more FDI now.

Migration (within and between economies)

• International trade enhances the forces of competition. When it becomes possible to import products that were previously unobtainable or very costly, consumers get to enjoy things they could not previously afford. The people who produced the imports usually get higher wages than they did previously. Many people people become better off. There will be structural change - some businesses will grow while others will shrink or close down.
• There are gainers and losers in this process. People who work in businesses that are unable to make a profit will lose their jobs. But an efficient economy needs skilled people. People who worked in agriculture migrate to urban centres and many learn new skills. Gradually, incomes improve.

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• Employers are always on the lookout for people who will work for less than those they are already employing. Both employers and job seekers find they have incentives that lead to increased migration. So as well as increased trade, economic development leads to increased migration both within and between individual economies.

Growth of the Global Labour Force

• As economies prosper, education and training improves and individuals develop high-level skills and capabilities. Migration is easier for people with skills and qualifications. Many MNCs are able to recruit a global labour market. Many businesses in developed economies find that recruiting abroad is cheaper than running their own training programmes. This helps them grow and stay profitable.
• As much as developed economies benefit from recruiting abroad, the economies that have net migration (more people moving out than in) may find that they are losing people with scarce skills.

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• Rates of pay can be affected by globalisation. Effectively may employees are competing in a global labour market. Trade unions that manage to negotiate higher pay may find that redundancies follow as the business become more automated. If this doesn't make the business profitable the the next step may be offshoring and many more redundancies. Across the developed world rates of pay for unskilled people have stagnated. The outcome of offshoring include;
• - a rise in income in the emerging economies; people there gain more spending power and demand for imports from developed economies increases.

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• - many goods (especially clothing) become relatively cheaper in the developed economies, which are importing them from the emerging economies.
• - businesses in the developed economies export more and concentrate on new product development, creating jobs.
• - as all economies prosper, education and training helps to increase skill levels and productivity.
• Adapting to globalisation contribute to economic growth. The process of globalisation involves significant structural change as it lifts incomes.

Structural Change

• There are three stages in the development process. Developing economies depend heavily on agriculture; manufacturing develops in emerging economies and developed economies are dominated by the production of services. As economies grow richer they invest in physical capital (machinery and infrastructure) and human capital (skills and ability). Many unskilled jobs become mechanised and then automated. Skill shortages are common as development brings change and the labour force takes time to adjust.

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• Urbanisation, with more people moving from agriculture to manufacturing, raises productivity. China's urbanisation has been the fastest in human history.
• Agriculture in developing economies uses labour intensive methods with little capital or fertiliser and limited irrigation. If some workers move to towns, incomes improve, new methods are adopted and yields rises.
• Globally, the population of people living in towns grew from 30% to 54%.

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• In developed, mature economies, around 70% of the workforce will be in the service sector. Producers will be capital intensive. Production involves mechanisation, automation and little human labour. Technological advances play an important role. The knowledge economy and the service industries provide the most jobs. Structural change involves creative destruction. Some businesses and some whole industries decline whole new opportunities are developing. New industries flourish and the new jobs are very different from the old ones.

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• Structural changes involves retraining and life-time learning as employer's needs change. People who are made redundant from declining industries need help to become more mobile and adaptable. Training schemes are needed to reduce skill shortages. Adapting to structural change is much easier if the labour market is fairly flexible.
• Investment in robots in manufacturing processes is already reducing global job opportunities. This trend may soon extend into the service sector. This could make for a very different kind of structural change over the coming years.