Impacts of Globalisation

Globalisation

The growing integration and interdependence of the worlds economies. It increases connectedness and is mainly through trade, investment and technology

Impacts of Globalisation

Employment levels, global spread of skills and technology, international cooperation, domestic market, tax minimisation/transfer pricing

Employment Levels in Developing/Developed Countries

Globalisation redistributes employment between developed and developing countries. Businesses offshore to developing countries for cheaper labour, which can create jobs overseas but reduce employment in the home country

Employment Levels - Impact on Developed Countries

Job losses, manufacturing and labour intensive industries move offshore to cheaper economies. Higher unemployment, in low skilled areas, as business has offshored. Wage pressure, competition from overseas workers pushes wages down in some industries.

Employment Levels - Developed Countries Example

Holden car manufacturing closing in Australia to Mexico, South Korea and other countries, leaving nearly 2,000 Australians jobless

Employment Levels - Impact on Developing Countries

Job creation, MNCs move operations to developing countries for cheaper cost. Lower wages, workers often payed less then developed counterparts, but still higher then domestic alternatives. Labour exploitation risk, sweatshops, poor working conditions, child labour. Brain drain, skilled workers migrate to developed countries for higher pay, leaving shortages in the home country

Employment Levels - Developing Countries Example

Vodafone offshoring call centres to India

Global Spread of Skills & Technology

Globalisation facilitates the transfer of knowledge, skills and technology across borders. Strategic alliance partnerships between firms across borders share resources and skills. Skilled migration, the movement of workers with specialised expertise to meet labour demand, also facilitates global spread

Global Spread of Skills & Technology - Impact

Rapid exchange of ideas and innovation through digital platforms. Access to global talent pools, boosts competitiveness. Skills developed through MNC training, education and alliances. Greater specialisation in industries worldwide. Risk of dependancy on foreign technology/skills

International Cooperation

Globalisation increases interconnectedness and interdependence between nations through increased movement of people around the globe, fostering a need for positive collaborative problem solving. Governments cooperating internationally mainly through free trade agreements

International Cooperation - FTA’s Allow

Access to a larger customer base, increased sales. Diversify market presence, reducing dependancy on a single market. Export to new countries with reduced or eliminated tariffs

International Cooperation - Impact

Creates peace between countries, economic interdependence reduces conflict. Multicultural societies, increased diversity, understanding of other cultures, migration. Global problems that require global cooperation, pandemics, cyber security threats

Domestic Market

The supply and demand for goods and services within a country. If a domestic market is flooded with a product or industry type, tis may push businesses to look for profits in other countries

Domestic Market - Impact

Increased competition from overseas products. Local industries under pressure from cheaper imports. Businesses may offshore production, reduces costs but cuts domestic jobs. Lower prices and greater variety for customers. Expands access to global suppliers and customers through e-commerce

Tax Minimisation

Refers to an approach to reduce tax liabilities within the bounds of the law. Globalisation creates an unethical ability for MNCs to minimise their tax though tax havens and transfer pricing

Tax Havens

Countries that intend to attract foreign investment by offering very low or no tax rates

Tax Havens - Impact

MNCs register subsidiaries in tax havens to avoid paying higher taxes in their home country. Reduces tax revenue for governments in high tax countries, less for healthcare, education, infrastructure. Creates unfair competition with smaller/local businesses. Raises ethical concerns, reputational risk if exposed

Tax Havens - Examples

Caymen islands, Bermuda, British virgin islands, Marshall isalands

Transfer Pricing

The setting of a price for goods and services sold between controlled legal entities within a business. When the subsidiary company sells goods to a parent company, the costs of these goods paid to the parent company is the transfer price. The parent company is within a high tax country, the subsidiary company is within a low tax country (tax haven)

Transfer Pricing - Impact

Subsidiaries in low tax countries ‘buy’ from high tax parent companies at manipulated prices. Shifts profits to low jurisdictions, lowering overall tax. Reduces government revenue in high tax countries. Legal is structured correctly, but ethically questionable