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The factors driving globalisation

Financial growth opportunities and loss minimisation, Consumer spending and purchasing patterns, World Trade Organisation regulations and sanctions, Deregulations of the financial market

Impacts of globalisation

Employment levels in developing and developed countries, International Cooperation, Global spread of skills and technology, Domestic market, Tax minimisation

Growth opportunities

Increased customer base

Cheaper production costs

Increased customer base

A largest market leads to an increased rise in the turnover. The Chinese market is one of the largest which encourages businesses to move there.

Cheaper production costs

Firms benefit from these lower costs in production. Countries like Australia have minimum wages, by moving to a country where the corresponding legislation is less strict, businesses can save money

Loss minimisation

Cheaper production costs

Economies of scale

Avoiding protectionist policies

Economies of scale

Multinational Corporations take advantage of economies of scale, which refer to cost reductions from the large scale of a business. As production increases, firms move overseas to places where they can use a country’s infrastructure and lower costs

Avoiding protectionist policies

Such policies such as tariffs and quotas look to hinder trade and in some cases increase costs for businesses. This can be avoided by moving to countries with free trade

Consumer spending and purchasing patterns

• Refers to the way consumers spend and factors influencing their choices

• Businesses thrive if they can adapt to these changes

• Involves analysing how consumers spend their disposable income

Aspects of consumer spending and purchasing patterns

Economic performance which is measured through macroeconomic objectives, Disposable income, Multiculturalism, Technological advancement

Economic performance measured through macroeconomic objectives

The main objectives are economic growth, inflation and unemployment

Disposable income

Consumers around the world generally have seen a rise in their income, as a result this increases their ability to spend on products

Multiculturalism

Consumers in one country want to learn about production from other countries. They have been more accepting overall. As a result this will lead to increased sales for the business

Technological advancement

The ease and availability of technology assists in the purchase of goods and services. Online payment systems have become more abundant and increasingly secure

The WTO regulations and sanctions

An intergovernmental organisation tasked with the regulation of global trade amongst nations

Aspects of the WTO

• Uses a rules-based system to settle disputes and contribute to the overall management of international trade

• Prevents MNCs from exploiting developing countries

• Act as arbitrators and can help facilitate trade agreements

• If disputes arise, the WTO can assist

• Ensures transparency in trading partners

Deregulation of financial market

Refers to the elimination and reduction of government intervention in a particular market

Aspects of deregulation of a financial market

• Perceived as beneficial

• Floating the Australian dollar allows the market forces of demand and supply to determine the exchange rate

Globalisation

The increased interdependence amongst nations. It also refers to the way labour, capital, products, information and technology around the world become more connected.

Employment levels in developing and developed countries (1)

Allowed outsourcing to occur - non-core business activities by a third party for a fee. This creates job opportunities for those in developing countries

Employment levels in developing and developed countries (2)

Globalisation has allowed MNCs to collaborate with businesses in smaller countries - increased employment in developing countries

Employment levels in developing and developed countries (3)

When MNCs move overseas they may bring new technologies with them - those in developing countries may be unaware of how to use it → structurally unemployed

Employment levels in developing and developed countries (4)

Globalisation has facilitated migration of labour and skilled workers to move around the world. This increased employment in developed countries

Employment levels in developing and developed countries (5)

Can outsource tasks in developing countries - decreased employment in developed countries

International cooperation

Refers to how well countries and their governments get along with each other.

1. ICT advancements

2. Free trade agreements

3. Global travel

ICT advancements

Have allowed information and knowledge to be transferred, experts from around the world can easily communicate with each other through online platforms

Free trade agreements

• Reduction of trading barriers

• No limitations

• Increased trade from around the world

Global travel

Have allowed conferences all around the world that involve collaborations with leaders, has improved international cooperation

Global spread of skills and technology

Facilitated by globalisation

Skills

• Increased demand for high-skilled individuals specifically by MNCs

• Increased demand for skills in specialised areas

• Workers migrate due to attractive job offers

• Upskilling to make workers more competitive

Technology

• Changed consumption patterns

• Ability to transfer funds electronically and securely

• Increased identity theft and digital fraud

• Easier to store and share digital information

(Home) Domestic market

Markets which operate locally with one’s own country

Aspects of domestic market (1)

Local businesses have a chance to collaborate with businesses all over the world

Aspects of domestic market (2)

Local firms can face competition with businesses around the world. This could eventually lead them to shutting down

Aspects of domestic market (3)

Domestic customers have increased choice and can purchase products globally

Aspects of domestic market (4)

Domestic markets can purchase raw materials and inputs at lower rates from different countries

Aspects of domestic market (5)

Opportunities have opened up for both domestic consumers and businesses in terms of collaborations and job opportunities

Tax minimisation

A somewhat unintended effect of globalisation

Tax haven

A country that has low taxes and secretive tax laws for both non-residents and foreign companies

Transfer pricing

A phenomenon designed to evade paying high taxes

Aspects of tax havens

• It attracts MNCs, who move production and other operational activities to these countries

• Tend to have a very strict bank secrecy, unrestricted capital flows between countries, and tax exemptions for most

Aspects of transfer pricing

• Within a company, profits tend to be relocated from a high-taxing economy to a low-taxing economy to avoid paying tax

• This is possible due to tax havens