4.1.1 Globalisation

Characteristics of globalisation

● Globalisation refers to the growing interdependence of countries and the rapid rate of change it brings about.

● The OECD defines globalisation as the ‘geographic dispersion of industrial and

service activities, for example research and development, sourcing of inputs,

production and distribution and the cross border networking of companies, for

example through joint ventures and the sharing of assets’.

● It can also be defined as the increasing integration of the world’s local, regional

and national economies into a single international market .

● There is movement towards free trade of goods and services, free movement of

labour and capital and free interchange of technology and intellectual capital.

Factors contributing to globalisation

● Improvements in transport infrastructure and operations have meant there are

quick, reliable and cheap methods to allow production to be separated around the

world.

● Improvements in IT and communication allow companies to operate across the

globe

● Trade liberalisation and reduced protectionism has made it cheaper and more

feasible to trade; this has been occurring since 1945. The breakdown of the soviet

bloc and the opening of China has shown a whole area of the world for business to

expand into.

● International financial markets have provided the ability to raise money and move

money around the world, necessary for international trade.

● TNCs (large companies operating around the world) have led to globalisation by

acting to increase their own profit as they want to take advantage of low labour costs.

They sell and produce their goods all around the world and have the power to lobby

governments.

Impacts on globalisation for consumers

● Consumers have more choice since there are a wider range of goods available from

all around the world, not just those produced in the UK.

● It can lead to lower prices as firms take advantage of comparative advantage and

produce in countries with lower costs, for example low labour costs.

● In other cases, it is leading to a rise in prices since incomes are rising and so there

is higher demand for goods and services.

● Many consumers worry about the loss of culture .

Impacts of globalisation on workers

● In terms of employment, some people have gained whilst others have lost. There

have been large scale job losses in the western world in manufacturing sectors as

these jobs have been transferred to countries such as China and Poland.

● Increased migration may affect workers by lowering wages but migrants can also

provide important skills and an increase in AD which increases the number of jobs.

● International competition has led to a fall in wages (or reduced growth) for low skilled

workers in developed countries whilst increased those in developing countries.

● The wages for high skilled workers appear to be increasing, since there is more

demand for their work; this is increasing inequality .

● TNCs tend to provide training for workers and create new jobs.

● Those working in sweatshops will see poor conditions and low wages, but this is

better than other alternatives.

Impacts of globalisation on producers

● Firms are able to source products from more countries and sell them in more

countries. This reduces risk since a collapse of the market in one country will have a

smaller impact on the business.

● They are able to employ low skilled workers much cheaper in developing countries

and can exploit comparative advantage and have larger markets, both of which

can increase profits.

● Firms who are unable to compete internationally will lose out.

Impact on globalisation on the government

● The government may be able to receive higher taxes , since TNCs pay tax and so do

the people they employ. However, they could lose out through tax avoidance .

● TNCs also have the power to bride and lobby governments, which could lead to

corruption.

● If the government uses the correct policies, they can maximise the gains and

minimise the losses.

Impacts on globalisation for the environment

● The increase in world production has led to increased demand for raw materials ,

which of which is bad for the environment.

● Increased trade and production has also led to more emissions .

● However, globalisation means the world can work together to tackle climate change

and share ideas and technology.

Impacts of globalisation on economic growth

● Globalisation increases investment within countries; the investment of TNCs

represents an injection into the economy, and which will have a larger impact due to

the multiplier. It creates an incentive for countries to make supply-side improvements

to encourage TNCs to operate in their countries.

● TNCs may bring world class management techniques and technology which can

have knock on benefits to all industries as these techniques and technologies are

available for them too.

● Trade will increase output since it allows exploitation of comparative advantage.

● However, the power of TNCs can cause political instability as they may support

regimes which are unpopular and undemocratic but that benefit them or could hinder

regimes which don’t support them

● Comparative cost advantages will change over time and so companies may leave

the country when it no longer offers an advantage which will cause structural

unemployment and reduce growth.