Globalisation EQ3.3

Globalisation has affected some places and organisations more than others.

AT Kearney index

Measures 27 metrics from 5 categories to determine the levels of globalisation in 130 countries

AT Kearney index categories

Business activity (major companies)

Human capital (education levels)

Information exchange (internet access)

Cultural experience (major sport events)

Political engagement (embassies)

KOF Globalisation index

Measures the economic, social and political dimensions of globalisation of 122 countries. A Swiss institute containing data since the 1970’s. 24 indicators across 3 categories.

KOF measurement examples

Economic - FDI, trade + financial flows.

Social - phone connections, international students

Political - No. of embassies, being part of international agreements

Composite indices

Multiple factors are included in the measurement, e.g. HDI

Weighted indices

Each component multiplies by a fraction of 1 and then are added

Which countries are top of the KOF and Kearney indexes?

Small European countries because they are part of the EU, have short distance to neighbouring countries and trade with them easily.

TNC

Firms with operations in more than 1 country

e.g. Walmart had a turnover of $482bn in 2016 (own ASDA)

Why would a firm choose to become a TNC?

They aim to maximise profit, becoming a TNC helps this by reducing costs or generating higher revenues from new markets.

Offshoring

Moving part of a company’s own production process to another country e.g. James Dyson to Malaysia as wages are cheaper (more profit)

Outsourcing

A firm contracts with another company to obtain goods or services from it e.g. BMW outsources component production to 2500 different suppliers. This is usually administration and data processing e.g. tech call centres

Offshoring pros

Reduces costs as wages are lower, tax rates are lower, proximity to raw materials decreases transport cost, less environmental regulation

Offshoring cons

Time zone differences make communication difficult, cultural barriers and communication, takes work away from source country

Outsourcing pros

More flexible than offshoring as the TNC can quickly shift supplier if a cheaper source becomes available

Outsourcing cons

Less direct control over the production process can lead to problems e.g. Tesco 2013 with their Romanian supplier mixing horsemeat into beefburgers

Developing new markets

Opening outlets in another country increases revenue for TNCs

Glocalisation

The process of adapting brands and products to suit the local market conditions such as taste, laws or culture

Examples of glocalisation

The Maharaja burger in India which is chicken rather than beef due to cultural preferences (alternative to the big mac)

Cadbury’s chocolate is sweeter in China due to local tastes

Global production networks - drawbacks of TNCs

May make TNCs more vulnerable to shocks in parts of the world that halt production.

2011 Japanese tsunami halted component supplies to offshore Nissan factory in Sunderland

Exploitation

TNCs have been accused of exploiting workers in developing countries by paying them extremely low wages

Switched off countries

Places, nations, regions or cities that are poorly connected and isolated from global networks due to a number of reasons

Examples of switched off countries

North Korea and the Sahel region

North Korea - human reasons

Communist country

Leader is a dictator

Extreme censorship of media

Tourism is banned

1/26 million have monitored internet access

North Korea - physical reasons

Geographically isolated - bordered by China, Russia and South Korea

Mountainous terrain - infrastructure is difficult to build and maintain

Vulnerable to natural disasters - in 2020 hit by 5 typhoons

The Sahel region includes which countries?

Mauritania, Mali, Niger, Nigeria, Chad, Sudan, Senegal and Burkina Faso

Sahel - human reasons

Lack of infrastructure for trade

Dominated by subsistence farming

History of political instability

Security challenges such as terrorism

Limited healthcare leads to hindered workforce productivity

Sahel - physical reasons

All landlocked

Climate change has led to desertification

Reduced agricultural activity due to decreased rainfall + changing patterns

Unsustainable land use such as overgrazing and deforestation

Scarce natural resources and competition over them