theme 4 : globalisation

globalisation definition

the integration of cultures, societies and economies

6 characterises of globalisation

• increases in trade in global goods or services

• global branding

• global sourcing

• foreign ownership of companies

• increasing global media presence

• interdependence of economic agents

increases in trade in global goods and services explanation

• total value of uk goods (not services) in 2021 = £465.5bn

• obtaining goods which are cheaper ; otherwise unavailable ; better quality

• however there are negative implications for domestic firms

• environmental issues - pollution, global warming

global branding explanation

• many multinational companies (MNCs) have a successful presence all around the world

• they may provide quality goods / services - but this may arguably be to the detriment of domestic firms who are unable to compete

global sourcing explanation

• businesses are able to buy raw materials from abroad - or outsource operations (e.g. american iPhones made in china)

• keeps costs low which can be passed onto the consumer and also widens choice for consumers

• however it arguably damages domestic firms

foreign ownership of companies explanation

• foreign individuals / companies invest in the uk (in the hope of profits)

• this provides employment and tax revenue

• however tax may be diverted back ‘home’ though an avoidance scheme

• also they may not be in it for the long term

increasing global media presence explanation

• 24 hour news channels from all over the world are broadcast in our homes giving us knowledge of world events

• social media gives rise to viral news and indeed ‘fake news’

interdependence of economic agents explanation

• economic agents are producers, consumers, govs and entrepreneurs

• individuals / firms / govs are now reliant on other countries for production / consumption of goods and services

• e.g. Russian energy, Chinese manufactured goods

• this gives cheaper / better options but can cause problems e.g. invasion of Ukraine, covid disruptions in china

pros of globalisation

• better quality goods / services from other countries and more choice for consumers

• increased choice lowers prices for consumers

• businesses have access to cheaper raw materials / labour etc

• competition inspires / encourages innovation

cons of globalisation

• loss of culture

• foreign competition damages domestic firms

• environmental costs e.g. transport of goods contributes to global warming

• exploitation of labour (and others e.g. oil)

• over dependence

• spread of disease

• consumption of goods with negative externalities

5 factors contributing to growth of globalisation

• fewer barriers to international trade

• lower transport costs

• digital communication

• growth of multinationals (revenue)

• growth of multinationals (lower costs)

fewer barriers to international trade explanation

• specialisation has encouraged trade (comparative advantage)

• protectionism has fallen

• trading blocs have grown (EU, NAFTA) - contracting again now due to brexit / donald trump etc

lower transport costs explanation

• cost of ocean shipping have come down, due to containerisation, bulk shipping and other efficiencies

• this helps being prices of imports down

digital communications explanation

• internet has dramatically lowered the cost of transmitting and communicating info

• e.g. in 1950 a 3 minute New York to London phone call cost around $80

• global trade in knowledge products - e.g. software, outsourced services and media content

growth of multinational - revenue explanation

• multinationals (businesses that operate in more than one country) want to increase sales and profits and shareholder value

• globalisation provides that opportunity

• developed countries encourage this expansion (increase in profits = increase in tax revenue)

growth of multinationals - lower costs explanation

• MNCs can take advantage of producing in countries with low wages

• registering in tax havens - tax avoidance / evasion

• developing countries may encourage this