chpt 4: globalisation

globalisation

• the process of expansion in business, financial transactions and governmental interaction

• that interconnects individuals, firms and governments across national borders

4 factors

1. financial growth opportunities & loss minimisation

2. global consumer purchasing & spending patterns

3. WTO

4. deregulation of financial market

financial growth and loss minimisation

provides businesses with the opportunity to reduce overheads or production costs to increase earnings & minimise losses

global consumer purchasing and spending patterns

refers to how people make decisions in purchasing products & services

role of WTO

sets standards for global business through mediating negotiations, dispute settlements and regulations to help trade flow freely

regulations

contracts that bind goes to keep their trade policies within agreed limits

dispute settlement

enforce rules to ensure trade flows as freely as possible

WTO roles

1. mediate negotiations

2. regulations

3. dispute settlement

deregulation of financial market

The reduction of barriers to the flow of capital between nations which make it easier to attract foreign investment

5 impacts

1. employment levels

2. global spread of skills & technology

3. international cooperation

4. domestic markets

5. tax minimisation

employment levels

Offshoring and outsourcing to ding countries may be used by ded countries to reduce labour costs

Global spread of skills & technology

Spreads the knowledge of new inventions, innovations, business models and technology; MNCs invest in and encourage the government to support train and educate to workers to build a supply of skilled local workers

international cooperation

Governments corporate internationally through FTAs & strategic alliances to reduce barriers to trade and its associated costs

domestic markets

A market within a country's own borders & trading is aimed at a single market; Firms face similar challenges and compete (with each other & international firms) for the same set of customers

tax minimisation

Minimising tax burdens allow firms to have more funds for global expansion

tax havens

Countries with secretive tax & financial systems and low taxes for non-residents; characterised by a lack of transparency and information exchange

transfer pricing

When parent companies set up subsidiaries in tax havens to manipulate where revenue is earned & where costs are incurred; The setting of the price for gds & services sold between controlled & legal subsidiaries within an enterprise (parent)

transfer price

the cost of the goods paid by the parent to the subsidiary

6 advantages

1. consumer choice

2. business expansion

3. international relationships

4. promotes competition

5. growth of education

6. improve SOL

consumer choice

Gives consumers the opportunity to purchase products that provide the best value for money

Business expansion

Allows firms to expand into overseas markets and increase their consumer base

International relationships

Creates a platform for international relationships that can be used to build global standards

Promotes competition

Increase in competition as companies need to compete with domestic and international firms

Growth of education

Improves the quality and growth of education and training; MNCs invest in and encourage the government to support tain and educate to workers to build a supply of skilled local workers

Improve SOL

Improvement of SOL means that a larger proportion of the country's population have access to basic necessities

4 disadvantages

1. creates vulnerable countries

2. widens the gap between the rich and poor

3. lack of environmental protection

4. promotes single culture

creates vulnerable countries

From the removal of protectionist measures to protect local industries and workers

dumping issues

When foreign companies dump cheap goods into a market

widens the gap between the rich and poor

Wealthy countries and corporations exploit low pay and bad working conditions in poor countries

lack of environmental protection

Some MNCs or foreign firms may exploit the lack of environmental protection policies in some countries and thus, contribute to further pollution and destruction of the environment

promotes single culture

May encourage increased materialism or consumerism and contribute to the loss of cultural diversity as more and more countries begin to move towards a single, globalised culture; Foreign companies may set up a new status quo that may not be ethical

concepts

interdependence, economies of scale, easily accessible, technological and global communications, improvement in SOL

benefits of homegrown products

1. employment & social welfare

2. GDP & prosperity

3. greater profits

4. social benefits

employment and social welfare

lower unemployment levels lead to less crime, less social welfare needed and increased income tax revenue

GDP and prosperity

greater profits from increased overseas sales result in the rise in taxation collection which can be used for essential services and allows the country’s GDP to improve at a higher rate

greater profits

overseas sales of home-grown products benefit the AUS economy because the money or profits gained stay in the country and helps stimulate the economy

social benefits

creates greater opportunities for innovation as extra funds can be used for research & development while the increase in tax revenue may be used to fund grants and tax incentives (RDTI)