Capital flows

What are the five flows of globalisation?

Capital

Labour

Products

Information

Services

What are the four components to capital flows?

FDI and TNCS

Remittances

Private Investment

ODA (aid)

What is the average value of FDI annually?

US $2 trillion.

What and when was peak FDI?

US $12 trillion in 2007, preceding the financial crash.

What is the target and real percentage of national budget spent on ODA?

Target= 0.7%

Reality= 0.5%

What  is the estimated value of remittances?

US $500 billion- this is 3x the value of international aid.

How stable is FDI?

It is very volatile and only informed by market investment, so a small event can crash FDI.

How stable is remittance?

It is the most stable form of capital flow.

What is UNCTAD?

UN Trade And Development- they work in FDI.

When did FDI bottom out?

2021.

What happened to FDI in 2020?

It fell from 1.5T to 1T, a fall which was skewed towards more developed economies.

By what percent did FDI in the developed world fall in 2020?

58%

Where does most of FDI happen?

Within the developed world.

What happened to FDI in developing countries in 2020?

The fall was only 8%, mainly due to robust flows in Asia.

What fraction of FDI did developing economies account for in 2020?

2/3.

What phrase describes TNCs?

‘The architects of globalisation’

What is a TNC?

A company that has operations in more than one country to produce/sell products and services.

The roots of TNCs are..?

In colonialism- 17th century East India Company:

• controlled trade routes

• ruled 20% of the world’s population

How many TNCs exist worldwide?

100 000.

How much of global financial assets do the top 100 TNCs own?

20%

What industry are most TNCs in?

Assembly industries.

What is a GPN?

A global production network.

How many suppliers does the company Kraft have?

30 000.

What is JIT production?

Just in time production- it prevents overstocking.

Who built the foundation of lean manufacture in the 20th century?

Toyota.

How was Dell so successful as a computer producer?

• They found parts and produced computers fast with JIT production

• Delivery was quicker than competitors who stocked

• Inventory costs were low, so the company became successful

What are the three factors of growth in TNCs?

Motive

Means

Mobility

How does motive drive a TNC’s growth?

The motive is profit.

If they can control raw material and production costs, they will make more profit.

They do this through:

• Horizontal integration

• Vertical integration

• Economies of scale

What is horizontal integration?

Where a company buys out its competition.

What is vertical integration?

Where a company owns and controls every stage of production.

What are economies of scale?

Where a company expands production to increase efficiency and reduce unit production costs.

How does means drive a TNC’s growth?

The means will be a bank.

Companies invest overseas to boost the market or take advantage of laws.

Flows of money around the world connect businesses and countries.

How does mobility drive a TNC’s growth?

Better transport and faster production (e.g JIT) increase a company’s profit overall.

What are four main TNC investment strategies?

Offshoring

Mergers/ acquisitions

Joint ventures

Glocalisation

What is offshoring?

Where TNCs move parts of their own production process overseas.

What is a merger?

Where two companies combine into one.

What is an acquisition?

Where one company buys another.

What is a joint venture?

Where two companies form a partnership to handle a business in one territory. Sometimes it is required by investment law.

What is glocalisation?

Adapting a global product to take account of local wants and needs, e.g Mcdonalds menus.

What are positives of offshoring?

Cost saving

It takes advantage of lax laws in other countries

Opens up markets

What are negatives of offshoring?

Tax responsibility

Diluted control

Exploitation is common and affects the reputation of a company

What are positives of mergers and acquisitions?

Make a lot of money

Shared risk, thus lower risk

More ideas in combination

In 2015, what proportion of global FDI was made up by cross-border mergers and acquisitions?

1/3