4.4 - Globalisation

• Globalisation looks at the manner in which the world is becoming increasingly connected as a result of trade and working practices
• Globalisation has resulted in:

  • a greater dependence on global trade
  • an increase in the number of transnational companies
  • more movement of employees, goods and services between countries
• Countries have realised that trade creates new markets for their products.

  By focusing on producing goods and services where they have an advantage countries can benefit from increasing sales and economic growth.
• Specialisation has allowed countries to improve productivity, It has also lead to better quality and more choice
• Countries open to trade are likely to increase exports and therefore increase GDP
• Interdependence between countries has helped to promote better relations

  between countries
• Countries such as China and Russia have joined the international market leading to dramatic changes in global change
• World Trade Organisation (WTO):

  • The World Trade Organisation (WTO) was established in 1995 has 160 members
  • Its purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers
  • The WTO is the only international agency overseeing the rules of international trade
  • It polices free trade agreements, settles trade disputes between governments and organises trade negotiations
• WTO decisions are absolute and every member must abide by its rulings, Most Favoured Nation (MFN) status is required for all members providing trade advantages such as reduced tariffs
• New Technology:

  • New technology has allowed for easy access to global markets. This has led to firms targeting all four corners of the globe
  • Transport has improved making it quicker and easier to deliver goods and services
  • Improved communication links make it easier to deal with other countries
• The World Wide Web (www) is a collection of interconnected documents which are accessible using the internet. It enables people from almost anywhere in the world to access information on almost any topic from shopping to weather forecasts; and from research to downloading music and movies (Example of new technology)
• Foreign Direct Investment (FDI):

  • Foreign direct investment is an investment from a company in one country into another country
  • This will lead to an increase in productive capacity as more firms look to locate in other countries
  • This can be achieved through relaxing rules and regulations surrounding the movement of capital, which can move either freely or at very low cost quickly across the globe
• The greater freedom of movement of capital enables businesses to invest outside their country of origin. This may lower their own costs of production and improve economic prospects and job opportunities in the invested country (FDI)
• Multi-National Corporations:

  • Operate in more than one country
  • Operate in a number of major global markets
  • North America
  • European Union
  • South-East Asia
• Pros of MNCs:

  • Global brand recognition
  • Economies of scale
  • Easier to compete internationally if in other countries
  • Take advantage of lower production costs
  • Possible tax advantages or grants
  • Spread risk
• Cons of MNCs:

  • Communication and coordination problems
  • Threat of political unrest
  • Differences in culture and legal systems
  • Media attention - may be seen as unethical
  • Vulnerable to fluctuation in exchange rates
• Driving Factors of Globalisation:

  • Specialisation
  • World Trade Organisation
  • New Technology
  • Foreign Direct Investment
  • Multinational Corporations
• How is development measured:

  • GDP Per Capita
  • Life Expectancy at Birth
  • Access to Healthcare
  • Education
  • Technology
• Development measure (GDP Per Capita):

  • This looks at the average income of a person within a country
  • It is worked out by dividing GDP by the size of the population
  • It allows us to see how much an individual from each country can purchase given the average amount of income that they have
  • In 2015 someone from Qatar has an average income of $129,916
  • In the UK average income is $37 931
  • In the Central African Republic it is just $587
• Development measure (Life expectancy):

  • This measures how long a person is likely to live till at birth
  • Developed countries will have a longer life expectancy than developing countries
  • In 2015 the Japanese have the highest life expectancy with an average age of 83.7
  • In the UK we can expect to live until 80.8, up from 73.5 in 1980
  • Swaziland has a life expectancy of 48.9
• Development measure (Access to Healthcare):

  • Access to healthcare includes both public and private sector provision
  • Includes:
  • Curing illness
  • Reducing mortality
  • Promotion of public health
  • Caring for the sick
  • The UK has invested heavily into the National Health Service (NHS) which was established after the Second World War to provide universal health care. It employs over 1.5m people
• Development measure (Technology):

  • The use of technology is a sign of how well developed a country is
  • Includes:
  • Access to internet
  • Access to mobile phones
  • Access to a range of general technology (TVs, Laptop)
  • Technology is key to driving improvements in both education and business
  • Schools and students can use it to find out information about a range of subjects
  • Hospitals and the public sector can use it to find information that can improve the lives of society in general
  • Individuals and firms can use banking services to fund start-ups and the day to day running of their businesses
• Development measure (Education):

  • Divided into
  • Mean years of schooling of those age 25
  • Expected years of schooling of those entering school
  • Developed countries will tend to have more education than developing countries
  • An Australian entering school is expected to have 20.4 years of education
  • In the UK we can expect 16.3 years
  • A child from Eritrea can expect 5.0 years
• Changing business locations has seen many UK producers relocate abroad,

  particularly for manufacturing

  • Closing down UK plants to benefit from cheaper resources abroad e.g. labour and raw materials
  • Moving closer to large markets such as China
• (Changing business location) Outsourcing abroad:

  • Closing down UK facilities and using the services of a third party located overseas e.g. call centres based in India
  • Can benefit from cheaper resources or more skilled employees
• (Changing business location) Inward and outward investment:

  • UK producers establishing a branch or subsidiary abroad or foreign producers locating in the UK
  • The UK car industry has benefited from this. Despite being the second biggest car producer in Europe there are no large UK owned car manufacturers
  • Merger or takeover
  • Additional capital investment
• Branding is a promotional method that involves the creation of an identity for the firm that distinguishes the firm and its products from other firms, International branding is when a brand is recognised on a world wide scale.
• International branding can make it easy for a producer to move into international markets. Global communication can be used leading to an effective use of marketing budgets
• However, through international branding, there may be issues created by language or cultural differences:

  • Clairol launched a curling iron called "Mist Stick" in Germany even though "mist" is German slang for manure.
  • Gerber marketed baby food in Africa with a cute baby on the label without knowing that, in Ethiopia, for example, products usually have pictures on the label of what's inside since many consumers can't read.
  • KFC made Chinese consumers a bit apprehensive when "finger licking good" was translated as "eat your fingers off."
• The benefits of globalisation to the UK:

  • Greater access to foreign markets, e.g. the UK has a world reputation for its financial services
  • Access to wider markets enables businesses to invest in R&D as product life cycles are longer
  • The UK can import the goods and services that it needs easily with less restrictions on trade
  • The UK can access specialist skills from other countries
• The drawbacks of globalisation in the UK:

  • The UK struggles to compete on cost for manufactured goods as wage rates in the UK are relatively high
  • The UK has suffered structural unemployment based on the loss of some industries that it can no longer compete in on price
  • The UK is subject to international laws of trade