Globalisation

• Globalisation = A process by which national economies, societies and cultures have become increasingly integrated through the global network of trade, communication, transportation and immigration
• Factors of Production

  • Land = Natural resources
  • Labour = Human resource available in every country
  • Capital = Any physical resource that can be regarded as a man-made aid for production
  • Enterprise = Form of human capital describing those who take the risk of establishing businesses and organising production of goods.
• Dimensions of Globalisation

  • Flows of capital
  • Flows of labour
  • Flows of products
  • Flows of services
  • Flows of information
  • Global Marketing
• Flows of Capital

  • All money that moves between countries that is used for investment, trade or production
  • In the late twentieth century, deregulation of world financial markets meant bank and insurance companies were no longer confined in national boundaries
  • The 'core' is HDEs with lots of power
  • Periphery countries are LDEs which are often exploited
• Foreign Direct Investment (FDI) = Investment made mainly by TNCs based in one country into assets of a foreign country e.g. setting up a subsidiary country
• Repatriation of Profits = TNCS investing in overseas production take any profit made from that investment back to home country. Known as an economic leakage as the income is not reinvested in the country.
• Aid = Financial support significant in poor countries, can be provided from the UN or richer countries
• Remittance payments = Transfers of money made by foreign workers to family in their home countries. These are as important as FDI as a source of income in developing countries. India is the world's top recipient of remittances
• Flows of Labour

  • People move less easily than capital as they are restricted by immigration laws
  • Most movement has been from developing countries in South Asia and Africa to North America and Europe
  • Increases in cross-border movements, but most migrants move over short distances within the same region
  • North America, Europe and Gulf countries attract migrants from further away
  • Largest inter-regional flow of labour is in Asia. Between 2010 and 2015, 3 million workers moved from South Asia to East Asia
• Flows of Products

  • Flows of manufactured goods have increased due to demand from affluent populations
  • Movement of products is facilitated by reduction in costs and regional trading blocs
• Factors increasing the flow of products include

  • Transaction costs reduced by the improvement of data flow and the ease with which capital can be transported
  • Transport and time costs have been reduced by containerisation, which enable more complex and long distance flows of products
  • The reduction in tariffs and barriers in trade encouraged by the World Trade Organisation (WTO)
  • Regional trading blocks provide tariff-free trade and favourable conditions
• Containerisation = Using large standard-size steel containers to transport goods. The containers can be transferred between ships, trains and lorries, enabling cheaper, efficient transport
• Protectionism = A deliberate policy by the government to impose restrictions on trade in goods and services with other countries - usually done with the intention of protecting home-based industries from foreign competition
• Tariffs = A tax or duty placed on imported goods with the intention of making them more expensive to consumers so that they do not sell at a lower price than home-based goods
• Flows of Services

  • Services = economic activities that are traded without the production of material goods e.g. insuraance services
  • Services are footloose and can locate anywhere and serve worldwide
  • High level services are concentrated in cities of the developed world e.g. London and New York
  • As East Asian economies emerge, Hong Kong and Shanghai have become global financial centres
  • Growing number of transnational service conglomerates have emerged, seeking to extend on a global scale e.g. HSBC and TUI
• Conglomerates = A collection of different companies or organisations which all report to one parent company - most TNCs are conglomerates
• • High level services = services to businesses such as finance, investment and advertising
  • Low level services = services to consumers such as banking, travel and tourism, call centres or communication services
• Flows of Information

  • Governed by the movement of people and by the speed of data and communication transfers
  • Importance of information flows contribute to the expansion of knowledge intensive goods and services (e.g. quaternary services)
  • Such goods include those with an intensive research and development component e.g. pharmaceuticals and computer technology
• Flows of information are supported by:

  • improvements to global telephone networks, making communication cheaper and easier
  • mobile telecommunication technology
  • email and the internet, which enable large amounts of information exchange
  • live media coverage available on a global scale because of satellite technology
• Global Marketing

  • Marketing = process of promoting, advertising and selling products or services
  • Companies view the world as one single market and create products that fit into various regional marketplaces
  • Develops a recognisable brand and employ one marketing strategy
  • These generate economies of scale, which reduce costs
  • e.g. Coca-Cola has one single product, only minor elecments are tweaked for different markets
• Economies of Scale = The cost advantages that result from the larger size, output or scale of an operation. Savings are made by spreading the cost or by rationalising operations.
• Globalisation has created an international division of labour:

  • Highly skilled, highly paid, decision-making, research and managerial occupations, concentrated in more developed countries
  • Unskilled, poorly paid assembly occupations, which have become increasingly located in newly industrialising countrires, with lower labour costs
• Patterns of Production

  • Manufacturing has become decentralised, moving away from highly developed economies into emerging economies as a result of TNCs
• Global shift in the pattern of production from HDEs to lower wage economies has been driven by

  • Lower land and labour costs
  • Incentives offered by governments, in the form of tax breaks or special economic zones which encourage TNCs to invest and relocate production
  • The transfer of technology by TNCs has enabled countries in the developing world to increase productivity without raising wages
• The global shift has resulted in deindustrialisation in richer HDEs and a subsequent decline and loss of jobs in the manufacturing sector. Governments in HDEs have reacted with various strategies:

  • Encouraging foreign TNCs to invest in deindustrialised regions by offering ta breaks
  • Encouraging investment in skills and technology to upgrade manufacturing industry
  • Adopting more protectionist policies to protect domestic production
• Since the late 1970s, the employment in the UK manufacturing sector has fallen by nearly 60%
• Patterns in Distribution and Consumption

  • The USA, western Europe, Japan and China continue to be the best destination for exporters
  • As Asia becomes more competitive, a growing share of the region's exports will be to other countries in Asia
  • China's 'Belt and Road' initiative will open up access to markets
  • Finance corporations from HDEs have potential to benefit from services in the Asia-Pacific region
• Factors in Globalisation:

  • Development of technology
  • Development of systems
  • Development of relationships = financial, transport, security, communications, management and information systems
  • Trade Agreements
• Development of Technology

  • Fewer barriers to prevent sharing information and data
  • Development of computers
  • Internet, allows 24/7 global communication, 4.5 billion internet users
  • Use of mobile phones (useful in LDEs to connect people and markets), nearly 7 billion mobile phone users worldwide
  • Robotics to integrate manufacturing
  • Computer logistic systems support supply chain distrubution
• Financial Systems

  • World became increasingly financially integrated between 1980s and 1990s due to deregulation
  • Deregulation makes it easier to move finance across borders
  • Global Financial System provides a framework to facilitate flow of capital for investments and trade
  • Electronic transmission systems and global exchange connectivity means that transactions between importers and exporters can be completed securely
  • Major disavantage = leaves the system exposed to volatile flows e.g. global banking crisis 2008-2009
• Transport Systems

  • Products and commodities can be shipped faster and in larger quantities as a result of technology
  • Increased aircraft size and networks
  • Growth of low cost airlines and air freight
  • Containerisation
  • Handling and distribution efficiencies
  • High speed rail networks
• Security Systems

  • Terrorism = screening and monitoring movements by security forces as counter-terrorism measures
  • Food imports = ensuring imported products meet safety standards
  • Biosecurity = preventing the introduction and spread of harmful organisms or biochemical substances to minimise transmission risk
  • Cybercrime = reliance on the internet leads to breaches of secure information which increases crime
  • Supply chains = ensures products are authentic, safe and can travel freely
• Management and Information Systems

  • HDEs have invested in large production and assembly plants capable of exploiting most advanced technology; global market and distrubution networks to ensure sales keep pace
  • Managing global value chains requires remote management such as: video conferncing, and integrated ICT management systems
• 'Just in time' (JIT) systems give efficency in the supply chain for manufacturers. Involves ensuring materials, components and goods are available on time, in the correct location. This reduces costs by having fewer goods and materials in stock
• Management and information systems lead to:

  • Higher-order business activities (e.g. research and development) being based at corporation headquarters and hubs around the world
  • Lower-order business activities (e.g. production and assembly) being located at low production-cost locations or near to large markets
  • Global corporations focusing on key strategic activities and outsourcing others
  • Rapid growth of logistics and distribution 'solutions' industries
• Types of Trade Agreements

  • Free Trade Area (e.g. ASEAN) = Trade barriers between the member countries are eliminated, but each member country maintains its own tariffs against non-member countries
  • Customs Union (e.g. CARICOM) Same as FTA but member countries impose a common external tariff against non-member countries
  • Common Market (e.g. EU Single Market) = Same as custom unions but allows free flow of goods, services, capital and labour without restriction
  • Economic/monetary Union (e.g. EU Eurozone) = Will operate as a common marker with a common tax system and currency
• Trade Agreements = A formal agreement between two or more countries that removes trade barriers between those in the agreement
• OPEC (Organisation of Petroleum Exporting Countries) = 13 countries e.g. Saudi Arabia and UAE that focus on the trade of oil
• SADC (South African Development Community) = Includes Angola, Botswana, DRC, Zimbabwe and more
• EFTA (European Free Trade Association) = Includes Iceland, Liechtenstein, Norway and Switzerland