Development and Globalisation Case Studies

In 2009:

• World's largest manufacturer
• World's most populous country = 1.3 billion
• World's biggest emitter of greenhouse gases
• World's largest army = 2.3 million
• World's largest number of landlines, mobiles and internet users

Why China?

• Purchasing Power GDP per capita = uninterrupted growth from $250 to $6000
• Proportion in poverty fallen from 60% to under 10%
• Estimated to be over 800,000 millionaires in 2008
• Economic expansion - high investment in infrastructure, FDI open door policy, economic zones, consumers of Chinese, huge pool of low-wage and exports that undercut MEDCs
• Internet and communication (internet users also increased - 2008 = 220 million)
• Transport costs fallen in 2 decades
• FDIs in China = 70% in manufacturing, in 2003 over 40,000 firms invested in China
• Car industry developed

Urban Rich and Rural Poor:

• By 2007 the richest 10% enjoyed 45% of all income = poorest 10% = 1.4% of income
• Total number of rural poor has decreased from 250 million in 1978 to 30 million in 2006
• Still around 700 million rural farm workers
• 6.5 million ha of farmland have been lost in last 20 years with no compensation

Environmental Payback:

• 3 days before Beijing Olympics = 91 on scale (50+ is high)
• Huge efforts to clean up = 50% of city's car banned from driving every year
• 9/10 most polluted cities are in China
• Acid rain falls in 30% of China
• Air pollution costs China $25 billion a year
• Air pollution kills 656,000 Chinese every year and polluted water = 95,000
• 2008 Milk Scandal = 6 child deaths and 300,000 people ill
• 2009 = world's largest producer of solar panels
• Dependant on coal
• Between 2004 and 2008 it doubled its installed wind power capacity

Strain beginning to show?

• By 2008 the number living in urban areas have reached 570 million
• Energy - 2005-8 new coal power stations every 10 days and coal demand doubled from 1990-07
• Water - 2/3 comes from groundwater aquifer, around 60% of China's cities are short of water
• Ageing - 17% of pop expected to be over 60 by 2020
• Freedom - Chinese Community Party, 1989 Beijing uprising (between 200-3000 people died)
• Economy - exports dropped = global recession

Investing in Africa:

• To secure resources, mainly oil - 30% of oil used in China comes from Africa
• FDI from China to Africa rose from $75mil in 2003 to $400 mil
• BY 2007 - totala investment = $30bn
• Between 2007 - 08 trade rose by 45%
• Greater Nile Pipeline opened in 1999
• 60-80% of Sudan's oil production goes to China in deal worth $2bn to Sudan annually

Benefits of investing in Africa:

• Jobs created
• Provided aid to Africa
• Chinese factories bring modern working practices to Africa
• China has modernised resource extraction and increased productivity and exports

Costs of investing in Africa:

• Jobs filled by Chinese
• Much of aid is tied to Chinese companies
• Chinese firms undercut indigenous firms
• Raw material exports dominate = price fluctuation

Background:

• World's largest democracy = 700 million eligible to vote in 2009 electiom at 800,000 polling stations
• Population today = 1150 million
• HDI is very similar to Pakistan and Morocco

1991 Reforms:

• Tax system reformed
• Rupee devalued
• Licenses for importing and investing simplified
• State-run businesses deregulated
• Import tax reduced

Economic Growth:

• 50% of GDP comes from services
• Outsourcing - last 10 years = flood of outsourcing (e.g. Dell), estimated to employ 700,000 workers in 2008 with a value of $11 bn with global growth rate of 30-5%
• Growth focused on call centres and other back-office admin work - 1980s = BA and Amex transferred call centres, 2004 = several large Indian info tech services companies  and 2009 = HP said it was setting up HP Unis in 8 Indian cities

Tata:

• Based in Mumbai and is 90th in list of world's largest companies
• Operates in 80 countries with 350,000 employees
• $60bn in sales with 96 different companies in the group
• Motors - 19th largest, brought Jaguar Land Rover from Ford in 2008
• Steel - 6th largest, producing 20-30m tonnes a year, brought Corus Steel in 2007 for $12bn
• Communications - India's largest, world's largest marine fibre-optic communcation
• Tea - 2nd largest, employs 60,000 people, brought Tetley Tea in 2000
• Power - largest private power generator (2700MW capacity in 2008)

Tata Nano -

• 123,000 rupees = aimed at middle class
• Small, suitable for India's small roads
• Aims to get Indian's off mopeds and into cars
• European version for export = Europa
• Weight cut by only 1 windscreen wiper, no opening boot, 1 side mirror and no power steering

Barrier to Development:

• China has done better
• Remains 2 nations = rural poor and urban rich
• Remains rural - only 29% of people live in urban areas
• Agricultural subsidies
• Relies on import for 75% of oil 
• 2008 = only 13% of Indians connect to seewage treatment system
• 700 million have no access to toilet
• Only 8000km of dual carriageway

What?

• Set up by Treaty of Rome in 1957 to achieve economic and political cooperation following WW2
• Originally 6 members
• UK joined in 1973
• 27 member states = over 500 million citizens
• Also now developed a single currency, the Euro = EMU

Aims:

• 3 central ideas = convergence, competitiveness and cooperation
• Intend to reduce the gap between rich and poor countries within Europe by investing in people - 36% of EU budget (2007-13) spent to help poorer regions develop

Funds:

• European Regional Development Fund (ERDF) - invest in infrastructure and innovation
• European Social Fund (ESF) - invests in skill training, job creation and support
• Cohesion Fund - invests in development of renewable energy and infrastruture development

Benefits:

• Trading without tariffs = boosts trade and wealth
• Joint control of food production
• EU regional policy transfers to poorer areas to increase infrastructure and creates jobs
• Free movement of goods, services, people and money
• Can trade more effectively the more members there are
• Can help poorer countries and areas to develop = money is redistributed to where it is most needed

Consequences:

• Strict economic rules = difficult for some countries to stick to them
• Number of countries in EU faced with massive government debt = leading to austerity measures
• This led to riots on the streets = EU membership became less popular
• 50% of people in Britain would vote to leave the Eu if a referedum was held now

What:

• North American Free Trade Agreements (1st Jan 1994)
• Trilateral trade bloc = Canada, USA and Mexico

Goals:

• Market Access for goods = elimination of duties, tariff reductions etc.
• Protection for foreign investment
• Protection for intellectual property (trademarks and patents)
• Easier access for business travellers
• Access to government procurement
• Commitment to labour cooperation
• North American Agreement on Environmental Cooperation (NAAEC)

Results:

• Merchandise trade between the 3 countries has more than tripled - USA and Mexico = quadrupled
• NAFTA partners now trade around US$2.6bn in merchandise on daily basis
• North American economy has more than doubled in size
• Mexico was one of the largest recipient of FDI among emerging markets
• North American employment levels have risen by 23% since 1993 = 39.7m jobs
• Caterpillar Inc.

Benefits:

• Increased trade in all goods and services - from $297bn (1993) to $2.6tr (2009)
• Boosted US farm exports 1993 = 22%, 2007 = 30% (M + C)
• Created trade surplus in services
• Reduced oil and grocery prices
• Stepped up foreign direct investment

Disadvantages:

• US jobs lost = labour cheaper in Mexico
• US wages supressed = not all workers joined union so they lost bargaining power
• Mexico's farmers were put out of business = 1.3 m farm jobs lost
• US companies expolited Mexicans living close to US border to cheaply assemble goods to the US
• Mexico's environment deteriorated - farmers had to use increased number of fertilisers to compete

The Company:

• Sells over 400 brands in over 312 countries
• 90 billion servings of Coke products consumed every day
• Profits of $24bn
• Employ 71,000 people worldwide
• Bottled in 200 countries

Why are they in India:

• Labour costs lower = higher profits
• Manufacturing in country sold = less transport = higher profits
• Legislation on working conditions may be less strict = lower overheards = higher profits
• Offer TNCs lower tax rates and incentives = lower overheads = higher profits
• Widens market = more consumers = higher profits
• Brand status is raised = more consumers = higher profits

POSITIVE MULTIPLIER EFFECT

Who?

• Nestle is a food processing company with over 8000 brands e.g. KitKat, Nescafe, Shreddies etc.

Where?

• Operates in 113 nations around the world

Stats:

• Sales from 2012 = 92,186mil CHF = 32% from Europe, 31% from America
• Profits from 2012 = 11,060mil CHF

History:

• 1866
• WWI doubled production but this dried up after the end of the war
• WW2 saw profits dropping but grew following WW2
• Grown rapidly since then and acquired more companies

Controversy:

• Child Labour
• Bottled Life - it brought bottled water and then resold it at a profit
• Horsemeat

Social Responsibility:

• Nescafe Plan = transform coffee-farm management to benefit working and future generations of farmers
• Honey Bee Research = Haagan-Dazs
• Good Food, Good Life = nurtrition programme to help children adopt healthy habits - 30,000

Sponsorships:

• Tour de France
• Beijing Music Festival
• International Association of Athletics Federation

Before:

• Rising commodity prices
• Export prices were 3 or 4 times higher at their peak than in 1999
• Countries such as China were beginning to invest in Africa

Recession:

• Slashed commodity prices back to 2003 levels
• Food prices rose quickly - a 'silent tsunami' (UN) - rice rose by 74%, wheat by 130%
• Could push 100 million people back into poverty
• Rise in unemployment and falling incomes
• Zambian currency lost 40% of its value = copper prices collapsed

Effects:

• Actually recieved more aid than ever before = $120bn in 2008 by OECD nations
• Only 5 countries met 0.7% of GNP target for aid = unlikely to grow during recession

Stats:

• 2.5 million tourists predicted for 2011
• 50,000 hotel beds in the South

Problems:

• Tourism is limited to the South = strain and benefits only in the south
• Narrow streets = jammed with traffic and full of problems
• Deforestation = unregulated development - led to Balinese being driven from their ancestral homes due to escalating land and property prices

What?

• Prambanan Temples declared a World Heritage Site in 1991
• Nearby village of Soran therefore developed by Habitat for Humanity Indonesia and Asian Pulp & Paper

Scheme:

• Will provide 420 homes and guest accommodation
• 60% live below poverty line = will create a hospitality industry to promote local culture and heritage
• Will last 3 years (due to be completed in 2014)
• Community leaders involved at every stage
• Up to 250 villagers will be working in or managing the ecotourist accommodation
• Homes to be earthquake proof
• 20% of paper company set aside for future disaster relief
• Villagers will be trained in laundry management, prep of traditional food and marketing of traditional arts and cultural performances

Background:

• Centre of China's strive to industrialisation
• Population of 95 million in province of Guangdong
• Area comparable to England and Wales
• Pearl River Delta = special economic zone geared to export of manufactured goods

Industrial Development:

• Region was made a free-trade zone by govt
• Coastal location and free trade = attracted major inward investment
• Leading TNCs invested in area e.g. Siemens, Samsung
• One of most prosperous provinces in China - GDP per capita was 2.5 times greater in PRD than the provincial area in 2006
• Significant reduction in poverty in the area
• Around 4/5 of Guangdong's GDP derives from PRD

Environmental Problems:

• Massive in-migration and urbanisation = 77% of pop. live in towns and cities
• Treatment of sewage and industrial effluent has not kept pace
• 3/4 of Guangdong's cities do not have sewage treatment plants = pollutes rivers and threatens water supplies
• Air pollution - sulfur dioxide
• Brown smog from motor vehicles 130 days a year on average

Background:

• Between 1960 and 2009 the value of Brazil's manufacturing sector increased by more than 50 times
• HEP output grew nearly ninefold over same period
• GDP per capita grew by 50% between 2000 and 2009
• Brazil's population soared from 54 million in 1950 to 201 million in 2011

Economic Growth:

• Sustainable
• Huge natural wealth in mineral, HEP, oil and timber
• Large and highly urbanised population = human capital for development
• 40% of pop is centred in Southeast

Environmental Impact:

• Deforestation = rainforest declined by 7% between 1990 and 2010, 60-70% of this caused by cattle ranching, also problems of commercial farming, logging and infrastructure development
• HEP - deforestation, loss of ecosystems, increased emissions etc. (Belo Monte!)
• Air Pollution = huge health risk