The whole Globalisation topic for OCR including case studies



= The increasing interconnection and interdependence of the world's economic, social, cultural and political systems

The meaning of globalisation has different aspects:

  • Economic - the interconnection of commercial and financial activities around the world. Primary, secondary, tertiary and quaternary (research and development)
  • Cultural - the sharing, transfer and hybridisation of cultures around the world. The media, the arts, literature, food, etc

Globalisation compresses time and space so that the world is considered a 'smaller place' 

  • refers to the increasing speed and effectiveness of flows and capital, goods, services, people and ideas around the globe
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The development of globalisation


  • Global transport systems set up, trade based on colonies supplying raw materials increased, overseas investment increased


  • The rise of the TNCs setting up plants in cheap locations, exploitation of resources on a global scale

1990 onwards

  • Globalisation of finance, tertiary activities, spread of westernised culture and telecommunications including the internet
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Measuring globalisation

The Centre for the Study of Globalisation and Regionalisation (CSGR) uses a number of criteria to measure the extent to which countries can be seen as globalised

  • Economic globalisation - e.g. exports and imports as a proportion of GDP
  • Social globalisation - e.g. internet users as a proportion of the population
  • Political globalisation - e.g. membership of international organisations

Top four globalised countries (2004)

  • Overall - 1. Singapore, 2. Belgium, 3. Canada, 4. UK
  • Economic - 1. Luxembourg, 2. Netherlands Antilles, 3. Singapore, 4. Hong Kong
  • Social - 1. Bermuda, 2. Singapore, 3. Hong Kong, 4. Switzerland
  • Political - 1. France, 2. USA, 3. Russia, 4. China
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  • Some argue that what is being experienced is simply an extension of internationalisation
    • = the spread of economic activities across national boundaries
  • Nothing new as throughout human history of empires, tribes and states have moved out beyond their original home, often in seach of additional resources
  • The process of industrialisation accelerated the trend and was frequently associated with imperialism
  • However, globalisation is recognised as being about the extent and quality of integration
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Components linked by globalisation

  • Economic activities are key components to globalisation
    • Production and selling of goods and services on a worldwide basis by TNC's affect the lives of billions of people- increasingly global element
  • Social and cultural dimensions
    • Focus on the diffusion of western-style consumerism originating in the USA. 
    • Western media promote a lifetyle strongly influenced by corporations and conglomerates based in the USA and Europe
    • The creation of internationally recognised brands of goods and services encourages people to aspire to lifestyles different from their local culture
    • The flow is not one way- illustrated by spread of cuisine
  • Globalisation of language- English has emerged as the predominant 'world language' 
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Components linked by globalisation

  • Political aspect
    • The growth in influence of supra-national organisations such as the UN and trade blocs e.g. EU increase cooperation, trade and interdependence between countries
    • Influential non-governmental organisations (NGOs) such as Amnesty International and Greenpeace focus attention on international political issues
    • Global environmental conferences increase people's awareness of the interconnected nature of environmental systems and the need for global action if effective solutions to problems like climate change can be found
  • Demographics- the spread of different cultures around the globe has been facilitated by increased mobility
    • movement of people across international borders, both for work and leisure is greater than ever before
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Factors responsible for globalisation


  • Differences in natural resources - e.g. minerals, climate etc


  • Transport revolution - cheap sea and air travel, bulk carriers
  • Communications revolution - telephones, internet, e-commerce
  • Trade - cheaper to import
  • Financial markets - deregulated and linked so easier to raise funds
  • Economies of scale - larger markets, concentration in the hands of a few large-scale producers usually TNCs
  • Ease of transferring capital - international currencies e.g. US dollars
  • Global marketing - international advertising, branding etc
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Social and political factors responsible for globa


  • Educational and cultural - increased interest in other cultures
  • Media and Internet - satellites mean instant communication anywhere
  • Language - increased spread of certain languages (especially English - e.g. via the Internet) so easier communication
  • Migration - ease of migration, professional mobility
  • Spread of consumerism - international brands


  • International bodies e.g. World Bank, IMF
  • Development of free market economies
  • Former communist states adopting forms of capitalism
  • Spread of democracy and capitalism - common links
  • Removal of barriers to free trade
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Factors responsible for globalisation

  • Economic integration- significant boost from international arrangements that have liberalised trade and finance
    • The World Trade Organisation (WTO) has been instrumental in the massive growth of international trade in the past 15 years or so.
    • The relaxation of controls on international capital movements has stimulated flows of money and the growth of financial markets
  • The fall of the Berlin Wall in 1989 marked the start of growth in the economies of eastern Europe and the former Soviet Union.
    • Countries such as Hungary and Poland have been drawn into the global economic system
    • Cuba, once a close ally of the Soviet Union, is now an important tourist destination for visitors from North America and Europe
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Factors responsible for globalisation

  • The emergence of the New International Division of Labour (NIDL)  is both a cause and effect of globalisation
    • Refers to the migration of substantial parts of the secondary sector from the developed world to emerging countries economies and developing countries
    • Supply chains for many products stretch across international borders and continents as low labour costs encourage many manufacturing companies to move to the developing world
    • This trend is most apparent among labour-intensive industries such as textiles, clothing and domestic electronic goods. Skill levels and wages have risen in newly industrialising countries (NICs) like Taiwan and South Korea, production has shifted to lower-cost countries such as Cambodia and Vietnam
  • Technological advancements in transport have facilitated the international movement of goods and the emergence of the NIDL
    • Bulk carriers transporting raw materials such as oil, metal ores and grains, carry such large cargo in one trip that the cost per tonne/km is significantly reduced- known as economies of scale
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Factors responsible for globalisation

  • Containerisation
    • Using containers to move goods, transport costs for general cargoes have been reduced
    • The improvements in packaging allow virtually all semi-finished and completed goods, even if relatively fragile, to be moved safely with minimal damage enroute
  • Many TNCs from eastern Asia have opened manufacturing plants in North America and Europe to be near their markets.
    • Foreign Direct Investment (FDI) of this type allows companies to be in close contact with markets and avoids trade barriers such as tarrifs and quotas
  • Technological advances in voice and data communications such as satellites and computers have allowed services to be provided from places that are distant to their point of consumption
    • Offshoring of service activities, such as accounting and call centres, reduces costs for companies based in developed counties and provides jobs in places like Bangalore, India
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Possible future trends

Continued globalisation

  • Reduction in role/influence of nation states - world state
  • Companies with no territorial identity
  • Reduced inequalities between countries
  • Mobile populations reacting to international demands
  • English as common language
  • Instant freedom of communication via internet

Reaction against it

  • Rise of reactionaly forces (e.g. nationalism and religious fundamentalism) isolationalism (e.g. North Korea), protectionism against cheap imports (e.g. USA)

A change in direction- Reduction in the importance of economic factors and development of other aspects e.g. democracy

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Possible future trends

  • Globalisation will continue to expand, although its progress will be influenced by global economic cycles
    • Events such as natural disasters and political tensions affect economic, social and environmental systems, which feedback into the globalisation process
    • Considerable opposition to globalisation from around the world (G8 demonstrations)
    • Protest groups are part of the rise of a global civil society, a concept describing transnational social concern and activity as people become more connected
  • Some commentators believe that the rise of TNCs means that nation states will have less power to influence global and national economic systems
    • TNCs tend to operate with little regard to national identity and look for business oppurtunities anywhere in the world
    • National governments find it increasingly difficult to manage their economies when large-scale movements of money are controlled by international banks and investment funds
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Possible future trends

  • The growth of sovereign wealth funds is another recent development in the globalisation process
    • These are state owned investment funds looking for business oppurtunities around the world and not just within the borders of their own country
    • Many involve monies generated from oil and as production with the three largest funds being held by the United Arab Emirates, Saudi Arabia and Norway
    • China has the next two largest funds, made up of money from its large balance of trade surplus
    • Concerns have been expressed regarding the wisdom of relying on too much overseas investment and the consequent loss of domestic control over economic decisions
  • The spread of western ideas regarding material possessions and the secularisation of society is being challenged by some religious groups. This can have a violent expression, as seen in types of religious fundamentalism
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Benefits of globalisation

Environmental- Greater appreciation of 'whole Earth' approach to issues (e.g. global warming, pollution, protection of oceans, etc) means issues can be tackled across political borders

Economic- Fall in global poverty, greater income equality, cheaper goods, greater choice of goods, less child labour, more jobs

Social- Rise in life expectancy, reduction in hunger, increased literacy/education, cultural exchange, rise of feminism, increased ease of migration, brain gain

Political- More democracy, less centralisation, more cross-border pressure groups

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Problems of globalisation

Environmental- increased pollution, global warming, destruction of environments e.g. rainforest

Economic- poorer countries exploited, fall in price of primary produce, low wages, local industries undercut, rise of part-time workers, financial 'meltdowns' more common as more interest in short-term gain

Social- exploitation of workers, weaker trade unions, unskilled become unemployed, rise of underclass, culture swamped, westernisation, sinoisation, increased illegal migration, brain drain

Political- controlled by unelected corporate bodies (TNCs), increased centralisation on main port/capital (core versus periphery), increased dominance of consumer nations e.g. China, USA

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The environment

  • The rapid industrialisation of China and India is putting a huge strain on the Earth/atmosphere system
  • Environmentalists argue that the economies of globalisation is concerned primarily with internal costs, largely ignoring external costs such as environmental impact
  • In many countries there is a shortage of good agricultural land and increasing demands are being placed on water supplies
  • Globalisation has resulted in rapidly increasing volumes of freight and passenger transport having an adverse impact on the environment
  • Spending cuts enforced by the International Monetary Fund (IMF) have reduced spending on the environment in a number of countries
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International migration and Financial speculation

International migration

  • One in every 35 people around the world is living outside the country of their birth
    • This amounts to 175 million people
  • Globalisation has led to increased awareness of oppurtunities in other countries
  • Advances in transportation and communication and a reduction in the real cost of both, the world's population has the ability to be more mobile

Financial speculation

  • The finance capital has become a destabilising influence on the global economy with an increasing level of speculation (short term) as opposed to 'firm' (long term) investment
  • Nervous short-term investors who withdraw capital at the first hint of a problem can cause a vicious downward spiral to a country's economy
  • Term 'glocal casino' is used by critics to refer to rapid movement of speculative money around the world
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Impacts of globalisation on a developed country

  • Economic restructuring has seen a huge expansion of the tertiary sector at the expense of the primary and secondary sectors  as the advantages of developed countries in primary and secondary activities declined
    • Caused mine and factory closures and job losses
    • Deindustrialisation of mining, iron and steel, ship building, chemicals and textiles declined in relative and absolute terms in geographically concentrated areas of certain regions
    • Worst affected were regions such as northeast Englan, northwest France, and the Great Lakes of the USA that specialised in a narrow range of heavy industries
    • Many manufactured goods are now imported to developed countries from newly industrialising countries (NICs) and developing countries
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Impacts of globalisation on a developed country

  • Recently, tertiary activities in developed countries have been affected by globalisation
  • Many back-office clerical jobs and call centres have relocated to developing countries such as India where costs are much lower
    • offshoring benefits developed countries allowing focus on higher skilled activities
  • Investment flow into developed countries in the form of Foreign Direct Investment (FDI)
    • TNCs see opportunities in these countries in all areas of the economy
    • New manufacturing plants built by TNCs often incorporate the latest technology
    • Developed countries also benefit from wealth creation through jobs, taxation and export earnings. However, foreign firms do not have the same quality of allegieance to a country and are vulnerable to reductions in capacity or closure
  • Implications on the environment- urban land left derelict, visual pollution and contamination by toxins such as mercury and cadmium
    • Extensive reclaimation of derelict industrial sites have been completed e.g. Swansea
  • Increased international mobility of workers has brought economic benefits through lower labour costs- offer skills in areas where shortages exist and can contribute to economy however can place strain on local services
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Impacts of globalisation on an NIC

  • Many current NICs stimulated economic development through import-substitution. Later they integrated their economies regionally and globally through international trade
  • During the past 20 years China has regularly achieved annual growth rates of 10% or more, while Taiwan and South Korea averaged between 8% and 9%
    • Wealth creation has led to reductions in poverty for millions of people
    • Provided governments with the resources to invest in infrastructure, health and education projects
    • However, the benefits of growth are not always shared equally across society e.g. in china, workers in argriculture have lagged behind those in manufacturing and services
  • Growth of manufacturing sector is linked to urban growth
    • Guangdong provience in southern China, an area of rapid economic growth linked to FDI and export-based manufacturing is China's most urbanised province
    • In South Korea, Seoul's population has rise from 8.5 million in 1980 to over 10 million
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Impacts of globalisation on an NIC

  • Urbanisation and industrial growth have led to high levels of environmental pollution
    • Air,water, noise and land pollution often exceed World Health Organisation safe levels
  • NICs are not immune to economic problems related to globalisation
    • Experience periods of recession as well as growth
    • In several NICs wage rates have been rising which has reduced the country's competitiveness and led to some industries moving on to other countries with lower production costs
    • E.g. some TNCs have moved assembly production of goods such as televisions from Taiwan and South Korea to Vietnam and Thailand
  • Many NICs have become more democratic as they have been absorbed into the global economic system
  • Also demanded greater participation in world bodies that make decisions about trade, where membership may be conditional upon recognising human rights and establishing democracy which can cause tensions
  • There is also tensions between some NICs and the USA and EU as a large trade imbalance has built up in favour of the NICs
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Development gap

  • Development gap implies there is a gap between wealthy MEDCs and the poor LEDCs
  • Currently MEDCs have about 13% of world population but produce 54% of ouputs and have 85% of wealth
  • Some countries, especially Asia and Latin America, have participated actively in Globalisation and increased their capita incomes and living standards
  • However, Africa, and in particular Sub-Saharan Africa, have fallen further behind increasing the development gap
    • Today, 20 countries in sub-saharan Africa have lower incomes per capita in real terms than they did in the 1980s
  • Although some developing countries appear to have made economic progress, this is often due to rising commodity prices
    • When prices fall, the economic effects can be catastrophic, especially where there is reliance on a narrow range of exports
  • Uneven and unequal development is a characteristic of the global economic system
  • Competition for global capital is fierce, affecting both the developing world and the developed world
  • Globalisation seems likely to continue to produce winners and losers
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Conditions of world's poorest people

  • One in five of the world's population live on less than a dollar a day
  • More than 850 million people in poor countries cannot read or write
  • Nearly a billion people do not have access to clean water and 2.4 billion basic sanitation
  • 11 million children under five years old die from preventable diseases each year
  • In sub-saharan africa, 20 countries have lower incomes per head in real terms than they did two decades ago
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Least developed countries

  • LDCs have been by-passed by the processes of wealth creation
  • The NGO Forum at the Brussels conference in 2001 stated that 'Globalisation according to the free market model is making the rich richer and the poor poorer'
  • The Forum identified the following causal factors of this increasing gap between the world's wealthiest nations and poorest nations:
    • The World Trade Organisation has undermined the interests of LDCs
    • Global official development assistance (ODA) has never reached the level of the UN commitments of 0.7% GNP and 0.15% LDCs
    • Initiatives to cancel debt have advanced too slowly with too little effect: Many LDCs spent 40% of their GDP on debt servicing
    • In many countries development has been help back or put into reverse by the impact of HIV/AIDs and conflicts
  • As the gap widens, LDCs are being increasingly marginalised in the world economy
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What is a TNC?

  • TNCs are large firms with production and marketing operations in at least one other country in addition to their home country
  • They are often footloose and have the economic power and resources to transfer operations quickly between international locations
  • They own and control overseas activities either directly or via joint ventures, licensing or franchising
  • Many manufacturing TNCs outsource production to a network of international sub-contracting firms
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Development of TNCs over time

1500-1800 Mercantile capitalism= Government-backed charter companies e.g. East India Company

1800-75- Entrepreneurial capitalism= Finance houses investing in infrastructure e.g. Railways

1875-1945- International capitalism= Manufacturers investing in raw materials e.g. Dunlop, Cadbury

1945-60- Transnational capitalism= Investment in manufacturing in cheap locations e.g. Volkswagen, Ford

1960 onwards- Globalising capitalism= Joint ventures and outsourcing- non-manufacturing TNCs increasing e.g. Tesco, Wal-Mart

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Global development

  • Some TNCs arose from colonial links established by European powers during the 19th century
  • By 1939, USA-based TNCs were prominent overseas investors and their role has continued to expand
  • In the second half of the 20th century, TNCs based in the USA, western Europe and Japan became major international players
  • Most recently, TNCs based in the NICs and BRIC group (Brazil, Russia, India and China) have emerged as competitors in the global market place
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Varying structures

  • Typically TNCs have three components:
    • a head office- usually in the home country, generally in a core region
    • research and development- often in HQ or close by
    • production-sometimes referred to as branch plants- most have relocated overseas
  • Some of the larger TNCs have delegated a degree of control and R&D to major regional sub-divisions
    • e.g. Ford's HQ is in Detroit and it has a European Division in Cologne
    • Swedish furniture manufacturer IKEA has its financial control and strategic decision making HQ in Leiden, Netherlends. Its original location in Sweden remains the primary design function
  • Many TNCs have used a Fordist approach to their manufacturing- Ford Motor's revolutionary assembly line in the early 20th century meant building was broken down on assembly lines allowing mass production cutting unit costs initiating the era of mass consumption
  • Flexible production replaced mass producion and assembly lines in some manufacturing industuries meaning variety in car specification however needs more skilled workers and the availability of 'intelligent' computer controlled machinery
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Contrasting organisational structures

Globally concentrated- production at a single location but export to world markets e.g. Canon

Host market production- Each unit serves the local national market e.g. Coca-cola

Product specialisation (horizontal integration)- Each unit specialises in one product for world market e.g. Toyota

Vertical integration- Each unit carries out a stage in the production sequence e.g. Nike

Transnational integration (diagonal integration)- Each unit carries out a seperate operation and then ships output for assembly elsewhere e.g. Ford (Europe)

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Advantages and Disadvantages of TNCs at different

  • The country of origin benefits from wealth creation within the country through wages, taxes and overseas earnings
    • The TNC stimulates the demand for skilled labour in management and research and promotes the profile of that country internationally
    • The disadvantages of TNCs include loss of manufacturing to overseas competitors and the resulting negative effect on the country's trade balance
  • Developing countries gain economic benefit from FDI by TNCs wages and taxes
    • TNCs often pay higher wages than local firms and develop new skills
    • Having attracted investment, a major TNC may encourage further investments from other companies
    • Exports generated by TNCs make a positive contribution to the balance of payments and tourist sector TNCs help to secure 'hard' currency
  • TNCs can easily transfer production
    • Political instablity may also encourage a TNC to transfer production or curtail future investment
    • Leakage of funds occurs when TNC profits are returned to the country of origin
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Four strands of globalisation

Economic globalisation

  • The growth of transnational corporations (TNCs) accelerates cross-border exchanges of raw materials, components, finished manufactured goods, shares, portfolio investment and purchasing
  • ICT supports the growth of complex spatial divisions of labour for firms and a more international economy
  • Internet and the world wide web has allowed extensive networks of consumption to develop (e.g. online purchasing using eBay or Amazon)

Political globalisation

  • The growth of trading blocs (e.g. EU, NAFTA) allows TNCs to merge and reduced trade restrictions and tariffs help markets to grow
  • G7/G8 and G20 groups of countries regularly meet to discuss global concerns such as the economy and environment
  • The World Bank, the IMF and the WTO work internationally to harmonise national economies
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Four strands of globalisation

Social globalisation

  • International immigration has created extensive family networks that cross national borders - world city-societies become multi-ethnic and pluralistic
  • Global improvements in education and health can be seen over time, with rising world life expectancy and literacy levels, although changes are by no means uniform
  • Social interconnectivity has grown over time thanks to the spread of 'universal' connections such as mobile phones, the internet and e-mail

Cultural globalisation

  • 'Successful' Western cultural traits come to dominate in some territories e.g. Americanisation or McDonaldisation of tastes and fashion
  • Glocalisatin and hybridisation are a more complex outcome that takes place as old local cultures merge and meld with globalising influences
  • The circulation of ideas and information has accelerated thanks to 24-hour reporting; people also keep in touch using virtual spaces such as Facebook and Twitter
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Diversity, scale and role of TNCs

By most criteria, TNCs are a diverse category:

  • Market sector
    • Some TNCs work in primary industries consisting of food and forestry, oil and mineral extraction. Others, including about 100 of the world's most powerful TNCs, such as Toyota and Citigroup, dominate global manufacturing and banking
  • Scale and size
    • There are around 60,000 TNCs. The top 100 own 20% of world financial assets and enjoy 30% of global consumer sales
  • History
    • Some firms have grown over time through mergers and acquistions, in effect 'colonising' the firms of other nations, aided in the process by financial deregulation and trade bloc growth
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Spatial division of labour

  • Some TNCs own their overseas operations and are held directly responsible for the treatment of labour on the shop floor
  • In contrast, many other firms contract out much of their work to third parties
    • In 2008, American clothing giant Primark found its own ethical code of conduct was being ignored by 3 of its major Indian subcontracted manufacturers
  • A subcontractor employed by a TNC will sometimes act as a middleman, outsourcing the work in turn to an even cheaper and less well-regulated manufacturer. This further lengthens the supply chain and muddies the waters of social responsibility. 
    • Such shadow factories- operating undetected but in close proximity to approved suppliers- reveal much about the convoluted geography of TNCs
    • In China, Indonesia and elsewhere, use of shadow factories is often routinue
    • Subcontracting information is not always made available to consumers, and ethically conscious shoppers can be left unaware that they are purchasing goods manufactured by children or poorly treated adult workers
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Problem of TNCs

  • Tax avoidance- TNCs may avoid paying full taxes in the countries where they operate, through transfer pricing and tax concessions. This means that governments find it harder to raise revenues, provide services and respond to demands of local people
  • Limited Linkages- FDI does not always help developing world economies. If links are made with local firms then more wealth may be generated
  • Growing global wealth divide- By selectively investing in certain regions while largely bypassing other, TNCs are active agents in creating new geography 'haves' and 'have nots'
  • Environmental degradation- TNCs are often a major cause of envrionmental degradation, which has the greatest impact on the poor.
    • E.g. 2nd December 1984, when poisonous methyl isocynate gas was emitted from the pesticide plant in Bhopal, India, owned by the US TNC Union Carbide causing the deaths of thousands of Indian people
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Benefits of TNCs

  • Raising living standards- TNCs invest in the economies of developing countries. THey are sometimes active in raising wages and can help spread wealth globally. FDI has helped put China on its way to becoming the world's second largest economy, overtaking Germany and soon Japan
  • Transfer of technology- TNCs can be responsible for the transfer of technology and managerial know-how.
    • South Korean firms like Samsung have learned to design, make and sell their own products to foreign markets
  • Political stability- In eastern Europe and China, investment by TNCs has contributed to economic growth and political stability. This may be contrasted with conditions in much of Africa, where instability, civil war and distance from markets have made the investment environment less favourable
  • Raising environmental awareness- Because large TNCs have a corporate image to uphold, they sometime do respond to criticism. Many large firms are now trying to establish their 'green credentials' by starting to address issues around packaging, transport and carbon emissions, while also increasing their fair trade commitment
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The geography of consumption

  • Luxury manufactured goods are consumed in many more places today than in the past
  • Ben Thanh market in Vietnam's Ho Chi Minh City is a new consumer hotspot
  • UK supermarket Tesco has opened 300 stores in Poland since European Union (EU) enlargement in 2004
  • Sweden's Ikea has expanded its network of retail outlets over time, with 342 stores now operating across 41 countries, while sourcing parts from 1600 suppliers and 55 countries
  • The growth of BBC Worldwide is an interesting case study of consumption. With production outlets in India and Los Angeles, BBC Worldwide has established itself as a major global TNC and is busily engaged exporting its flagship programming worldwide.
    • The successful BBC show Strictly Come Dancing (re-branded as Dancing with the Stars in the USA) has been re-imagined and re-filmed in 40 territories
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Distribution patterns of TNCs

The distribution of TNCs around the world has changed beyond recognition since the 1990s

Mainly due to the economic rise of India and China. 2 main phases in the countries growth:

  • 1. Early 1990s, both nations became popular destinations for offshoring and outsourcing by foreign TNCs
  • 2. China's and India's own companies have more recently emerged as major players investing in other places. Enormous outbound foreign investements are made each year by India's CFS and Infosys, and by China's Haier and Huawei. Landmark developments include;
    • 2006 buyout of Corus, previously British Steel by Indian firm Tata
    • China becoming a major investor in Africa, Chinese FDI there totalling US$30billion in 2007. In 2008, there were 750,000 Chinese people working in Africa for 900 Chinese companies
    • Indian TNC owners, are now featuring in the 'top ten' world billionaire 'rich list'
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Key economic network flows

Money: Major flow include TNC investment, international aid and loans to countries channelled through the IMF and World Bank

Raw Materials: Vital commodity flows include food, minerals and oil, channelled via the operations of major TNCs such as Cargill, Rio Tinto and BP

Goods and services: around 200 million container movements take place each year on seafaring vessels

Interconnectedness within economic networks in turn brings the benefits and costs of interdependency. Becoming 'switched on' has brought economic prosperity to many. However, heightened degree of risk is also introduced to well-connected places. This risk materialised into a financial disaster, when, one after another major world banks experienced near-total economic collapse in 2008- the global credit crunch.

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Case Study- Nike

Product: Sportswear and equipment

Origin: 1972

Head Office: Beaverton, USA

Employees: 65,000 - 75% in Asia and most females under 25

Structure: Vertical e.g. shoes consist of 25 components from 5 different countries

Location: 700 factories in China, Thailand, South Korea and Vietnam

Turnover in 2005= US$15 billion

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Case Study- Toyota

Product: cars, forklift trucks and sewing and textile machines

Origin: 1918= textile machines, 1937= cars

Head office: Japan

Employees: 500,000 worldwide including dealerships

Structure: Horizontal - several plants produce the same and each plant is self reliant

Location: 52 bases in 27 different countries

Turnover in 2005: US$60 billion

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TNC: Coca-cola

Coca-Cola is a carbonated soft drink sold in the stores, restaurants, and vending machines of more than 200 countries. It is the number 1 manufacturer of soft drinks in the world.

  • Established: 1886 (126 years)
  • Ranking: own 4 of the world’s top 5 non-alcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Sprite and Fanta
  • Company Associates: 146,200 worldwide (as of December 31, 2011).
  • Operational Reach: 200+ countries
  • Consumer Servings (per day): 1.8 billion
  • Beverage Variety: offer more than 3,500 products
  • New York Stock Exchange Ticker Symbol: KO
  •   Their headquarters are situated in Atlanta, Georgia, USA
  •  1,322,000 tweets per quarter
  • 70% of its sales are generated outside of the USA
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TNC: Coca cola

  • In 2011: 
    • Unit case volume grew 5% to 26.7 billion unit cases worldwide.
    • Operating income grew 20% to $10.2 billion.
    • More than 55% of net operating revenues and nearly 80% of unit case volume were generated outside of North America. 
  • 2020 vision is to double business
  • Coca Cola is manufactured in 44 different countries.
  • Rated no.14 in the World’s most innovative companies
  • No.4 on Fortune’s most admired company list
  • Rank among the world’s top 10 private employers with more than 700,000 system employees
  • There are only 2 countries where Coca-Cola is not officially bought or sold- Cuba and North 
  • Created in 1886 in Atlanta, Georgia- always planned to go global, by the early 1900s it was bottling the drink in Asia and Europe
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TNC: Coca cola


  • Respecting People: In 2009, The Coca-Cola Company was 1 of 4 founding companies to establish the Global Business Initiative on Human Rights 
  • The Company also established its “Global-Local” strategy to address child labour in the sugar cane harvest.
  • Have a goal to achieve water neutrality by 2020 in direct operations.
  • Launched PlantBottle™ packaging - the only fully recyclable PET plastic bottle made partially from plants and have distributed more than 10 billion packages in more than 20 countries. 
  • launched more than 100 low and no-calorie products in 2011 and offer more than 800 low and no-calorie products.
  • Sponsor more than 250 nutrition education and physical activity initiatives in more than 100 countries. Their goal is to sponsor at least one program in every country they operate in by the end of 2015.
    • In UK, coca cola sponsor the Special Olympics since 1968
  • In 2010, they gave back 1.2% of operating income, totalling $102 million.
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TNC: Coca cola


  • Coca cola offers training and education to those who have received little already.
  • Coca Cola runs some community schemes in 10 LEDC’s e.g. Africa and Bangladesh
  • Coca cola has invested $1.5 billion in the Russian economy; this includes the constructing of manufacturing plants and improving the local infrastructure.
  • Many of the bottling firms are local companies so all the profit stays in the host country.
  • Works in partnership with a number of organisations including the WWF, The Carbon Trust


  • Working conditions in the bottling firms can be harsh, in tropical countries lack air conditioning facilities
  • The workers do not receive benefits and are left to pay for health treatment out of their wages
  • In March 2004 one of Coca-Cola’s LEDC Hosts, faced a depletion of the local ground water table due to the utilisation of natural water by the company. This posed a threat to communities and will increase the chances of drought.
  • Coca Cola is a powerful TNC, if they are not happy with the economic conditions in the host company they pull out to another, more profitable country. Thousands are left unemployed.
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Indian TNC: Tata

  •  The most powerful brand in India 
  •  Tata has a major stake in a diverse range of manufacturing and service industries with considerable influence worldwide
  • Tata is the UK’s biggest industrial employer with 45,000 people working in steel production and at the Jaguar Land Rover car plants
  •  Tata is a family company and the Tata family dynasty has maintained its leadership of what is now the 2nd largest company in India
  •  In 1947, the government used high import tariffs and import substitution policies to protect its markets and restrict foreign companies from investing or competing in India enabling Indian enterprises to flourish and a small number of family businesses to develop into giants in India’s economic development
  • In 1868 Jamsetji Tata founded a trading company in Bombay (now Mumbai) Tata expanded
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Indian TNC: Tata

Expanding to a global market, strategies used by Indian businesses to expand:

  • Producing goods for the expanding local Indian market. Western goods have been adapted for low-income consumers and then exported to other low-income countries that are emerging markets
  • Using low-cost labour to provide services for companies in developed countries that want to outsource functions like accounting and IT
  • Buying foreign firms to consolidate global influence of some sectors of manufacturing 
  • Innovating by combining low-cost energy production with European technology, and then exporting back to the developed markets

The current chairman of Tata is Ratan Tata- fifth generation to lead the Tata group and he has modernised the various sprawling businesses to create a global ‘conglomerate,’ a vast empire of over 98 very different companies with total revenues of $67.4billion in 2010

In the 1970s, the Indian government relaxed restrictions on Indian companies investing overseas. Tata established joint ventures in developing countries which wanted to industrialise, including Malaysia, Singapore, Thailand, Indonesia, Kenya and Nigeria

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Indian TNC: Tata

  • In 1990 India began to integrate into the global economy
  • Tata sons is the promoter and effective controller of all the key companies in the Tata group- it aims to expand the portfolio of the Tata group to acquire companies globally
  • Tata Sons owns 114 companies, operating in 80 countries and 6 continents. In 2011, sales totalled $84billion, 58% coming from international operations
  • Part of Tata’s growth has been through investment in products for low-income groups in India- so called ‘frugal innovation’- Tata had major success with the Tata Nano small car, Tata Swatch water purifier and Tata housing
  • It also has a demand for international services such as coffee shops. Tata Global Beverages has a joint venture with Starbucks- the first Starbucks opened in Mumbai in August 2012
  • Tata is a family firm with strong principles of loyalty, dignity and corporate social responsibility and has a reputation for high ethical standards and public service
  • The Tata charitable family trust funds causes from clean water projects to literacy programmes
  • It has been rated as one of the most socially conscious companies in the world- the group won the Carnegie Medal for Philanthropy in 2007 in recognition of wide range of research, education and cultural projects
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Indian TNC: Tata

Tata projects have occasionally run into problems

  • E.g. In 2006, at Kalingar Nagar, tribal communities protested against their land being taken for a Tata steel plant and 13 local tribesmen were shot dead by police

The diversity and size gives Tata flexibility to develop in a number of areas. Tata is likely to maintain a mastery of ‘frugal innovation’ and become a truly global company rather than an indian company abroad

 Acquisition of global firms by the Tata group

  •  Tata Motors: Daewoo Commerical vehicles, Korea; Hispano Corrocera, Spain; Jaguar Land Rover, UK
  •  Tata Steel: NatSteel, Asia; Corus, Europe/UK
  • Tata Tea: Tetley, Good Earth, Glaceau
  •  Tata chemicals: Brunner-Mond (formerly a division of ICI in the UK)
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Advantages of TNCs

Environmental- conservation can be funded


  • Jobs- higher wages
  • Improves skill base, communications and infrastructure- multiplier effect
  • Larger tax base
  • Expands trade, cheaper goods


  • Education and training, health, pensions, company housing


  • Larger tax base, more international influence
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Disadvantages of TNCs

Environmental- pollution, land clearance, loss of habitats


  • Exploits labour, low pay
  • Destroys local industry, Raises prices (inflation)
  • Takes work from primary sector
  • Investment can easily be moved elsewhere


  • Long hours, poor health, encourages migration to city, may undermine local culture


  • Too much political influence (often leads to corruption), regional inequality
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Nike in Vietnam

Nike has 34 subcontracted factories in Vietnam

Benefits to Vietnam:

  • Creates jobs directly, and indirectly in supplying factories
  • Higher wages than local employers
  • Training and education raises skill base
  • Creates multiplier and cumulative causation effects
  • Exports earn foreign exchange
  • Sets high standards for local employers e.g. on safety
  • Feeds into local tax base
  • Improves local infrastructure e.g. power, phones etc
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Nike in Vietnam

Disadvantages to Vietnam

  • Exploitation of cheap labour- long hours
  • Undermines local culture and practises
  • Gives a TNC a lot of political influence
  • Competes with local employers for labour
  • Profits leave the country - and go to USA
  • Undercuts local producers
  • Investment can easily switch to even cheaper labour sources
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Influences of international trade


  • Visible - Imports, exports
  • Invisible - banking, tourism, shipping etc


  • Trade balance- difference between imports and exports of a country
  • Terms of trade- what exports would buy in terms of imports
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Factors influencing pattern of trade

  • Demand and supply
  • Nature of the produce traded - the value, ease of transport (bulk etc), value added of commodity
  • Comparative costs of production in different areas - which in turn reflect differences in physical, economic and social conditions
  • Historical factors e.g. old colonial patterns of trade
  • Political factors including trade groupings e.g. European Union (EU) Economic Community of West African States (ECOWAS)
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Trade influences

  • Patterns of consumption - the variety, quality and costs of goods
  • Enables areas to specialise in producing goods/services
  • Incomes of countries
  • Values of currency
  • Political influence
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Global and national pattern

Global pattern

  • Heavy polluting industries to LEDCs and NICs
  • Assembly industries needing cheap labour to NICs
  • Research and development in MEDCs
  • Invisibles in MEDCs but increasing in Anglophile NICs e.g. India
  • Raw materials processed in MEDCs or at source, depending on bulk

National pattern

  • Concentrated at communication hubs e.g. ports, airports
  • Located in major cities, capital - skilled labour, political factors
  • Accessible areas more favoured than remote = regional inequality
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Pattern of international trade

  • Substantial increases in world trade both in goods and services have occured in the past 20 years
  • Most international trade is intra-regional (takes place within one or other of the major world regions such as Europe, Asia or Oceania)
  • The greatest inter-regional flows are among Europe, North America and Asia, which result in developed countries dominating trade
  • Trade in services has grown rapidly over the past decade almost exclusively between developed countries
  • However, China and India figure importantly and many developing countries receive large numbers of international tourists
  • The top 500 TNCs account for 70% of World Trade
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Impact of international trade on developed countri

  • Most developed countries have increased the value of their international trade
  • Both merchandise and services are being traded globally on an unprecedented scale
  • Such increases represent both cause and effect of sustained international economic growth
  • Developed countries have gained most from international trade
  • The USA dominates trade statistics both as exporter and importer, it is the 2nd largest exporter of mechandise but also the largest importer. 
  • However, US merchandise imports significantly outstrip exports in value, so a substantial trade deficit has developed- some worry about this, others argue the economy can cope
  • Germany, the world's second largest exporter and importer of merchandise, has a positive trade balance
  • The UK ranks about 7th for mechandise exports and 5th for imports, which creates a significant trade deficit
    • Recent growth in commercial services such as finance and insurance has helped offset the negative trade balance in merchandise, there is a trade surplus in services
    • 60% of the UK's imports and exports by value are with the EU
    • 2/3rds of UK's trade is with just 13 countries
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Impact of international trade on NICs

  • NICs have also benefitted greatly from the expansion of global trade
  • Their  pattern relies more on primary products and manufactured goods and much less on services
  • Brazil currently runs a trade surplus, with agricultural products (soya, sugar, coffee, meat) and fuels and mining products (oil, iron, ore, bauxite) making up 1/2 of its exports by value
    • Only a small proportion of trade comes from services, leaving manufactured goods to account for the rest
    • Brazil's manufacturing sector is diverse and includes some major TNCs such as Toyota and Ford
  • The main destinations for Brazilian primary products are Europe and North America, while its manufactured goods are mainly exported to other countries in Latin America
  • Undoubtedly Brazil gains from its trade. It is the 10th largest economy and has experienced high growth rates
  • However, it is not immune to global economic cycles and within Brazil there are significant inequalities in living standards
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Impact of international trade on developing countr

  • On the whole, developing countries have not benefitted from the expansion of global trade as much as developed countires and NICs
  • Their trade is dominated by the export of primary products and the import of manufactured goods- the former have little added value and so earn less
  • An additional problem is that their exports often comprise a narrow range of commodities, especially agricultural products, fuels and mineral ores- prices for these products are highly volatile on world markets
  • This lack of stability in income makes long-term planning for development difficult
  • Many developing countries also struggle to gain advantages from international trade because prices for primary products have not kept pace with those manufactured goods
  • Many organisations support the idea of fair trade to ensure that a higher proportion of the retail price of a commodity goes to producers
  • Many foods are now sold as fair-trade items, including tea, coffee, sugar, cocoa and bananas
  • Although the fair trade movement began as a charity, several supermarket chains have taken up the cause and stock fairly traded products on their shelves
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Role of international trade negotiations and agree

  • Trading rules are overseen at a global scale by the World Trade Organisation (WTO)
    • evolved out of the General Agreement on Tariffs and Trade (GATT)
    • GATT established in 1948 was intented to gradually reduce trade restriction, often product by product. By 1990, 75 countries had signed up
  • WTO was set up in 1995 and so far has 159 countries signed up.
  • There has been increasing move towards reducing the barriers that discriminate against LEDCs and including services and intellectual property rights within regulations
  • Idea behind the WTO is the liberalisation of trade
    • Done by removing trade restrictions imposed
    • Since 1945, average tariffs have declined by about 90%
    • Protectionist policies that shield a country's industries against competing imports still operate, sometimes openly by also in subtle ways
    • E.g. some governments heavily subsidise their own export industries, undercutting the prices of their competitors
  • The WTO also recognises that simply opening up all economies to free trade can be detrimental for some countries, especially in the developing world
  • Negotiation is a key component of the WTO's operations
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Trade Blocs

  • Several regional groupings of countries dedicated to their members' trading interests
  • The largest and most integrated trade bloc is the EU, which currently has 27 member states
  • Within the EU there is free movement of Goods, services, capital and people
  • However, goods imported from outside the EU are subject to a charge (common external tariff)
  • Meanwhile some EU industries such as agriculture and coal are subsidised to protect them from imports
  • Other trade blocs include the North American Free Trade Agreement (NAFTA),  the Association of South East Asian Nations (ASEAN) and the Mercado Comun del Sur (MERCOSUR) operating in South America
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Influence of organisations

Governments seek to limit or control the nature of their trading links in order to:

  • Avoid cheap imports undercutting local industries (protectionism)
  • Avoid being over-dependent on foreign sources
  • Increase their revenue
  • Maintain employment
  • Reduce wasteful expenditure on non-essential items to the minimum
  • Help or disadvantage particular areas, often for political reasons
  • Maintain high employment in domestic growth industries 
  • Safeguard trade balance and value of the currency 
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Influence of organisations

Governments do this by:

  • Imposing tariffs to make imports more expensive 
    • the EU set import tarriffs on non-EU agricultural imports of 40%
  • Imposing import bans
    • Nigeria banned the importing of goods it could make itself such as textiles
  • Making favoured partner or preference agreements
    • Former EU colonies in Caribbean had relief of 90% on the tariff on import of bananas
  • Setting quotas- only taking so much from a particular source
  • Putting bans on exports- e.g. USA will not trade with Cuba
  • Imposing exchange controls- limiting foreign money in the country
    • Mexico limits how much of its currency can be taken out
  • Subsidising exportsreducing the costs of exports
    • China was accused of 'dumping' cheap shoes on the European market
  • Making barter agreements- trade goods are exchanged between countries 
    • Venezuala exchanges oil for Bolivian products
  • Setting up trade agreements between groups of states to increase trade within that group
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Free trade

Vital to:

  • Allow countries to specialise in what they do best
  • Reduce costs of goods, materials and services = higher standard of living
  • Give consumers a greater choice
  • Encourage efficiency and cuts in cost of production
  • Allow cumulative causation and the multiplier effect to function

The terms of trade moved steadily against countries exporting primary goods in the late 20th century, as imported manufactured goods and machinery rose in value. This only exaggerated the development gap (between the core MEDCs and peripheral LEDCs)

The 21st century has seen a rise in primary produce values, compared to manufactured products so the gap should start to close

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Features of international trade

Between 1996 and 2006 world exports of merchandise increased from US$5402 - 12,083 billion

Features of international trade:

  • Most international trade is intra-regional, in 2006 74% of international trade in Europe was between European countries
  • Most inter-regional trade is between Europe, North America and Asia
  • International trade in merchandise is dominated by MEDCs in Europe, North America and Japan, and by emerging economies such as China
  • The World's poorest countires share of world trade has declined by more than 2/5ths since 1980
  • All major regions have experienced an absolute increase in the value of international trade in recent years
  • The rapid growth in international trade in services has been almost entirely in MEDCs
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Trade patterns- Brazil: a NIC

  • Brazil has the tenth largest economy in the world and is the economic powerhouse of South America
  • In 2005 its GDP per capita was US$8402 and economic growth in the 2000s averaged 4-5%
  • Massive income inequality within the country
  • Just over 1/5th of the population lives in poverty surviving on less than US$2 a day
  • Income inequality, measured by the Gini coefficient is 56.7, compared to 34 in the UK
  • Nearly 3/4s of Brazil's exports and 60% of imports were with South and Central America, North America and Europe
  • Trade with Brazil's neighbours is promoted by membership of the MERCOSUR
  • Compared to the UK, exports of commercial services are small, accounting for just 11.5% of all exports by value (2006)
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Trade patterns - Burundi, LEDC

  • LEDCs depend heavily on a narrow range of primary commodities for their export earnings
  • Burundi, in east Africa is landlocked with poor rescources, 90% of its population depend on subsistence farming
  • On the UN's human development index Burundi ranks 170th out of 177 countries
  • Country's economy is based on the export of coffee and tea which account for 90% of foreign exchange earnings
  • Over half Burundi's exports go to the EU which provides privileged market access
  • Burundi's export performance depends on the success of the annual harevst and prices on world markets
    • World prices for primary commodities fluctuate more than prices for manufactured goods creating severe economic problems during periods of oversupply and low demand
  • Diversification into new primary export products would strengthen the country's economic situation
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World Trade Organisation

Several purposes:

  • Liberalise trade by removing or reducing obstacles such as tariffs and subsidies, aim founded on the belief that ultimately, free trade benefits everyone
    • The WTO recognises that trade liberalisation can have undersirable side effects especially on weaker economies, and there are circumstances when it is necessary to retain protective trade barriers
  • To settle trade disputes between member states
  • To negotiate trade agreements signed by the bulk of the world's trading nations. 
    • These agreements provide the legal ground rules for international trade
    • Their purpose is to ease the international flow of goods and services and at the same time allow governements to meet their social and environmental objectives
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Bilateral trade agreements

  • Negotiated between two territories
  • They are legally binding between these territories and only have a significant impact on trade patterns
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EU and bilateral trade with ACP banana growers

  • The UK and France have close political, historical and economic ties with many small countries in Africa, the Caribbean and the Pacific (ACP) which depend heavily on banana exports
  • The special trade agreements concluded between the UK, France and ACP growers were adopted by the EU
  • Other banana exporters, especially in Latin America complained these arrangements were unfair arguing that they should have the same access to the EU market
  • However, growing conditions in Latin America are more favourable, the scale of production is greater and therefore costs are low. Free trade would mean that ACP growers could not compete and would go out of business
  • the 2000 Cotonou trade agreement between the EU and ACP provided a 775,000tonne tariff free quota for ACP bananas
  • At the same time Latin American producers faced a 230 euro tariff
  • In 2007 WTO ruled that this agreement violated global trade rules giving unfair advantage to ACP growers
  • Althought the tariff for Latin American bananas was reduced to 175 euros the WTO insists that the revised trade arrangements remain unacceptable
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EU and New Zealand bilateral trade agreement

  • Before the UK joined the EU in 1973, New Zealand had a special trade relationship with the UK: 90% of NZ meat and dairy products were exported to the UK
  • Special trading arrangements were negotiated between the EU and NZ to secure the latter's main export market
    • Although NZ's major export markets have increasingly shifted to Asia and the Pacific rim, the EU remains NZ's second largest trading partner
  • Intially the EU imposed a common external tariff of 20% on NZ imports, this was later reduced to 10% and then to 0% with a voluntary limit on the volume of NZ exports
  • The Uruguay round of WTO negotiations in the 1990s changed this arrangement and introduced Tariff Rate Quotas (TRQs)
  • NZ's lamb exports to the EU were allocated a tariff free quota of 227,000tyear, any imports exceeding the quota attracted a 12.8% tariff
  • NZ, complained that trade in lamb is unfair as sheep farmers recieve no government subsidies and EU farmers can lower their prices because they get a ewe subsidy of 21 euros per head
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Different types of aid

  • Foreign aid consists of transfers of money, technology, expertise and trainding from rich to poor countries
    • In 1970 the UN stipulated that developed countries should aim to give a minimum of 0.7% of GNP in foreign aid
    • Only a handful of countries have achieved this level, all from northern Europe, with Norwary leading the way
    • The USA is the largest donor in absolute terms (US$20 billion in 2008), though this represents just 0.15% of its GDP. The UK gave 0.36%
  • There are two types of aid: bilateral aid and multilateral aid
    • Bilateral aid is aid going directly from one country to another
    • Multilateral aid flows through an organisation such as the EU or the World Bank
      • In 1944 the World Bank and the International Monetary Fund (IMF) were set up
      • The World Bank lends monies to developing countries for development projects but increasingly it has moved into areas of policy and planning and has become a powerful global force on development projects
      • The IMF is more concerned with the health of the international monetary system  and tries to ensure financial stability
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Different types of aid

  • Non-governmental aid comes from organisations like Oxfam and Christain Aid
    • They are funded by private donations and they operate directly with partner groups in the recipient countries

International aid can also be subdivided in terms of duration

  • Short-term emergency aid- provides immediate help to cope with the impact of natural disasters such as earthquakes and tropical storms. Such aid can come from a wide variety of sources
  • Long-term development aid is international aid intended to promote more quitable global development by creating long-term sustainable economic growth in developing countries. Focuses on projects such as infrastructural schemes (e.g. dams and roads) and developnig human capital by training (e.g. teachers, nurses)
    • includes grants and loans, debt cancellation and technical assistance
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Willingness of LEDCs to accept foreign aid

Based on three deficiencies:

  • the 'foreign exchange gap' whereby many developing countries lack the hard currency to pay for imports which are vital to development
  • The 'savings' gap where population pressures and other drains on expenditure prevent the accumulation of sufficient capital to invest in industry and infrastructure
  • The 'technical gap' caused by a shortage of skilled personnel

Most foreign aid is not in the form of a grant, a significant proportion is 'tied' to the purchase of goods and services from the donor countru and often fiven for use only on jointly agreed projects

Tied aid is bilateral aid in which the donor country specifies conditions relating to the way the money is spent. Donor countries argue that 'tied' aid is essential to counter inefficient corrupt officials in recipient countries and to prevent the diversion of aid to military spending and extravagent projects

Tied aid accounts for around 40% of donations from OECD countries. The OECD estimates that tying aid increases a developing country's costs by an average of 15%

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Advantages of aid for recipient countries

  • 'Seed corn' for multiplier effect
  • Saves lives
  • Slows regional and rural to urban migration
  • Increases foreign investment
  • Assists development of infrastructure
  • Provides additional income
  • Helps payment of interest on foreign debt
  • Leads to healthier and better skilled workforce
  • Transfers knowledge without the need to discover/invent it (saves time)
  • Helps bring country into world markets, trade networks, etc
  • Reduces expensive imports
  • Creates jobs, raises wages, etc
  • Encourages reforms and improvements
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Disadvantages of aid for recipient countries

  • Undercuts local industry/farming
  • High interest rates- drain on economy, debt burden
  • Distorts local prices and incentives
  • Economic colonialism
  • Hidden costs (e.g. spares, fuel etc) so donor benefits
  • Undue political influence
  • Corruption- aid is diverted
  • Increases regional inequalities
  • May be wasted on 'big projects'
  • Encourages growth of larger public sectors
  • May delay reforms and improvements

Aid is often seen as patronising by the LEDCs. MEDC aid may be inappropriate owing to cultural differences. Often, known LEDC practices are more efficient than aid offered by MEDCs e.g. in rural India a bullock card is more useful than a truck

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Advantages and disadvantages of aid for donor coun


  • Moral feeling of helping- humanitarian reasons
  • Creates source of income e.g. need for spare parts for machinery
  • Spreads political and economic influence
  • Reduces political or social instability
  • Creates new markets


  • Cost
  • Recipient may become over-dependent
  • Funds lost in corruption or misspent
  • Seen by recipient as patronising
  • Recipients often resent donor country
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Advantages and disadvantages

The advantages of emergency aid to those recieving it:

  • Saves lives- food, water, clothing, shelter and medical care represent a humanitarian response to another person's desperate need
  • NGOs are particularly valuable in such situations as they tend to have established relationships with local groups and can send appropriate aid

Issue of longer-term aid, particularly when it comes from governments is problematic

  • Aid is increasingly 'tied' so that struct conditions are attached to its transfer
  • This can include reducing public spending which results in cutbacks to health and educational programmes
  • In some aid projects, most benefits flow back to the donor country. Money for a dam project might be given as long as the HEP turbines are bought from a firm in the donor country
  • Aid can lead to the recipient country becoming dependent on outside help so that a state of underdevelopment persists
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Advantages and disadvantages

  • Longer-term food aid can lower local food prices and affect local production and disrupt food-marketing systems. It can change local eating habits and lead to the neglect of plans to increase food self-sufficiency
  • There has been a reappraisal of the nature of development projects
    • Rather than a top-down approach where donors and central government determin large-scale projects a small-scale bottom-up approach is preferred
    • This gives local people and organisations more say in what and how projects should be pursued. They become stakeholders and the direct beneficiaries of aid
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Case study: Short term emergency aid

Bangladesh Cyclone, December 2007

Amount in US$

  • Saudi Arabia $100 million, USA $2 million and UK 18 million

Aim- to help 6 million people affected and rebuild 1 million homes that were destroyed

Type of aid

  • Immediate relief aid e.g. boats, blankets, tents, clean water
  • Medium term- to rebuild homes and businesses
  • Also aid from charities e.g. Red Crescent UK- Oxfam, CARE, ActionAid

Impact- Concern that aid had to go through the government did not meet areas of need (remoter)

Direction of aid- top-down- people rely even more on aid

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Case study: Long term aid

Bangladesh Rural Advancement Committee

  • Employs 110,000 people
  • Income $317 million in 2007 from 11 different aid sources
  • Started as a relief agency in 1972
  • Now aims to give long-term basic aid to poor e.g. health, education
  • Operates 52,000 schools and own university
  • Set up own bank to provide credit for small businesses- lent $4.6 billion
  • Runs a chain of clothing stores, tea estates and dairies - $28 million sales
  • Run schemes to develop fisheries, poultry and forestry
  • Operates now in 5 other poor countries e.g. Sudan
  • Seen as more effective than government by donors - so NGOs now get 30% of all aid to Bangladesh
  • Direction of aid is Bottom up - makes people more self reliant 
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Long-term development aid

According to some left wing economists, aid is an obstacle to development because:

  • Of the tied nature of aid, benefitting the donor more than the recipient in economic terms
  • Of the frequently inappropriate use of aid on large capital intensive projects which may actually worsen the conditions for the poorest people
  • The strengthening of political ties as a result of bilateral aid may increase dependency and hinder democracy in the recipient country
  • Aid may delay the introduction of reforms, e.g the substitution of food aid for land

Arguments put forward by the political right against aid are:

  • Aid encourages the growth of a larger than necessary puclic sector
  • The private sector is 'crowded out' by aid funds
  • Aid distorts the structure of prices and incentives
  • Aid is often wasted on grandiose projects to raise the profile of political regimes
  • The West did not need aid to develop

Many development economists argue that changing theterms of trade so that developing nations get a fairer shaer of the benefits and writing off the Third World debt is more important to LEDCs

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Department for International Development- policy o

UK's long term goal is for Bangladesh to be a stable, prosperous and moderate Muslim majority democracy, playing a positive role in the global community

UK's development programme is a significant part of the relationship with Bangladesh. Over the past three years we have spent over £350 million and helped to:

  • Lift more than half a million people out of extreme poverty
  • Raise more than 20,000 flood-prone homesteads on Char islands above flood levels
  • Construct 14,000 new classrooms and recruit 12,000 new teachers
  • Provide basic education to 4.5 million children through a non-governmental programme
  • Ensure 14 million urban dwellers have access to basic health services
  • Enable more than 100,000 farmer gain improved access to markets

UK remains fully committed to working with the government and people of Bangladesh in order to: build better governance, reduce extreme poverty and vulnerability to climate change and elminate seasonal hunger, increase jobs and incomes through private sector development, improve the availability and quality of basic social services for the poor

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Oxfam international

Set up in 1942 in the UK as the Oxford Committe for Famine Relief to send food to starving women and children in Nazi-occupied Greece during WW2. Oxfam international now has 13 organisations working in over 100 countries

Charity focuses on:

  • Development - tries to lift communities out of poverty with long-term sustainable solutions based on their needs, including long-term aid to set up basic services
  • Emergencies- provide shelter, clean water, sanitation, medicines etc
  • Campaigning - e.g. for better working conditions, fair trade policies
  • Advocacy- human rights for those who have little power over their own lives e.g. women
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Oxfam international

Fund-raising (turnover of £190 million in 2003)

  • Over 1/2 million people in UK make regular financial contribution towards Oxfam's work- donations totalled £74 million in 2003
  • Gifts left to the organisation in peoples wills
  • Sales (£65 million) from its network of over 700 charity shops in UK
  • Fundraising events e.g. London Marathon
  • Sponsorship from companies and events
  • Grants from UK governement, EU and UN - £40 million
  • Selling its services e.g. supporting the Glastonbury Festival as stewards 
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Cyclone Nargis Emergency aid

2nd and 3rd May 2008, storm surge killed at least 140,000 people, destroyed 450,000 homes and damaged 350,000 others, 2.4 million people affected by the disaster

First objective of emergency aid- urgent humanitarian assistance: food, shelter, clean water

  • Initially the flow of international aid was obstructed by the Myanmar government which for political reasons refused to allow aid agencies and workers access to the country
  • In June government refused 10 helicopters from the UN World Food Programme but by July 13 UN agencies and 23 NGOs were working in the area- delay meant barely half of those severely affected recieved aid

The second objective- rebuild damaged infrastruture

  • Cost of recovery over 3 years estimated at US$1billion 
  • UN's initial appeal for international aid raised just US$95million in the 3 months post disaster. A revised UN appeal raised nearly US$500million
  • Food security was the most urgent problem- damage to farmland, lack of seed and loss of farm animals meamt Myanmar's rice crop would fall short of the demand.
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City Community Challenge in Uganda

  • C3 is a long-term aid programme which aims to reduce urban poverty in Uganda and Zambia
  • UK's Department for International Development (DFID) has provided US$2 million
    • Focus is on urban poverty rather than rural poverty
    • Encourages local initiative and ownership providing small grants and loans for community-inspired improvements in urban slums
  • Introduced as a pilot scheme in 2 locations in Uganda: Kawempe (one of Kampala's worst slums) and Mpumudde (one of the poorest districts of Jinja)
    • C3 tackles poverty in Kawempe by funding small improvements (US$100-1000 per project) to raise the quality of life of local residents. This has meant providing micro-credit to fund individual businesses
    • Bottom up approach generates greater commitment and active involvement among local people
    • by 2004 the C3 fund had supported over 140 small businesses
    • As well as raising incomes, new business provide jobs for local people
  • In Mpumudde the emphasis has been on housing development
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Different government approaches to management

Encourage (e.g. UK)

  • Remove trade barriers
  • Encourage international links - air, sea, transport
  • Reduce bureaucracy for foreign investors, open stock exchange
  • Invest abroad
  • Free market economy with no state intervention
  • Tax harmonisation
  • Open borders

Cherry pick (e.g. Australia, Nigeria)

  • Impose selective trade barriers (e.g. on products made within the country)
  • Place selective control on migrants (e.g. by wealth, type of job etc)
  • Give subsidies for selected industries/agriculture
  • Stipulate minimum percentage for local ownership, indigenous managers etc
  • Mationalise key foreign investments
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Different government approaches to management

Discourage (e.g. North Korea)

  • Erect trade barriers
  • Increase state control/ownership, nationalisation
  • Control media including the Internet
  • Control movement of people, close frontiers
  • Withdraw from international treaties, trade blocs, etc
  • Give subsidies for local industries - import substitution
  • Become self-sufficient

According to the old free market argument, the removal of barriers and controls brings great benefits. However, it also exploits the poorest or weakest (core-periphery model) so some protectionism may be needed

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Bolivia- managing the impact of globalisation


  • Fear of dominance and exploitation by USA and TNCs
  • South America's poorest country
  • Sense of nationalism and independence
  • High levels of out-migration
    • 2007, government said it was to create 360,000 jobs by 2010 by attracting more FDI
  • Corruption and inflation common
  • Huge debt - over US$5billion

Recently introduced a resource nationalisation policy (when a country decides to place part or all of one or a number of natural resources under state ownership)

The Bolivian government wanted to link growth with equity so that poorer people would gain more benefit from Bolivia's participation in global economy. Methods:

  • Decentralisation called Popular Participation
  • Education reform to improve access to opportunities for the poor
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Bolivia- managing the impact of globalisation


  • Resource nationalisation- 2005 - oil and gas (Bolivia now owns 82% of production) and higher levels of royalties from companies
  • Resource conservation - Development of sustainable forestry - forest reserves with tight controls on felling
  • Trade agreements - 2006 with Cuba and Venezuela (anti-USA) - exchange of soya for oil or Cuban doctors
  • Taxation- Increased taxation on foreign investments and companies located in Bolivia
  • Debt relief- 2005- debt relief scheme negotiated with G8
  • Land reform- 2007 - 0.5 million hectares redistributed to poor farmers, chiefly from large estates
  • Education and health- focus on literacy and health (e.g. eyesight programmes) to raise productivity of population. Self funded rather than aid based
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Evaluating the impact of globalisation

  • Globalisation has many positive effects
    • Stimulated economic growth, expanded world trade, created jobs, boosted investment and reduced the costs of goods and services
  • Also has a downside
    • The international movement of capital has often resulted in the contraction of employment; free trade has exposed the fragile economies of the least developed countries to aggressive competition from more efficient producers
    • The advance of technology has created a demand for higher skill levels leading to increased inequality between socio-economic groups, countries and regions
  • Overall impact of globalisation on the national scale has been highly variable
  • In economic terms most MEDCs and ermerging economies have probably enjoyed a net benefit
  • The situation in many LEDCs is less clear
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Managing the impacts of globalisation in the UK

On balance the UK has benefitted from globalisation there are some problems:

  • Increased competition from foreign industries and services as a result of trade liberalisation, advances in communications and transport and foreign direct investment threatens domestic economic activities and employment
  • Large increases in international immigration, which put pressure on the job market, housing, education, health services and so on
  • Increased dependence on FDI by powerful TNCs, with related problems of loss of control of decision making and potential deinvestment
  • Increased personal and spatial inequality, with a widening gap between rich and poor

The UK governement, in cooperation with the EU has responded to these problems in a number of ways: restrictions on international trade; controls on international immigration; subsidies to industries; grants to regions and locations hit hardest by foreign competition and income redistribution from richer to poorer regions

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Managing the impacts of globalisation in the UK- T

Benefits- More competition, more choice, cheaper, easy movements of goods

Costs- doesn't protect our own industries, places left on the periphery (friedman's model)


  • Many agricultural products entering the EU are subject to a common external tariff designed to protect the livelihoods of EU farmers and promote the economic health of rural communities
  • To protect textile and clothing industries EU imposes an average common tariff of 8% on imports, however these tariffs and quotas are variable
  • Protection for UK and EU industries is also achieved through domestic price support and export subsidies
    • Farmers get fixed area payments for wheat, sugar beet and oil seed
    • Subsidies given to livestock farmers for sheep and cattle giving a significant price advantage over food imports from outside the UK
    • Dairy exporters get refunds on butter, cheese and powdered milk helping to secure jobs in the dairy industry and allowing farmers to compete in world markets
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Managing the impacts of globalisation in the UK- I

Doubled between 1975 and 2005- 3% of world's population live outside home country

UK net international immigration has been running at around 200,000 a year

Benefits- cheaper workforce as only demand minimum wage, better work ethic, filled pockets in UK market

Costs- housing shortages especially in the south east, problems of traffic congestion, inadequate public transport, infrastructure and loss of green belt land, may add to unemployment of unskilled Britons, keeps wages low

Management due to scale of recent immigration

  • UK has placed limited on immigration from countries outside the EU
  • Permanent immigration to the UK is now based on a points system. Applications are assessed according to qualifications, age and the labour requirements of the economy. Except for residents of the EU, this policy effectively exclude unskilled workers
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Managing the impacts of globalisation in the UK- I

UK been highly successful in attracting inward FDI- higher than any other MEDC apart from USA

Benefits- new technology, thousands of jobs, encouraged innovation, raised productivity, brought new skills and caused regeneration of some areas

Costs- compete directly with indigenous firms, FDI tends to be concentrated disproportionally in London and the southeast (Periphery model)


  • Foreign manufacturing companies were given financial incentives to locate production outside the more prosperous areas of the UK, in regions like the northeast and South Wales that had high levels of unemployment and had suffered deindustrialisation
  • Governments attempted to tackle problems and exert control on FDI
    • Japanese car manufacturers such as Toyota and Nissan had to agree to source 60-65% of parts locally
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Managing the impacts of globalisation in the UK- I

Globalisation has led to a widening of inequality both in a personal and spatial sense

Benefits- financial globalisation of London bringing higher salaries and magnet for FDI


  • For majority of UK workers there is increased disparities in wealth- Periphery Model
  • Divide has got bigger- rich have got richer, relatively poor got poorer
  • Inequality in incomes risen from 28-35 (Gini coefficient) between 1980 and 2007 (some of this change due to effects of technology boosting income of highly educated and skilled workers)
  • Increases spatial inequality- Inner London the UK's (and EU's) richest region has an average income 303% higher than the EU average contrasting with Wales with an average of 92.2%, is the UK's poorest region
  • Traditonal economic activities such as manufacturing and mining, heavily concentrated in peripheral regions like Wales and Northern England suffered severe international competition and deindustrialisation

Management: AVOIDED!

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