- Created by: erised
- Created on: 09-04-18 10:02
What is Globalisation?
Refers to the rapidly increasing degree of integration and inter-dependence between countries, businesses and individuals in the world economy.
There are many drivers of globalisation:
- The growth of international trade
- Increased captial mobility
- Increasing rate of MNE's
- Advances in transport and communications
- Growth of emerging countries (BRICs)
- Intensification of global competition
- Increasing international migration
- Increasing homogenisation of consumption
- Role of international institutions
1) The Growth of International Trade
Made possible by:
- Trade Liberalisation - barriers to the movement of good and services have been significantly reduced e.g. tariffs.
- Regional Economic Blocs - organisatons to promote free internal trade between members e.g. EU and NAFTA
- Falling Trade Costs - containerisation (using shipping containers) has reduce trade costs. Larger and more efficient ships reduce costs through scale economies
Global Market Intergration
This has had two effects:
- accelerated a trend towards global price equalisation
- wide range of good and services available to consumers at affordable prices.
2) Increased Capital Mobility
Exchange controls and restrictions on foreign investment has increased capital movements.
Industrial countries have moved towards having a flexible exchange rate which re-enforces global price equlisation but increased currency exposure and risk.
Increased capital mobility has lead to more investment flows. Growth of FDI has overtaken the growth on global GDP and trade.
3) Increasing Role of MNE's
FDI has enabled MNE's to create, control and co-ordinate low-cost value chain networks across the globe.
International Production - MNE's can take advantage of inter-country differences in the cost and quality of factors of production e.g Boeing 787 parts are made all over the world.
4) Advances in Transport and Communications
Advances in technology means easier decison making and co-ordination from the other side of the world :e.g. telephone, fax, internet, facetime/skype.
5) Growth of Emerging Countries (BRICs)
Growth found from exportin low-cost manufactured goods. E.g Japan, BRIC, MINTs.
- Emerging economies offer new consumer markets for established global firms
- Emergine economies are potential home for new firms, future global challengers, state-owned enterprise.
6) Intensification of Global Competiton
- Increasing rate of technological progress
- Quest for greater operational efficiency (lower cost)
- New competitors from emerging economies
7) Increasing International Migration
- Globalisation has facilitated 'economic' migration: improved transport, communication and information about oppurtunities and lifestyles (jobs, democracy etc.)
- Now politicans are concerned about who is migrating:
- economic value (education/skills point system)
8) Increasing Homogenisation of Consumption
Globalisation is leading to a converge of tastes, consumption and lifestyles. Driven by dominance of global products and brands.
9) Role of International Institutions
To manage, monitor and regulate the business environment.
- 1944 Bretton Woods agreement - 44 allied countries. Objectives 1) were to avoid t i t -for-tat protectionism and political/social upheavel 2)aid post-war reconstruction of Europe with international cooperation. Proposed 3 instiutions : to provide short term finance to countires with BoP difficulities - to promote free trade and regulate prices - a bank to prove long-tem capital assistance to support recovery.
- IMF - International Monetary fund - gives access to foreign exchange reserves to cover BoP deficits - monitors BoP adjustments.
- WTO - 164 member countires - unanimous decision making so all countries have effective veto over any policy changes
- The World Bank - drives to relieve poverty and promote growth
- OECD - key critea for members is a commitment to democracy and a market economy
- G-7/8 - leading highly industrialied countries. Forum for discussing global economic and political issues
- G20 - G7/8 plus developing countries.
The First Wave
- Rise of the 'Atlantic Economy' - increases in transprt and communications meant increased trade and price convergence
- Increased mobility of factors of production. Labour-mass migration from poverty in Europe to America with no controls. Capital - more efficient banking network.
- Limited geographic spread - western and central europe on one side and America on the other.
- Industrial revolution principle source of increasing productivity in transport and communications
- End - widening gap in wages and economic growth between transatlantic countries and the rest of the world. this lead to to increasing domestic pressures for trade protection and to raise living standards. North America and Europe also imposed stricter immigration policies to protect wages
- 1994 Bretton Woods Agreement
- 44 allied countries with the primary objectives to avoid social/political upheavel and the aid post-wat reconstruction of Europe
- International Monetary Fund (IMF)
- Ensures international liquidity through access to foreign exchange reserves to cover BoP deficits
- Monitors BoP adjustments
- World Trade Organisation (WTO)
- Drives to relieve poverty and promote growth
- Key critea for members is a commitment to democracy and a market economy
- "it has enriched the world scientificaly and culturally and benefitted many people economically" Sen (2013)
- The UN predicts that poverty could be eradication during the 21st century due to globalisation
- 'perpetuates inequality rather than reducing it' (Stiglitz and Chang 2013)
- In 2007 the IMF admittes that the introduction of new technology and FDI in developing countries may have increased international inequality.
- lower prices from efficiency and resource allocation and erosion of local oligopolies
- Rising real returns to labour skills/human capital
- Falling returns to unskilled labour
- International Business Risk - Quantifiable (economic, currency) risk or unquantifiable (random, country) risk. Have to devise strategies to deal the with risk
- Climate Change - estimated that 2/3 of CO2 emissions have come from fossil-fuel burning. Increased production of greenhouse gases. Rising temperatures and rising sea levels (changes in land use due to flooding)
- Implications for Manufacturing - need for increasing emphasis on sustainable methods- renewable materials - recycling.
- Political Stability - comes from a variety of sources:
- proliferation of weapons, bombs, biological weapons
- Air travel and urbanisation increases transmission of infectious diseases
- ethnic and religion violence
- Cyber security - protect confidential material.