We now communicate and share each other's cultures through travel and trade, transporting products around the world in hours or days. We are in a huge global economy where something that happens in one area can have knock on effects worldwide. This process is called globalisation.
What is globalisation?
Globalisation is the process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange. Globalisation has increased the production of goods and services. The biggest companies are no longer national firms but multinational corporations [MNC: Multinational Corporations (MNC) are sometimes called Transnational Corporations (TNC). These are large and powerful businesses that have factories that make products and offices that sell products in different countries. ] with subsidiaries in many countries.
Globalisation has been taking place for hundreds of years, but has speeded up enormously over the last half-century.
Globalisation has resulted in:
- increased international trade
- a company operating in more than one country
- greater dependence on the global economy
- freer movement of capital, goods, and services
- recognition of companies such as McDonalds and Starbucks in LEDCs [LEDC: A Less Economically Developed Country (LEDC) has low levels of development, based on economic indicators, such as gross domestic product (the country's income). ]
Although globalisation is probably helping to create more wealth in developing countries - it is not helping to close the gap between the world's poorest countries and the world's richest.
The animation shows how wealth is distributed. Click on the income brackets to see where the richest and poorest countries are located.
Reasons for globalisation
There are several key factors which have influenced the process of globalisation:
- Improvements in transportation - larger cargo ships mean that the cost of transporting goods between countries has decreased. Economies of scale mean the cost per item can reduce when operating on a larger scale. Transport improvements also mean that goods and people can travel more quickly.
- Freedom of trade - organisations like the World Trade Organisation (WTO) promote free trade between countries, which help to remove barriers between countries.
- Improvements of communications - the internet and mobile technology has allowed greater communication between people in different countries.
- Labour availability and skills - countries such as India have lower labour costs (about a third of that of the UK) and also high skill levels. Labour intensive industries such as clothing can take advantage of cheaper labour costs and reduced legal restrictions in LEDCs.
Globalisation has resulted in many businesses setting up or buying operations in other countries. When a foreign company invests in a country, perhaps by building a factory or a shop, this is called inward investment. Companies that operate in several countries are called multinational corporations (MNCs) or transnational corporations (TNCs). The US fast-food chain McDonald's is a large MNC - it has nearly 30,000 restaurants in 119 countries.