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What are the causes of globalisation and why has it accelerated in recent…
What are the causes of globalisation and why has it accelerated in recent decades? :moneybag:
Political + Economic decision making
Role of Nat Govs
GOVs think that trade promotes economic development.
Protectionism
Quotas
to regulate
volume
of
imported goods
Protecting
home-producers
from
foreign competition
.
Demanding
taxes
+
tariffs
on
imported goods
= More expensive than
home-produced
goods.
Banning foreign firms from operating in banking, retail + insurance sectors.
Restricting / banning FDI in their country.
Promoting Globalisation
Free Trade Blocs
Removes all barriers to trade between member states.
Free Market Liberalisation
Creates
competition
within markets. ^ choice for consumers.
Grants + Loans
"Business Start-Ups" in
growth areas
e.g. ICT, development, pharmaceuticals + renewable energy.
e.g. Tech City (or Silicon Roundabout) in Old Street, London.
Foreign Direct Investment
(FDI)
GOV role in FDI
Subsidies
Land, infrastructure +
Research &
Development subsidies
Tax
Low
corporation + income tax
Tax
holidays
Tariffs
Special Economic Zones
Visas
Key staff relocated/ expatriated
investment/ control/ ownership of business/company in one country by company /organisation in another country
Types of FDI
Organic
Foreign investment expands existing business into foreign country
e.g. Nissan invested £100 million into Sutherland car plant
Inorganic
Foreign firm buys a company in another country
e.g. Cadbury's UK bought by Kraft, USA
Offshoring
Foreign mergers
Foreign Acquisitions
Transfer pricing
Privatisation + Market Liberalisation
GOVs = rules = inefficient, unmotivated, non-innovative companies.
Some nat. GOVs =
privatisation
of
companies
+
liberalisation
of
markets
=
^ economic growth
.
Thatcher GOV
Privatisation
: Public sector to
private sector.
Free Market Lib
: remove restrictions on economic activity (
neoliberalism
)
Trade blocs
Intergovernmental
agreement =
barriers to trade
in a region
reduced
/ eliminated.
Stand-alone
e.g.
ASEAN
Or
Regional
e.g.
EU
,
NAFTA
Membership
Advantages
Bigger Markets + no extra taxes
Nat firms
can
merge -> become TNCs
= global competition + ^ dom markets to create EOS.
Protection
from
Foreign Competitors
Political stability
Disadvantages
Loss
of
Sovereignty
Interdependence
Compromises
+
Concessions
Types
Free Trade Areas
Customs Unions
Common Markets
Economic Unions
Special Economic Zones
+ Gov Subsidies
Well-located
land
set aside by
GOV
. No domestic taxes.
SEZ's encourage TNCs to set up
branch plants
Impacts
Economic
Technology Transfers
Payroll taxes
All profits sent overseas to HQ
Social
Local employment
Environmental
Few regulations
Infra
provided by
GOV
China's Open Door Policy
towards FDI. 1980: creation of
Shenzhen
Special Economic Zone.
Switched off
before
1978
Famine
+
Poverty
(rural)
Open Door Policy
1978 =
switched on
to
globalisation
Approach
Open Door
FDI
from
China
+
TNCs
-
$1.25 trillion
2015-2025
Foreign TNC investment
allowed in
rail + chem industries
^
rare earth exports
-
WTO
ruling
Closed Door
China blocks
acquisitions
by
foreign TNCs
Quota
of
34 foreign films
in
cinemas
/ year
Google/ Facebook
little access
--
soc med
controlled by
Chinese sites.
Types
Free Trade Zones
(FTZs)
Export Processing Zones
(EPZs)
Urban Enterprise Zones
(UEZs)
Industrial Parks
Features
Tariff
+ Quota
free
No
export costs
Often tax free 10y after business investment
.
Background
Economic disadvantages of cross-border trade:
Over-specialised domestic companies
= unemployment + fall in tax revenue e.g. 2008 Financial crisis.
^ Competition from abroad
= domestic firms out of business. e.g. UK steel industry.
Some industries =
Protectionism
:
impose taxes + tariffs
on
imports
. e.g. USA taxes solar panel imports
Govs
make agree to
regulate cross-border trade
= encourages greater
trade flows
=
economic growth
International political + economic organisations
GATT
(General Agreement on Tariffs + Trade)
1947
23 countries
: agreed to reduce tariffs + standardise products
Led to formation of
WTO
Bretton Woods Institutions
WB
IBRD
Now part of WB
Initial focus:
Rebuild economies
post
WW2
+ alleviate
poverty
.
Now: Tackle
extreme poverty
in
developing countries
via =
Tech assistance
Grants
Low-interest
loans
Loans
for
poverty reduction
IMF
1945 =
Grants loans
to
member GOVs
in
debt
.
Encourages
interdependence
+ mutual
support
= less likely to resort to
protectionism
.
Keeps
international monetary system
stable
History
Post WW2 =
1946
=
^ international trade
= essential to rebuild
economies
+ prevent future
conflict
.
To regulate
international monetary system
in USA, CAN, West EU, AUS, NZ + JAP.
Established
IMF
+
IBRD
(Int Bank for Recon. + Devel.)
Aims
^ Flow of trade
- reduce
taxes
+
tariffs
,
standardise production
-->
reliable products
+ outlaw
counterfeiting
.
^ Confidence
- for countries + businesses to
trade internationally
.
WTO
Workings
Run by
member GOVs
Agreements cover
goods
,
services
+
iprop
.
Function
^ Free trade
flows.
Negotiations
,
disputes
,
policies
,
tech
assistance +
IGO
co-operations.
Principles
^
Transparent
, ^
Competition
, v
Discrimination
, ^
benefits
for
developing countries
, protect
environment
Transport, Communications + Business
"
Shrinking world
"
Key Factors that have
accelerated
globalisation
TNCs
- FDI + create links between countries through goods + services.
2.
Lower transport costs
- 1960
Containerisation
(9,500 c ships in world) +
cheap aviation
^ common +
affordable
.
Computer + Internet
- Global communication + global brands. (Spread of
brand image
).
International Organisations
- Trade rules + cooperation. e.g. WTO (rules) + UN (peace + coop) + WB (devel loans) + IMF (gov loans).
New Markets
- ^ consumers ^ profits.
ICT + Mobile Communication Developments
Internet + 'Digital Economy' - 1995
"
Communication Revolution
"
ICT + Mobile Communication developments
World Wide Web 1989
1995
- 'Digital economy' arose - response to internet.
Impacts on business
4 more items...
Initial focus =
e-business + e-commerce
Extended focus =
cultural
interactions +
exchange
of
goods
(soc media + online shopping)
Instant global communication
Time Space Compression
Time
+
financial cost
of
long-distance communication
=
declined
.
Businesses
Global
+
Local networking
Instant exchanges
of
investment
+
capital
Instant analysis
of sales data
Communication
with
production
+
supply chain
Hyperglobalisers
positive about globalisation
Background
Types
Cultural
"Western values"
spread + dominate.
Glocalisation
+
Americanisation
+
Hybridisation
Circulation
of
ideas
^ = 24hr reporting
Cultural traits
adopted
,
imitated
+
hybridised
faster
Political
West
dominates
pol + ec dec making.
"Democratic soc = most successful"
Growth of
trade blocs
= reduced
trade restrictions
+
tariffs
=
markets
grow +
TNCs
grow + merge + acquisition foreign firms.
WB
,
IMF
+
WTO
internationally
'harmonise'
national economies
Policy Diffusion
Social/ Demographic
Internat. immigration
=
transnational
family networks
Glob. improv. in
health
+
education
(
not universal
)
^ Social interconnectivity
via mphones + internet
M. of
long distance social relationships
via technology
Economic
Growth
of
TNCs accelerates cross-border exchanges
of
goods + services
ICT = growth of
spatial division
of
labour
+ more
international economy
International
online shopping
TNCs expand
into
new territories
to
make
/
sell goods
Larger
global markets
^
Economies of scale
= cheaper goods
Free markets promote
Capitalism
^ Inequality
micro + major scales. between superpower countries + developing countries.
Competition
Specialised DOL
Elimination of trade barriers
^ Increasing
interconnectivity
+
interdependence
of countries'
social
,
economic
+
business
interactions. ^
international
flow of
people
,
goods
,
services
+
capital
.
Cost of transporting an iPhone from China to the UK is less than £1.
UK imports £3.4 billion from China annually
Unequal Impacts of Globalisation
Indices + Indicators measuring Globalisation
KOF Globalisation Index
Measures 3 main types of glob.
Economic
Long-distance flows
of
capital
,
goods
+
services
+
information
via
market exchanges
Political
Diffusion
of
gov policies
Social
Spread
of
ideas
,
info
,
images
+
people
^
Globalised
= the ^
links
:
tourism
,
trade
,
FDI
,
soc-polit
,
communication
.
Global Cities Index
Measures
business activity
,
human capital
,
information exchange
,
cultural experience
+
political engagement
New York. 2. London. But Jakarta ^ connections faster rate.
IMF - Annual Report on Exchange Agreements + Restrictions
KAOPEN Index of Openness to Capital
Ease of
investment
/
withdrawal
of/ in countries.
Kearney Index
W/ leading countries becoming more/ less
globalised
Measures
Economic integration
(
FDI
+
trade
)
IGO membership
+
Political engagement
Internet
use (
internet penetration
) +
Tech connectivity
Tourism
Role of TNCs
Background
"Architects" of glob.
Branch plants
(factories/ offices) in most countries
Link
national markets
with
TNC supply chains
+
marketing
strats.
Outsourcing
Business
contracts other companies
to create
products
/
services
.
Offshoring
Company
moves
part of
operations
to
another country
due to
lower labour costs
,
taxes
+
tariffs
.
Glocalisation
Change
design
of
product
to meet
local tastes
or
needs
:chocolate_bar:
Marketing
technique
Reasons for growth
Motive
Profit
. Minimise
costs
+
^ revenues
.
Expand
markets
+ take over
competitors
Means
Unrestricted global flow
of
capital
Mobility
Faster
+
cheaper transport
e.g.
containerisation
Rapid
communication systems
Global production networks
-- link
resource
sources,
finance
,
manufact
.,
markets
+
sales
Impacts on Host Country
Positive
Raised living standards
FDI
^
labour force productivity
= ^
wages
+
QOL
Technology Transfer
TNCs
-->
tech
to
branch plants
. ^
Ec
.
devel
. in
emerging
.
Political Stability
TNC investment
=
economic growth
. Reduced
conflict
between
rural + urban populations
.
^ Environmental Standards
Opportunity
to = good practice in
emerging countries
.
e.g.
Unilever
'
Sustainable Living
' plan 2010
Negative
Tax Avoidance
Find
lowest tax regimes
available.
e.g.
Amazon
=
£2.4mill corp tax
on
£4.2bill
UK sales
^ Global inequalities
TNCs cluster
in
select economies
=
concentrate FDI
in
favoured regions
e.g. Eastern not Western China
^ regional + internat. ineqs.
Environmental Degredation
TNCs
export
negative externalities
to
less developed countries
e.g.
offshoring manufacturing
out of EU to avoid
carbon taxes
Source country
Unemployment
(offshoring + outsourcing)
Amazon - Throw Away Society
"Global Products"
Apple
Isolated from Globalisation
Global isolation
Political
Corruption
+
organised crime
/
terrorist
groups
Poor
GOV commitment
to
development
Civil
/ tribal
conflict
e.g. from colonialism
Exclusion
from
trade blocs
/ Poor
trade deal
Limited
access
/
use
of
tech
+
trade
Environmental Barriers
Distance
from market = x FDI
Wilderness
(desert/ tundra)
Poor
agricultural potential
(e.g. short growing season).
Lack/ poor quality
energy
+
mineral
depos.
e.g. Nepal, Tibet, Bhutan
Economic
Poor
education
+
unskilled workforce
Poor
transport
+
telecommunications infra
.
Dependence
on
specific industries
.
Vulnerable
to
commodity cycle
(changes in raw mat. prices/ values)
^
GOV debt
Agriculture dependent
e.g. Sub Saharan Africa
Background
Benefits of globalisation
unequally distributed
Transport + communication networks
focussed in
core
areas
Core-periphery model
Economic activity
focused in
core regions
Offshoring
+
outsourcing
from
core
Upward transition areas
benefit from
FDI
Downward transition areas
lose
FDI
+ impacted by
offshoring
+
outsourcing
Cumulative causation
Forward
Positive effects
e.g.
new business
location ^ jobs
Backward
Negative effects
e.g. business is
closed
'Chain reaction' created by
multiplier effect
Global Hubs
Characteristics
Host
TNCs
Global connections
Diverse
populations
Demographic, financial, trade + idea flows move towards GHs
New York
Flows
Capital
Raw Materials
Man. goods + servieces
Information
People
Telecommunications
= long-distance links between producers + consumers
Winners + Losers of Globalisation