http://www.scribd.

com/doc/25438134/Globalisation-Revision
1) ‘Going global’
Globalisation- the process by which people cultures, money, goods and
information can be transferred between countries with few or no barriers.
Accelerating factors of globalisation are:
• Transnational companies.
• Communication- internet, telephone.
• Media- radio, television.
• Transport- aeroplanes, container, ships.
• International organisations- World Bank, IMF, WTO.
Impacts of globalisation:
-Politics:
• An expansion of international political organisations e.g. European Union.
• Loss of national identity. Companies gain power over national
governments. Governments may lose control over their countries.
• Some TNCs have higher turnover than some countries GDP.
-Economy:
• Trillions of dollars are exchanged electronically every day.
• Global trade barriers being removed.
• A worldwide reduction in consumer prices.
• Global tourism increased.
-People:
• Faster communication.
• Migrant labour flowing to areas of high wages and better standards of
work.
• Use of cheaper labour in developing countries to supply consumer in
MEDC.
• Rural-urban migration
-Culture:
• ‘Americanisation’ occurring with internet and media spreading western
values and culture.
• Emerging global village where people share common interests.
• People with IT, finance skills are moving around wherever the jobs exist.
• Loss of national identity, companies gain power over national
governments.

Development of Globalisation:
Phase 1:
-Emergence of the telegraph.
-Development of telephone, air travel, global markets e.g. London Metal
exchange for metal, zinc.
-Start of global tourism.
-Global market for packaged products e.g. Heinz, Coca-Cola.
Phase 2:
-Development of electronic communications e.g. mobile phones, fibre optic
cables, internet.
-Emergence of global markets for many goods.
-Emergence of many TNCs.
-Development of trade blocs to develop further trade e.g. NAFTA.
-Growing awareness of global environmental, social and economic issues. Rise of
NGO TNCs such as Greenpeace, WWF.
Globalisat Benefits Drawbacks
ion
Environm Growing • Many global activities are exploitative and
ent environmental degrade and pollute the environment.
awareness. • Global competition leads to overuse of
environmental resources.
Improving Some countries • Many LDCs have just got poorer.
quality of have rapid • Greater extremes in inequality.
life economic growth
(NICs, some LEDCs)
but bypasses LDCs.
Economy TNCs generated • Relocation of branch plants has brought
and many new jobs in job loss in some areas or fear for job
employme NICs and LEDCs. security in other places.
nt
Culture Global travel and • Loss of some traditional cultures.
tourism. • ‘Americanisation’
Political Greater global co- • Decline of national identity
operation to deal
with problems in
structured way e.g.
United Nations and
wars in Africa.
Most LDCs feel excluded from benefits of expanded world trade because they
attract little FDI.

2) Global groupings
Definitions:
GNP- the value of all the goods/services earned by a country including earnings
from abroad.
GDP- the value of all the goods/services earned by a country excluding foreign
earnings.
Purchasing Power Parity- relates average earnings to prices and what they will
buy for you.
HDI- made up of life expectancy, literacy rates, and infant mortality.
Infant mortality- the no. of babies who die before they reach the age of one, per
1000 born.
Tariffs- tax on goods when traded internationally.
Global disparities:
• There are great differences in wealth in the world between both countries and
within them.
• In recent years these differences have increased.
• This ‘development gap’ can be attributed to globalisation, with the rich
getting richer, whilst the poor get poorer.
Measuring development:
• Traditionally this was done by looking at countries GDP.
• However, looking at a wider range of indicators can give a more reliable
overview of a country’s level of development.
Environmentally Socially Economically
CO2 pollutions Crime GDP
People living in Education Average earnings
urban areas
Deforestation Internet users Purchasing Power
Parity
Quality of water Life expectancy Type of industry

Global groupings:
Economic groupings:
LDCs (Least Developed Countries classified by Sudan, Ethiopia,
Countries) the UN as having Afghanistan
extremely low human
development and
economic development.
NICs (Newly Countries undergoing China, India
Industrialised industrialisation, often
Countries) host countries to TNCs
because of their cheap
labour and natural
resources.
OECD (Organisation It is a global ‘think tank’ Sweden, Spain, Australia
for Economic Co- for 30 of the world’s
operation and wealthiest nations.
Development)
OPEC (Organisation Established to regulate Libya, Iran, Nigeria
for Petroleum the global oil market.
Exporting Countries) Stabilise prices and
ensure a fair return for
the 11 member states.
G8 +5 The G8 represents 65% Russia, the USA, the UK,
of the world’s trade and France, Canada,
meets annually to discuss Germany, Italy and Japan
economic development,
In 2005, G8+5 extended China, India, Brazil,
to create deeper Mexico and South Africa
international co-
operation and an
understanding of climate
change and international
trade.

Political groupings (trade blocs):

-Trade blocs are voluntary international organisations which exist for trading
purposes, bringing greater economic strength and security to the nations that
join. Free trade is encouraged by the removal of internal tariff.
Benefits of Trade Blocs to Member States:
• Markets grow
• Enlarged market=increased demand=increased volume=lower costs
because of economies of scale
• In the EU, members are eligible for EU Structural Funds to help develop
their economies.

Case study- trade bloc NAFTA:

The North American Free Trade Agreement (NAFTA) is an agreement signed by
the governments of Canada, Mexico, and the United States. In terms of
combined purchasing power parity and GDP of its members, it’s the largest trade
bloc in the world.

Purpose of NAFTA:
• Eliminate barriers to trade.
• Increase investment opportunities.
• Provide protection of intellectual property rights.

Has NAFTA fulfilled its purpose:

• NAFTA has eliminated trade barriers, increased investment opportunities,
etc. It has increased the competitiveness of the three countries involved
on the global marketplace. This has become especially important with the
launch of the European Union. In 2007, the EU replaced the U.S. as the
world’s largest economy.

Benefits of NAFTA:
• GDP
• Trade
• Investment
• Economic growth
• Economic transparency between the three nations

Drawbacks:
• The primary downside of NAFTA is the fact that it enables large
corporations that are only concerned with profit to appeal to the workforce
and resources of neighbouring countries in an effort to circumvent
domestic expenses. This invariably weakens the domestic economy,
resulting in lost jobs, lower wages, and the acceptance of less worker
rights in exchange for job security.
• Another downside of NAFTA is the reduced sovereignty of the three
nations, resulting in an aggregate economy. While some may consider this
as a positive aspect of NAFTA, it can also mean that weaker economies
will reduce the strength of its neighbouring economies. Furthermore, it
creates disparities between varying market sizes. For example, if a market
were weaker in Canada, and thus contained only small businesses, this
market will further weaken with the integration of a country with a
stronger presence of that particular market that includes larger business
entities.

Impacts of EU for non-member states (Kenya):

Advantages
External tariffs been lowered for
some products such as flowers.
Multiplier effect on the economy.
Disadvantages
High external tariffs and subsidies to
EU farmers mean that Kenya can’t
compete and therefore trade with EU in
industries other than flowers.
Farmers grow flowers instead of wheat.
Famine and poverty as the land is not
used for food.

TNCs- transnational companies/corporations

• A TNC is a company that has operations in more than one country.
 • They have grown by buying up foreign firms in mergers and acquisitions.
• Much of their manufacturing is subcontracted to third parties making it
hard to regulate working conditions.
• They link together groups of countries through the production of goods.
• They also forge connections between people in different countries by
shaping common patterns of consumption.

Reasons for the global nature of TNCs

• To be closer to their separate markets (these may be served differently
due to glocalisation).
• To operate where labour is cheaper and less regulated.
• To spread the risk, especially for those associated with industrial action or
crop failure.
• To gain grants and other rewards from national governments who are
trying to attract inward investment.
• To operate inside local trade barriers.

Growth of TNCs
-Motive- maximising profits by controlling costs raising market share.
• Horizontal integration- buying companies of similar type.
• Vertical integration- buying up smaller companies.
• Economies of scale.

-Means- financial support from banks.

• Traditionally oversees investment has come primarily from OECD/core
countries.
• Has been a recent trend of investment from developing countries- a
‘reverse colonialism’.

-Mobility- improved transport and communications.

• Faster and cheaper to move goods.
• Improved communications systems- fibre optic.
• ‘Just in Time’ production.
• Reduction in transport and communication costs.

Costs and benefits of TNCs:

• Profits of the world’s largest TNCs are greater than many middle-low
income nations- evidence of exploitation of workers.
• At the same time TNCs bring FDI to these nations stimulating the growth
of local services.
• Benefits can be even more felt when a TNC sources its parts locally within
a trade bloc.
• Often environmental, social and cultural impacts on nations.

Good points of TNCs for host countries
Multiplier effect- TNCs may set up in a
new country and this may rapidly
attract more other businesses. Also
once local people are receiving pay
from TNCs, local firms benefit from
increased customers e.g. in Vietnam, 1
in 5 earns more than $30 a month,
Bad points of TNCs for host countries
Local companies become less
competitive- the presence of a TNC
may lead to reduction in the number of
local smaller companies, which is
because of:
• The economies of scale which TNCs
double of that of 2005.
TNCs stimulate home-based
entrepreneurs
Income- TNCs may bring huge inflows
of capital, either directly, or from taxes
and this may significantly improve a
country’s balance of payments. Most
governments, particularly of
developing nations, are insisting that a
certain proportion of a TNCs profits are
reinvested in the host country.
Spread of technology- TNCs have been
responsible for the introduction of new
technology. This can take the form of
management expertise, technological
processes, or simply of machinery.
Such technology can be copied and
therefore become economically useful
throughout the country.
The skill level of population may rise
because of the new technologies that
has been introduced to developing
countries by TNCs.
New technology helped to raise
standards of living and improving the
health care. Also improved working
conditions e.g. in Vietnam, it is now
regulation to have fans to keep workers
cool. Labour laws e.g. in Vietnam,
children under 15 are not allowed to
work as much anymore.
Employment- huge number of
relatively well paid jobs may be
created. Despite many claims of
exploitation, TNCs often pay their
employees above the average local
rate. This is an important point
because ‘cheap’ labour doesn’t always
mean exploited labour. It may just be
cheaper in comparison to rates in the
home country.
can achieve mean that the unit cost
of production is much less than that
which smaller firms can achieve.
• TNCs usually benefit from superior
management and marketing skills.
• Financial resources may allow them
to buy smaller competing firms or to
outlast competition in price wars.
• TNCs are able to pay above the
local rate.
Loss of autonomy and suppression of
technical development- there is a risk
that small country may lose its
autonomy- its ability to self-govern- if it
becomes too heavily dependent upon
the TNC. This is because:
• Hard for the government to control
the behaviour of the TNC.
• The aims of a TNC are unlikely to be
the same as those of a host
government.
• The government of poor country,
heavily dependent upon TNCs, may
be tempted to relax worker safety
regulations or environmental
protection regulations.
• TNC refuse to share their
technology in host country.
• Transfer pricing- the TNC will
inevitably return earnings back to
the home country.
The deliberate manipulation of
pricing to reduce taxes to the host
country is known as ‘transfer
pricing’.
• Financial cost to host- it often costs
the host country huge sums of
money to attract the TNC e.g.
infrastructure, EPZs, railways.