3.3 degree of globalisation

Question 1

A ) measuring degree of globalisation

Answer 1

degree of globalisation varies by country and can be measured using indicators and indices (AT Kearney and KOF)

indicator= measure of individual aspect (of globalisation eg, amount of FDI

indices= express indicators as a % (either of the highest actual total or of the max possible total)

may be composite measures, combining several indicators OR alternatively component index values might be weighted

Question 2

A ) KOF index of globalisation

Answer 2

composite index combining 24 indicators spread across three categories:
- economic ( cross border trade, FDI, tariff rates etc)
- social ( cross country contacts, households with TV, tourist flows, resident foreign popn etc)
- political ( no. of forgein embassies, membership of int. organisation etc)

scaled average calculated to give separate index value for each country
allows for comparison over time (eg econ globalisation has risen faster than P or S since 1970)

—- developed countries top the list, developing at the bottom indicating posyive correlation between globalisation and development

KOF measures international interactions but not domestic (internal) meaning small european countries top the list due to smaller domestic markets and close proximity to neighbours as well as membership of EU trade bloc (larger countries USA and China have larger domestic economic markets but this is not measured)

Question 3

A ) AT Kearney

Answer 3

uses 12 indicators across 4 categories:
- economic integration
trade and FDI flows
- tech connectivity
no of internet users, internet hosts and secure servers
- political engagement
membership of international organisations etc
- personal contact
international travel and tourism etc

overall index value and ranking worked out using points and weighting system

BUT only includes 62 countries (although this includes 84% of global popn and 96% of global GDP)
small european countries dominate top 20 due to higher FDI indicators (small domestic markets)

KOF uses more holistic indicators (eg KOF indices= internet communication whereas AT= no of web servers)

Question 4

B ) what are TNCs

Answer 4

trans national corporations are firms with operations in more than one country
— when a firm changes from a national company by opening operation in another country (FDI) it creates international connections (spreading globalisation)

Question 5

B ) why do firms become TNCs

Answer 5

firms aim to maximise profit, becoming a TNC reduces cost or generates higher revenues from new markets… EG new foreign operation may be part of production process in a lower cost location or a retail outlet to access new markets increasing revenue

growth in size and number of TNCs is encouraged by the creation of trade blocs, removing international barriers and changing gov policies to encourage economic liberalisation

Question 6

B ) difference between offshoring and outsourcing

Answer 6

offshoring= process of MOVING part of the COMPANY’S OWN PRODUCTION PROCESS to another country (eg building a new factory in China where wage rates are lower)
—- offshoring is common to SEZs in Asian countries
reduces costs as wage and tax are lower

outsourcing= process were a FIRM CONTRACTS WITH ANOTHER COMPANY to obtain goods/ services from it
(eg apple no longer produces the iphone, foxconn does!!)
outsourcing is more flexible as the TNC can quickly shift supplier if a cheaper source becomes available
however!! less direct control can lead to problems (eg 2013 Tesco discovered Romanian supplier was mixing horse meat into budget beef burgers)

outsourcing and offshoring lead to the production of global production networks, lowering costs allowing TNCs to make larger profits

Question 7

B ) drawbacks of TNCs

Answer 7

• global production networks may make TNCs more vulnerable to shocks in different parts of the world that halt production EG 2011 Japan Tsunami halted component supplies to the offshore Nissan factory in Sunderland
• TNCs have been accused of exploiting workers in developing/ emerging world, low wages to max profit
• outsourcing jobs can lead to losses in home country
• cultural erosion

Question 8

C ) why do some locations remain switched off?

Answer 8

most of the world is increasingly integrated into global economy but some regions are switched off, lacking strong flows of trade and FDI.

the reasons for this can be political, economic, physical, environmental or a combination of more than one factor which leaves them largely ‘switched off’ from globalisation

Question 9

C ) politically isolated regions

Answer 9

C/S North Korea

for nearly 70 years, it has been ruled as a hereditary autocracy (Kim Jong-Un currently rules) organised on the communist system

they have chosen to DELIBERATELY remain isolated from the rest of the world, following the ideaology of ‘self sufficiency’

ordinary citizens have no access to internet or social media. there are no undersea data cables connecting the region with anywhere else.

however it does trade with China, and set up the Kaesong SEZ employing 52,000 on the border with S. Korea

Question 10

C ) the Sahel Region (physical, econ.and enviro. isolation)

Answer 10

the Sahel Region= area of west Africa

economically: poor infrastructure and low literacy levels make it unattractive for offshoring FDI, low income means it lacks market size to attract retail outlet FDI

physically: all four countries in the region are landlocked, rely on poor quality roads and passage through neighbouring countries to access coastal ports… resulting in high transport costs making exports unattractive in foreign markets and deter FDI

environmentally: semi arid climate with 200-400mm of precipitation pa (exports reliant on a good rainy season), climate change is increasing aridity and desertification