Globalisation Flashcards
(16 cards)
Define globalisation
Globalisation is the process that
enables product, financial and investment markets to operate across the globe.
3 important aspects of globalisation
- increased trade in goods and services
- increased movements of labour from country to country
- increased movement of financial capital.
Factors of globalisation has come about as a result of
- the deregulation of markets
- political changes
- the removal of barriers to trade
- the lowering of transportation costs
- improved communication systems.
Winners of globalisation
*Consumers who have greater choice and much cheaper goods. Increased competition also
improves quality.
*Developing countries which increase their wealth by producing goods for export. Most recently, China and India have been the big
winners. Other countries that have benefited include Brazil, South Korea and Taiwan.
*Developed (Western) economies have experienced low inflation because of the falling prices of imports (the so-called China effect).
Businesses who trade internationally benefit in
- They can reduce their costs and increase profits by producing in low-cost countries.
- They have a greater spread of risk. The impact of the decline in one market can be lessened by
continued trade in other markets. - Massive economies of scale occur. Selling to a number of countries increases the scale of
production; average costs fall, making them more competitive. - New markets bring new sales opportunities. By selling in new markets, sales can increase quickly. This has been especially important when the home market is saturated.
- Opportunities of partnerships with overseas businesses. For example, within the airline industry British Airways (BA) has relationships with American, Australian and Far Eastern
airlines. This improves the service that they are able to offer to customers. - The opportunities available for employees of developing countries are now far greater. Skilled and educated employees can now
complete in a global marketplace for high paying positions.
Losers of globalisation
- Unskilled workers in Western
economies who have found their real wages falling or their jobs being ‘relocated’ to low-cost economies. - Previously viable businesses who
have been outcompeted by low-cost competition from overseas. - Employees in developing countries who have been exploited, working excessively long hours for very low wages in unacceptable conditions.
- The environment where the excessive development of land has led to deforestation and flooding. The huge increase in the transportation of goods contributes to global warming.
Advantages of having multinationals based
in the UK:
√ Provide employment and create better living standards.
√ Investment leads to infrastructure development.
√ Pay taxes to the government.
√ Introduce new technology and working methods.
√ Increased customer choice.
√ Increased growth in the UK economy – many businesses supplying multinationals in their
locality.
Disadvantages of having multinationals based in the UK:
X Multinational companies can severely impact local industries because they increase competition in the economy. They can cause both small and large British businesses to go out of the business, leading to increased unemployment.
X Multinationals have been accused of destroying local culture. Having recognisable ‘superbrands’ will inevitably lead to a loss of localised products and a shift in habits.
X They may have negative environmental impacts, such as pollution, noise, congestion and destruction of the environment.
Social Benefits of globalisation / activities of multinational companies
√ increase in standard of living
√ less armed conflict sorting out trade
√ job opportunities
√ access to latest technologies
√ higher quality goods
√ cheaper raw materials.
Social Costs of globalisation / activities of multinational companies
X Competition for investment has eroded the will of some governments to protect the environment from pollution and workers from exploitation.
X There has been an erosion of cultures. (For example, the average UK’s citizen’s favourite food is Chinese.)
X The rich become richer and the poor can become poorer as they cannot compete.
X The poor and vulnerable can be
encouraged to purchase products that are not beneficial to them – Coca Cola’s mission statement at one time was to have more people drinking Coke than water.
X Pollution from one country, the USA for example, impacts on the rest of the planet.
Define social costs
These are the costs that society pays for a business’ activities, such as pollution and the damaging effect on wildlife.
Explain multinational corporations
Businesses operating in a number of countries, whether extracting
resources, manufacturing, retailing or a combination of these activities. Successful British multinationals include BP, HSBC, Tesco, and Vodafone. There is a large number of foreign-owned
multinationals manufacturing in the UK, including Toyota, Ford, LG, Sony and Panasonic. Many more are operating in finance and retailing. Many of the biggest have a level of turnover larger than the GDP of some medium sized countries. This means that they have a huge amount of power and influence.
Strategies for operating in a global marketplace
- To benefit fully from economies of scale, businesses need to standardise their products as much as possible.
- It may not be possible for businesses to produce all their products themselves, so they may choose to outsource part of their
operation, particularly if that means goods are being manufactured close to the markets in which they will be sold. - Selling products worldwide means that certain key staff may need to be mobile, that is, they are willing to travel to, and maybe live in, other countries.
- Businesses must be aware of the cultural differences between the markets in which they operate. This can affect how ethical a business is considered to be in various parts of the world.
- Increasingly, businesses are realising the importance of their social responsibilities in terms of how they treat their staff, the effect their activities have on the environment, the need to put something back into the local community and the use of sustainable resources, for example. Increasing globalisation means that businesses have social responsibilities the world over.
- The use of the internet (e-commerce) has made operating in the global market place much more accessible to businesses.
- Businesses can maximise their supply chain operations by sourcing their raw materials from as near to the place of production as possible.
Evaluate global branding
- An advantage of a global approach is that it offers marketing economies of scale - a firm can develop one advertising campaign and one approach to packaging worldwide.
- However, this type of strategy does not respond to the requirements of different national markets and so the business may lose sales to competitors who focus more on local needs.
Explain global branding
Businesses that have established a strong brand identity in their domestic market are sometimes
able to introduce their product or service into other countries based on the recognition of their brand in other parts the world.
- In reality, most companies will choose a balance between the global and the local approach. For
example, McDonald’s has the same basic brand image and approach everywhere but sells wine in France, does not sell pork in Muslim countries and adjusts the menu in different areas.
Exam question - DISCUSS THE VIEW THAT THE SOCIAL BENEFITS OF MULTINATIONAL CORPORATIONS, SUCH AS DOMINO’S PIZZA, OUTWEIGH THE SOCIAL COSTS.
Social Benefits:
* Multinational companies provide employment to large numbers of people in developed and less developed countries.
* Multinational companies provide goods and services that consumers wish to purchase.
* Due to their large size, multinational companies benefit from economies of scale which they can pass onto their customers in the form of cheaper prices.
* Multinational companies often invest large amounts of money in research and development and so can produce new products which are of benefit to consumers.
* Technology transfer.
* Infrastructure developments.
Social Costs:
* Many smaller, local businesses may find it difficult to compete with multinational companies.
* Multinational companies may use transfer pricing in order to avoid paying tax in some countries, e.g., Starbucks and Amazon in the UK.
* Multinational companies may be accused of exploiting workers in less developed countries.
* Multinational companies may have a negative effect on the environment, e.g., BP in the Gulf of Mexico.
* Food miles.
* Threat to local culture.
* Obesity and other health issues.
Conclusion:
Multinational companies are a fact of life whose activities may need to be controlled by regulation. However, in practice, this may prove to be difficult as they are able to move around and can threaten to leave countries whose governments are not friendly towards them. Perhaps some kind of super national authority is required to regulate their activities.
