Globalisation

What is Globalisation? Globalisation is the term used to describe the growing integration of and interdependence among the world economies resulting from: the removal of many international regulations (trade barriers, restrictions on currency flows etc). developments in communications (telephone, email, Internet etc that allow people across the world to interact in real time). improvements in transportation (jet aeroplanes, containerisation of shipments reduce costs and speed up the movement of goods around the world). Growth in use of English as the language of business.

Positive impacts of globalisation - consumers Wider choice of products for consumers. Lower prices as more firms compete for customers. Improved quality of products.

Positive impacts of globalisation - businesses Lower production costs (economies of scale) lead to increased profits. Reduced risk - operations in many markets. Brings investment to less economically developed countries (LEDCs). Increased choice of location for operations. Increased opportunities for growth (both organic (new markets) and inorganic (mergers/take-overs).

Negative impacts of globalisation - consumers Social issues - growth of fast-food chains have brought diet issues. Less choice - same brands now offered in most markets. Loss of cultures (traditions, languages, clothing, music, movies etc)

Negative impacts of globalisation - businesses Difficult for smaller local firms to compete with larger multinational firms. Organisations become more complex - diseconomies of scale may result. Increased competition - many will fail.

Multinational Corporations (MNCs) Large business organisations that have operations in several countries. These operations may include; factories, design centres, research & development centres, regional HQ’s, & Global HQ’s.

Why become a MNC? To access and serve new markets effectively - a better understanding of local market results from locating in that market. To reduce costs of labour - MNC’s exploit differences in wage rates around the world. To access markets that are protected by trade barriers (eg tariffs & quotas).

Why become a MNC? To access skills and technologies that are found in particular locations - eg Silicon valley is home to a large number of computer engineers, and Milan is home to many fashion designers. To benefit from government incentives. Many governments try to attract foreign direct investment (FDI) through attractive offers eg lower taxes. Amazon’s EU HQ is in Luxembourg (low corporation tax rate).

Why become a MNC? To benefit from various economies of scale eg, risk-bearing, marketing (global marketing strategies can improve brand recognition), etc. To increase sales in businesses where exporting is not an option eg service sector (hotels, restaurants etc).

Issues facing MNC’s Adapting to local markets is not always straight forward - Tesco’s Fresh’n’Easy business in the US. The logistics of the business may become very complex (supply chain management). Managing different laws/standards/languages/cultures is complex. Increased uncertainty. Varying levels of infrastructure

Positive impacts of MNC’s on host countries Bring much needed investment capital. Provide jobs and training for workers. Bring competition for local firms - raises standards and quality. Bring technology that can help improve a country’s competitiveness. Bring prestige for host country. Can bring much-needed foreign exchange to a country (if products are exported).

Negative impacts of MNC’s on host countries Local firms are not able to compete (they lack resources and cannot gain the economies of scale). Over-reliance - MNC’s may decide to move to another country if conditions change- leaving high unemployment.

Negative impacts of MNC’s on host countries International division of labour - High skilled work (designing) is done in MEDC’s whilst low skilled work (assembly) is done in LEDC’s. Exploitation of labour in LEDC’s - Sweatshops with low wages, poor working conditions etc. Powerful MNC’s can exert political influence. This may not benefit a country.