CHALLENGES OF GLOBALIZATION Globalization – the creation of a single global economy & community. What has led to this? End of Cold War Spread of Democracy Creation of the Internet Outsourcing – process where a company hires other companies to perform some work; Offshoring – practice of moving production overseas.

CHALLENGES OF GLOBALIZATION Economic activities require 4 types of resources: 1. Natural Resources – from nature; used to create goods/services (air, water, plants, minerals used for i.e. cotton, lumber, iron ore, water, etc.).

CHALLENGES OF GLOBALIZATION 2. Human Resources – human labor required to produce something (planning, studying, training & work required to produce a good/service).

CHALLENGES OF GLOBALIZATION 3. Capital Resources – goods made to make other goods & services (not goods made to consume). (Machines, tools; i.e. a hammer is a capital good used to build something; Infrastructure (technology, transportation routes, communications, networks) are also capital resources.

CHALLENGES OF GLOBALIZATION 4. Entrepreneurship – people who bring together & organize all productive resources (business owners or managers).

CHALLENGES OF GLOBALIZATION Location of Productive Resources – location of economic activity depends on where resources are found. Physical geography can determine where resources are located...

CHALLENGES OF GLOBALIZATION Examples: Large amounts of coal are needed to make steel. Western Pennsylvania has a lot of coal, so Pittsburgh became the U.S. center for the steel industry. Saudi Arabia has a lot of oil reserves found in the Persian Gulf. Many oil companies are located there.

CHALLENGES OF GLOBALIZATION Management of Resources: because resources are essential to many economic activities, management of them is important. Countries might require licenses or permits to extract resources; might have strict regulations. i.e. – Water – necessary for drinking, farms, factories, etc. Special permits/licenses are necessary to use large amounts; penalties are put on polluters, etc.

CHALLENGES OF GLOBALIZATION Climate affects location of economic activities: influences types of crops that can be grown in an area; Example: sugar cane grew well in Caribbean islands – warm, lots of rain. Since Sugarcane is bulky & heavy, shipment was expensive; refineries were built on islands because it was cheaper.

CHALLENGES OF GLOBALIZATION Human Resources –where humans & entrepreneurs are located affects location of economic activities. i.e. Japan – has few natural resources, but a large educated workforce is found there. It is a center of manufacturing – Sony, Toyota, Honda – all located in Japan.

CHALLENGES OF GLOBALIZATION Infrastructure – important to location of economic activities; the investment a society makes to roads, railroad tracks, electric power, telephone/Internet lines, are important! Finished goods need to be transported via roads/railways; where there is no electric power, telephone, etc. won’t attract manufacturing.

CHALLENGES OF GLOBALIZATION Access to Consumers: location of consumers influences economic activity; more activities are found in populated areas; Physical barriers (mountains, forests, deserts) make it difficult to reach consumers. Flatlands & valleys bring resources & people together. Note: changes in technology or infrastructure can eliminate barriers. CHALLENGES OF GLOBALIZATION

CHALLENGES OF GLOBALIZATION Changes in Geography affect location of economic activities: 1. Changes in Climate – Sahel – was used for herding but less water & grass over time results in people migrating south. Warming of Earth – causing farming activities in N. Hemisphere to move farther north (by about 200 miles or so).

CHALLENGES OF GLOBALIZATION 2. Changes in Resources –Discovery of new resources causes increase in activity; when it runs out, towns can be deserted. California Ghost Town (After Gold Rush)

CHALLENGES OF GLOBALIZATION 3. Changes in Infrastructure - construction of canals, railroads, paved roads, makes it easier to access resources, attracting new activities. i.e. Erie Canal – made it possible to ship farm products from Midwest to NYC. i.e. Completion of Railroad – linked E. & W. U.S. Texas Cattlemen could drive cattle to Kansas where they would be shipped by railroad to consumers in the East.

CHALLENGES OF GLOBALIZATION TRADE – different areas specialize in different economic activities – this leads to trade (exchange of goods/services). Uneven Distribution of Resources: different climates, soils, landforms, minerals create diverse ecosystems with different plants/animals.

CHALLENGES OF GLOBALIZATION Petroleum – one of our most important resources – key source of energy & necessary for products from fertilizers to plastics. Petroleum is made by decaying microscopic animals & plants in the sea. Many countries have almost no oil, while others have an abundance. See map.

CHALLENGES OF GLOBALIZATION Human Resources – also unevenly distributed! (i.e. China has a lot of workers willing to work for low wages compared to more developed countries. In developed countries, strong educations give much experience/training for entrepreneurs, high technology, etc.) CHALLENGES OF GLOBALIZATION

CHALLENGES OF GLOBALIZATION Specialization – uneven distribution of resources, natural & human, leads to specialization – each region making goods based on what resources are available. Comparative Advantage – producing goods & services that can be made at the lowest cost.

CHALLENGES OF GLOBALIZATION Specialization encourages trade: regions rarely produce everything they need; they exchange through trade – exporting & importing. Exports – goods/services sold from one country to others; Imports – goods from foreign countries brought to a country for use or sale.

CHALLENGES OF GLOBALIZATION History of Global Trade Patterns: 1. Ancient World – trade was advanced even then. i.e. Ancient Egypt – grain/mineral surplus – traded these with Greece for wine & olives; i.e. Roman Empire – exported olive oil & wine to N. Africa for wheat, China for silk & porcelain, Egypt for cotton, India for spices.

CHALLENGES OF GLOBALIZATION 2. Middle Ages – After fall of Roman Empire, trade was disrupted; Europe communities became mostly self-sufficient; in other parts of the world, trade thrived: Islamic World – Many ports in Middle East were used for trade; West Africa – Timbuktu was a center for gold/salt. Arab merchants crossed Sahara. Americas – Maya traded salt, cacao, pottery with Guatemala in exchange for turquoise, jade.

CHALLENGES OF GLOBALIZATION 3. Rise of Atlantic Trade – As colonies were set up in America & new trade routes were established to China & India around Africa, Mediterranean trade grew less important. Great Britain became leading naval power in 1700s with colonies all over the world, dominating world trade.

CHALLENGES OF GLOBALIZATION 4. Industry, Protectionism & Empire: Development of steamships, railroad & factories all increased speed & scale of trade. European powers – established plantations & mines in their colonies to obtain raw materials to use in Europe’s factories. They also established trading posts in China while U.S. opened up trade with Japan. Some countries reacted to influx of British goods by enacting protective tariffs – adding duties (taxes) to imports, making British goods more expensive.

CHALLENGES OF GLOBALIZATION 5. Collapse of Trade Barriers: WTO (World Trade Organization)- oversees trade agreements around world (97% world represented). Free Trade Zones – i.e. NAFTA (North American Free Trade Association); EU (European Union). Eliminates restrictions on goods moving from one country to another.

CHALLENGES OF GLOBALIZATION 6. Offshoring & Outsourcing – Companies now move production to countries where costs of labor, etc. are lower. (Offshoring). Companies hire other companies overseas to produce parts or provided services to free up others to focus on other issues. (Outsourcing) i.e. a computer assembled in U.S. might have parts manufactured in China or Mexico. i.e. when American customers call customer service, they may speak to an English-speaking representative from another country.

CHALLENGES OF G GLOBALIZATION Information technology like Internet open up trade to more customers. Containerized Cargo makes shipping easier as well… goods are packed onto large truck-like containers & loaded onto a ship, then serve as backs of trucks after being delivered, or as railroad cars, without repacking.

CHALLENGES OF GLOBALIZATION COSTS/BENEFITS TO GLOBALIZATION: Benefits: People enjoy goods/services from all over the world Benefits of connectivity – ease of communication via phone, facebook, email, skype, etc. Advances in technology, medicine, engineering, spread quickly. Advances in speed of economic development – average standards of living are higher than ever before.

CHALLENGES OF GLOBALIZATION Costs – Manufacturing has shifted away from countries where labor is more costly – cause workers in developed countries lose their jobs; Workers in newly industrialized countries are forced to work long hours under harsh conditions; Pollution & climate change have increased; Pandemics (diseases spread across globe) are spread more quickly.

CHALLENGES OF GLOBALIZATION Costs (Cont.) Some feel they have no control over their local economy – a financial crisis in one country leads to others. Local communities & cultures are losing their uniqueness – Fast food & Pop music replace local customs/traditions. Can cause violent reactions; i.e. Islamic fundamentalists express anger over contemporary global culture using terrorism. CHALLENGES OF GLOBALIZATION