Globalisation

All you need to know on globalisation as an econiomic influence, part of Unit 7 of AQA A Level Business - Analysing Strategic Position.

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  • Created by: GeorgeB16
  • Created on: 02-01-17 15:19

Globalisation

The geographic dispersion of industrial and service activities, and the cross-boarder networking of companies.

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Key Points

  • Process in which economies have become increasingly integrated and inter-dependent, through the use of production abroad and international trading.
  • Globalisation is dynamic, such as the transportation of goods between countries.
  • It is not inevitable as it can reverse, and the growth of world trade has slowed in recent years following the global financial crisis.
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The World's Largest Economies

  • In terms of GDP adjusted for purchasing power, the value of each country's GDP is altered to take into account differences in the cost of living in different nations.
  • In this respect, China has now the biggest economy in the world, although their per capita national income remains a fraction of that in high income countries.
  • The USA is close behind with a 16% share in global GDP.
  • India has a 7% share.
  • Russia and Brazil have a 3% share.
  • The UK has a 2.5% share,
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Geographical Regions Specialities

  • Commonwealth of independent states such as Russia specialise in oil and mining.
  • Japan speciaises in particular cars such as Toyota and all electronics.
  • India have a large textiles market with no laws on exploitation, wages, etc.
  • Australia is also big for mining, as is the Middle East and South America.
  • Europe is well known for cars and manufactured goods.
  • European and North American cities, particularly London, New York and Toronto, are well known for banking and finance.
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The Changing World Economy

  • The world economy has changed rapidly since 1980 as the share of economic output has shifted towards Asian-Pacific countries such as China and India.
  • This doesn't mean that the US and EU economies are getting smaller, but their share of the world economy is.
  • Aisan countries experience high rates of economic growth.
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Key Features of Globalisation

  • Trade to GDP ratios are increasing for most countries as they trade more.
  • Expansion of financial capital flows between countries.
  • Foreign direct investment and cross-border acqusitions.
  • Rising number of global brands, including from emerging economies, pushing back independent brands.
  • Deeper specialisation of labour with components coming from many nations. For example, China make 80% of toys in the world.
  • Global supply chains and new trade and investment routes such as Sub-Saharan African countries supplying China.
  • Increasing levels of international labour migration and migration within countries, bringing new specialist skills.
  • Increasing connectivity of people and business through mobile and WiFi networks.
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Containerisation

  • Reduced the costs of ocean shipping through bulk shipping and other efficiencies.
  • Lower unit cost of shipping products around the global economy helps to bring prices in the country of manufacture closer to those in export markets.
  • This makes markets more competitive globally.
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Technological Influences

  • Reduced the cost of transmitting and communicating information.
  • Examples include video conferencing technology, accessibility to the internet and advancements in flying.
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Economies of Scale Factors

  • There has been an increase in the minimum efficient scale associated with some industries.
  • If this is rising, a domestic market may be regarded as too small to satisfy the selling needs of these industries.
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Tax System Influences

  • The desire of business to benefit from lower labour unit costs abroad has encouraged countries to adjust their tax systems to attract foreign direct investment.
  • Many countries have become engaged in tax competition, such as Ireland, to win lucrative foreign investment projects.
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Less Protectionism

  • Borders have opened and average import tariff levels have fallen.
  • Has been a rise in non-tariff barriers such as import quotas as countries have struggled to achieve real economic growth and as a response to persistent trade and current account deficits.
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Growth of Multinationals

  • Global businesses and brands have invested significantly in international expansion in their pursuit of revenue and profit growth.
  • Particularly the case for brands which have proven to have the potential to be successful globally, particularly in faster growing economies fuelled by growing numbers of middle class consumers.
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Advantages of Globalisation

  • Encourages deeper devision of labour and economies of scale.
  • Competitive markets reduce monopoly profits and incentivise businesses to seek cost reducing innovations.
  • Enhanced growth has helped many poor countries to have faster economic growth and less poverty.
  • Free movement of labour between countries.
  • Sharing of ideas, skills and technologies across borders.
  • Capital markets allow developing countries to borrow money.
  • Increased awareness amongst consumers of challenges from climate change and wealth/income inequality.
  • Competitive pressures may prompt improved governance and better labour protection.
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Disadvantages of Globalisation

  • Inequality, such as growing urban-rural divide in countries such as China, leading to political and social tensions and financial instability constraining growth. Poorest people excluded from benefits of basic technologies and public goods.
  • Inflation due to strong demand for food and energy which has placed the poorest people at risk.
  • Vulnerability to external economic shocks due to interdependent economies.
  • Threats to the global commons such as damage to ecosystems and deforestation.
  • Race to the bottom as countries lower corporate taxes in desperate attempts to attract inward investment, which relaxes health and safety laws causing social consequences.
  • Trade imbalances creating tensions and pressures to introduce protectionist policies such as new forms of import control
  • Unemployment as capital investment and jobs in advanced economies drain away to developing countries as firms switch their productions to countries with lower unit labour costs.
  • Standardisation as global brands dominate domestic markets in many countries.
  • Dominant global brands stifle competition and take charge of key markets ranging from telecommunications to motor vehicles to fast food.
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