Globalization

Learning outcome
After studying this chapter you should be able
to
Understand the term globalization and its
characteristics
Explain the reasons for globalization
List out benefits and drawbacks of
globalization
Understand the effects of globalization in
developing countries

Introduction
Globalization means the integration of national
economies into the international economy
through trade, foreign direct investment, capital
flows, migration, and the spread of technology.
It increases the interdependence, connectivity
and integration on a global level with respect to
the social, cultural, political, technological,
economic and ecological levels.
Globalization is a process of interaction and
integration among the people, companies, and
governments of different nations.

Introduction
This process has effects on the environment, on culture, on
political systems, on economic development and prosperity,
and on human physical well-being in societies around the
world.
Globalization is not new. For thousands of years people have
been trading goods and travelling across great distances. It
has been moving at a faster pace after World War II but has
accelerated considerably since the mid-1980s, driven by two
main factors.
1. Technological advances
2. Liberalization

Globalisation

Globalisation
could involve
all these
things!

Definition
Globalization means different things to different people.
Deepak Nayyar (2001) defined globalization, simply, as
the expansion of economic activities across political
boundaries of nation States.
International Monetary Fund :
Growing economic interdependence of countries
worldwide through increasing volume and variety of
cross border transactions in goods and services, free
international capital flows, and more rapid and
widespread diffusion of technology.

Definition
World Bank:
Globalization is the growing integration of economies
and societies around the world..
The shift toward a more
interdependent world economy
Two components:
The globalization of markets
The globalization of production

integrated

and

Key Players
They are Multinational firms which carry out business across
the national borders.
The world trade organization (WTO) through which
international trade agreements are negotiated &
enforced
The World bank & International monetary fund (IMF)
are means to assist Govt in achieving development
aims through the provision of loans, technical
assistance.

Stages in Globalization
Domestic company links with dealer & distributor.
Company does the activities on its own. Company
begins to carryout its own manufacturing , marketing
& sales in the foreign markets.
Company starts developed operations including
business systems and R&D. At this stage the
managers are expected to perform the tasks which
they were doing in domestic markets to replicate
them in foreign markets.

Conditions for globalization

Business Freedom-No unnecessary Government
restrictions like restriction, restrictions on sourcing
of funds and other factors from abroad. Hence the
liberalization is the 1st step towards facilitating
globalization.
Facilitators-Infrastructure facilitation available at
home country an help entrepreneurs go globally.
Government support Government support available
in the form of policy & procedure reform encourage
globalization

Characteristics
Borderless - Globalization is about an increasingly
borderless world and its societal consequences.
Information Technology changes - Increase in information
flows and greater transporter data flow between
geographically remote locations.
International cooperation - The increasing of the
multinational corporations, regional and global organizations
leads to the members of the international community
expanding from a single nation to the transnational
corporations, international organizations, and international
non-governmental organizations.

Characteristics
Mobility - The characteristic of globalization given more
mobility and less transport costs means per definition more
competition and more dynamism.
Talents mobility and integration - Globalization has
increased the growth of the multinational corporations, and
also brought the talent mobility and integration. More and
more personnel dispatched by the corporations to the branches
in other countries, and they learn and share the experience.
Cultural diversity - Because of the globalization and new
technology, it has been found that cultural diversity reflects on
the food, music, art, life style, customs and race.

Reasons for globalization

Technology: Faster and cheaper technology in the digital
global economy of the Internet era has broken the national
barrier of time and space. So integration of national markets
has been facilitated with ease.
A reduction in protection in the world economy: This means
a reduction in protectionist measures to limit world trade.
Tariffs, quotas and other trade-curbing factors have been
reduced.
A reduction in international capital movement restrictions:
This has made it easier to trade and move capital between
countries. This has meant that foreign direct investment can
flow easier between countries.

Reasons for globalization

A fall in transport costs: Economies of scale and bulk
distribution of products have meant that products are cheaper
to ship around the world. This has meant products have been
able to reach consumers and producers worldwide.
Liberalization of domestic markets: More countries have
become more willing to receive FDI from developed
economies and in forming business partnerships with
multinational companies. This includes joint ventures,
sponsoring and franchising.

What Is Globalisation?

Globalization is the process by which the world is

becoming increasingly interconnected as a result
of:

increased contact between people and nations

throughout the world through various forms of
cooperation and exchange such as

trade
cultural exchange
political cooperation across national borders
science
etc.

Globalization is the result of:

Technology which make it possible for people, goods,

money and information and ideas to travel the world
much faster than ever before

and the liberalisation (1) of world markets, making it

much easier to trade across national boundaries

Globalisation has been taking place for hundreds of

years, but has speeded up enormously over the last
half-century

1 - Liberalization of world markets involves less restrictions on trade

Factors Influencing Globalisation

Factors influencing globalisation include:
Communications:
Cable TV, personal computers, telephony and the Internet have created a global village, tying the world closer
together.
Businesses in the western world can have a call centre in India answering calls from western customers.
Transport
has become cheap and quick.
People, especially in the western civilization, travel all over the world
People from other countries can travel to the west to seek better-paid jobs.
Businesses can more easily ship products and raw materials all over the world - making products and services from
all over the globe available to customers.
Trade liberalisation:
Governments around the world have relaxed laws restricting trade and foreign investment
Countries in the developing world have opened up their countries to western businesses and investment
Some governments offer grants and tax incentives to persuade foreign companies to invest in their country.
The idea is that there should be no restrictions on trade between countries is known as free trade or free market
capitalism.
Free trade involves a minimum of government intervention to regulate trade such as taxes on imported goods and
services, quotas on imported goods and services, and subsidies
Protectionist trade policies involve government intervention in the market by regulating prices on goods and
services and supply restrictions. Such government interventions generally increase the cost of goods and services to
both consumers and producers. Interventions include subsidies, taxes on goods and services, and other laws
regulating the economic market and investments by for example by domestic and foreign companies
Although globalisation probably is helping to create more wealth in developing countries it is not helping to close the
gap between the world's poorest countries and the world's richest.

Multinational Corporations (MNC)

or
Transnational Corporations

Foreign investment in another country:

Globalisation has resulted in many businesses setting up or buying services in other

countries. When a foreign company invests in a country, perhaps by building a factory or a
shop.

Multinational corporations or transnational corporations:

Companies that operate in several countries are called multinational corporations (MNCs) or
transnational corporations (TNCs)
These companies are in constant competition with one another to expand into new markets
and increase their profits
McDonald's, the US fast food chain is a large MNC:

McDonalds has nearly 30,000 restaurants in 119 countries

Brand names like Nike, Kellogg's, Microsoft, Sony, Adidas are recognised almost everywhere in the
world (see next slide)

Most MNCs come from developed countries:

The majority of MNCs come from more economically developed countries (MEDC) such as the US and UK.
Multinational corporations invest in other MEDCs - the US car company Ford, for example, makes large numbers of
cars in the UK.
But MNCs also invest in less economically developed countries - for example the British DIY store B&Q now has
stores in China.

Multinational Corporations

Factors Attracting MNCs to a Country

Cheap raw materials

Cheap labour supply
Good transport
Access to market, where
the goods are sold
Friendly government
policies
Countries:
India, South America
Asia in general

Positive Impacts of Globalisation

Improved standard of living:

More wealth to local economies:

There is far more mixing of people and cultures from all over the world, enabling more sharing of ideas, experiences, and
lifestyles.
People can experience foods and other products not previously available in their countries.
In this way globalization may diminish cultural barriers between people, and make people more open-minded to other cultures and
knowledgeable.

Greater awareness:

MNCs bring wealth / foreign currency to local economies when they buy local resources, products and services - providing
resources for education, health and infrastructure.

Cultural exchange and contact:

Investment by MNCs helps countries by providing new jobs and skills for local people.

Globalisation can help make people aware of events in far-away parts of the world.
For example, people in Norway were quickly aware of the impact of the 2004 Tsunami tidal wave on countries in South East Asia,
and were therefore able to send help rapidly.

Global cooperation/aid:
It may help make people more aware of global issues such as
Global warming
Poverty
Human trafficking
Terrorism, etc.
and alert them to the need for sustainable development (brekraftig utvikling).

Negative Impacts of Globalisation

However not all people think that globalisation is such a great idea. Critics include many different groups such as
environmentalists, anti-poverty campaigners and trade-unionists.
Some of the negative impacts they point to are:

Exploitation of developing countries: Globalisation operates mostly in the interests of the richest countries
which continue to dominate world trade, and at the expense of developing countries - whose role in the world
market is mostly to provide the North and West with cheap labour and raw materials.

Unemployment and ousting of local businesses: There are no guarantees that the wealth from inward
investment will benefit the local community. Often, profits are sent back to the MEDC where the MNC is based.
Multinational companies, with their massive economies of scale, may drive local companies out of business. If it
becomes cheaper to operate in another country the MNC might close down the factory and make local people
redundant.

Violation of international laws: Lack of strictly enforced international laws means that MNCs may operate in a
way that would not be allowed in an MEDC - for example polluting the environment, running risks with safety or
imposing poor working conditions and low wages on local workers.

A threat to cultural diversity: Globalisation is viewed by many as a threat to the world's cultural diversity drowning out local economies, traditions and languages and re-casting the whole world in the mould of the
capitalist North and West. An example is that a Hollywood film is far more likely to be successful worldwide than
one made in India or China, which also have thriving film industries.

Anti-globalisation campaigners sometimes try to draw people's attention to these points by demonstrating against the
World Trade Organisation, an inter-governmental organisation which promotes the free-flow of trade around the
world.

International Organizations Aiding Economic Globalization

International business is aided by
a number of international
organizations:
World Trade Organization
(WTO)
The International Monetary
Fund (IMF)
World Bank

These international
organizations help smooth the
way for international business

Anti-Globalization Movement

Globalization has set off hostile

reactions among many people
around the world

These people are often referred to

as the anti-globalization
movement

This is a misleading term, however,

as most of these people are not
against bringing the peoples of the
world closer together. On the
contrary these work hard to unite
people from all over the world to:
Oppose the effects of an
international economic system
which they believe is destructive

Fears Held by Anti-Globalization Critics

Local cultures and languages are destroyed by

an international corporate consumer culture
which often uses English as a lingua franca

The un-ending and explosive economic growth

is badly damaging the ecology of the planet
and using up resources at the expense of local
populations and future generations

The gap between the rich and poor nations is

widening because international companies
force weaker and poorer nations to accept
trade conditions that favour the rich

That WTO, IMF and the World Bank create

trade conditions that benefit rich countries at
the expense of individuals in the poorer
countries
Cheap labour
Child labour
Long working hours
Bad working conditions

Defenders of Globalization
Defenders of globalization argue
that:
Since 1985 the number of people living
on less than 1 dollar a day has been
halved

Life expectancy in the developing wolrd

has doubled since WWII

In 1960 56% of the worlds population

lived in nations with less than 2200
calories of food per day. Today it is only
10%

Between 1950 and 1999, the number of

people in the world who can read and
write increased from 52% to 80%

Differences in income in the world have

been reduced over the past decades

The Financial Crisis Now What?

Economic globalization to blame?

More restrictions put on trade between

nations?

Protectionism
Increased subsidies on locally produced
commodities?
Increased taxes on imported
commodities?
Restrictions on imported commodities?
How will this affect developing countries?
The level of consumption in both developed
and developing countries reduced

Businesses facing bankruptcy

Increased unemployment around the world

This is happening at this very moment in:

Norway, Iceland, USA, and Asia + many

other countries

By Nina Sandstrm Angelsen

Selbu videregende skole