Wednesday, 26 February 2014

Introduction to Globalisation

Defining Globalisation

There are many definitions of globalisation as it involves many different areas including the following:

Economic – Under the auspices of GATT and latterly the WHO, world trade has expanded rapidly. TNC have been the major force in the process of increasing economic interdependence, and the emergence of different generations of NIC has been the main evidence of success in the global economy. However, the frequency of ‘anti-capitalist’ demonstrations in recent years shows that many people have grave concerns about the direction the global economy is taking. Many LEDCs and a significant number of regions within MEDCs feel excluded from the benefits of globalisation.

Urban – A hierarchy of global cities has emerged to act as the command centres of the global economy. New York, London and Tokyo are at the highest level in this hierarchy. Competition within and between the different levels of the global urban hierarchy is intensifying.

Social/Cultural – Western culture has diffused to all parts of the world through TV, cinema, the Internet etc. International interest in brand name clothes, food, music and celebrities has never been greater. However, cultural transmission is not a one-way process. The popularity of Islam has increased in many Western countries as has Asian, Latin American and African cuisine.

Linguistic – English has clearly emerged as the working language of the ‘global village’. Of the 1.9 billion English speakers, some 1.5 billion around the world speak English as a second language. In a number of countries there is great concern about the future of native languages.

Political – The power of nation states has been diminished in many parts of the world as more and more countries organise themselves in trade blocs. The EU is the most advanced model for this process of integration taking on many of the powers that were once the sole preserve of its member nation states. The UN has intervened militarily in an increasing number of countries in recent times, leading some writers to talk about the gradual movement to ‘world government’. On the other side of the coin is the growth of global terrorism.

Environmental – Increasingly, economic activity on one country has impacted on the environment in other nations. The long-range transportation of airborne pollutants is the most obvious evidence of this process. Global environmental conferences such as that in Copenhagen (2010) is evidence that most countries see the scale of the problems as so large that only coordinated international action can bring about realistic solutions.

Demographic – The movement of people across international borders and the desire to move across such borders has increased considerably in recent decades. More and more communities are becoming multicultural in nature.

Here are some definitions of globalisation:

The simple definition of globalization is the interweaving of markets, technology, information systems and telecommunications systems in a way that is shrinking the world from a size medium to a size small, and enabling each of us to reach around the world farther, faster, deeper, and cheaper than ever before, and enabling the world to reach into each of us farther, faster, deeper, cheaper than ever before. That's what globalization is” (Friedman, 2000)

Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology.
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.

Most definitions make reference to openness, integration or flows. Openness pertains to individual countries participating in, or being willing to participate in, international economic activity. Integration refers to combining or amalgamating elements across countries, which predominantly occurs through cross-border activity and international division of production. Flows as they pertain to globalisation encapsulates the movement of goods and services through trade, financial transaction through investment and foreign exchange markets and the sharing of ideas, intellectual property and technology.

The History of Globalisation

There is nothing new about globalisation. From ancient trade routes and the discovery and subsequent colonisation of the Americas to the invention of the transatlantic telegraph cable in 1858 there have been connections between countries around the world for centuries. Some commentators believe that ‘modern’ globalisation (a word which, by the way, has only been in common use since the late 20th century) began in the late nineteenth century when transport and communication networks expanded rapidly around the world, world trade began to grow and capital flows began to expand.

Events that have contributed to globalisation since then include:
  • The establishment of the World Bank, GATT and the Bretton Woods agreement in 1948

  • The emergence of NICs from the 1960s and the rise of TNCs

  • OPEC oil price rises in 1975, when money invested in MEDC banks was loaned to the developing world, which has cheaper labour costs

  • The integration of the Soviet Union and countries of Eastern Europe into the capitalist system in 1989 (this led to further opportunities for investment in a previously closed off market)

  • The emergence of free market ideas, promoted in the UK and USA and copied by others

  • The deregulation of world financial markets, which gave companies the freedom to expand beyond national boundaries in search of the best returns on their capital.

  •  The formation of the WTO in 1995 and other trade blocs.

  • Advances in technology and communications e.g. the internet (1980s), mobile phones, jumbo jets, fibre optic cables and satellites allowed cheaper and quicker transport of information, goods and people.

  • Although labour markets are not as advanced as financial markets (due to the difficult of moving people compared to money and the affinity people feel to their home country) there has been increasing movement of people across borders seeking employment. Much of this has been from lower to higher income countries, e.g. from South to North America and East to West Europe.

Global Marketing

Global marketing has been defined as ‘marketing on a worldwide scale, taking commercial advantage of global operational differences similarities and opportunities in order to meet global objectives’.

When a company becomes a global marketer it views the world as one market and creates products that fit various regional marketplaces. The ultimate goal is to sell the same thing, the same way, everywhere.

Coca-Cola is an example of a company with a single product. Only minor elements are tweaked for different markets. They use the same formulas (one with sugar, the other with corn syrup) for all its markets. The design of the bottle/can is the same in every country but the size varies according to country standards. Some people are concerned that this type of marketing will erode local diversity.

The New International Division of Labour

Globalisation has brought about a new division of labour on a global scale. The highly skilled, highly paid, decision making, research and managerial occupations tend to be located in high-income, developed countries, whereas the unskilled, poorly pair assembly jobs can be found in developing countries.

This simple division has undergone radical changes since the 1960s. Countries have moved from developing, to NICs, to MEDCs in the space of 40 years, while others have also started industrialising and are at various stages of being NICs or RICs. This has had a huge impact on the location of different types of jobs.

Global Shift

Global shift is the movement of economic activity from MEDCs, originally to NICs, then to RICs and LECDs. Initially the shift involved labour-intensive manufacturing, but increasingly it has involved all sorts of manufacturing and, more recently, services.

In the 1950s around 95% of manufacturing was concentrated in the industrial economies. As large companies grew in these areas they began to look for ways to reduce their costs. At the same time improving communications and transport enabled them to search the world for cheaper manufacturing locations. FDI in NICs such as Singapore led to deindustrialisation in MEDCs. Later there were shift from NICs to RICs to keep costs low, and as NICs developed they set up their own industries, investing in countries less developed than themselves.

This shift has been aided by the transfer of technology. High levels of technology are no longer associated with high productivity and high wages. Companies in the developing world are now able to increase their productivity through technology without raising their wages. This could widen the development gap, as workers in the developing world are paid less to make the same products as those in developed countries. By the beginning of the 21st century, more than 50% of all manufacturing jobs were located in the developing world and over 0% of exports from those countries to the developed world were of manufactured goods.

There has also been a shift in services as they have become increasingly detached from the manufacturing sector. As manufacturing has dispersed worldwide, the top of the service hierarchy become concentrated in cities such as London, New York and Tokyo rather than in old manufacturing centres. Low level services on the o0ther hand have shifted to the developing world much like manufacturing. Call-centre operations, for example, have moved from the UK to India where employment costs are generally 10 – 20% of those in the UK.

NB These notes relate to the following part of the AQA A2 specification: 
·    Factors and dimensions: flows of capital, labour, products and services
·    Global marketing

·    Patterns of production, distribution and consumption

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