Globalisation (Cambridge (CIE) O Level Economics)

Globalisation

• Globalisation is the economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology and finance

• This integration of global economies has impacted national cultures, spread ideas, speeded up industrialisation in developing nations and led to de-industrialisation in developed nations

• Globalisation has been increasing for thousands of years - it is not a new phenomenon

• Improvements in technology and the speed of global connections have exponentially increased the level of interdependence between nations in the past 50 years

• Consumers now source products globally recognising global brands wherever they travel  
  

The Four Main Characteristics of Globalisation

Multi National Corporations (MNCs)

• A multinational corporation is business that has production facilities in two or more countries e.g. Apple

• Globalisation has made it easier for firms to do business on a global scale and the number and size of MNCs continues to increase

• There are advantages and disadvantages linked to the economic activity of MNCs, both in their home country as well as in their host country

The Advantages and Disadvantages of MNCs

 The Advantages of MNCs

1. Economies of scale: as they operate globally they are able to increase their output and benefit from lowered costs created by economies of scale

2. Increased profit: much of their profit is sent back to their home country. This point is debatable as many MNCs have offshore bank accounts and do not bring the profit back home

3. Create employment: new jobs are created in host countries each time a new facility is setup and this raises income which helps to improve the standard of living in that country

4. New markets: MNCs can identify potential markets and begin to sell there

5. Transportation costs: MNCs are able to setup facilities closer to their customers which reduces transportation costs

6. Risk management: By selling in many national markets, the risk of failure is reduced e.g. if Egypt goes through a recession (with sales falling there), then this could be less impactful due to rising sales in a strong German market

7. Tax incentives: MNCs are able to increase their profits by setting up in countries with low corporation tax - or countries that offer MNCs a tax break (no tax) for their first 5-10 years of operation

8. Avoidance of protectionism: MNCs can establish bases in countries that are operating protectionistmeasures and by doing so, they avoid the measures e.g. a Chinese MNC may setup in the USA and produce there, thus avoiding import tariffs on  their products exported from China to the USA

 
The Disadvantages of MNCs