Factors contributing to increased globalisation - 4.1.3

Globalisation - the process of greater intergration and inter-connectedness between countries

Trade liberalisation - Includes the removal or reduction of tariff obstacles such as duties and surcharges and non-tariff obstacles such as licensing rules, quotas and other requirements.

Transnational Corporation - A business that is register and operates in more than one country at a time but selling the same products.

Migration - The movement of people from one place to another

International trade is increasing for a number of reasons:

1. Reduction of international trade barriers/trade liberalisation
2. Reduced cost of transport and communication
3. Increased significance of transnational corporations
4. Increased investment flows
5. Migration within and between economies
6. Growth of the global labour force
7. Structural Change

REDUCTION OF INTERNATIONAL TRADE BARRIERS/TRADE LIBERALISATION

Countries impose trade barriers for many reasons. They include protecting local jobs, allowing new industries to flourish, to protect consumers from particular products or services, and in retaliation for another country's trade practices. Trade liberalisation is the removal or reduction of restrictions or barriers to the free exchange of goods between nations.

World Trade organisation has assisted with the above leading in a greater proliferation of trade agreements across the world, and promoting free trade between nations, which helps to remove barriers. 

Benefits of trade liberalisation include increased economies of scale and greater competition, which can drive down costs and improve quality. Drawbacks include the potential loss of local businesses due to increased competition, infant industries could be lost to foreign competitors, and the vulnerability of some industries dumping by overseas rivals. Dumping occurs when a country has excess stock and so it sells below cost on global markets, causing other producers to become unprofitable.

REDUCED COSTS OF TRANSPORT AND COMMUNICATION 

Large cargo ships have resulted in a decrease in the cost of transporting goods between countries. Oil has become cheaper, making global shipping of goods less expensive. Economies of scale mean the cost per item can reduce when operating on a larger scale. Transport improvements also mean that goods and people can travel more quickly. The internet and mobile technology have allowed greater communication between countries. People in one country can now order products online or on the telephone to be delievered to a different country, this had made globalisation so much easier.

INCREASED SIGNIFICANCE OF TRANSNATIONAL CORPORATIONS

A transnational corporation is a business that is registered and operates in more than one country at a time but selling the same products. This differs from a multinational corporation which still operates in different countries but tends to glocalise its products.
Many large organisations have taken advantage of lower trade barriers, labour mobility and cheaper transportation to grow rapidly and enter previously untapped markets.

INCREASED INVESTMENT FLOWS (FDI) 

Investment flows are the movement of money for the purposes of trade or production. Globalisation has facilitated such trading across countries, allowing businesses to more easily access funds to invest growth in new and emerging markets.

The greater freedom of movement of capital enables businesses to invest outside their country of origin. This may lower their own costs of production especially for MNC's who typically increase investment flows by building factories and other facilities in other countries. They may also improve economic prospects and job opportunities in that country because of this. Cross-country mergers, takeovers and partnerships can also increase investment flows.

 

MIGRATION WITHIN AND BETWEEN ECONOMIES





As transport between countries has become cheaper, quicker and less regulated, globalization has encouraged workers to move around to find the best jobs and pay for their skill set. Economies such as the US are based on people looking for better opportunities. The relatively high level of migration into the UK became an important factor in the electorate's decision to vote for 'Brexit' in June 2016.

 

GROWTH OF THE GLOBAL LABOUR FORCE

Growth, in terms of quantity and quality has led to a diverse international workforces globally.

In many economies, such as the UK, we are seeing low skilled foreign workers employed in industries that do not require high rate of human capital. Countries like India have low labour costs yet high skilled workers in the IT sector. Offshoring is the practice of basing some of a company's processes or services overseas, so as to take advantage of lower costs. Labour-intensive industries such as clothing can take advantage of cheaper labour costs in emerging economies, in order to lower unit costs.

 

STRUCTURAL CHANGE

Structural change is an economic condition that occurs when an industry changes the way it operates. As a country develops it moves away from primary sector business and employment (agricultural) to manufacture as it becomes industrialised. It can further develop into a knowledge economy - such as the UK - which specializes in tertiary businesses such as banking, IT, services and insurance. The countries that are able to pull themselves out of poverty are those that move away from the primary sector (agriculture). The economy grows as there is more productivity in the secondary sector - manufacturing increases and not income rise.