413 Factors Contributing to

Increased Globalisation A Level Edexcel New Specification

2015 Business By Mrs Hilton for

From the specification

a) Reduction of international trade barriers/trade liberalisation b) Political change c) Reduced cost of transport and communication d) Increased significance of global (transnational) companies e) Increased investment flows (FDI) f) Migration (within and between economies) g) Growth of the global labour force h) Structural change

Guidance from Edexcel

Lesson Objectives

• To be able to discuss factors which contribute to increased globalisation such as; reduction of trade barriers, political change, reduced costs, global companies, FDI, migration, global labour force and structural change

• To be able to answer sample exam questions based on the topic area

Starter

• Think you know about globalisation?

• Try this online test here

Drivers for international business

• A business will seek to make profit, increase sales, and it can do this with no further development costs by selling existing products to new markets abroad

• Even the BBC sell their programs round the world – Korea are great fans of Dr Who!

Korea will be the first international stop for the Doctor Who World Tour.

REDUCTION OF INTERNATIONAL TRADE BARRIERS/TRADE LIBERALISATION

Trade liberalisation

• Definition: Trade liberalisation is the process by which international trade is made easier through a relaxation of the rules which govern it

• Governments have long taken an interest in imports to their countries. They seek to restrict the availability of items seen as harmful or dangerous

• They might wish to stop imports which will compete with state monopolies or industries with political influence.

• Placing an import tax (tariff) on products reaching the country was a significant source of income when governments were inefficient at taxing their own people, but now not so necessary

• Embargoes (total bans) or quotas (fixed maximum quantities of imports) are also used, either for economic or political reasons

Trade liberalisation

• Trade liberalisation is the process of taking down the barriers to trade between nations, removing quotas and tariffs

• Makes markets more competitive • Creates opportunities for business • Consumers ultimately benefit because

liberalised trade can help to lower prices and broaden the range of quality goods and services available.

• Companies can benefit because liberalised trade diversifies risks and channels resources to where returns are highest.

• When accompanied by appropriate domestic policies, trade openness also facilitates competition, investment and increases in productivity

If G20 economies reduced trade barriers by 50%, they could gain:

More jobs: 0.3% to 3.3% rise in jobs for

lower-skilled workers and 0.9 to 3.9% for higher-skilled workers, depending on the

country.

Higher real wages 1.8% to 8% increase in real wages for lower-skilled workers and 0.8% to 8.1% for higher-skilled workers,

depending on the country.

Increased exports: All G20 countries would see a boost in exports if trade barriers were halved. In the long run, many G20 countries could see their

exports rise by 20% and in the Eurozone by more than 10%.

From the OECD

The Organisation for Economic Co-operation and Development (OECD) organisation of 34 countries formed in 1961

to stimulate economic growth and world trade

Globalisation

• After WW2 Western economic integration grew in response to a dynamic new world demand for goods and services

• MNEs have driven globalisation by growing and organising themselves into transnational networks

• This is in response to intense international competition driving the need for strategic and collaborative links between companies

• In a globalising world economy national boundaries are reduced and barriers to trade are removed (trade liberalisation) to the benefit of consumers

• Video from WTO here (try not to laugh at pronunciations)

World Trade Organisation

• Encouraged by reduction of trade barriers by WTO (World Trade Organisation)

• Exists to reduce barriers to trade and to ensure that countries keep to the agreements they have made

• The organisation also deals with complaints between members, organising negotiations and, if necessary, making judgements against a country

• WTO agreements can mean that customs unions and single markets must sometimes reduce their external barriers to trade

• It encourages trade liberalisation by operating a system of trade rules and by providing a forum for the negotiation of trade disputes

• Watch the video “trade matters to me” on this page here

POLITICAL CHANGE

Political change

• How has political change led to globalisation?

• Politics used to be carried out by individual governments who wanted to protect the interests of their country.

• Politics now happens on a global scale with regular meetings between heads of state, summits, power devolved to governments in trading blocs such as the EU and organisations such as the WTO.

• What has the impact of political change been on business?

• This has lead to less protectionist policies (tariffs quotas etc) and more open trade between nations. The planet is now one market.

The picture above shows: The 35th Ordinary meeting of the Summit of the Heads of State and

Government of the Southern African Development Community (SADC) was

held at the Gaborone International Convention Centre in Gaborone,

Republic of Botswana 2015

The theme this year was the acceleration of industrialisation in the

region.

Name all the leaders and their country

Who are these two and what are they discussing?

Which countries and which group?

What group is this?

What is this and where is it?

Last one – what group is this?

REDUCED COST OF TRANSPORT AND COMMUNICATION

Reduced cost of transport and communication

• How has the reduced cost of transport and communication led to globalisation?

Communications. Television, mobile phone technology and the internet have allowed information and ideas to travel quickly. UK businesses can have a call centre in India answering calls from UK customers. Transport has become cheap and quick. UK citizens can now go on holiday all over the world. People from other countries can travel to the UK to seek better paid jobs. Businesses can ship products and raw materials all over the world more easily - making products and services from all over the globe available to UK customers.

• What has the impact of the reduced cost of

transport and communication been on business? Large containers now means that it is possible to reduce costs so that UK business can produce goods overseas and still be competitive

INCREASED SIGNIFICANCE OF GLOBAL (TRANSNATIONAL) COMPANIES

Increased significance of transitional companies

• How has the increased significance of transnational companies led to globalisation?

• Transnational flows of goods and capital have driven globalisation during recent years. These flows have been made possible by the gradual lowering of barriers to trade and investment across national borders, thus allowing for the expansion of the global economy.

• TNCs use cheap labour in LEDCs such as China or Africa to mass produce goods for a global market. TNCs spread globalisation through heavy global advertising.

• What has the impact of the increased significance of transnational companies been on business?

• The lack of minimum wage means this keeps costs low, which gives the TNC productive efficiency and high profits. They use this to invest in new technology and product innovation to crush the competition. Domestic businesses fail to flourish in the same industries; beverages, consumer electronics, fast food and apparel.

Revenue of the big 4*match the revenue to the company

• Revenue$182.75 billion

• Revenue $25.3 billion

• Revenue $46.854 billion

• Revenue $28.1057

GDP of poorer nations

How do these GDP figures compare with the revenue figures of the TNCs?

INCREASED INVESTMENT FLOWS (FDI)

FDI increased investment flows

• How has FDI led to globalisation? • Businesses outside of an important market trading blocs will invest

in a business or set up production inside the trading bloc to get round tariffs. For example Honda, Nissan and Toyota manufacturing in the UK. This has lead to globalisation, more companies in more countries.

• What has the impact of FDI been on business? Can have a damaging effect on domestic producers, competition and possible loss of production for domestic rivals, loss of control over key industrial sectors.

• Positive impact: Can give a country income generation, jobs, GDP growth, skills transfer, and the local businesses will experience the multiplier effect etc.

• Video animation here on Africa and FDI here

MIGRATION (WITHIN AND BETWEEN ECONOMIES)

Migration

• How has migration led to globalisation? • Many countries maintain extensive legal barriers to prevent

foreigners seeking work or residency from entering their national borders.

• Immigration policies across the world are becoming stricter as governments attempt to minimize the economic, cultural, and security impacts of large movements of people between nations.

• EU there is free movement of people between nations to work

• What has the impact of migration been on business? • Many TNCs move to LDCs and therefore are moving the jobs to the

migrants rather than the other way round. • Immigration provides a source of low income workers for the host

nation as well as a pool of young able bodied skilled workers e.g. nurses

STRUCTURAL CHANGE

Structural Change

• How has structural change led to globalisation? • Rise of new economic powers has been driven by a shift for LDCs to

secondary sector activities from primary activities such as mining and agriculture.

• What has the impact of structural change been on business?

• Manufacturing is often labour intensive which generates jobs income and demand for the nation

• Examples are Japan in the 1960s went through a period of industrialisation followed by Taiwan, Singapore and now China.

• Video on the impact of structural change for Turkey a move away from farming and into manufacturing here

Sample question 1

10 marks – requires a conclusion – assess in this question means weigh up and give an opinion about benefits ONLY. Case study on next slide

Knowledge 2 Marks

Application 2 Marks

Analysis 3 Marks

Evaluation 3 Marks

Answer question 1

How to Level question 1

Sample question 2

12 marks

Answer question 2

e.g. impact on economy such as consumer choice/prices, jobs, Brazilian businesses and government taxes e.g. 2000 jobs created, income generation leading to economic growth. e.g. Technology and skills transfer from ZTE may lead to improved domestic businesses and economic growth in Brazil. e.g. damaging effect on domestic producers, competition and possible loss of production for domestic rivals, loss of control over key industrial sectors. e.g. employment created may be only temporary or of menial variety, profits repatriated, limited technology and skills transfer. May depend if the FDI is short or long term and how extensive it is

Sample question 1

6 marks

3 marks max per reason

Why does the Croatian Govt. offer money for FDI?

Read case on next slide

Why You Should Choose to Invest in Croatia Strong Points Croatia has a number of strong points: • An advantageous geographical location along the Adriatic Sea; • A skilled multilingual workforce; • Good quality infrastructures: Croatia continues to invest heavily in transportation,

telecommunications and energy infrastructures. Weak Points Croatia still has to face a number of challenges in order to become competitive: • the country suffers from certain structural weaknesses amongst which are the

current account imbalance, a significant private foreign debt and a trade deficit • the country also has an image problem. It is more known for tourism than as and

investment opportunity. Croatia is also suffering from a backlash of years of war; • the legal and administrative systems are slow and could use some improvement.

Government Measures to Motivate or Restrict FDI Croatia is open to foreign investment. The government has committed itself to increasing foreign investment and has taken measures to improve the investment climate in the country, for example, depending on the type of activity (manufacturing, technology centres, supporting services), through tax reductions and employment incentives. Amongst the main measures established by the government, in particular: • Equal treatment of nationals and foreigners; • Low company administrative fees; • Laws protecting intellectual property.

Answer question 3

Revision Video

Glossary

Liberalisation; The removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of both tariff (duties and surcharges) and non-tariff obstacles (like licensing rules, quotas and other requirements). Transnational; A multinational company that works across national boundaries FDI; Foreign Direct Investment is a controlling ownership in a business enterprise in one country by an organisation or business based in another country. Migration; Human migration is the movement by people from one place to another with the intention of settling temporarily or permanently in the new location. Structural change; refers to a long-term shift in the fundamental structure of an economy, which is often linked to growth and economic development. For example a primary sector nation (farming, fishing etc.) moves into becoming a secondary sector nation through manufacturing.