Globalisation | Economics for GCSE/IGCSE - Year 11 PDF Download

Globalisation

• Globalization refers to the economic interconnection of various nations, facilitated by enhancing freedoms in cross-border movements of people, goods/services, technology, and finance.
• This global economic integration has significantly influenced national cultures, disseminated ideas, accelerated industrialization in developing countries, and prompted de-industrialization in developed ones.
• Globalization is not a recent phenomenon but has been evolving over thousands of years.
• Technological advancements and the rapidity of global communications have immensely escalated the level of interdependence among nations in the past five decades.
• Consumers now access products from worldwide sources, recognizing global brands regardless of their location.

The Four Main Characteristics of Globalisation

• Rising foreign ownership of companies signifies a growing trend in cross-border investment and ownership.
• The expanding movement of labor and technology across borders reflects increased globalization and interconnectedness among nations.
• Free trade in goods and services underscores the liberalization of trade policies and the removal of barriers to international commerce.
• Effortless flows of capital (finance) across borders denote the facilitation of cross-border investments and financial transactions, contributing to global economic integration.

Multi National Corporations (MNCs)

• A multinational corporation (MNC) is a business entity with production facilities operating in two or more countries, such as Apple.
• Globalization has facilitated an environment conducive to global business operations, resulting in the proliferation and expansion of MNCs worldwide.
• The economic activities of MNCs yield both advantages and disadvantages, impacting not only their home country but also the host country where they operate.

The Advantages of MNCs

• Economies of scale: MNCs benefit from increased output and reduced costs due to operating globally, leveraging economies of scale.
• Increased profit: A significant portion of their profits is repatriated to their home country. However, some MNCs maintain offshore accounts, retaining profits abroad.
• Create employment: Setting up new facilities in host countries generates job opportunities, elevating income levels and enhancing living standards.
• New markets: MNCs can explore and tap into potential markets, expanding their consumer base.
• Transportation costs: By establishing facilities closer to customers, MNCs can lower transportation expenses.
• Risk management: Diversifying sales across multiple markets reduces the impact of economic downturns in specific regions, enhancing stability.
• Tax incentives: MNCs can boost profits by operating in regions with low corporate taxes or by receiving tax breaks in the initial years of operation.
• Avoidance of protectionism: MNCs strategically position themselves in countries with protectionist policies to bypass trade barriers and tariffs, safeguarding their business interests.

The Disadvantages of MNCs

• Worker exploitation: Many MNCs are criticized for providing poor working conditions and paying low wages, often referred to as "sweatshop" labor.
• Resource plundering: MNCs often extract large quantities of natural resources from host nations with little compensation provided to the local communities.
• Political power: Some MNCs wield substantial revenue, surpassing the GDP of host nations, granting them significant political influence.
• Reduced competition: The size and dominance of MNCs can lead to the out-competing of domestic firms in host countries, reducing competition and potentially increasing unemployment.
• Lack of local knowledge/cultural understanding: MNCs may struggle with local relationships, flawed advertising, or product offerings due to a lack of understanding of local culture.
• Over-reliance on MNCs for employment: Many developing nations heavily rely on MNCs to provide employment opportunities, leading to significant unemployment if MNCs withdraw.
• Diseconomies of scale: Operating across different time zones and cultures can present challenges and inefficiencies for MNCs, leading to diseconomies of scale.
• Exchange rate fluctuations: Unexpected changes in exchange rates can significantly impact MNCs' costs and profits.
• Negative externalities: MNCs often produce negative externalities, such as pollution and environmental degradation, in the countries where they operate.