Globalisation (CIE IGCSE Economics)

• Globalisation is the economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology & finance
• This integration of global economies has impacted national cultures, spread ideas, speeded up industrialisation in developing nations & led to de-industrialisation in developed nations
• Globalisation has been increasing for thousands of years - it is not a new phenomenon
• Improvements in technology & 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

1. Increasing foreign ownership of companies	2. Increasing movement of labour & technology across borders
3. Free trade in goods/services	4. Easy flows of capital (finance) across borders

• 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 & the number & size of MNCs continues to increase
• There are advantages & disadvantages linked to the economic activity of MNCs, both in their home country as well as in their host country

The Advantages & Disadvantages of MNCs

 
The Advantages of MNCs

1. Economies of scale: as they operate globally they are able to increase their output & 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 & do not bring the profit back home
3. Create employment: new jobs are created in host countries each time a new facility is setup & this raises income which helps to improve the standard of living in that country
4. New markets: MNCs can identify potential markets & 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 & by doing so, they avoid the measures e.g. A Chinese MNC may setup in the USA & produce there, thus avoiding import tariffs on  their products exported from China to the USA

 
The Disadvantages of MNCs

Worker exploitation	Resource plundering	Political power
Many MNCs provide poor working conditions & pay very low (sweatshop) wages	Many MNCs extract large quantities of host nation natural resources providing very little compensation/payment	Many MNCs enjoy revenue that is higher than the GDP of the host nation & this gives them immense political power which can be used to their advantage
Reduce competition	Lack of local knowledge/culture	Over reliance on MNCs for jobs
MNCs are so large that they can out-compete domestic firms in the host country. This puts many firms out of business & reduces competition in that country & may increase unemployment	This may result in problematic local relationships or flawed advertising campaigns or product offerings	Many developing nations have an over-reliance on MNCs to provide jobs for their citizens. If the MNC leaves it creates significant unemployment
Diseconomies of scale	Exchange rate fluctuations	Negative Externalities
The challenges of operating a business over different time zones & cultures can create significant diseconomies of scale	Unexpected exchange rate fluctuations can have severe impacts on the costs & profits of MNCs	MNCs are associated with many negative externalities of production in developing countries