FMG 3131- Handout VI-Globalization-2015.ppt

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  • Globalization

  • Learning outcomeAfter studying this chapter you should be able toUnderstand the term globalization and its characteristicsExplain the reasons for globalizationList out benefits and drawbacks of globalizationUnderstand the effects of globalization in developing countries

  • IntroductionGlobalization means the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. It increases the interdependence, connectivity and integration on a global level with respect to the social, cultural, political, technological, economic and ecological levels. Globalization is a process of interaction and integration among the people, companies, and governments of different nations.

  • IntroductionThis process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world.

    Globalization is not new. For thousands of years people have beentradinggoods and travelling across greatdistances. It has been moving at a fasterpace after World War II but has accelerated considerably since the mid-1980s, driven by two main factors. Technological advances Liberalization

  • GlobalisationGlobalisation could involve all these things!

  • DefinitionGlobalization means different things to different people.

    Deepak Nayyar (2001) defined globalization, simply, as the expansion of economic activities across political boundaries of nation States.

    International Monetary Fund :Growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services, free international capital flows, and more rapid and widespread diffusion of technology.

  • DefinitionWorld Bank: Globalization is the growing integration of economies and societies around the world..

    The shift toward a more integrated and interdependent world economy

    Two components:The globalization of marketsThe globalization of production

  • Key PlayersThey are-Multinational firms which carry out business across the national borders.

    The world trade organization (WTO) through which international trade agreements are negotiated & enforced

    The World bank & International monetary fund (IMF) are means to assist Govt in achieving development aims through the provision of loans, technical assistance.

  • Stages in GlobalizationDomestic company links with dealer & distributor.

    Company does the activities on its own. Company begins to carryout its own manufacturing , marketing & sales in the foreign markets.

    Company starts developed operations including business systems and R&D. At this stage the managers are expected to perform the tasks which they were doing in domestic markets to replicate them in foreign markets.

  • Conditions for globalizationBusiness Freedom-No unnecessary Government restrictions like restriction, restrictions on sourcing of funds and other factors from abroad. Hence the liberalization is the 1st step towards facilitating globalization.

    Facilitators-Infrastructure facilitation available at home country an help entrepreneurs go globally.

    Government support Government support available in the form of policy & procedure reform encourage globalization

  • Characteristics Borderless - Globalization is about an increasingly borderless world and its societal consequences. Information Technology changes - Increase in information flows and greater transporter data flow between geographically remote locations.

    International cooperation - The increasing of the multinational corporations, regional and global organizations leads to the members of the international community expanding from a single nation to the transnational corporations, international organizations, and international non-governmental organizations.

  • Characteristics Mobility - The characteristic of globalization given more mobility and less transport costs means per definition more competition and more dynamism.

    Talents mobility and integration - Globalization has increased the growth of the multinational corporations, and also brought the talent mobility and integration. More and more personnel dispatched by the corporations to the branches in other countries, and they learn and share the experience.

    Cultural diversity - Because of the globalization and new technology, it has been found that cultural diversity reflects on the food, music, art, life style, customs and race.

  • Reasons for globalizationTechnology: Faster and cheaper technology in the digital global economy of the Internet era has broken the national barrier of time and space. So integration of national markets has been facilitated with ease.

    A reduction in protection in the world economy: This means a reduction in protectionist measures to limit world trade. Tariffs, quotas and other trade-curbing factors have been reduced.

    A reduction in international capital movement restrictions: This has made it easier to trade and move capital between countries. This has meant that foreign direct investment can flow easier between countries.

  • Reasons for globalizationA fall in transport costs: Economies of scale and bulk distribution of products have meant that products are cheaper to ship around the world. This has meant products have been able to reach consumers and producers worldwide.

    Liberalization of domestic markets: More countries have become more willing to receive FDI from developed economies and in forming business partnerships with multinational companies. This includes joint ventures, sponsoring and franchising.

  • What Is Globalisation?Globalization is the process by which the world is becoming increasingly interconnected as a result of:

    increased contact between people and nations throughout the world through various forms of cooperation and exchange such as trade cultural exchange political cooperation across national bordersscienceetc. Globalization is the result of:

    Technology which make it possible for people, goods, money and information and ideas to travel the world much faster than ever before

    and the liberalisation (1) of world markets, making it much easier to trade across national boundaries Globalisation has been taking place for hundreds of years, but has speeded up enormously over the last half-century

    1 - Liberalization of world markets involves less restrictions on trade

  • Factors Influencing Globalisation Factors influencing globalisation include: Communications: Cable TV, personal computers, telephony and the Internet have created a global village, tying the world closer together. Businesses in the western world can have a call centre in India answering calls from western customers. Transport has become cheap and quick. People, especially in the western civilization, travel all over the worldPeople from other countries can travel to the west to seek better-paid jobs. Businesses can more easily ship products and raw materials all over the world - making products and services from all over the globe available to customers. Trade liberalisation: Governments around the world have relaxed laws restricting trade and foreign investmentCountries in the developing world have opened up their countries to western businesses and investmentSome governments offer grants and tax incentives to persuade foreign companies to invest in their country. The idea is that there should be no restrictions on trade between countries is known as free trade or free market capitalism.Free trade involves a minimum of government intervention to regulate trade such as taxes on imported goods and services, quotas on imported goods and services, and subsidies Protectionist trade policies involve government intervention in the market by regulating prices on goods and services and supply restrictions. Such government interventions generally increase the cost of goods and services to both consumers and producers. Interventions include subsidies, taxes on goods and services, and other laws regulating the economic market and investments by for example by domestic and foreign companies

    Although globalisation probably is helping to create more wealth in developing countries it is not helping to close the gap between the world's poorest countries and the world's richest.

  • Multinational Corporations (MNC) or Transnational CorporationsForeign investment in another country: Globalisation has resulted in many businesses setting up or buying services in other countries. When a foreign company invests in a country, perhaps by building a factory or a shop.

    Multinational corporations or transnational corporations: Companies that operate in several countries are called multinational corporations (MNCs) or transnational corporations (TNCs)These companies are in constant competition with one another to expand into new markets and increase their profits

    McDonald's, the US fast food chain is a large MNC:

    McDonalds has nearly 30,000 restaurants in 119 countries

    Brand names like Nike, Kellogg's, Microsoft, Sony, Adidas are recognised almost everywhere in the world (see next slide)

    Most MNCs come from developed countries: The majority of MNCs come from more economically developed countries (MEDC) such as the US and UK. Multinational corporations invest in other MEDCs - the US car company Ford, for example, makes large numbers of cars in the UK. But MNCs also invest in less economically developed countries - for example the British DIY store B&Q now has stores in China.

  • Multinational Corporations

  • Factors Attracting MNCs to a CountryCheap raw materials Cheap labour supplyGood transport Access to market, where the goods are sold Friendly government policies Countries: India, South America Asia in general

  • Positive Impacts of Globalisation

    Improved standard of living: Investment by MNCs helps countries by providing new jobs and skills for local people.

    More wealth to local economies: MNCs bring wealth / foreign currency to local economies when they buy local resources, products and services - providing resources for education, health and infrastructure.

    Cultural exchange and contact: There is far more mixing of people and cultures from all over the world, enabling more sharing of ideas, experiences, and lifestyles. People can experience foods and other products not previously available in their countries. In this way globalization may diminish cultural barriers between people, and make people more open-minded to other cultures and knowledgeable.

    Greater awareness: Globalisation can help make people aware of events in far-away parts of the world. For example, people in Norway were quickly aware of the impact of the 2004 Tsunami tidal wave on countries in South East Asia, and were therefore able to send help rapidly.

    Global cooperation/aid: It may help make people more aware of global issues such as Global warmingPovertyHuman traffickingTerrorism, etc. and alert them to the need for sustainable development (brekraftig utvikling).

  • Negative Impacts of GlobalisationHowever not all people think that globalisation is such a great idea. Critics include many different groups such asenvironmentalists, anti-poverty campaigners and trade-unionists.

    Some of the negative impacts they point to are:Exploitation of developing countries: Globalisation operates mostly in the interests of the richest countries which continue to dominate world trade, and at the expense of developing countries - whose role in the world market is mostly to provide the North and West with cheap labour and raw materials.

    Unemployment and ousting of local businesses: There are no guarantees that the wealth from inward investment will benefit the local community. Often, profits are sent back to the MEDC where the MNC is based. Multinational companies, with their massive economies of scale, may drive local companies out of business. If it becomes cheaper to operate in another country the MNC might close down the factory and make local people redundant.

    Violation of international laws: Lack of strictly enforced international laws means that MNCs may operate in a way that would not be allowed in an MEDC - for example polluting the environment, running risks with safety or imposing poor working conditions and low wages on local workers.

    A threat to cultural diversity: Globalisation is viewed by many as a threat to the world's cultural diversity - drowning out local economies, traditions and languages and re-casting the whole world in the mould of the capitalist North and West. An example is that a Hollywood film is far more likely to be successful worldwide than one made in India or China, which also have thriving film industries.

    Anti-globalisation campaigners sometimes try to draw people's attention to these points by demonstrating against theWorld Trade Organisation, an inter-governmental organisation which promotes the free-flow of trade around the world.

  • International Organizations Aiding Economic GlobalizationInternational business is aided by a number of international organizations:

    World Trade Organization (WTO)The International Monetary Fund (IMF)World Bank

    These international organizations help smooth the way for international business

  • Anti-Globalization MovementGlobalization has set off hostile reactions among many people around the world

    These people are often referred to as the anti-globalization movement

    This is a misleading term, however, as most of these people are not against bringing the peoples of the world closer together. On the contrary these work hard to unite people from all over the world to:

    Oppose the effects of an international economic system which they believe is destructive

  • Fears Held by Anti-Globalization CriticsLocal cultures and languages are destroyed by an international corporate consumer culture which often uses English as a lingua franca

    The un-ending and explosive economic growth is badly damaging the ecology of the planet and using up resources at the expense of local populations and future generations

    The gap between the rich and poor nations is widening because international companies force weaker and poorer nations to accept trade conditions that favour the rich

    That WTO, IMF and the World Bank create trade conditions that benefit rich countries at the expense of individuals in the poorer countriesCheap labourChild labourLong working hoursBad working conditions

  • Defenders of GlobalizationDefenders of globalization argue that:Since 1985 the number of people living on less than 1 dollar a day has been halved

    Life expectancy in the developing wolrd has doubled since WWII

    In 1960 56% of the worlds population lived in nations with less than 2200 calories of food per day. Today it is only 10%

    Between 1950 and 1999, the number of people in the world who can read and write increased from 52% to 80%

    Differences in income in the world have been reduced over the past decades

  • The Financial Crisis Now What?Economic globalization to blame?

    More restrictions put on trade between nations?

    Protectionism Increased subsidies on locally produced commodities?Increased taxes on imported commodities?Restrictions on imported commodities?How will this affect developing countries?The level of consumption in both developed and developing countries reduced

    Businesses facing bankruptcy

    Increased unemployment around the world This is happening at this very moment in:Norway, Iceland, USA, and Asia + many other countries

  • By Nina Sandstrm AngelsenSelbu videregende skole

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