Globalisation
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Globalisation
Quick Summary
- Globalisation = countries becoming economically integrated through cross-border movement of people, goods/services, technology, and finance.
- It's not new — it's existed for centuries — but it has sped up massively in the last 50 years thanks to technology.
- Four main causes: reduced trade barriers, reduced transport costs, reduced communication costs, and the growth of multinational corporations (MNCs).
- Globalisation affects six stakeholder groups differently: individual countries, governments, producers, consumers, workers, and the environment.
- It brings real benefits (lower prices, more choice, jobs, rising incomes) but also real costs (inequality, exploitation, pollution, tax avoidance).
- MNCs (multinational corporations) are businesses with production in 2+ countries — they are both a cause and a symptom of globalisation.
- FDI (Foreign Direct Investment) is how firms actually go multinational — buying more than 10% ownership of a foreign firm, often through mergers, takeovers, or joint ventures.
1. What Is Globalisation?
The Definition, Unpacked
Officially: Globalisation is the economic integration of different countries through increasing cross-border movement of people, goods/services, technology and finance. That's a mouthful, so let's break it into everyday language.
Think about your phone. It was probably designed in one country, has a chip made in another, was assembled in a third, and is now being sold to you in a fourth. That entire journey — ideas, money, workers, and goods flowing freely across borders — is globalisation in action. Fifty years ago, this simply wasn't possible at this speed or scale.
Not New — Just Faster
A common misconception is that globalisation "started" with the internet. Wrong — traders have crossed oceans for hundreds of years (think of the Silk Road, or European colonial trade). What's changed isn't that globalisation began recently — it's that the speed and depth of global connections have exploded, making countries far more interdependent (reliant on each other) than ever before.
This has real, visible effects: it has spread cultures and ideas, sped up industrialisation in developing nations (factories and manufacturing growing), and simultaneously caused de-industrialisation in developed nations (their factories close as production shifts abroad to cheaper locations).
Explain, using an example, why globalisation is described as "not a new phenomenon" but has accelerated in the last 50 years.
2. The Causes of Globalisation
Four big forces have driven globalisation's rapid rise. Picture them as four "gates" that used to be closed (or expensive to pass through) and have gradually swung open.
1. Free Trade / Trade Liberalisation
The World Trade Organisation (WTO) has become far more effective at negotiating trade agreements between countries. This means countries are increasingly open to free trade — reducing or removing tariffs (taxes on imports) and quotas (limits on how much can be imported). When it's cheaper and easier to sell goods abroad, firms naturally start doing exactly that.
2. Reduced Cost of Transport
Lower transport costs let businesses move far larger volumes of goods internationally. The classic example is containerised shipping — standardised metal containers that can be stacked on ships, moved directly onto trains or trucks, and loaded/unloaded quickly. Before containerisation, loading a ship was slow and expensive; now, huge volumes of goods can cross oceans cheaply.
3. Reduced Cost of Communication
Technology like Skype, WhatsApp, and WeChat means a business owner in Kenya can instantly video-call a supplier in Vietnam for free. This has made it dramatically cheaper and easier for firms to connect, coordinate, and promote themselves globally — no expensive international phone calls or slow letters required.
4. Growth & Influence of MNCs
Multinational corporations (MNCs) expanding their operations across borders is itself both a cause and a consequence of globalisation — the more MNCs grow, the more interconnected the world's economies become. (We cover MNCs in full detail in Section 4.)
A business wants to expand its supply chain internationally. Explain two reasons why this has become easier over the past few decades.
3. The Impacts of Globalisation
This is the part examiners love to test, because it's rarely simple. Globalisation isn't "good" or "bad" — it creates winners and losers, and who wins or loses depends on which stakeholder group you're looking at. Always structure your answers stakeholder-by-stakeholder: individual countries, governments, producers, consumers, workers, and the environment.
Advantages, By Stakeholder
| Stakeholder | Advantage & Example |
|---|---|
| Individual countries | Developing countries hosting global companies gain taxes and jobs. E.g. China's growing middle class rose from 3% (2000) to over 50% (2023) of the population. |
| Governments | Higher tax revenue from hosting global firms → more spending on healthcare, education, infrastructure. |
| Producers | Access to huge markets → higher output → lower costs from economies of scale. E.g. Procter & Gamble operates in 180+ countries. |
| Consumers | More competition → lower prices and greater choice. E.g. L'Oréal offers 36 global brands across 150 countries. |
| Workers | Labour mobility eases staff shortages and raises wages in developing countries. E.g. Mattel manufactures in China, accessing low-cost worker expertise. |
Disadvantages, By Stakeholder
| Stakeholder | Disadvantage & Example |
|---|---|
| Individual countries | Rising inequality between rich and poor countries. Low trade-union membership in developing nations → worker exploitation. Deindustrialisation in developed countries as industries relocate — e.g. the UK textile industry outsourcing to SE Asia, causing structural unemployment. |
| Governments | Tax avoidance — MNCs use offshore accounts and international loopholes. Some firms have revenue higher than a host nation's entire GDP, giving them monopoly power to influence laws. |
| Producers | Small local firms struggle to compete with established global firms — pushing them out of business and reducing competition. |
| Consumers | Cultural globalisation — Western values and global brands (Coca-Cola, Nike, Apple) can erode local cultures. |
| Workers | Poor working conditions and low wages in sweatshops (often 12-hour shifts, 6–7 day weeks). MNCs are "footloose" — they can relocate factories at will, increasing regional unemployment. |
| Environment | Firms move production to countries with weaker environmental laws. Rising global demand fuels global warming and resource depletion — e.g. deforestation in Indonesia for palm oil destroys 45,000 hectares of forest per year. |
Discuss whether globalisation benefits workers in developing countries more than it harms them. (Think about at least two effects on each side.)
4. Multinational Corporations (MNCs)
What Actually Makes a Firm "Multinational"?
A multinational corporation (MNC) is a business that has production facilities in two or more countries. That's the crucial word — production. It's not enough to just sell products abroad (that makes you an exporter) or buy from abroad (that makes you an importer). You need actual operations/manufacturing happening in more than one country.
Well-known real-world MNCs include BP, General Electric, McDonald's, FedEx, Lego, Starbucks, H&M, HSBC, Samsung, Toyota — you'll recognise nearly all of these from daily life, which is exactly the point: MNCs are everywhere because globalisation has made cross-border operation the norm, not the exception.
Foreign Direct Investment (FDI)
FDI occurs when investment by a foreign firm results in more than a 10% share of ownership of a domestic firm. This 10% threshold matters — below it, it's usually just a portfolio investment (buying shares as an investor); above it, the foreign firm has real influence and control, which is what makes it "direct" investment rather than passive investment.
Businesses typically grow into other countries through FDI via:
- Mergers — two firms combining into one
- Takeovers — one firm buying control of another
- Joint ventures — two firms from different countries creating a new business together
Inward vs. Outward FDI
Outward FDI = a domestic business expands its operations into a foreign country (money flowing out).
Example of inward FDI: in 2017, Kenya opened the Kenya Standard Gauge Railway Line, built by Chinese investors — foreign money flowing into Kenya's infrastructure. Example of outward FDI: Dyson (a UK company) moved its manufacturing to Malaysia, China, and the Philippines — UK money and operations flowing outward.
Crucially, the impact of FDI on economic growth depends on how it happens. This is a subtle but important point examiners like to test: Chinese firms investing overseas often bring their own employees and send all profits back home, meaning the host economy benefits less. Indian firms investing overseas tend to hire local employees and reinvest more profit into the host country — so the same £1 million of FDI can have very different effects on a local economy depending on the investor's approach.
Case Study: Why Nike Grew Into an MNC
| Reason | How It Applies to Nike |
|---|---|
| Economies of scale | Manufacturing in lower-labour-cost countries like Vietnam increases output and lowers unit costs. |
| Access to resources | Sources rubber, leather, and textiles from Thailand, Malaysia, India, and Brazil. |
| Lower transport costs | Distribution centres placed near key markets across continents; Vietnam has good transport hubs. |
| Lower communication costs | Uses technology to coordinate production sites worldwide. |
| Access to new consumers | Tailors products by region (baseball gear in the USA, football kit in Europe, cricket gear in Australia). 57% of Nike's sales in 2022 came from outside the USA. |
Distinguish between inward FDI and outward FDI, giving an example of each.
5. Evaluation: Advantages & Disadvantages of MNCs and FDI
This is the "evaluate" section examiners reward heavily for balanced analysis. MNCs and FDI have real power to generate economic growth — more economic activity, employment, and output — but that power cuts both ways.
| Advantages | Disadvantages |
|---|---|
| Access to raw materials/cheap labour → lower costs → lower prices for consumers | Damage to local habitats/environment during production — e.g. Shell's track record of oil pollution in vulnerable communities in Nigeria; resource depletion from extraction |
| Job opportunities and local economic growth; training & development programmes build worker skills | Unsightly production facilities left behind once resources are extracted (e.g. abandoned open mines) |
| Investment improves infrastructure — better roads, water, electricity access for the local community | Profits often repatriated (sent back) to the home country rather than staying local |
| MNCs pay taxes and business rates to local councils/authorities, which can fund local reinvestment | Tax avoidance strategies — e.g. in 2016 Apple used tax loopholes in Ireland to pay minimal tax, reducing potential government revenue |
| Investment in capital assets — e.g. Samsung Electronics building manufacturing plants and R&D centres across Vietnam | — |
"Governments should always welcome MNCs into their country." To what extent do you agree with this statement?
What to Memorise
Concepts Checklist
Exam Tips
- 5. Evaluation: Advantages & Disadvantages of MNCs and FDI
- 4. Growth & Influence of MNCs
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