1. Introduction to Globalisation
Globalisation is the increasing connection between countries through trade, investment, and the movement of labour and capital. It has led to a world where goods, services, people, and money flow more freely across borders. The key aspects of globalisation include increased trade, capital flows, labour mobility, and technology transfer.
Example:
One of the most well-known examples of globalisation is the iPhone supply chain. Apple sources parts from countries around the world—chips from Taiwan, screens from South Korea, assembly in China, and sells it globally. This example highlights how interconnected the world has become through trade and investment.
2. Factors Driving Globalisation
Several key factors have contributed to the growth of globalisation:
A. Advances in Technology
Technological improvements, such as better transportation and digital communication, have made it easier to conduct international business. The internet and technologies like container shipping reduce costs and make it faster to trade across borders.
Example:
E-commerce companies like Amazon and Alibaba are examples of how businesses have expanded globally. They use digital platforms to reach customers worldwide, and shipping technologies have helped deliver products faster and at lower costs.
B. Trade Liberalisation and Free Trade Agreements
As countries reduce tariffs (taxes on imports) and other trade barriers, the cost of international trade decreases, encouraging global business. Free trade agreements allow countries to trade without restrictions, making it easier for companies to operate internationally.
Example:
The European Union (EU) allows countries within the bloc to trade freely, without tariffs or trade restrictions. This promotes economic cooperation and makes it easier for businesses to access markets across Europe.
C. Growth of Multinational Corporations (MNCs)
Large companies, such as McDonald's, expand across the world. MNCs have the ability to set up factories, retail stores, or research centres in different countries, which helps to spread technology, investment, and jobs.
Example:
McDonald’s operates in over 100 countries, offering localised menus and creating jobs wherever it operates. This demonstrates the influence of multinational corporations in driving globalisation.
D. Capital Mobility and Foreign Direct Investment (FDI)
Globalisation has enabled the free flow of capital (money) and investment between countries. Firms can invest in foreign countries, which leads to the development of industries and infrastructure.
Example:
Tesla’s Gigafactory in China was set up to access the growing market for electric vehicles in China. This investment shows how companies can expand globally to take advantage of local market opportunities.
E. Labour Mobility and Migration
People move from one country to another for better job opportunities, contributing to globalisation. Skilled workers often migrate to countries with better job markets, while low-skilled workers may move to countries where wages are higher.
Example:
The Middle East attracts a large number of migrant workers from countries like India and Pakistan to work in construction and other industries. This movement of labour is a key component of globalisation.
F. Political and Economic Stability
Countries with political stability and strong economies attract businesses and investors. A stable environment encourages trade and investment, while instability can lead to deglobalisation.
Example:
Brexit, the UK’s decision to leave the European Union (EU), caused a lot of uncertainty and raised trade barriers. As a result, it reduced trade between the UK and other EU countries.
3. Benefits of Globalisation
A. Economic Growth and Higher Incomes
Globalisation helps countries access larger markets and more opportunities for investment, leading to economic growth and higher incomes.
Example:
China experienced rapid economic growth due to globalisation. The country opened up to international trade and investment, which allowed it to become a manufacturing powerhouse.
B. Greater Consumer Choice and Lower Prices
Globalisation allows consumers to choose from a wider variety of products at lower prices, as goods from all over the world are now accessible.
Example:
Electronics made in Asia are sold at affordable prices worldwide. This benefits consumers by providing them with cheaper options.
C. Access to Foreign Investment and Technology
Developing countries benefit from the technology and capital brought by foreign companies. This can improve local industries and create new jobs.
Example:
Vietnam has become a major hub for smartphone manufacturing, partly due to Samsung’s investment in the country. This investment has led to new technology and jobs in the region.
D. Specialisation and Efficiency
Globalisation allows countries to specialise in what they do best. By focusing on their comparative advantage, countries can become more efficient and produce goods at a lower cost.
Example:
Germany is known for producing high-end cars like BMW and Mercedes-Benz. By specialising in car manufacturing, Germany maximises its efficiency and profits.
E. Job Creation
Global trade and foreign investment create jobs in various industries, particularly in developing countries.
Example:
The rise of India’s IT industry has created millions of jobs. Many global companies, like IBM, outsource work to India, where labour costs are lower.
4. Costs of Globalisation
A. Income Inequality
While globalisation has brought prosperity to some, it has also led to widening income gaps. Not everyone benefits equally from globalisation.
Example:
In developed countries, many factory workers lose their jobs to countries with cheaper labour, leading to growing inequality in places like the US and Europe.
B. Environmental Damage
Increased production and trade can lead to environmental issues like pollution and deforestation. The desire for cheaper goods can sometimes overlook environmental costs.
Example:
Deforestation in Brazil’s Amazon is partly driven by global demand for soybeans, which are grown in the region.
C. Over-Reliance on Global Supply Chains
Globalisation has led to complex supply chains, making countries vulnerable to disruptions in trade and production.
Example:
The COVID-19 pandemic caused widespread disruption to global supply chains, leading to shortages of essential goods like medical supplies and electronics.
D. Loss of Cultural Identity
The global spread of Western brands and media can lead to a loss of local cultures and traditions.
Example:
Many traditional markets in countries around the world are now being replaced by Western fast food chains like McDonald’s and Starbucks.
E. Exploitation of Workers
Some companies take advantage of cheap labour in developing countries, leading to poor working conditions and low wages.
Example:
Workers in Bangladesh’s garment factories often face poor working conditions and low wages, despite the global demand for cheap clothing.
5. Deglobalisation: A Reversal of Globalisation
Deglobalisation refers to a reduction in international trade, investment, and migration. In recent years, some countries have become more protectionist, focusing on local production and less international cooperation.
6. Factors Causing Deglobalisation
A. Trade Wars and Protectionism
Countries impose tariffs and quotas to protect their local industries, leading to reduced global trade.
Example:
The US-China Trade War is an example of how protectionist policies can increase tariffs and disrupt global trade.
B. Nationalism and Political Changes
Political changes, such as the rise of nationalism, often lead countries to focus more on domestic industries and reduce international cooperation.
Example:
Brexit is another example, as the UK left the EU to regain control over its borders and reduce trade with EU countries.
C. COVID-19 and Supply Chain Disruptions
The pandemic exposed the vulnerabilities of global supply chains, causing countries to consider bringing manufacturing back home.
Example:
During the COVID-19 pandemic, countries scrambled to produce medical supplies locally rather than rely on international imports.
D. Rising Labour Costs in Developing Countries
As wages rise in countries like China, firms are relocating their operations to countries with cheaper labour.
Example:
Many companies are now moving production from China to Vietnam or India, where labour costs are lower.
E. Environmental Concerns
Countries are imposing regulations to address climate change and carbon emissions, limiting global trade in the process.
Example:
The EU’s Carbon Border Tax places tariffs on goods imported from countries with high carbon footprints.
7. Conclusion
Globalisation has shaped the world economy by increasing trade, investment, and labour mobility. It has led to economic growth, more consumer choices, and job creation. However, it also comes with costs, such as income inequality, environmental damage, and reliance on global supply chains. In recent years, we have seen signs of deglobalisation, with countries focusing more on protectionist policies and local production.
8. Discussion Questions
Define globalisation and explain how it has influenced international trade.
What are two key factors that have contributed to globalisation?
Identify one benefit and one cost of globalisation with real-world examples.
Why are some countries moving towards deglobalisation?
How has the COVID-19 pandemic impacted global supply chains?