Globalisation of Markets

Transcription

1 Globalisation of Markets

2 Definition of globalisation (1) The geographic dispersion of industrial and service activities, for example research and development, sourcing of inputs, production and distribution, and the cross border networking of companies, for example through joint ventures and the sharing of assets Source: OECD

3 Definition of globalisation (2) The process through which an increasingly free flow of ideas, people, goods, services and capital leads to the integration of economies and societies Source: International Monetary Fund

4 Globalisation as a process that involves An expansion of trade in goods and services between countries An increase in transfers of financial capital across national boundaries including foreign direct investment (FDI) by multinational companies and the investments by sovereign wealth funds The internationalisation of products and services and the development of global brands Shifts in production and consumption e.g. the expansion of out sourcing and offshoring of production and support services Increased levels of labour migration The entry of countries into the global trading system including China and the former countries of the Soviet bloc

5 Globalisation as increasing interdependence Globalisation is making the world economy more inter dependent Most of the world s countries are dependent on each other for their macroeconomic health Many of the newly industrialising countries are winning a growing share of world trade and their economies are growing faster than in richer developed nations All countries have been affected by the credit crunch and decline in world trade, but many emerging market countries have slowed down rather than fall into a full blown recession

6 The main driver of globalisation Business is the main Hamish McRae driver of globalisation

7 Why business as the main driver? Multinationals want to increase sales, profits and shareholder value The barriers to international business are lower and falling Governments want to encourage domestic businesses to expand (flow of profits into domestic economy)

8 Other drivers of globalisation Rising living standards Digital communication Less protectionism Market liberalisation Lower transport costs Diverging consumer cultures

9 Example lower shipping costs Costs of ocean shipping have come down, due to containerisation, bulk shipping, and other efficiencies Helps to bring prices in the country of manufacture closer to prices in the export market

10 Example the death of distance Internet = lower cost of transmitting and communicating information Stimulated trade in knowledge products e.g. software, outsourced services Expressed in 2005 US dollars, the charge for a three minute New York London call has dwindled from $80 in 1950 to $0.23 in 2007

11 Alternative ways of going global Establish production sites overseas Licence technology & other IP Joint ventures Franchising Offshoring / outsourcing

12 What drives multinationals to expand? Higher profits and a stronger position and market access in global markets Reduced technological barriers to movement of goods, services and factors of production Cost considerations a desire to shift production to countries with lower unit labour costs Forward vertical integration (e.g. establishing production platforms in low cost countries where intermediate products can be made into finished products at lower cost) Avoidance of transportation costs and avoidance of tariff and non tariff barriers Extending product life cycles by producing and marketing products in new countries

13 Benefits for UK Economy Opportunities for UK businesses to trade and invest overseas Access to cheaper goods and services from emerging market countries leading to higher real incomes Opportunities to live, study and travel overseas Bigger export markets chance to exploit economies of scale More intense competition drives innovation and economic efficiency Globalisation has lifted hundreds of millions of people out of absolute poverty around the world The emergence of an extra one billion middle class consumers worldwide is a huge export opportunity for the UK Falling cost and rising speed of global communications and transport has helped to bring people closer together

14 Drawbacks for UK Economy Risks of increase in structural unemployment in industries / regions that lose demand to lower cost competition from overseas Globalisation may lead to rising income and wealth inequality Increase in global trade / output has an environment effect increased use of non renewable resources and CO2 emissions Globalisation of brands perhaps a loss of cultural diversity UK government has less control economy may become more vulnerable to external shocks Surge in inward migration of labour has brought economic and social tensions Globalisation contributed to the sharp fall in interest rates and widening trade imbalances that were part of the root cause of the credit crunch High food and fuel price inflation has hurt lower income families most

15 2009 De globalisation? A steep slowdown in world economic growth followed by a recession Unemployment worldwide forecast to rise by around 30m above 2007 s level Sharp fall in global trade in goods and services Worldwide FDI inflows shrank 21% in 2008 to $1.4 trillion A partial reversal of migrant flows and also remittances from migrant workers Evidence of a return towards economic nationalism and other forms of protectionism

16 Globalisation in the news Articles on globalisation from the Guardian Articles on the global economy (Guardian) Can China s frugal savers help her economy? (BBC news, July 2009) Global economic downturn in graphics (BBC news) Global recession (BBC news special reports) Globalisation and the wages of highly skilled workers (Economic Journal, July 2008) Globalisation is a benefit for the UK (Jim O Neill, Telegraph, July 2008) Goldman Sachs BRIC country analysis (research reports) World Bank World Development Movement World Trade Organisation World s cheapest car goes on sale (BBC news, April 2009)

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