A GLOBALIZED ECONOMY

UNIT 5

VOCABULARY• GLOBALIZATION• MULTINATIONAL

COMPANY• OUTSOURCING• EMERGING POWER• ASIAN TIGERS

• BRIC• GDP (gross domestic

product)

READ PAGE 52KEY

LANGUAGE

GLOBALIZATION

WHAT IS GLOBALIZATION?GLOBALIZATION

• It refers to the process of increasing interdependence of the world´s economies and societies.

CHARACTERISTICS

HUGE EXPANSION OF INTERNATIONAL

TRADE

BUSINESS CONCENTRATION

GLOBAL ORGANIZATION OF

PRODUCTION

OUTSOURCING

LARGE MULTINATIONAL

COMPANIES

GLOBALISATION

interconnected

massively increased trade and cultural exchange.

Increased the production of goods

and services.

multinational corporations with

subsidiaries in many countries.

It has speeded up enormously over the

last half-century.

Globalisation has resulted in:

increased international trade

a company operating in more than one country

greater dependence on the global economy

freer movement of capital, goods, and services

recognition of companies such as McDonalds and Starbucks in LEDCs

READ PAGE 53. ex 1b, 1 c

Transnational corporations When a foreign company invests in a country, perhaps by building a

factory or a shop, this is called inward investment.

Companies that operate in several countries are called multinational corporations (MNCs) or transnational corporations (TNCs).

The US fast-food chain McDonald's is a large MNC - it has nearly 30,000 restaurants in 119 countries.

The majority of TNCs come from MEDCs such as the US and UK.

Many multinational corporations invest in other MEDCs. The US car company Ford, for example, makes large numbers of cars in the UK.

TNCs also invest in LEDCs - for example, the British DIY store B&Q now has stores in China.

cheap raw materials

cheap labour supply good transport

access to markets where the goods

are sold

friendly government

policies

Factors attracting TNCs to a country may include:

It is a practice used by different companies to

reduce costs by transferring portions of work to outside

suppliers rather than completing it internally.

Outsourcing

Take a look to this video and

the map on page 54

GLOBALIZATION FACTORS

REASONS

Improvements in transportation

Freedom of trade - organisations like the World Trade

Organisation (WTO)

Improvements of communications - the internet and

mobile technology

Labour availability and skills - countries

such as India have lower labour costs and

also high skill levels.

Reduced legal restrictions in LEDCs.

Factors that encourage globalization include transport and ICT (information and communications technologies) developments.

Transport developments:

Container ships make transporting bulky goods quick

and easy.

Air transport means people and goods move quickly from one

place to another. In recent years the cost of air travel has

reduced.

ICT developments:

The internet allows people and businesses to communicate instantly.

Satellite communications allow a global view and communications links even in very

remote areas. They enable TV and telephone communications.

Mobile phones enable people to communicate and to access the internet

wherever they are.

Social networking brings people from all around the world in contact with one

another.PAGE 55. ex 1

WHAT ARE THE POSITIVEEFFECTS OF GLOBALIZATION?

Inward investment by TNCs helps countries by providing new jobs and skills for local people.

TNCs bring wealth and foreign currency to local

economies when they buy local resources,

products and services.

The extra money created by this investment can be spent on education,

health and infrastructure.

The sharing of ideas, experiences and

lifestyles.

Globalisation increases awareness of events in far-away parts of the

world.

Globalisation may help to make people more aware of global issues such as deforestation.

WHAT ARE THE NEGATIVE EFFECTS OF GLOBALIZATION?

Globalisation operates mostly in the interests of the

richest countries, which continue to dominate world

trade at the expense of developing countries.

The role of LEDCs in the world market is mostly to

provide the North and West with cheap labour and raw

materials.

There are no guarantees that the wealth from inward

investment will benefit the local community.

Transnational companies may drive local companies

out of business.

An absence of strictly enforced international laws

means that TNCs may operate in LEDCs in a way

that would not be allowed in an MEDC.

They may pollute the environment, run risks with

safety or impose poor working conditions and low

wages on local workers.

Globalisation is viewed by many as a threat to the

world's cultural diversity.

WHAT ARE THE EFFECTS OF GLOBALIZATION?

POSITIVE●Increase in global wealth●Growth and economic development in some countries.●Social progress: health and education

NEGATIVE●Unequal distribution of benefits●Poor countries marginalized in the global economy●Inequalities within countries (rural/urban areas)●States less able to control their own economy

PAGE 55. ex 3a

INTERNATIONAL INSTITUTIONS

WORLD BANK FMI WORLD TRADE ORGANISATION

Influence the global economy

THE ROLE OF INTERNATIONAL ECONOMIC INSTITUTIONS

Part of United Nations

THE ROLE OF INTERNATIONAL ECONOMIC INSTITUTIONS

PAGE 56. ex 1

G8 is a forum that brings together 8 global leaders to address

international issues and tackle the most pressing global challenges.

The Presidency of the G8 rotates each calendar year and the country

holding the G8 Presidency is responsible for hosting and

organising the annual summit, with a number of preparatory meetings

leading up to it.

The Group of Twenty is an international forum for the governments and central bank governors from 20

major economies. The EU is represented by the European

Commission and by the European Central Bank.

The G-20 is the latest in a series of initiatives aimed at international coordination of economic policy, which have

been prominent since the efforts during World War II to

create some form of international or global economic governance.

Collectively, the G-20 economies account for

around 85% of the gross world product (GWP), 80% of world trade (or, if excluding EU intra-trade, 75%), and

two-thirds of the world population.

WHAT ARE THE WORLD’S MAJOR ECONOMIC POWERS?

After the II WORLD WAR , UNITED STATES became the major economic power.

WHAT ARE THE WORLD’S MAJOR ECONOMIC POWERS?

Traditional powers

USA

JAPAN

EUROPEAN UNION

Emerging powers (BRIC)

BRAZIL

RUSSIA

INDIA

CHINA

Regional powers

Australia

the “Asian Tigers”

South Africa

Persian Gulf oil producers)

ECONOMIC POWERS

The rest are LEDCs (less economically developed

countries)They are found

in

Latin America

Asiasub-Saharan

Africa

PAGE 57. ex 1

WHO ARE THE TRADITIONAL ECONOMIC POWERS?

CHARACTERISTICSWorld leader companies

Entrepreneurial spirit

High investment in research that lead to high productivity

and competitiveness

Highly skilled labour force

Access to natural resources and energy

Flexibility

Foreign investment

Dollar as the most important world currency

Consumer society highest per capita income UNITED STATES OF

AMERICA

USA VERY HIGH CONSUMPTION Promotes

Production growth

At home

In other countries

They produce what US

buys

2 weak points of The USA

Families debt due to high consumption

TRADE DEFICIT (negative trade balance)

They import more than

export

JAPAN

• After the II World War JAPANESE MIRACLE• SINCE 1990 RECESSION• It is the 3rd largest economy in the world

5 pillars:

high industrial capacity

global exports

high levels of domestic savings

public investment

international financial markets

ECONOMY BASED ON

STRONG POINTS:

Varied industry (new thecnologies, automotive…)

Robotics (Toyotism)

Exports of manufactured products (price-quality relationship)

Second largest global investor

Yen currency used in international transactions

Equal distribution of wealth

Low unemployment rate

JAPAN

WEAK POINTS

Ageing population

Scarce natural and energy resources

THE EU ECONOMY

• Create an European economic space

OBJECTIVE

• It is the first in volume of trade• It is a great economic power.• Although we find different

economic situations and inequalities.

RESULT

• Economic growth, GDP per capita, worker productivity and technological development are lower than in the US or in Japan.

WEAK POINTS:

Who are the emerging economic powers?In economics, BRIC

is a grouping acronym that refers to the countries of Brazil, Russia, India and China, which are all deemed to

be at a similar stage of newly advanced

economic development.

EMERGING POWER:Is a term used as

recognition of the rising, primarily economic,

influence of a nation - or union of nations - which has steadily increased

their presence in global affairs. Such a power

aspires to have a more powerful position or role in international relations,

and possess sufficient resources and levels of development that such

goals are potentially achievable.

Refers to indiviudal countries or states (or a group of countries) that

have power within a geographic region.

The most relevant ones are

AUSTRALIA

ASIAN TIGERS OR DRAGONS

SINGAPORE

SOUTH COREA

TAIWAN

HONG KONG

REPUBLIC OF SOUTH AFRICA

Sometimes include into the BRIC group

(BRICS)

THE OIL-PRODUCING COUNTRIES

REGIONAL POWERS

PAGE 62. ex 1