Globalization Concepts and Impacts

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What is the main function of the WTO?

To set out binding rules of trade between nations covering trade in goods, services, and intellectual property.

What was the predecessor of the WTO and when was it established?

The predecessor of the WTO was the General Agreement on Tariffs and Trade (GATT), established in 1948.

How does the IMF help prevent 'beggar-thy-neighbour' policies?

By making funds available to support balance of payments issues, thus discouraging trade and investment barriers.

How many members does the WTO currently have?

The WTO has 164 members. Signup and view all the answers

What is the law of one price and how does it relate to global investments?

The law of one price states that identical goods should sell for the same price when expressed in a common currency. In global investments, it implies that yields from similar risk investments should converge across countries. Signup and view all the answers

How does volatility in inflation and exchange rates affect investment yields?

Volatility in inflation and exchange rates can create uncertainty, preventing yields from converging as expected despite similar risks. This leads to fluctuations in investment returns across different markets. Signup and view all the answers

In terms of globalization, what data should be analyzed to compare the Australian economy with another country's economy?

Key data includes external debt as a percentage of GDP, inward FDI as a percentage of gross fixed capital formation, total stock of inward FDI as a percentage of GDP, and trade policies. Additionally, the government's promotion of trade and investment inflows/outflows is essential. Signup and view all the answers

What role does international migration play in the globalization of markets?

International migration enhances the globalization of markets by providing career opportunities in foreign affiliates for expatriate managers and skilled employees. It promotes cultural exchange and a better understanding of diversity. Signup and view all the answers

What factors influence levels of immigration for economic motives?

Levels of immigration are influenced by factors such as economic opportunities, political conditions, and social tensions within host countries. These variables can either attract or deter migrants. Signup and view all the answers

Why is it difficult to obtain reliable data on international labor migration?

Obtaining reliable data on international labor migration is challenging due to the complex interplay of various variables that influence immigration, many of which are beyond individual control. Data collection methods may also vary widely. Signup and view all the answers

How do parallel shifts in yields among major financial centers indicate market integration?

Parallel shifts in yields suggest that the financial markets are responding similarly to economic factors, indicating a merging of national markets into a global system. This reflects how investors perceive risks and opportunities across borders. Signup and view all the answers

What implications do FDI and globalization have for domestic labor markets?

FDI and globalization can create job opportunities in host countries, but they can also lead to competition for local labor and potentially raise social tensions. The overall impact varies based on local economic conditions. Signup and view all the answers

What are the two essential elements of a multinational corporation?

A multinational corporation operates in multiple countries and has a centralized head office that directs global operations. Signup and view all the answers

Identify two indicators of the level of globalisation.

Increased international trade flows and enhanced foreign direct investment are two key indicators of globalisation. Signup and view all the answers

Summarize the role of the World Bank.

The World Bank provides financial and technical assistance to developing countries to reduce poverty and support economic development. Signup and view all the answers

Describe the impact of trade flows on the globalisation process.

Trade flows facilitate the exchange of goods and services across borders, enhancing economic interdependence among countries. Signup and view all the answers

Explain how digital innovations have influenced globalisation.

Digital innovations, such as the internet and communication technologies, have lowered barriers to trade and increased access to global markets. Signup and view all the answers

What are the two essential parts of the definition of a multinational corporation (MNC) provided in the text?

An MNC operates in several countries and derives at least a quarter of its revenue from operations outside its home country. Signup and view all the answers

How do rules-based systems of trade contribute to international business?

They provide security and predictability, reducing the need for unilateral trade retaliation. Signup and view all the answers

What are the three basic functions of the WTO mentioned in the text?

To promote free trade, serve as a forum for trade negotiations, and provide means for settling disputes. Signup and view all the answers

What was the primary role of the International Bank for Reconstruction and Development (IBRD)?

To fund long-term development projects. Signup and view all the answers

In what ways does the World Bank support projects to enhance foreign investment in developing countries?

By improving health and education, protecting the environment, and developing infrastructure. Signup and view all the answers

Why is it important for the World Bank to improve government services in developing countries?

Improving government services enhances efficiency, quality, and reliability, making it attractive for foreign businesses to invest. Signup and view all the answers

What impact does unilateral retaliation have on trade and investment?

It leads to the reintroduction of barriers to trade and investment, which can hinder economic relationships. Signup and view all the answers

How does globalization facilitate the growth of MNCs according to the text?

Globalization creates a more stable trade environment, which encourages MNCs to expand their operations internationally. Signup and view all the answers

How can a firm be protected during a recession in its home country?

A firm may be protected from a home country recession if it operates in other countries that are not in recession. Signup and view all the answers

What are some incentives that host governments may offer to attract foreign investment?

Host governments may offer income tax concessions, favourable lending policies, and exemptions from customs duties. Signup and view all the answers

What is one negative impact of increased global economic integration?

Increased global economic integration can lead to domestic economic cycles being linked, causing recessions to occur simultaneously across countries. Signup and view all the answers

List two home government policies that may encourage firms to move operations offshore.

High company tax rates and strict environmental regulations can push firms to relocate their operations offshore. Signup and view all the answers

How does technology transfer contribute to economic integration?

Technology transfer allows the sharing of manufacturing methods and management techniques between countries, facilitating economic development. Signup and view all the answers

What role do R&D labs in the USA, Japan, and Western Europe play in technology transfer?

Most new technologies are developed in these regions, making their R&D labs central to the global dissemination of technology. Signup and view all the answers

Name one way through which technology is transferred between countries.

Technology is transferred through trade, particularly via imports of capital goods and production inputs. Signup and view all the answers

What might be included in foreign firms' technology transfer incentives from host governments?

Host governments may encourage technology transfer by relaxing local-content requirements and offering assistance with start-up finance. Signup and view all the answers

What distinguishes Unilever from other multinational companies mentioned?

Unilever is known for being the world's biggest food and soap company, selling a diverse range of products in 150 countries. Signup and view all the answers

How does Gazprom's status differ from other companies listed?

Gazprom is the largest gas company in the world and is only a decade old, contrasting with the longer histories of other firms. Signup and view all the answers

What is Levi's historical significance in the fashion industry?

Levi's is significant for inventing jeans and has been in business for 150 years. Signup and view all the answers

In what way does Shell operate on a global scale?

Shell operates in 140 countries and claims to run the largest retail network through its petrol stations. Signup and view all the answers

What makes McDonald's a distinctive brand globally?

McDonald's is the world's best-known fast-food brand, with over 30,000 restaurants across 120 countries. Signup and view all the answers

What inquiry model can be applied to discuss the impacts of economic globalisation?

The economic model for problem solving can be used to evaluate the impacts of economic globalisation. Signup and view all the answers

How can government policies influence the process of globalisation?

Government policies can contribute by either facilitating or restricting trade, impacting global economic integration. Signup and view all the answers

What are potential outcomes of globalisation for less-developed countries?

Less-developed countries may face pressure to participate in globalisation, resulting in both opportunities and challenges. Signup and view all the answers

What is meant by the term 'capital mobility' in the context of globalisation?

Capital mobility refers to the ability to move private funds across national boundaries in pursuit of higher returns. Signup and view all the answers

Explain the difference between the globalisation of markets and the globalisation of production.

The globalisation of markets refers to the convergence of tastes and preferences across global markets, while the globalisation of production involves dispersing production phases worldwide to leverage national efficiencies. Signup and view all the answers

How do international flows of trade, capital, and technology illustrate the interdependence of national economies?

International flows create linkages between economies, meaning that events in one economy can significantly affect outcomes in another, indicating a network of economic reliance. Signup and view all the answers

What are some types of restrictions that can be imposed on Foreign Direct Investment (FDI)?

Types of restrictions on FDI include market access restrictions, ownership restrictions, operational restrictions, and administrative restrictions. Signup and view all the answers

What are some benefits and costs associated with globalisation as mentioned in the chapter?

Benefits of globalisation include increased market access and economic growth, while costs can involve job displacement and cultural homogenisation. Signup and view all the answers

Describe the role of multinational corporations in facilitating the globalisation process.

Multinational corporations drive globalisation by establishing supply chains that span multiple countries, integrating economies through investment, production, and market access. Signup and view all the answers

How have regional trading blocs like NAFTA and APEC influenced trade liberalization?

Regional trading blocs encourage member countries to reduce barriers to international trade and investment, promoting greater economic integration. Signup and view all the answers

What implications do emerging economies have on global consumption and investment by 2020?

Emerging economies are expected to become significantly more important, leading to higher global consumption and investment opportunities. Signup and view all the answers

What role do double taxation treaties play in international business?

Double taxation treaties help reduce or abolish double taxation, thus serving as incentives for businesses to engage in cross-border economic activities. Signup and view all the answers

What are two examples of market-friendly reforms implemented by governments?

Privatisation of government business enterprises and deregulation of financial, product, and labor markets are two examples of market-friendly reforms. Signup and view all the answers

Why is infrastructure crucial for the growth of multinational corporations (MNCs) in less-developed countries?

Infrastructure is essential for MNCs as it facilitates access to necessary services like transportation, which, if lacking, can lead MNCs to explore other markets. Signup and view all the answers

What types of government incentives might attract MNCs to establish operations in a country?

Governments might offer inducements such as lower taxes, infrastructure support, assistance with establishment costs, and favorable regulations. Signup and view all the answers

How do global supply chains contribute to the growth of MNCs?

Global supply chains allow MNCs to optimize their resources and operations across multiple countries, enhancing efficiency and competitiveness. Signup and view all the answers

What role do host countries play when MNCs are seeking to establish operations?

Host countries compete for MNCs by offering various inducements, which can lead to improved conditions that benefit both the MNCs and local economies. Signup and view all the answers

In what ways does the growth of MNCs depend on their integration into corporate strategies?

MNCs must integrate their supply chains into overall corporate strategies to leverage efficiencies and enhance their market presence. Signup and view all the answers

How does the WTO help reduce the need for governments to resort to unilateral retaliation in trade?

The WTO provides an effective means for settling trade disputes, promoting cooperation among member countries rather than individual retaliatory actions. Signup and view all the answers

What is the primary focus of the World Bank in relation to MNCs in developing countries?

The World Bank aims to create an environment for foreign business investment while maximizing benefits for MNCs operating in developing countries. Signup and view all the answers

Why is it significant that MNCs derive a quarter of their revenue from operations outside their home country?

This indicates their international presence and commitment to operating across borders, which is vital for their growth and influence in the global economy. Signup and view all the answers

In what way can improvements in health and education contribute to the goals of the World Bank?

Enhancements in health and education foster a skilled workforce, which attracts foreign investment and facilitates economic development. Signup and view all the answers

What role do government services play in the context of the World Bank's support for developing countries?

Improving efficiency, quality, and reliability of government services encourages a stable macroeconomic environment that benefits MNC operations. Signup and view all the answers

Study Notes

Globalization

Aims to introduce the concept of globalization, multi-company supply chain operations, and the role of multinational corporations in globalization.
Includes an examination of the benefits and costs of globalization on the global economy.
Examines the meaning of globalization, integration, and interdependence.
Analyzes the extent of globalization and the growth of international business.
Identifies the factors facilitating globalization such as multinational supply chains.
Discusses the costs and benefits of globalization.

Nature of Globalization and Interdependence

Capital mobility: the ability to move private funds across national boundaries in pursuit of higher returns.
Globalization: the growing integration of national economies to form a single interdependent global economy.
Globalization of markets: the convergence of tastes and preferences across the markets of the world and global acceptance of standardized products.
Globalization of production: the dispersal of production phases around the world by a firm to take advantage of national production differences.
Interdependence of national economies: linkage between events in one economy and outcomes in another through cross-border transactions.

Extent of Globalization

Availability of an increasing number of products from around the world.
Recognizable brand names and company names (e.g., McDonald's, Coca-Cola, Nike).
Foreign ownership of local businesses.
People working in various global locations.

Global Economic Linkages

Global economy is becoming increasingly similar to a single global economy.
National economies, businesses, and individuals are becoming interconnected.
This interconnectedness includes the availability of world products, brand recognition, ownership of local businesses, and people working in different locations around the globe.

Globalisation and Business

The international scope and availability of markets, distribution systems, capital, labor, and technology has increased.
This growing integration occurs through globalisation of markets, globalisation of production, capital mobility and technology transfers.

The Extent of Globalization

Measures of globalization: Trade intensity and law of one price
Trade intensity: the ratio of trade to output; a measure of the integration of product markets.
Law of one price: a measure of economic integration, prices of similar products in linked markets converging to the same price.

Globalization of Markets and International Trade

World trade volume growth generally faster than GDP growth.
Trade-to-GDP ratio increased from 25% (1974) to 42% (2014) in Australia.
Trade intensity may underestimate product market integration.
Infrastructure (roads, bridges) not tradable services.

International Trade and Globalization

Globalization covers more than international trade. It implies that national economies lose some independence; they become more interdependent.

Globalization and Capital Flows

Growth in the cross-border flow of capital (long-term and short-term).
Increased turnover in the global foreign exchange market.
Convergence of yields of interest rates indicating interconnectedness of financial markets.

MNCs and Globalization

A multinational corporation (MNC) is an enterprise or company operating in more than one country and managed from one home country.
An MNC will typically derive a significant portion of its revenue from operations outside its home country (e.g., 25%).
MNCs often have operations (e.g., offices, branches, mines, processing plants) in multiple countries.
MNCs are often involved in moving goods and services across international borders.

Factors Contributing to Globalization

Comparative Advantage: A nation's ability to produce a product at a lower opportunity cost than another nation.
Competitive advantage (of a firm): characteristics that make a firm competitive, examples include lower cost production, strong brand name, innovative productions
Double taxation: taxing a firm's profit in the country where it is earned and again in its home country.
Emerging markets: economies transitioning from a non-capitalist to a capitalist market system.
Import substitution: strategies to replace imports with domestic production.
Export-orientation strategies: encourage production for the export market.
Operational restrictions: political limitations on how a foreign firm operates (e.g. hiring decisions or pricing).
Operational restrictions are placed on foreign firms such as who they employ, how much they charge for goods, or which markets they operate in.
Transfer price: price at which one subsidiary sells goods to another subsidiary in another country.
Transparency: clearly defined laws and regulations promptly and consistently enforced.

Globalization and Technological Changes

The increasing interconnectedness of trade, FDI, and technology transfer.
International interdependence of national economies.
Technological advancements in communication (Internet, e-commerce).
Improvements in transportation (containers, larger ships, airplanes).
Increased movement of information, ideas, technology, and capital globally.

Globalization and Market Potential in Developing Countries

Market opportunities from integrating lower-income countries into the global economy.
Significant shifts in the world economic order are expected in the near future (2020) with a potential for developing economies to take leading positions.
Countries with rapid growth (e.g., China, India) and higher incomes would present more opportunities for business presence.

Market Potential of Developing Countries

Policies that support markets (e.g., deregulation, privatization).
Market-friendly reforms attract FDI for their greater efficiency and increased investment in infrastructure which benefits business.
Investment in infrastructure (telecommunications, health care, mining) has attracted FDI in emerging countries.

Globalization and Multinational Corporation Activities

Location economies: production and marketing conditions of a location that a firm can access.
Risk diversification: managing business risks by having multiple options (multinational markets, multiple sources of supplies, selling in multiple markets).
Core competencies: specific characteristics of a firm that provide a competitive advantage (brand name recognition, skillsets, technological advancement).

Globalization and First-Mover Advantages

First-mover advantages: advantages for a firm that initially enters a new market or develops new product (e.g., brand name, customer loyalty, product reputation, managerial know-how).
Actions to establish a brand name increase customer loyalty and make it difficult for later entrants.

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Description

This quiz explores the fundamental concepts of globalization, including multi-company supply chains and the role of multinational corporations. It examines both the benefits and costs that globalization brings to the global economy while highlighting the integration and interdependence of national economies. Prepare to analyze the factors that facilitate globalization and its impact on international business.