Understanding Globalisation: Trends and Impacts

• Aims of the chapter:
• Introduce attributes of globalisation and the global economy
• Identity the major trends and players
• Present debates on globalisation impacts, advantages, and disadvantages
• Pinpoint implications for international and domestic businesses
• Assess the short and long impacts of the pandemic and economic crises of 2020-21
• By the end of this chapter you should be able to do the following:
• Define characteristics of globalisation
• Assess the global economy and trends
• Explain trends and players
• Enter into globalisation debates
• Describe implications for international companies
• Assess implications arising from the COVID-19 and economic crises

Globality

• A social condition with a world moving away from self-contained national economies
• Moving towards an interdependent, integrated globally tighter economic, political, cultural, and environmental system

Globalisation

• Expansion/intensification of social processes/relations across world-time/space
• Shifts the world from weakening nationality to globality
• Toward a more integrated and interdependent world economy

Globalisation of Markets

• Merging separate national economies
• The idea of individual national markets is becoming less relevant; instead, there is one "global market"
• Falling trade barriers make global sales easier
• Consumer tastes are standardizing
• Firms offer the same standardized products worldwide

Globalisation of production

• Production can be transferred to countries with lower costs

• Firms source goods/services from locations worldwide

• This capitalizes on national cost/quality differences of labor, land, and capital

• This lowers overall cost structure and improves product functionality

• The world has become flat

• Each nation is a part of a bigger market, due to ten flatteners ( Friedman)

• The WTO is bringing about globalisation

What is Globalisation Represented By?

• Accelerated speed of communication and transportation technology

• Rising power of Multinational Enterprises (MNEs)

• Increased competition for jobs

• Eliminating differences between distinct cultures

• World moving towards a homogenous plain

• Cross-border trade due to advances in transportation and telecommunications

• Development of international bodies (WTO/IMF/World bank)

• How the word globalisation is received/interpreted depends on context

What's Driving Globalisation?

• Decline in free flow barriers of goods, services, and capital since WW11
• Since 1950 average tariffs have fallen and are now at 4%
• Countries have opened their markets to FDI

Technological Change

• Microprocessors and telecommunications, the Internet and WWW, and transportation technology have all contributed to globalization

Transportation Improvements

• Containerization, super freighters and commercial aircraft have all had an impact

Trends Towards Globalisation

• One trend by Jones:

• First wave: 1880-1929, decline from 1930-1980

• Second wave: Post WW11, rising to 1950 and beyond 2010

• The 1950s and 1960s had pervasive trade barriers and China/communist USSR sought self-sufficiency

• The 1970s and 1980s saw globalisation largely skewed towards TRIAD nations

• Two major factors driving globalisation:

• Since WW11, there has been reduced trade/investment barriers

• Improvements in communication/information processing/transportation technologies

• Hill suggests four trends:

• Changes in world output and world trade

• Contribution to world output/trade by rich industrialised nations declining

• Countries like USA/UK will see their standings in world exports declining

• Developing countries like China will see their role increase

• Foreign Direct Investment (FDI)

• US major contribution towards FDI in the 1960s

• Since the 1980s there have been other advanced nations (important contributor for FDI)

• Developing countries are now important players in FDI; an increasing importance as destinations for FDI

• Sovereign Wealth Funds (example: Temasek Holding and Dubai World) are also important contributors towards FDI

Types of Companies

• Since the 1960s MNCs from the US are less Important
• MNCs from Europe became more important
• MNCs from developing countries became more important
• There has been growth in mini multinationals (ex: Lenovo/Keppel) and the Internet has a part to play

Changes in World Order involve

• Collapse of Russian communism and opening up of Chinese market

• Development of emerging markets like BRICS

• Mexico and Latin America: emerged as new markets and as production location

• China and India: have become home to companies which can become global players

• Some states have become more authoritarian with state involvement in business

• Willcocks Webinar (2021): There have been drastic changes in the world economy in the last 35 years and five trends are important:

• The changing world output and trade picture; the changing FDI picture; the changing nature of the Multinational Enterprise

• The changing world order.

• More recently there have been moves towards deglobalization/protectionism

Students should classify the under listed aspects

• Reducing barriers to trade and capital*: Has been done through work of WTO and regional blocs (EU); countries like Singapore have negotiated free trade agreements with 27 countries
• *Increase in FDI.**: MNCs have investments in developed/newly developed/developing nations.
• Growing Affluence*: BRICs nations are having growing affluence that are becoming attractive markets
• Rising Manufacturing and Service Industries* China leads manufacturing exports, India dominates service industries (IT/call centers/R&D)
• Friedman's Ten Flatteners*: Accelerating technological advancements contribute to a flatter world

Strait Times April 2020 (Vikram Khanna) Pandemic will trigger new economic trends:

• International institutions are helping to fight Covid-19, WHO, IMF and World bank

• Diversification of supply chain and less reliance on China

• Big Budget deficit – to keep economy going, Stronger social safety nets - health care, unemployment issues

• More investment in public health

• Communication boom - work from home; A boost for ecommerce

• Climate change brings about cross species contagion animals to human as animals habitat are affected through globalization

• Counter Protectionism (by uniting): Some governments Chan are practicing mercantilists policies/pressuring companies to reshore; countries must come together/strengthen global trading system.

Benefits of Globalisation

• Lower prices, greater economic growth, and more employment in more open foreign markets
• Exploitation of national comparative advantages

Critics of Globalisation

• Job losses, damage to the environment, cultural imperialism, and economic instability
• Dynamism due to a connected world, loss of economic sovereignty to regional blocs, butterfly defect, and financial sector risks

Advantages for a firm

• Bigger market - global market, outsourcing/cut costs in places like China, and technology enables sharing of knowledge/ lower transportation costs

Disadvantages of a firm

• Formal/informal rules/adjustments

• Distant still matters (Ghemawat), contagion effect/financial crisis interconnected, and global company uncertainty (ex: Tsunami in Japan halting production for months)

-Globalisation enables a large group of people living in emerging countries to converge on the achievements of advanced countries and the process is still continuing

Why is Trade Important?

• It helps to win the Cold War and has lifted millions out of poverty

Benefits:

• More FDI, more competition, and stimulus for innovation

• Better economies of scale and lower costs

• Globalisation favours rich nations and people, deepening inequality among/within nations Poorer nations may not have the skills to protect themselves from economic displacements

• Countries such as the UK are taking back their sovereignty against European Regionalism

• Political leaders must ensure that the people must have the right skills to cope with globalisation

Benefits of Globalisation

• The number of jobs supported by Singapore staying open and connected to the world

• Singapore has also built a network of 27 free trade agreements

• There are disadvantages such as increasing economic instability and dynamism, connected world, loss of economic sovereignty to regional blocs

Example is Asian Financial Crisis

-1997 Asian Financial Crisis or the Asian Contagion economies in Asia that were connected to technology experienced a fall in share prices and share prices

Criticism

• It will cause job losses/damage the environment/create cultural imperialism/economic instability
• Dynamism due to connected world/loss of economic sovereignty to regional blocs

The Globalisation Debate: The Independent global economy is a good thing

Jobs and Income (Critics)

• Transfer of production overseas creates domestic unemployment
• automation of global sourcing/job numbers and skills will cause global locations to be automated - lead to job losses

Jobs and Income Supporters

• Domestic consumers pay less for imported goods → Increase Consumer Surplus
• Labour Policies and Environment: MNCs transfer pollution to haven countries; leading to environmental damage

Labour Policies and Environment

• There is a tying of free trade agreements to environmental/labour laws. - Globalisation causes a decrease in pollution.

Shift In Economy power (Critics)

• National governments lose power to supranational organisations (WTO/IMF)
• Movement away from institutions (exemplified by Trump's 2016-20 as America First / EU since withdrawal of UK
• China seeking influence in Economic Trade in Asia Pacific arrangement

Shift In Economy power (Supporter)

• Collective benefit will overcome countries and retard it

Wealth Distribution (Critics)

• Benefit countries with strong global brands

Wealth Distribution (Supporter)

• Inequality is the cause of corrupt government
• Some totalitarianism governments pursue their own Self interest of people; economic growth in nations is due to loan debt not productivity.

Globalisation Not To Blame for Inequality.

• Global inequality is the fault of technology and shift to services (jobs loss and not globalization)

The Globalisation Debate

• Supporters believe that increased trade and cross - border investment mean ---Lower prices for goods and services and greater economic growth ---Higher consumer income and more jobs

Globalisation

• Critics worry that globalisation will cause job losses. --Environmental degradation; the cultural imperialism of both global media and MNCs --Riskier Business environments from inter connectiveness

Does Distance still matter

• --Friedman sees every nation is part of a flat world and that the world is a homogenous plan in terms of technological progress.

• -There is free access from across nations

• Ghemawat, However, highlights that this is an overstatement and there is yet the sense of a globalized World.

Distance framework (The CAGED framework)

• --Cultural norms
• --Administrative trade policies
• ---Geographical differences
• --Economical dynamics

Why should we not rely on Friedman's ideas

• Modern technology does not make distance matter; more so reducing tariffs

Reasons to focus on Friedman's ideas; is to increase use of offshoring and outsourcing in ways to improve global supply chain and specialized markets.

Modern communication and transportation technologies have decreased distance

• The advance in modern communication and transportation technologies has doubtlessly shrunk distance. Globalization* has been growing and the significance of national borders appears to have been declining. However, the extent to which the world has become flatter has been the topic of significant debates.

• Does national borders no longer matter: Is the world shrinking*

• Hyperglobalists view:* is that the world is shrinking, national borders no longer significan

• The Opposition point out:* That a connected world and free cooperation mean that flat claims are overstated. Moreover, there are differences in consumer taste and culture and MNCs needs adapt their strategies to "flat" global world

• Ghemawat sees cultural, administrative and economical gaps as pivotal and very fundamental and MNCs have to internalize that when formulating its strategies

International Firms

• Formal vs Informal business structures, companies reduce uncertainty and maintain the best practice

• Globalization offers - low trade boundaries and investments with the correct implementation of technological changes

• The strongest companies are international ---Low barriers to trade and investment cite to the work of WTO

• --Transportation advancements and logistical considerations that lead to super freight travel

• MNC are increasingly sensitive to localizing there products

• Global companies such as Google and Yahoo will customize their operations based on the current markets

• The challenges of International Business:*

• In the future, international firms have to strategize against current trade policies with protectionism in mind to pose a better advantage to exporting firms*

• Heightened competition from diverse countries is arising and opening up to multiple markets that can compete with already established global brands (Nike)*

• For global managers, the global marketing differs from the domestic perspective because counties all present various challenges:*

• Countries are different*; the range of problems is wider and their are more complex issues with domestic business

Firms have to adapt to the imposed government interventions

• Globalization is decreasing -Mass production has essentially stopped on globalism but it has come about the concept of slowbalisation.
• Slowbalalisation is a term used by The Economist suggesting slowness in global connectedness - trade capital flows and people

Factors that contribute with the deglobalisation include economic recession, the lack of support by governments and the growing use of protectionists strategies, as well as Geopolitical tension

Ian Golden, Professor of Globalization at Oxford University identifies:

• There is a Butterfly Effect, systemic risks are always accelerating, increased climate Change, rising inequality and pandemics

He explains that although globalization spreads opportunity to digital systems, there is also a source of vulnerabilities such as a source to financial contagion

• The long term impact is The Long run Trade: that migration still seems to be growing, but it may become that other markets take charge ex China turning to Central Asia and Asia pacific regions
• In order to resist the vulnerabilities* , we must look at 6 key components:

1. The desire to study and explore internationally
2. Global parcel and data flows (massive expansion) have risen from the past years and expected to be more
3. Although there has been a decline in past year trade, it has not been as nearly what was once expected
4. Globalization has reached virtual markets
5. Corporations are collaborating worldwide as a joint collaboration
6. Many agreements signed between organizations to regulate trade worldwide

• --Globalization comes in waves, international exchange isn’t fading out, but only becoming more streamlined to the virtual realm. (Martin Wolf)