Economic Globalization Unit 2 (PDF)

Economic Globalization Unit 2 Henry John Prio Course Facilitator Table of Contents Unit Two: Economic Globalization Lesson 4: Regions of the World Lesson 5: Global Economy & Market Integration Lesson 6: Transnational Corporations & Outsourcing Lesson 7: Issues and Challenges I...

Economic Globalization Unit 2 Henry John Prio Course Facilitator Table of Contents Unit Two: Economic Globalization Lesson 4: Regions of the World Lesson 5: Global Economy & Market Integration Lesson 6: Transnational Corporations & Outsourcing Lesson 7: Issues and Challenges IV. Regions of the World Can be a geographic and an economic viewpoint. Conventionally geographic Modernly socioeconomic Contending Perspectives? Regionalism vs Globalism Globalism – A vision of a borderless world; programmatic globalization. ‘top-down’ Regionalism – a coherence of culture, geography, and identity, particular to a region; ‘bottoms up’ These promote perspectives on how to understand the dynamism of modern states.  Old versus New Regionalism “Old” “New” Formed in the Bipolar Cold War Contemporary multipolar world context order Created from above by Created from the empowerment interventions of superpower of the grassroots (bottoms-up) states (top-down) Inward-oriented and protectionist Outward-looking and exploratory Specific to the regional objectives Multidimensional cooperation Focus on relationships between Accounts for non-state actors nation-states and international organization Global North vs Global South Global North – Regions with developed economies with fairly democratic regimes Global South – Regions with underdeveloped economies; or suffering from high levels and incidence of poverty and political instability Often used to illustrate the prevailing gap between countries Structural Classification of States Core – Politically stable and economically dynamic Periphery – Politically turbulent and economically stagnant/dysfunctional Intermediate – Closely linked to the core regions, benefit from the developments of the Core  Levels of ‘Regionness’ Region as an Region as a Region as a Region as a organized Region as a subject with geographical social cooperation shaper of distinct unit system of multiple civil societies identity fields V. Economic Globalization? A historical process, the result of human innovation and technological progress (IMF). Globalization Globalization of trade of of financial Globalization goods and and capital of production services; markets; The Global Economy serves as the lifeline of international peace and cooperation ‘In economic terms globalization is nothing but a process making the world economy an “organic system” by extending transnational economic processes and economic relations to more and more countries and by deepening the economic interdependencies among them.’ (Szentes, 2003) ‘The relatively short period before World War I (1870 to 1913) is often referred to as the ‘golden age’ of globalization, characterized by relative peace, free trade and financial and economic stability.’ (O’Rourke & Williamson, 1999) International Trading Systems Comprises many thousands of unilateral, bilateral, regional, and multilateral rules and agreements among more than two-hundred independent nations (McCulloch, 2010) These facilitate cross-border transactions, especially trade and investments The World Trade Organization (WTO) provides the premier framework for international trade. A. The Gold Standard (Middle Ages-1945) ∙ System where a country's currency or paper money has a value directly linked to gold. ∙ A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price. ∙ The gold standard is no longer used by any government. B. Galleon Trade / Nao De Acapulco (1565-1815) ∙ Brough porcelain, silk, ivory, spices from China to Mexico, through Manila for New World Silver ∙ Facilitated Asia-Pacific trade with the Americas, thereby increasing the economic output of the region. C. Bretton Woods System (1946-1971) ∙ In July 1944, delegates of 44 countries agreed on adopting an adjustable peg system on the gold exchange standard. ∙ Participants traded in Gold for US Dollars, then used these US Dollars for international exchange and transactions. ∙ Cemented the USD as the World Currency Dissolution of the Bretton Woods System ∙ In August 1971, US Pres. Richard Nixon stopped pegging the USD to Gold. ∙ Stock markets crashed in 1973-1974 and caused Stagflation – decline in economic growth and employment (stagnation) occurs alongside a sharp increase in prices (inflation). Post Bretton Woods ∙ Neoliberalism became the codified strategy of the US Treasury, the World Bank, and IMF from the 1980s onward. ∙ This is a modified form of liberalism promoting free-market trade and increased cooperation between governments and enterprises. D. Floating Exchange Rates System ∙ A system of international trade utilizing fiat currencies, where the value of one’s currency is derived from the economy’s performance. ∙ Most of the world's major economies were allowed to float freely following the collapse of Bretton Woods. Fixed exchange rates are few. Market Integration ∙ McDonald (1953), “is one in which various economic processes are so functionally related to every other process that the totality of separate operation forms a single unit of production with characteristics of its own.” ∙ Interdependence and embeddedness of enterprises, states, and other actors. ∙ Changes in one segment or part will often affect the others.  Types of Market Integration Backward Vertical ∙ Acquiring a business operating earlier in the Integration supply chain (ex. a retailer buys a wholesaler, a brewer buys a hop farm) Conglomerate Integration ∙ Combination of firms that are involved in unrelated business activities (ex. Disney purchases American Broadcasting Company (ABC) Forward Vertical ∙ Acquiring a business further up in the supply Integration chain – (ex. a vehicle manufacturer buys a car parts distributor) Horizontal Integration ∙ Businesses in the same industry and which operate at the same stage of the production process are combined. (ex. Intel and AMD cooperate to develop AI software) VI. Transnational Corporations and Outsourcing The number and size of TNCs have significantly increased in the second half of the past century (Nicula, 2015). Comprises of parent enterprises and their foreign affiliates. Transnational vs Multinational Corporations? TNCs – firm which engages in direct investment in more than one country and owns and/or controls income-generating assets. MNCs – Large companies that conduct operations in several states; headquarters are often kept offshore to defer taxation. Characteristics of Transnational Corporations are growing in size and number. They seek competitive advantage and maximization of profits by constantly searching for the cheapest production locations across the world. Substantial parts of the workforce operate in the developing world Assets are distributed worldwide, rather than focused in one or two countries.  Reasons for Growth of TNCs Reason Scenario Global Expansion of ▪ Ex. Coca Cola, McDonalds Major Products with World Markets Take-over of foreign ▪ Ex. BMW, Microsoft acquired Nokia mobile competitor firms Merger with foreign firms ▪ Ex. Google and Android, Disney and Pixar Vertical integration ▪ Ex. Amazon Finds, Netflix producing own shows Horizontal integration ▪ Ex. Facebook acquires Instagram Diversification ▪ Ex. San Miguel Beverage corp investing in real estate Risk dispersal ▪ Ex. 7/11 Operating in war-torn Ukraine Profit maximization ▪ Ex. Spread of multiple Jollibees in one district  Benefits and Disadvantages of TNCs Positives Negatives Increased employment; Proliferation of many low Increased economic activity skill jobs Socio-economic multiplier Majority of profits are sent effect; increased purchasing back to the home country power and further growth Encourage transfer of Managerial positions tend to technology to the country, ICT be brought in from overseas growth rather than developed locally Improving of local skills and TNCs can grow too strong expertise and influential and would cut corners in health and safety of employees’ rights Outsourcing Process of establishing and managing a contractual relationship with an external supplier for the provision of services or capacities, previously provided in-house (Momme, 2001). The act of delegating specific functions and labor from the developed world to the developing world, as an economic activity.