Globalisation

Written by Amina Meirkhan | Proofread by Yasmin Uzykanova

Subject vocabulary:

Globalization - the growing interconnection of the world’s economies.

Interdependence - when the actions of one country will have a direct effect on others.

Multinational corporations (MNCs) - companies that operate in many different countries.

Saturated - when there is excess supply in the market.

Offshoring - the practice of completing tasks in another country to save money. 

Features of globalization:

1. Products are traded freely across international borders.

2. People can live and work in any country they choose.

3. High interdependence.

4. Capital flow between different countries.

5. Free exchange of technology and intellectual property across borders.

Reasons for globalization:

1. Fewer tariffs and quotas - more countries stopped protecting their domestic industries and less tariffs and quotes are being imposed, resulting in more trade between countries. In addition, some companies opened production facilities in countries with regulations to avoid tariffs.

2. Reduced cost of transport.

3. Reduced cost of communication.

4. Increased significance of MNCs - some companies want to sell abroad, often because their country markets are already saturated. Now MNCs have a global reach and dominate some markets. They can produce anywhere in the world to reduce costs and have access to most markets.

Impact of globalisation:

• The countries where MNCs are based will benefit because their growth will increase wealth in that country as the money is sent back.

• For the host countries, it is also a benefit. It leads to a higher GDP, more employment, and higher living standards. Anything produced there will count as that country’s output, and if sold outside, it will be an export, improving the current balance. New technologies and working practices will be introduced to developing countries. 

• However, the financial crises will also affect all economies due to interdependence as it happened in 2008.

• Profits made by MNCs in host countries are taxed by the government, resulting in higher tax revenue. New businesses in developing countries provide an incentive to improve the infrastructure, which leads to more businesses opening. 

• However, governments must be committed to globalization for this to happen. Borders have to be open, and no protectionism can be there. 

• Producers get easy access to labor due to increased mobility. Larger supplies of labor lead to lower wages and lower costs. They can also locate their businesses with inadequate business taxes to cut costs. 

• This is passed on to the consumer through lower prices and more choices. 

• Workers in developing countries learn new skills by working at MNCs.

• However, due to offshoring, the workers in developed countries will be redundant because production relocated to developing countries.

• Environmental damage.