Chapter 16 The Bigger Picture Learning Outcomes Upon
Chapter 16
The Bigger Picture
Learning Outcomes Upon completion of this chapter you should be able to: • Explain the term ‘globalisation’ • Outline the reasons that companies engage in globalisation and foreign trade • Explain what a transnational company is and the reasons why they locate in countries • Explain the reasons why ICT has increased globalisation • Identify the impact of global companies and technology on consumer choice and behaviour
What Is Globalisation? • Globalisation is the way in which the world becomes interconnected as a result of increased trade and cultural exchange. • The biggest companies in the world are transnationals which have subsidiaries in many countries.
Impact of Globalisation • • Increased international trade Greater dependence on the global economy Freer movement of capital, goods and services Companies such as Mc. Donald’s and Starbucks trading throughout the world and treating the whole world as a global market
Development of globalisation Although countries have traded internationally for centuries, globalisation has expanded for a number of reasons in the past two hundred years: • Industrial Revolution: cheap production of goods • Rapid Population Growth: increased demand for goods • Suez and Panama Canals: faster sea transport • Invention of the Telephone: quicker and easier international communication • Invention of Aeroplanes: faster international transportation of goods and people • Invention of Electricity: faster production of goods • Reduction of Barriers to International Trade • Invention of TV: increased global awareness/demand for products • Invention of the Internet: cheaper and easier international communication, advertisements, sales.
Reasons for Globalisation Improvements in Technology: internet and mobile technology Economies of Scale: reduced production costs Freedom of Trade: removal of restrictive barriers to trade Labour Availability and Skills: labour is cheaper in developing countries Decreased Transport Costs: larger cargo ships have made it cheaper to transport goods abroad • Transport Improvements: goods and people can travel quickly • Consumer Demand: due to increased income levels and increased foreign travel • • •
Delivery Systems • How goods are transported from the manufacturer to the consumer • Main delivery options: o Road o Rail o Sea o Air • Improvements in delivery systems have made it easier for businesses to sell globally.
Road Advantages: • Door-to-door deliveries are possible • Minimum handling of goods Disadvantages: • Delays due to road works or traffic congestion • Emissions from vehicles can harm the environment • Not suitable for bulky goods
Rail Advantages: • Suitable for bulky goods Disadvantages: • Not flexible due to fixed timetables • Not every town in Ireland has a railway station
Sea Advantages • Suitable for transporting bulky goods worldwide • Cheaper than transporting goods by air Disadvantages: • Slow, especially compared to air transport • Weather conditions can cause delays • Must link with another form of transport to deliver goods to final destination
Air Advantages • Fast • Suitable for delivery of perishable goods Disadvantages: • Expensive • Must link with another form of transport to deliver goods to final destination
Transnational Companies (TNCs) • Globalisation has resulted in many businesses becoming TNCs. • TNCs are companies that have their head office in one country and operate in several different countries. • Examples include Mc. Donald’s, Google, Coca Cola, Nike. • Inward investment occurs when a foreign company invests in a country, e. g. building a factory or opening a retail outlet. This is also known as foreign direct investment (FDI). • Ireland has benefitted from a large number of TNCs investing in Ireland, e. g. Intel, Microsoft, Google, Facebook.
What Attracts TNCs to a Country • Cheap raw materials • Good transport links • Plentiful labour supply • Access to markets where goods are sold • Attractive government policies, e. g. low corporation tax
Positive Impacts of Globalisation • Employment: TNCs provide new jobs and skills for local people. • Spin-off effects: TNCs support local businesses by buying local resources, products and services. • New experiences: people can avail of greater choice by buying products that were not previously available to them.
Negative Impacts of Globalisation • Benefits The Rich More Than The Poor: the wealthiest countries dominate world trade discussions. • Local Communities May Suffer: the wealth from inward investment may not benefit the local area o Local businesses may not be able to compete with the TNC o Many TNCs send their profits back to the home country (repatriation) • Increased Transportation and ‘Air Miles’ For Products Which Could Be Produced Locally
Influence of Developments in ICT • Email: allows communication between businesses and subsidiaries, suppliers, customers, employees • Internet: allows businesses to buy and sell globally online
Impact Of ICT on Consumer Choice and Behaviour • Online Booking: consumers can purchase services online and in advance from the comfort of their own home. • Loyalty Cards: influence consumer purchasing decisions • E-commerce: buying goods online o Increased convenience o Greater choice o Advance detail on products leads to more informed consumers o Opportunity to read previous customer reviews o Lack of human interaction o Inconvenience when returning goods
Recap and Review Can you do the following? • Explain the term ‘globalisation’ • Outline the reasons that companies engage in globalisation and foreign trade • Explain what a transnational company is and the reasons why they locate in countries • Explain the reasons why ICT has increased globalisation • Identify the impact of global companies and technology on consumer choice and behaviour.
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