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Explain what is meant by globalisation.

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Introduction

Globalisation Q. Explain what is meant by globalisation. Ans. Economic "globalisation" is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labour) and knowledge (technology) across international borders. There are also broader cultural, political and environmental dimensions of globalisation that are not covered here. At its most basic, there is nothing mysterious about globalisation. The term has come into common usage since the 1980s, reflecting technological advances that have made it easier and quicker to complete international transactions-both trade and financial flows. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity-village markets, urban industries, or financial centres. There are many forms of globalisation. Capital markets These are now more integrated. Capital is more mobile and currency controls have been relaxed in most countries. The movement of capital to those investment opportunities and countries where it generates the highest return can be destabilising - witness the controls recently placed on capital in Malaysia. This is due in part to the mobility of financial capital. Physical capital, represented by physical plant, is not mobile; once built a factory is hard to move. As currency controls have been relaxed, investment opportunities for individuals have been increased and they can now buy shares in the US, or any number of other countries. ...read more.

Middle

For example Australia has natural advantages in the growing of wool, in terms of land, sunshine, weather and so on. Other countries may have advantages in the processing of that wool, possibly because they are close to the market and can respond quickly to changing consumer tastes. So Australia specialises in the production of wool and a country like Italy specialises in the manufacture of woollen goods, and some of their customers will be in Australia. In this way, consumers in both countries may be better off than if Italy tried to grow wool and Australia tried to process the wool. Another aspect is the reduction in the cost of transportation. Sometimes it is easy to forget how fast and significant this has been. How many of us realise that in 1945 the cost of the airfare between Melbourne and London was about twice the annual salary in Australia? By 1998, the cost had plummeted to about three to four weeks salary. Similarly in shipping, the introduction of containerisation and other innovations has seen major reductions in shipping costs. Another cause is the increasing similarity of customers around the world. There are significant numbers of consumers in Russia and Brazil who want a particular brand of sunglasses or jeans. It is also true that the steel mill in China requires about the same iron ore as the steel mill in Poland, or Germany. ...read more.

Conclusion

There is a concern that competition from low wage countries will force down wages for unskilled workers in developed countries and destroy jobs in developed countries. So the losers will be the unskilled workers in developed countries. This may cause developed countries to reduce wages, to reduce welfare benefits, to loosen environmental controls so as to reduce costs to make their products competitive with those from low wage cost countries. Organisations have to decide whether to be part of the globalisation process or not. As markets move from national to global there is a period of transition a period of instability. Some firms make the transition, some will not, so there will be winners and losers. For example, the UK car industry was a major producer of cars in Europe in the 1950s. But as the market became global, customers in US, South America, Asia and other regions were served by suppliers from other countries, particularly Japan, the US and Europe and now the UK auto industry is very small and almost all foreign owned. There is likely to be increased competition for Australian firms as well as increased opportunities. Some firms have gone global in banking, wine and building materials. Other small firms in software and computer systems have experienced high growth internationally. Firms will have to make difficult choices. They must either specialise and become world class and world scale in their chosen industry, or focus on the national market and hope that they can survive international competition. Otherwise, they will fail. ...read more.

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