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What is meant by the term globalisation?

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Introduction

Globalisation exam questions unit 6 a) What is meant by the term globalisation? (20 marks) The Organisation for Economic Cooperation and Development (OECD) defined globalisation as, 'The geographical dispersion of industrial and service activities (for example, research and development, sourcing of inputs, production and distribution and the cross border networking of companies (for example through joint ventures and the sharing of assets) Economic activity is becoming organised on a global scale giving a new international division of labour, with production, investment patterns and movements and technology transfers all becoming global. In this strategy, activities are established in many sites spread over the world, based on a country's comparative advantage. A manufacturer striving for the benefits of globalisation aims to secure the supply of inputs by locating production of the resulting outputs in the most favourable locations. Thus, labour-intensive production of components will be situated in low wage areas, while the production of high technology and high value added parts will require a skilled or well educated workforce, and are therefore likely to be concentrated in more capital-intensive locations. Globalisation could be seen to significantly affect developing economies, such as Ghana and Egypt. ...read more.

Middle

The growth of multi-national firms has contributed to the rapid increase in globalisation. Firstly, a multi-national firm can be defined as a company that produces in more than one country. In practice, globalisation has involved MNCs because the scale of their investment is such that the sales of the largest MNCs exceed the entire GDP of many countries. Many MNCs have moved their production from the west to developing countries because they want to benefit from that country's comparative advantage, usually access to much lower labour costs. Due to the low standard of living in many developing economies and lack of government legislation MNCs often locate in areas of high unemployment. Therefore they are likely to benefit from a continuous cheap supply of labour. In theory, this has led to the international division of labour. National economies have become increasingly integrated, leading to a growth in the number of trading blocs and economic unions. The process has been facilitated by the increased mobility of both physical and financial capital, the latter reflecting the trend towards the abolition of capital controls, the deregulation of financial markets, and the opening up of capital markets in LDCs and in the former Soviet bloc. ...read more.

Conclusion

In addition to this, there has been high levels of foreign direct investment (both inwards and outwards). The U.K economy is a favoured venue for overseas direct investment. Many factors explain this trend; however improvements in the supply side performance of the economy seems to be an influential factor. There has been a long-term structural deficit in goods, widening to over 33 billion pounds in 2001; however the U.K still remains a net exporter of oil, though the supply may run out by the middle of the current decade. In addition to this, the U.K still retains a comparative advantage in goods such as chemicals. Nevertheless, overall, due to the process of globalisation the U.K has seen an absolute fall in manufacturing employment, to below 4 millions, which has led to unemployment mainly of unskilled workers. Many workers have been forced to re-train and work in the service or 'hi-tech' sectors. However, innovation, productivity, technological processes and capital investment have allowed U.K firms to compete with other firms on a global scale in. Therefore it can be said that globalisation will intensify the present need for the British economy to become more competitive in price and non price terms. ...read more.

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