Emerging markets in the economy
The seven largest emerging and developing economies by either nominal or inflation-adjusted GDP are Brazil, Russia, India, China, Mexico, Indonesia, South-Korea and Turkey which are the world's fastest growing economies, contributing to a great deal of the world's explosive growth of trade.[7] These are emerging markets because they are nations with social or business activity in the process of rapid growth and industrialization. The emerging markets are said to reshape the economic landscape which will enhance prosperity. However, presently, the global economy could be hurt if the withdrawal of funds for emerging markets picks up ahead of an expected reduction in the U.S. This is because, the BRICS generally do not have the level of market efficiency and strict standards in accounting and securities regulation to be on par with advanced economies (such as the United States, Europe and Japan), but emerging markets will typically have a physical financial infrastructure including banks, a stock exchange and a unified currency.[8]
The world trade organization has accounted for the reduced tariff barriers that encouraged global trade.[9]
This is because, the changes made by the World Trade Organization eased the global economy as both developed and emerging economies become increasingly interdependent for various reasons such as sourcing of inputs, lending of funds and the acquisition of trained expertise. Currently, the WTO has 153 members, which represents more than 95% of world trade.[10]
The roles of Emerging markets
These countries actively play changing roles for the economy. In the decade before the financial crisis, the emerging economies led by the BRIC (Brazil, Russia, India and China) were a contributing factor to the steady growth of the economy, low inflation and the greater independence of central Banks. China, the largest of the group and now officially the world’s second largest economy, led the way increasing its share of global exports from 2.6% in 1996 to 9.5% in 2010. Over the same period the emerging economies increased their share of exports by more than 12 percentage points to 38%.[11]
In fact, beginning in 2008, emerging economies began to contribute a larger share of global consumption than the U.S. And there is room for greater prospects because, private consumption in Emerging Markets as a percentage of GDP is said to be behind that of developed nations.[12]
Therefore, the Emerging markets are well positioned for continued economic expansion and companies.
Finance of emerging economies
The emerging economies like BRIC (Brazil, India, Russia and China) and MIKT (Mexico, Indonesia, South-Korea and Turkey) usually generate finance internally (within respective countries) or externally (between countries or from larger financial institutions). The International Monetary Fund and World Bank are two International organisations that assist in the financing of emerging economies besides other countries. The International monetary fund assists whereby countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds temporarily.
The role new technology has played in Globalisation
Advances in technology are one of the main reasons that globalisation has grown rapidly in the past decade. Whether for personal use or for business, technology has made the world seem a smaller place and assisted in the rise of globalisation.
Information
The internet is essentially a network of computers across the world which is linked through global telecommunications. Although it was originally only used by defence personnel in the United States, easy access to computers and related technology have made using the internet a common activity in more recent times.
The World Wide Web enables people from almost anywhere in the world to access information on almost any topic from shopping to weather forecasts; and from research to downloading music and movies. In addition to the internet, global media networks (corporations which include television and media companies with branches in multiple countries) also bring news and information about current events to people all over the globe. It is now possible for someone in Australia to pick up a copy of an American fashion magazine, or for someone in the United States to watch the Ajazeera news.
Communication
The cost of telecommunications has fallen dramatically in recent years, thus encouraging trade. Presently, conferences it is possible to conduct conference calls between several countries on mobile phones anywhere. Computers and broadband enable complex information to be passed easily and swiftly from one country to another. Hence, businesses can make quick decisions, reacting swiftly to dynamic changes in markets and seizing opportunities ahead of competition. Therefore, cost and supply chains are built with minimum risk. For example, as a result of globalisation, the cost of a 3 minute telephone call from London to New York dropped from 100 in 1930 to less than 1 in 2004. These developments cut the costs of International trade and facilitated globalisation.
Transport
Developments in transport technology have played a major role in globalisation. Transport for personal use has improved dramatically making it easier for businesses to reach and communicate easily with one another. Super tankers have increased the scale of trade between countries, as these massive container ships are able to carry larger quantities of goods, including oil and grain. As a result, trade has become increasingly international. For example, the humble shipping container has revolutionised Global trade by dramatically cutting the costs of shipping goods and reducing transit times.[13] Also, air freight price have fallen far enough for some perishable products to be exported. Speed has also helped to reduce the amount of time transport must be financed- it helps to close the gap between production and final sale. Automated freight handling at airports helped too and computerised handling made it easier and cheaper to keep track of goods in transit.
Impact of Globalisation on investment patterns
Since 2000, developing countries have gradually increased their share of global investment, moving from around 20 percent through much of the second half of the last century, to around 46 percent by 2010.[14]
From the diagram, investment shares for the developing world is gradually rising (presently above 45 %) whilst that of the high-income firms is reducing. This forecast shows that the investment shares of developing countries are likely to converge with that of their elite contemporaries at 50% before 2014 before gradually overtaking them. This is because, to increase their global competitiveness, more and more investors are moving to countries that have low labour costs or shifting to informal employment arrangements. Global trade and investment patterns tend to privilege capital, especially companies that can move quickly and easily across borders, and to disadvantage labour, especially lower-skilled workers that cannot migrate easily or at all. For example, raw materials like copper and agricultural products (e.g. pineapples) that are essential for the production process are not available in the UK therefore, manufactures and services could be bought elsewhere by a domestic market to supplement their production. Furthermore, there has been a restructuring of production and distribution in many key industries which includes outsourcing or subcontracting through global commodity chains. The net result is that more and more workers are being paid very low wages. Globalization also tends to privilege large companies who can capture new markets quickly and easily to the disadvantage of small and micro entrepreneurs who face difficulties gaining knowledge of - much less access to emerging markets. In sum, globalization puts pressure on low-skilled workers.
Source: International Business for A2
Why has Globalisation occurred?
There are several reasons as to why globalisation has occurred. Generally, there were steady changes that occurred in the world over the past 100 years. These global changes led to globalization. Such changes for globalisation include:
* Containerisation
* Technological change
* De-regulation of global financial markets
* Differences in tax systems
* Less protectionism
Containerisation – the costs of ocean shipping have come down, due to containerization, bulk shipping, and other efficiencies. The lower cost of shipping products around the global economy helps to bring prices in the country of manufacture closer to prices in the export market, and makes markets contestable in an international sense.
Technological change – Also known as “the death of distance”[15] . This means that, technological change has been a contributing factor to globalisation. For example, business deals can be negotiated on the phone at a much cheaper costs due to advanced communication systems. Additionally, better transport like air travel, ports, and cargos has aided to the interdependency between different countries creating political relations and competitive advantage.
De-regulation of global financial markets: This has included the removal of capital controls in many countries which facilitates foreign direct investment.
Differences in tax systems: The desire of multi-national corporations to benefit from lower labour costs and other favourable factors abroad , the development and the exploitation of fresh comparative advantages in production has encouraged many countries to adjust their tax systems to attract foreign direct investment.
Less protectionism - old forms of non-tariff protection such as import licencing and foreign exchange controls have gradually been dismantled. Borders have opened and average tariff levels have fallen.
Effects of Globalisation on sourcing of inputs
Global sourcing is the practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing has contributed to exploit global efficiencies in the delivery of a product or service. This has essentially cut down globally sourced products or services that are predominant in countries like China, Vietnam and India where labour intensive manufactured products produced low-cost labour. Therefore, globalisation has made the sourcing of inputs to adapt these efficiencies like; low cost skilled labour, low cost raw material and other economic factors like tax breaks and low trade tariffs. [16]
For example, call centres comprise of members of staff with low-cost English speaking workers in the Philippines and India, and IT work performed by low cost programmes in India and Western Europe. However, global sourcing is not limited to low-cost countries.
Likewise recently, Coca-Cola’s continuous growth and efficiency has led to the worldwide phenomenon opening a bottling plant in the city of Luohe in Henan- the company’s second largest production facility in China.[17] As a result of the firm’s expertise in various beverages like sprite and Fanta, globalisation has enabled companies like coke to gain specialized and efficient services from various plants globally.
Globalisation has its benefits when it comes to global sourcing: learning how to do business in a potential market, tapping into skills or resources that are unavailable domestically and increasing total supply capacity.[18] Also, Nike; a global success ensures economies of scale because it targets the areas in the world that will yield more revenue and minimised costs. Nike’s production facilities are usually staffed with people of nationalities whereby a minimum wage is more or less non-existent. This has given Nike the advantage of cheap labour.
Conclusion
Globalization has created the broadening, deepening and speeding up of world-wide interconnectedness in all aspects of life, from the cultural to the criminal, the financial to the environmental. Presently, there seems to be 'a global shift'; that is, a world being formed by economic and technological forces, into a shared economic and political arena.
________________
[1] http://economictimes.indiatimes.com/opinion/guest-writer/a-brief-history-of-globalisation/articleshow/3276531.cms
[2] http://www.trcb.com/finance/economics/globalization-causes-benefits-and-consequences-419.htm
[3] http://www.forbes.com/sites/chuckjones/2013/08/30/while-apple-retains-lead-samsung-gaining-mobile-traffic-market-share/
[4] http://www.macobserver.com/tmo/article/apple_total_ios_device_sales_top_365_million
[5] migration.ucdavis.edu/mn/more.php?id=3408_0_5_0
[6] http://www.tutor2u.net/economics/content/topics/macroeconomy/economic_shocks.htm
[7] http://www.invest.gov.tr/en-us/turkey/factsandfigures/pages/economy.aspx
[8] http://www.investopedia.com/terms/e/emergingmarketeconomy.asp
[9] http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm
[10] http://ringlet86.wordpress.com/2008/08/31/what-is-the-role-of-the-world-trade-organisation-wto-and-has-it-been-successful-in-achieving-its-goals-why-what%E2%80%99s-the-future-of-the-wto/
[11] http://www.morningstar.co.uk/uk/news/67559/the-changing-role-of-emerging-markets.aspx
[12] http://www.pimco.com/EN/Education/Pages/EmergingMarketsEquity.aspx
[13] http://www.skwirk.com.au/p-c_s-57_u-185_t-493_c-1813/the-role-of-technology-in-globalisation/nsww///
[14] http://blogs.worldbank.org/developmenttalk/global-investment-patterns-will-see-radical-changes-2030
[15] http://www.tutor2u.net/economics/revision-notes/a2-macro-globalisation-introduction.html
[16] http://en.wikipedia.org/wiki/Global_sourcing
[17] http://www.packaging-gateway.com/projects/cocacola-bottling/
[18] http://www.un.org/en/globalissues/africa/
