The Impacts of Globalisation (Edexcel IGCSE Economics)
Impact of Globalisation on Stakeholders
Spec point —
2.2.1c
- Many of the impacts of globalisation have been positive, however, there have been some very negative ones too
- When considering the impacts, it is useful to acknowledge all of the stakeholders, including individual countries, governments, producers, consumers, workers and the environment
- The increased interconnectedness of the world influences stakeholders positively and negatively*
- Some stakeholders have benefited from a more global world, while others, often from developing economies, lose out the most
Advantages of Globalisation and Global Companies
Spec point —
2.2.1c
- The rise of globalisation, and the increased numbers of global companies, offer many advantages to different stakeholders
Advantages of Globalisation and Global Companies
| Stakeholder | Explanation |
|---|---|
| Individual countries | - Some developing countries gain from hosting global companies as there is an increased flow of taxes and job opportunities to host countries - Emerging economies such as China and Brazil are shifting from a low to high standard of living as a result of globalisation - China's growing middle class has increased from 3% in 2000 to over 50% in 2023 as incomes rise |
| Governments | - Hosting global companies increases tax revenues, enabling investment in vital public services such as healthcare, education and infrastructure |
| Producers | - Global companies have access to large markets. Higher output reduces costs as a result of economies of scale - E.g. **Procter & Gamble (P&G) **operate in over 180 countries and holds a large percentage of global market share |
| Consumers | - Increased competition benefits consumers with** lower prices and more choices** of goods and services - E.g. L'Oreal have 36 different global brands and offer a wide range of goods in 150 countries |
| Workers | - Labour mobility can ease staff shortages in one country by employing workers from other countries - This has increased employment and wages in developing countries - Global companies can locate subsidiaries near skilled or unskilled workers anywhere in the world - E.g. American company Mattel (with brands such as Barbie and Fisher-Price) has manufacturing facilities in China, where they have access to low-cost worker expertise |
Disdvantages of Globalisation and Global Companies
Spec point —
2.2.1c
Disadvantages of Globalisation and Global Companies
- There is increased criticism of globalisation and global companies, particularly from developing countries
- The disadvantages of globalisation and global companies impact stakeholders in the following ways:
Individual countries
-
As globalisation increases, so too does inequality between the richest and poorest countries
- In developing countries, workers have low trade union membership, so there is a greater exploitation of workers through low wages, poor human rights and worsening income inequality
-
There is a loss of traditional industries in developed countries as deindustrialisation causes certain industries to move operations to low cost countries
- E.g. UK textile industry outsources operations to SE Asia where labour costs are lower, creating structural unemployment
Governments
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Tax avoidance is more easily achieved by global firms, as they can find international loopholes or move profits around to avoid corporation tax
- Many MNCs have offshore bank accounts and do not bring the profit back home
-
Many global companies enjoy revenue that is higher than the GDP of the host nation
- This gives them immense monopoly power that can be used to influence laws and regulations, or gain special access to raw materials
Producers
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Small local firms struggle to compete with established global firms
- This puts many local firms out of business, reduces competition in that country and may increase structural unemployment in the host country
Consumers
- Global companies have increased cultural globalisation, as western values replace and erode local cultures and goods with global brands such as Coca-Cola, Nike, and Apple
Workers
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Many global firms have poor working conditions and very low wages
- Workers in sweatshops often have 12-hour shifts and are expected to work six or seven days a week
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Multinationals are often footloose and have no loyalty to a region
- This means they can easily decide to move factories which may increase regional unemployment
Environment
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Many global firms move manufacturing to countries with less stringent environmental laws and regulations
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The increased global demand for goods and services has contributed to global warming and a rapid depletion of natural resources, particularly in developing countries
- E.g. The deforestation in Indonesia for palm oil production results in the loss of 45,000 hectares of forest a year
Worked Example Globalisation results in increasing:
A. Government budget deficits for national economies
B. Lower inflation levels in economies
C. Integration and interdependence of markets and transport systems
D. Moves towards a global currency
Final answer: C is the correct answer
Globalisation results in global markets and economies working together and becoming increasingly dependent on others for supply chains and for markets
- A is incorrect, as globalisation largely refers to private sector transactions increasing between countries, and therefore government expenditure may not be affected
- B is incorrect, as globalisation can lead to lower cost-push inflation if cheaper raw materials are imported, but increasing exports can cause demand-pull inflation
- D is incorrect, as globalisation takes place with the exchange of currencies and does not require a single currency to undertake transactions
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