Globalisation

A process by which the world's economies are becoming more closely integrated

Multi-national Corporations

  • Apple (USA)
  • KFC (USA)
  • Starbucks (USA)
  • Amazon (USA)
  • M&S (UK)
  • Walmart (USA)
  • Aldi (Germany)
  • Google (USA)
  • B.P (UK)

The majority of multi-national corporations come from HDCs (especially the US).

Reasons for Foreign Direct Investment / Multi-national corporations

Multi-national corporations invest in other countries, so they are a form of F.D.I.

There are multiple reasons for investing in another country:

  • Market seeking
    • Seeking to expand their demand / number of possible customers
    • E.g Google
  • Efficiency seeking
    • Seeking lower costs
    • E.g Apple gains cheap manufacturing from China
  • Resource seeking
    • Seeking resources that are scarce / not available in the country of origin
    • E.g B.P drilling for oil across the world.

Why the speed of globalisation has increased

  • Technology change
    • Communication technology has allowed cheap and easy transfer of information between the head office and global sites
  • Revolution in transportation via containerisation
    • Firms can pack products on site, reducing costs of sea transport
  • Trade has becoming more liberal as protections have been lifted due to the work of the World Trade Organisation
  • Deregulation of financial markets around the world

Drawbacks of globalisation

More susceptable to external shocks:

  • Covid
  • War in Ukraine
  • Oil prices
  • 2008 Financial Crash

Unemployment and deindustrialisation occurs as MNCs move production out of developed countries into newly industrialised countries.

  • Causes structural unemployment

Access to protected markets is restricted, so it is not a level playing field (Protectionism)

Impact on LDCs

Impact on the Balance Of Payments

  • Initially, credit due to large investment, e.g $20m
  • Eventually, debits due to profits paid back to headquarters
    • Year 1 -> $50,000
    • Year 5 -> $10m

Benefits of F.D.I and MNCs in an LDC

  • Creation of jobs
  • Skills and training provided for workers
  • Increase in tax revenue
  • Access to capital and dynamic efficiency

Potential costs for an LDC

  • Capital intensive production techniques - few jobs created
  • Top jobs imported in with the company
    • CEOs, CFO, CTOs are all based in the home country, only low paying jobs given in the LDC
  • May have to cut taxes to attract MNCs
  • Negative externalities, e.g pollution
  • Infant Industries cannot compete with MNCs.