Chapter 16

2. Chapter 16

3. The Bigger Picture

4. Learning Outcomes • Upon completion of this chapter you should be able to: • Explain the term ‘globalisation’ • Outline the reasons that companies engage in globalisation and foreign trade • Explain what a transnational company is and the reasons why they locate in countries • Explain the reasons why ICT has increased globalisation • Identify the impact of global companies and technology on consumer choice and behaviour

5. What Is Globalisation? • Globalisationis the way in which the world becomes interconnected as a result of increased trade and cultural exchange. • The biggest companies in the world are transnationals which have subsidiaries in many countries.

6. Impact of Globalisation • Increased international trade • Greater dependence on the global economy • Freer movement of capital, goods and services • Companies such as McDonald’s and Starbucks trading throughout the world and treating the whole world as a global market

7. Development of globalisation • Although countries have traded internationally for centuries, globalisation has expanded for a number of reasons in the past two hundred years: • Industrial Revolution: cheap production of goods • Rapid Population Growth: increased demand for goods • Suez and Panama Canals: faster sea transport • Invention of the Telephone: quicker and easier international communication • Invention of Aeroplanes: faster international transportation of goods and people • Invention of Electricity: faster production of goods • Reduction of Barriers to International Trade • Invention of TV: increased global awareness/demand for products • Invention of the Internet: cheaper and easier international communication, advertisements, sales.

8. Reasons for Globalisation • Improvements in Technology: internet and mobile technology • Economies of Scale: reduced production costs • Freedom of Trade: removal of restrictive barriers to trade • Labour Availability and Skills: labour is cheaper in developing countries • Decreased Transport Costs: larger cargo ships have made it cheaper to transport goods abroad • Transport Improvements: goods and people can travel quickly • Consumer Demand: due to increased income levels and increased foreign travel

9. Delivery Systems • How goods are transported from the manufacturer to the consumer • Main delivery options: • Road • Rail • Sea • Air • Improvements in delivery systems have made it easier for businesses to sell globally.

10. Road • Advantages: • Door-to-door deliveries are possible • Minimum handling of goods • Disadvantages: • Delays due to road works or traffic congestion • Emissions from vehicles can harm the environment • Not suitable for bulky goods

11. Rail • Advantages: • Suitable for bulky goods • Disadvantages: • Not flexible due to fixed timetables • Not every town in Ireland has a railway station

12. Sea • Advantages • Suitable for transporting bulky goods worldwide • Cheaper than transporting goods by air • Disadvantages: • Slow, especially compared to air transport • Weather conditions can cause delays • Must link with another form of transport to deliver goods to final destination

13. Air • Advantages • Fast • Suitable for delivery of perishable goods • Disadvantages: • Expensive • Must link with another form of transport to deliver goods to final destination

14. Transnational Companies (TNCs) • Globalisation has resulted in many businesses becoming TNCs. • TNCs are companies that have their head office in one country and operate in several different countries. • Examples include McDonald’s, Google, Coca Cola, Nike. • Inward investment occurs when a foreign company invests in a country, e.g. building a factory or opening a retail outlet. This is also known as foreign direct investment (FDI). • Ireland has benefitted from a large number of TNCs investing in Ireland, e.g. Intel, Microsoft, Google, Facebook.

15. What Attracts TNCs to a Country • Cheap raw materials • Good transport links • Plentiful labour supply • Access to markets where goods are sold • Attractive government policies, e.g. low corporation tax

16. Positive Impacts of Globalisation • Employment: TNCs provide new jobs and skills for local people. • Spin-off effects: TNCs support local businesses by buying local resources, products and services. • New experiences: people can avail of greater choice by buying products that were not previously available to them.

17. Negative Impacts of Globalisation • Benefits The Rich More Than The Poor: the wealthiest countries dominate world trade discussions. • Local Communities May Suffer: the wealth from inward investment may not benefit the local area • Local businesses may not be able to compete with the TNC • Many TNCs send their profits back to the home country (repatriation) • Increased Transportation and ‘Air Miles’ For Products Which Could Be Produced Locally

18. Influence of Developments in ICT • Email: allows communication between businesses and subsidiaries, suppliers, customers, employees • Internet: allows businesses to buy and sell globally online

19. Impact Of ICT on Consumer Choice and Behaviour • Online Booking: consumers can purchase services online and in advance from the comfort of their own home. • Loyalty Cards: influence consumer purchasing decisions • E-commerce: buying goods online • Increased convenience • Greater choice • Advance detail on products leads to more informed consumers • Opportunity to read previous customer reviews • Lack of human interaction • Inconvenience when returning goods

20. Recap and Review • Can you do the following? • Explain the term ‘globalisation’ • Outline the reasons that companies engage in globalisation and foreign trade • Explain what a transnational company is and the reasons why they locate in countries • Explain the reasons why ICT has increased globalisation • Identify the impact of global companies and technology on consumer choice and behaviour.