Topic 3 - Globalisation

3.1 How does the new economy of a globalised world function in different places?
a) The balance between employment sectors (primary, secondary, tertiary and quaternary)
varies spatially and is changing
Traditionally industry and other types of economic activity are broken down into four major
groups:
Primary Industries are those which extract raw materials from the ground or the sea e.g.
fishing, farming and mining
Secondary Industries process and manufacture the primary products e.g. steelmaking, car
assembly.
Tertiary Industries provide a service. These include education, healthcare, office work, and
retailing.
Quaternary Industries provide information and expertise. They include the relatively new
electronics industry.
Using the Clark Fisher model you need to investigate changing employment structures
on countries at different levels of development
An employment structure shows how the workforce is divided up between the three main
employment sectors - primary, secondary, tertiary and quaternary. Employment structures change
over time
The Clark-Fisher Model

Two economists Clark and Fisher, produced a model which can help to explain changes in
employment structure
As countries develop they go through three stages
Pre-industrial Industrial Post-Industrial

As economies develop and incomes rise, the demand for agricultural and manufactured goods
will increase. This means secondary industry will grow
As incomes continue to rise, people start to consume more services. This means the tertiary
sector will grow and develop
Finally, tertiary services will support and promote quaternary industries

Employment Structures of Different Countries at Varying Levels of Development

Least Developed Countries

Employment Structure of
Ethiopia
Primary
Secondary
Tertiary

Employment Structure of
Nepal
Primary
Secondary
Tertiary

NICs / BRIC /MINT

Employment Structure of
China

Employment Structure of
Mexico

Primary

Primary

Secondary

Secondary

Tertiary

Tertiary

Developed Countries

Employment Structure of
the UK

Employment Structure
of Japan

Primary

Primary

Secondary

Secondary

Tertiary

Tertiary

How Useful is the Clark-Fisher Model

The model tells us something about how employment changes over time, and how the balance of
employment changes as countries develop. But there are some problems with it:
1. It assumes that there is a simple straight development path from developing to developed. In
fact countries have different levels of income and there are many different economic groupings

Different Economic Groupings

2. The model also tends to ignore the international context and does not take into account
imports of manufactured goods, or the relocation of manufacturing to cheaper, less developed
countries (global shift)
3. Some developing countries may have a large tertiary sector (linked to the tourism
industry), without having developed a secondary industry first.
You need to contrast the importance of different employment sectors in countries at
different stages of development
Employment Sectors

You need to know the importance of different employment sectors and working conditions in
lower income, middle income and higher income countries
You also need to know that as countries move through the different stages of the Clark-Fisher
model then there are other changes (other than P-S-T-Q), particularly with respect to working
conditions
Changes such as:
An increase in pay and therefore income
Better working conditions
A change from informal to formal jobs
In developing countries many people work in an informal job, for example a street seller
or subsistence farmer

Informal jobs are unregulated, untaxed and the work is often difficult and dangerous
Formal jobs have contracts, regular (and taxed) pay and are regulated, for example with health
and safety laws and holiday pay.

b) You need to understand how globalisation is changing employment sectors both in the
developed and developing world
You need to outline the role of global institutions, including the World Trade
Organisation (WTO), the International Monetary Fund (IMF) and Trans National
Corporations (TNCs), in creating a more globalised economy

Globalisation

The word globalisation only came into common usage during the 1990s
Prior to that geographers talked about the global economy
However, there was a growing recognition that economic changes were accompanied by
important cultural, demographic (population), political and environmental changes on a worldwide scale (and at an ever accelerating pace)

Globalisation is the way in which countries become increasingly connected to each

other. This happens through
Greater economic inter-dependence between countries national borders have become
less important
An increasing volume and variety of trade in goods and services
Easier international money flows to invest in other countries
Increased spread of technology
Culture, where global media companies spread news, TV programmes and music
The rapid spread of globalisation has been helped by greater international trade, plus, changes in
investment

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Global Institutions and Globalisation

World Trade Organisation (WTO)
This is an organisation created in 1995 and it is the only international organisation dealing with
the global rules of trade between nations. Its main function is to ensure that there is free trade
and that flows as smoothly, predictably and freely as possible.
Essentially, the WTO is a place where member governments go, to try to sort out the trade
problems they face with each other.
At its heart are the WTO agreements, negotiated and signed by the bulk of the worlds trading
nations.
But the WTO is not just about liberalising trade, and in some circumstances its rules support
maintaining trade barriers for example to protect consumers, prevent the spread of disease
or protect the environment.
* Free trade, promoted by the WTO, seems to have benefited developed countries and TNCs
more than developing countries and small, local businesses
The WTO plays a role in bringing countries together to trade goods
It also fosters negotiation between countries and brings member states together through
negotiation and meetings
The International Monetary Fund (IMF)
The IMF has 188 member countries. It is a specialised agency of the United Nations but has its
own charter, governing structure, and finances. Its members are represented through a quota
system broadly based on their relative size in the global economy.
The IMF promotes international monetary cooperation and exchange rate stability, facilitates
the balanced growth of international trade, and provides resources to help members in balance
of payments difficulties or to assist with poverty reduction.
Transnational Organisations (TNCs)

A transnational corporation (or company) can be defined as a large company that operates in
several countries around the world.
This may be through manufacturing products, or selling goods.
International trade has exploded in volume due to the growth of TNCs.

They have also increased trade to developing countries because they have located to
developing countries because they can pay people lower wages (this then reduces costs and
increases profits for the TNC)

The Impacts of Globalisation on the Employment

Developed World
In the developed world, workers have had to re-skill, as jobs in agriculture, mining and
manufacturing have given way to jobs in the tertiary and quaternary sectors.
The labour has become more flexible more part-time working, more self-employment, more
teleworking.
Developing World
In the developing world, some things have not changed, such as the importance of the
informal sector and the use of child labour.
On the positive side, there are opportunities for workers to acquire the skills needed in
commercial agriculture, manufacturing and the service sector.

In theory, playing a part of the global economy should benefit every nation and every person in
the world. This is true only to a limited extent.
Some countries are more connected to the global economy than others and therefore their
people stand to gain more.
Because they are amongst the most powerful players in the global economy, the populations of
the rich developed countries are doing particularly well.
Sadly, the developing countries are benefiting least, because they are still being exploited by
other countries.
Within many developing countries, women continue to be treated as second-class citizens,
particularly in terms of education, employment opportunities and quality of life

You need to evaluate the impact of globalisation on different groups of people,

including women and men in the developed and developing world

Case Study - Evaluate the Impact of Globalisation on Different Groups of People Including
Women and Men in the Developed and Developing World

3.2 What changes have taken place in the flow of goods and capital?
a) You need to understand how in the past 50 years both international trade and the flow of
capital across international borders have expanded rapidly
The Changes in the Flow of Goods and Capital

 You need to examine the changes in the volume and pattern of international trade and
foreign direct investment
International Trade

The growth in global trade and the global economy go hand in hand.
Most countries want and need the chance to take part in global trade.
Most countries have something others want to buy - these exports allow a country to import
what it needs to progress its economic development.
Unfortunately, world trade does not take place on an even playing field.
Despite a lot of effort to increase free trade (goods bought and sold without tariffs, restrictions,
quotas), the reality is that goods from developing countries often encounter various forms of
trade barrier.
The terms of global trade tend to favour developed countries at the expense of developing
countries.

Flows of Capital / Foreign Direct Investment (FDI)

FDI is made up of flows of capital which businesses in one country direct towards another
country in order to become involved in its business life and markets.
The companies involved can range in size from a small family business to a giant TNC.
The more specific motives include:
Gaining direct access to foreign markets
Exploiting new sources of energy and minerals
Increasing supplies of food
Taking advantage of cheap labour
As with trade, the volume of FDI continues to rise.
The TNCs are major players, but the general direction of investment flows is not exclusively
from developed to developing countries. In fact, there are large flows of FDI between rich
developed countries.
It should be noted that the governments are also investing in other countries. More often, the
investing is indirect (multi-lateral) and done through an international agency such as the UN.
Quite a lot of investment is in the form of aid.

The Reasons for these Changes

Reason 1- Increased and Faster Global Transport and Information Exchanges
Communication is cheap and instant because of fibre optic internet cables, satellites and
technology such as computers and mobile phones
Transport has developed, getting from the UK to the USA used to take months by ship. Now it
takes hours by flight.
Transport has increased- there are now more flights to more global locations, more frequently,
everywhere seems closer.
Road and rail networks have increased making transport within countries, even DEVELOPING
ones easier and quicker

Reason 2 Lower Transport Costs

Container Ships
Ships transport over 90% of our goods
Container ships have revolutionised trade in goods, making it cheap and efficient to move
products from produced to consumer
Containerisation has increased the efficiency of moving traditional break-bulk cargoes
significantly, reducing shipping time by 84% and costs by 35%
A container ship can hold up to 10 000 containers. There are now ships being built that can
hold 18 000 containers.
One container can hold 12,000 pairs of trainers, and costs about 3000 to ship from China to
the UK. Shipping only adds about 25p to the cost of the trainers
Aircraft
Transport by aircraft is much more expensive than by ship, so only 0.2% of good are
transported by air
However, this makes up 15% by value
Airfreight is 70 times more valuable than goods transported by sea, e.g. electronics, medical
equipment, and fruit and vegetables from California or Africa
Jet engines are also more fuel efficient now and airlines operate with far fewer staff so costs
are cheaper
Reason 3 - TNC Growth
Transnational Corporations (TNCs) are large companies which operate in many different
countries
Over the past 20 years, TNCs have grown in number and importance and cover a number of
industries
Many TNCs are now richer than national governments, thus they dominate much movement of
capital across the globe.
Many TNCs have merged (where one company buys another company), e.g. Exxon and Mobil
(this was formed in 1999 as a merger between Exxon and Mobil. In 2011 it had sales of $486
billion, almost as much as Belgiums GDP for that year), creating a larger single company. This
creates bigger TNCs, which have more money (capital) and therefore can get bigger and
bigger.
Headquarters of TNCs are usually in a global city in an HIC (e.g. London, New York) with
production and selling operations across the world

Reasons Why TNCs Operate Globally

To take advantages of incentives from countries
To be close to markets (especially the car manufacturing industry)
To spread business risk
To sell inside trade barriers
To reduce labour costs (many factories are now in developing countries)
To reduce costs of building/land
Reason 4 - Foreign Direct Investment
This is the investment which flows from one country to another (often by TNCs)
This may involve a TNC buying a business or a factory in a country, or by expanding an
existing business in that country
This is done to take advantage of cheaper labour or resources and increase profit
FDI is important because it creates jobs. Chinas large FDI explains why it is now the
workshop of the world
However, FDI can be a double-edged sword. A TNC investing in China may be doing this by
removing investment (closing a factory) somewhere else like the UK.

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Reason 5 - State-Led Investment

This is investment by the government
Unlike the UK, where banks are free to invest money as they wish, in countries such as China
the government keeps a tight grip over its banks
They use money from household savings and overseas trade to fund state-owned companies
(controlled by the government)
Large state-owned companies then borrow this money at low interest rates
China has three state-owned oil companies: SINOPEC (the worlds fifth largest company),
CNOOC and CNCP. To secure Chinas oil supply these companies have undertaken FDI in
Indonesia, Burma, Sudan, Gabon, Thailand and even Canada
b) You need to understand how Transnational Companies (TNCs) control a substantial part
of the global economy and have created global shift
Global Shift
Global shift is the movement of manufacturing from developed countries to NICs and
developing countries

 You need to study one TNC Nike, in the secondary sector to show how it operates in
different parts of the world e.g. Headquarters location, out-souring and the global shift
in manufacturing
A Case Study of a TNC in the Secondary Sector Nike
Nike trainers are sold and worn throughout the world. Nike is a typical transnational corporation
(TNC). Its headquarters are in the USA, where all the major decisions and research take place,
yet its sports shoes are manufactured in many countries around the world.
The headquarters are located in Beaverton, Oregon. This is also where the product design takes
place.
The company directly employs more than 44,000 people worldwide, but over 20 times this number
work in factories under contract to produce Nike Products.
It operates and sells in over 140 countries; 46 of these manufacture goods for Nike e.g. China,
Vietnam, Indonesia, Brazil and Honduras.
In the 1960s it outsourced (global shift) some of its manufacturing to Japan when labour was
cheap there in the 1960. Then it moved to South Korea, in the 1970s and then in the late 1980s
Thailand and Indonesia. Then in the 1980s Nike outsourced some of its manufacturing and began
production in China, to take advantage of the cheap labour there. In the 2000s due Chinas
currency being worth more it moved some of its production to Vietnam as it was cheaper to make
goods there (lower wages).
Working Conditions in Sweat Shops
Since 2000 there have been many campaigns that have focused on Nike and the working
conditions provided in the factories that make their products.
Many of the workers in the Indonesian factories come from the surrounding countryside where
they live in poverty. The conditions they move to are better, but not much. Some of the problems
they face are:
Low wages (as little as US$2 per day) and long hours (people working 14 hours per day)
Industrial accidents
Physical and sexual abuse
No workers rights trade unions are illegal in Indonesia
Where workers do complain or protest they can lose their jobs. The contractors say they cannot
afford to pay the workers more and Nike says that it is difficult to control what is happening in
individual factories. This means that in a nation where unemployment is high and employees can
be easily replaced, workers will continue to be open to exploitation.
Human rights and aid groups have for years criticised Nike for not doing enough to tackle poor
working conditions in its supply chain, particularly in developing countries.
Although 60% of factories monitored met the required standards, a quarter of factories were found
to present more serious problems which ranged from a lack of basic terms of employment and
excessive hours of work to unauthorised sub-contracting, confirmed physical or sexual abuse and
the existence of conditions which could lead to death or serious injury.
o Workers at nine Nike plants in Indonesia (including Jakarta) have been found to suffer from
sexual and verbal abuse, lack of medical attention and compulsory overtime.
o Female workers have been found to have gained jobs through sexual "favours".
o During the 1970's, most Nike shoes were made in South Korea and Taiwan but when
wages began to rise, Nike looked for "greener pastures." It found them in Indonesia, China,

and most recently Vietnam--countries where cheap labour is abundant. Also in China and
Vietnam, the law prohibits workers from forming independent trade unions.
o If Nike doubled the salaries of its 30,000 employees in Indonesia the annual payroll would
be roughly equivalent to what Michael Jordan is paid in one year to advertise the product.
Nike said it would set up a taskforce to improve compliance with its code of conduct on working
hours.
You need to study one TNC Tesco, in the tertiary sector to show how it operates in
different parts of the world e.g. administrative work moving overseas and the
globalisation of production
A Case Study of a TNC in the Tertiary Sector Tesco

Tesco PLC is a British multinational grocery and general merchandise retailer that is one of
the few leading TNCs with its headquarters in the UK. These are in Cheshunt, Hertfordshire.
It is the second-largest retailer in the world measured by profits (after Wal-Mart) and thirdlargest retailer in the world measured by revenues (after Walmart and Carrefour).
It now has over 6000 stores and employs over 500 000 people in 14 countries
It has stores in 12 countries across Asia, Europe and North America and is the grocery market
leader in the UK (where it has a market share of around 30%), Malaysia, the Republic of
Ireland and Thailand
It is also in partnership with Esso to sell petrol.

The Key to the Companys Success

Its strategy of diversification into new markets, such as toys, clothing, electrical goods, home
products, financial services (e.g. credit cards) and telecommunications, in addiction to its
original business of food.
Outsourcing its supplies of foodstuff, clothing and other goods directly from producers, both in
the UK and in LICs such as Kenya, Sri Lanka and Bangladesh.
Globalising its chain of supermarkets. In the 1990s it opened stores in Eastern Europe
(Hungary, Poland, the Czech Republic and Slovakia). In 1998 it opened stores in Asia in
Taiwan, Thailand and South Korea. It now also has stores in China, Malaysia and Japan.
Today, 60% of the companys profits come from Asia.

Why Tesco has Not Spread to Some Continents

Lack of wealth / customer base e.g. in Africa

Concentrating on making more profits elsewhere e.g. UK and Asian markets
Possible obstacles to market entry in South America / Africa e.g. political instability and conflict
or trading laws / disputes / trade bloc ideas