ECONOMIC TRANSITION

• Product Chain: full sequence of turning raw materials into finished products
• Underemployment: where people have the skills, willingness, and ability to work in a full-time paying jobs,
but there are not enough opportunities or job to work in such industries. It includes people who work part-
time, or skilled people who work in a “lower” occupation than what they’re actually trained and skilled to
do
• Post-industrialised society: is a developed country where far fewer people are now employed in
manufacturing industries than in the past. Most people work in the tertiary sector, with an increasing
number in the quaternary sector.

Employment Sectors
1. Primary sector: raw materials. sold directly to consumers, but mostly to secondary industry for
processing. --> mostly in LICs
2. Secondary sector: manufacturing industry. Processing primary products into finished goods as
Consumer Goods. Some into goods to be sold for other industries (Capital goods: machineries) -->
mostly in LICs, NICs, some MICs
3. Tertiary sector: providing services for businesses (call centers) or for people (retails) --> MICs
4. Quartenary sector: providing information and expertise, researches and development (consultants,
aerospace engineers, biotechnology = improving the technology for the 3 sectors) --> HICs

The Sector Model

• Mechanization and technology reduces labour needs in
Primary sector (agriculture are not labour but capital
incentive) --> people moved to urban areas and work in
Secondary and Tertiary
•Secondary sector labors are also replaced by robots and
machines --> labor focuses in tertiary sector
•Tertiary sector are increasingly has a reduced need for
labour in some areas (banking, insurance, computer
networks) because od technology but rising in areas like
education, health care, tourism
•Quartenary sector is considerably a new industry. It works
to improve the production and innovation of other sectors.
Mostly only available in HICs and highly developed nations

Variety of Employment Structures in Countries


LICs and Least Developed Countries (LDCs)
• Mostly doing Subsistence Farming (produce for
themselves and only sell of theres an excess)
• Underemployment = dense population = limited
land= not enough for everyone to work full time
• Primary Sector jobs = harsh working conditions
and very low salary
• Secondary and Tertiary jobs = few & mostly
Public Sector (state owned) —> wages are low
due to the limited government funds
—> Teachers, nurses, refuse(garbage)
collectors
• Primary product dependant => export rely on
small numbers of primary products —> very
vulnerable in changes of world market
- Chad: 80% employment is in agriculture
(prone when draughts, nat disasters too)
Middle Income Countries (MICs)
• countries started attracting Foreign Direct
Investment for their economy (secondary and
tertiary)
• Exports rely on Manufacturing Industry
(Secondary)
• India: tertiary service sector leads the eco
development
• Local Businesses develops, opens employment
and some grows into big companies.
• Increasing country’s wealth = investment in
Agriculture —> Mechanisation —> falling
demand for labor
• Quartenary sector may starts to develop

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High Income Countries (HICs)
• Developed countries = Post Industrial Societies
• Primary and secondary sector: very few people =
US agriculture labor only 4% of employment
• Tertiary Sector dominates employment
• Quartenary sector has an increasing number of
labor
• Falls in Manufacturing industries:
1. Many manufacturing industries are moved
to MICs & LICs —> for lower cost (cheap
labor, energy costs, taxes, etc)
2. Investments in robots and advanced
technology replaced manual workforce of
HIC Manufacturings


Outsourcing
• practice used by companies to reduce costs or improve efficiency by shifting tasks, operations, jobs or
processes to an external contracted third party for a significant period of time.
• refers to “contracting out” or doing their company’s production or service activities overseas in a foreign
countries, where labor and other costs are a lot cheaper.
• OR, use the service of other industry to aid the process of their production, for example, Nike uses NIAC
to handle tradings (tariffs, customs, transports)
• India = service industry outsourcing —> call centres (ex: american computer company Dell)
• possible because of the development of ICT —> spread down the global economic hierarchy from core to
the periphery

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 DEVELOPMENTS, INEQUALITIES, WELL-BEING
Development and Its Traditional Income Measures
• Development: Improvement in the quality of life (Social, Economic, Physical, Psychological)
• Development in LICs:
1. improved local food supplies —> machineries, fertilisers
2. electricity grid extend outwards from urban to rural areas
3. improved accessibility of remote provinces —> new roads and railways
4. improved literacy level throughout the country
• Development Gap: difference between the development in a wealthy and poor country
- Wealth gap: how wealth is distributed within a country
- government many invests their wealth in such a way that it prioritise the development of several areas
like education and health, making them high altho nat. wealth is low

• GDP: measures national wealth. total value of goods and services produced by a country in a year
• GNI: Gross National Income - total value of goods and services produced within a country plus income
received from overseas (dividends, interests) minus payments to other countries
• GNI per person = GNI / Total Population
- it doesn't measure: 1) how wealth is distributed. 2) how government may differ at spending
• PPP: Purchasing Power Parity - measures national wealth and taking into account the fact that cost of
living can vary b/w countries —> GNI at PPP

Human Development Index (HDI)

• Physical Quality of Life Index 1980s: Literacy, Life Expectancy, Infant Mortality
• HDI by UN in 1990 — better at measuring disparities (gap/difference) b/w countries
- includes: Health (life expectancy at birth), Education (mean years of schooling, expected years for
children of school entering age), Living Standards (GNI per Person <PPP>)

• Country Groups based on HDI: Very High, High, Medium, Low


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• Human Development Report (HDR) reported challenges: Poverty, Gender, Democracy, Human Rights,
Cultural Liberty, Globalisation, Water Scarcity, Climate Change
- improvements noted in HDR:

1. falling poverty in the last 500 yrs 4. malnutrition has declines almost a third
2. poverty has been reduced in almost all since 1960
countries 5. proportion if children not in primary
3. child death has lessen more than half education has fallen since 1960
since 1960 6. share of rural families without access to
safe water has been cure since 1960

- Current struggles noted in HDR: 

1. Inadequate Nutrition 4. Inadequate Sanitation
2. Contaminated Drinking Water 5. No Access to Basic Healthcare

3. Unsafe Shelter

Individual Measures of Development

1. Infant Mortality Rate
• most sensitive indicator of socio-economic progress
• measures health equity between and within countries
- Countries may share the same knowledge but achieve disparate mortality rates —> differences in
the efficiency of social institutions and health system
- Intranational (within a country) disparity in IMR: regional government differences & technology
distributions

2. Education
• key to socio-economic development
• refers to the process if acquiring knowledge, understanding, and skills.
• Quality education and female literacy are central to development
- World bank: female literacy is the most fundamental achievements
- many aspects depend on it (literate women —> access to medical information —> less infant
mortality & higher QOL)
• UN: education for sustainable development (seeks to meet the needs of present without compromising
future generations)

3. Nutrition
• Undernourishment / Malnutrition: when the body doesn't get the right amount of vitamins, minerals and
other nutrients it needs to maintain healthy tissues and organ function. occurs when they consume it
few essential nutrients or excreting/using them more rapidly than the intake. —> imbalanced nutrition
- mostly from inadequate intake of proteins, vitamins, minerals bc such (fish, meats) are expensive
- concentrated in LDCs —> sub saharan africa, south asia, former soviet union countries
• Hunger: chronic under-consumption of food and/or nutritious food
• highly connected to child and infant mortality
• solution: Diversification and increase agriculture production

Different Stages of Development

• Developing South vs Developed North
- south: many tropical countries —> primary product dependants
• Least Developed Countries (LDCs)
- major economic, institutional, and human resource issues
- worsen by geographical factors and natural/man-made disasters (corruptions, etc)
- generate 0.1% of global income
- marginalised in world economy
- debts are equal or exceeds GDP
- depend only on one number of export for survival (oil, agriculture, mineral, manufactures, services,
mixes)

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• Newly Industrialised Countries (NICs)
- first NICs = tiger economy (grows very rapidly): South Korea, Singapore, Taiwan, HK
- reason of Tiger Economy’s Success:
1. good initial infrastructure: invest a lot. crucial in attracting FDI
2. skilled but relatively low cost labour
3. have cultural tradition that support education and achievement
4. government welcoming FDI from TNCs
5. advantages in geographical location: trade routes, etc
6. availability of bank loans that support government investments and has attractive interest rates

• Factors affecting rates of Development:

A. Physical Geography:
1. Landlocked countries developed slower than coastal ones —> halt trading and less sea
resources
2. Small countries developed less —> less resources
3. Tropical countries grown slower than those in temperate latitudes —> unproductive farming
4. Generous allocation of natural resources
B. Economic Policies
1. Open economies —> welcoming and encourage FDI
2. High rates of savings and low spending relative to GDP —> faster to develop
3. Institutional quality —> good government, law and order, lack of corruption
C. Demography
1. progress through demographic transition (low birth rate usually has high growth)

• Consequences of Development Gap

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 GLOBALISATION OF ECONOMIC ACTIVITY
Global Patterns of Resources, Production and Markets
• Globalisation: increasing interconnectedness and interdependence of the world economically, culturally
and politically
• Global Shift: movement of economic activity, particularly in manufacturing, from HICs to NICs to LICs.
The process resulted in the emergence of increasing no. of NICs since 1960s
• Internationalisation: transaction conducted within the confines of a corporation rather than in the open
market. Internalization can apply to a multinational corporation shifting assets between subsidiaries
across borders. ??
• Key factors to Globalisation and Internationalisation:
1. Transport and communication network expand rapidly
2. World Trade free significantly (increasing interdependence between rich and poor countries)
3. Large Capital flows from european companies to parts of world

• Dimensions of Globalisations:
1. Economic — world trade and TNCs increase economic interdependence
2. Urban — hierarchy of global cities as command enters of global economy with high competition
3. Social/Cultural — diffusing western culture, international interest on brand-name products, cultural
transmission is not a one way process
4. Linguistic — working language of the global village
5. Political — trade blocs are increasingly powerful, gradual movement to world government
6. Demographic — multicultural communities, movement across national borders
7. Environmental — airborne pollutants, international conferences to find realistic solutions

• Influences of Globalisation:

1. decreasing trade barriers 6. increasing outsource to low-wage economy
2. increasing economic power of trade blocs 7. increasing emergence of NICs
3. increasing TNCs influence 8. increasing influence of global brands
4. global connectivity in transport and 9. increasing international tourisms
communication 10. increasing cultural diversity
5. increasing migrations 11. capitalism is unchallenged


• Causes of Economic Globalisation:

1. emergence of New International Division of Labour (NIDL) as there is a change in the geographical
pattern of specialisation —> outsourcing and offshoring
2. complex international trade flows because of NIDL
3. Trade Liberalisation under WTO —> free trade
4. economic policies under fundamentalist free-free market government UK (margaret thatcher) and
US (ronald reagan)
5. Increasing emergence of NICs
6. soviet union and eastern european communist merged into capitalist system —> free market
7. opening up of Open Economic countries
8. deregulating world financial market
9. transport and communication revolution has made management of complicated production and
trade network possible

• Advantages of global scale economic activity:

1. reduces costs of raw materials and components from outsourcing
2. TNCs seeks the lowest wage-cost locations
3. high volume production in LICs helps to reduce the rate of inflation and helps living standards to rise
4. Collaborative arrangements with international partners increases efficiency of operation
5. selling goods to global market allows economies of scale to occur
6. global marketing helps to establish brans with huge market appeal

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Transnational Corporations and Foreign Direct Investment
• Investments: expenditure on a project in the expectation of financial (or social) returns.
• Transnational Corporations (TNCs): main source of FDI. Invest for profit. Driving force behind
globalisation. Capitalists enterprises that organise the production of goods and services in more than one
country.
- Influence of TNCs: direct ownership of production, collaborative relationships with other global
companies, increasing global competition
• Intra-firm: group of related firm that partner and/or cooperate with each other in order to provide
expanded products and services
• Transition Economy: countries in East Europe and in Common Independent States (CIS) — still in the
process of change from being in a centrally-planned communist economy to the capitalist global economy
• FDI are increasingly diverse —> no longer dominated with HICs to LICs, as NICs also invests in LICs
• Capital flow from FDI helps LICs’ development by furnishing them with technology and capital
• Some countries who needs FDI most may get the least (countries in sub-saharan Africa) —> excluded
because they prefer democratised LICs that can provide secure and profitable environment (protection of
property rights, and social spending on human capital like trained workers)

TNCs Development
• benefits of being TNCs and producing outside home country:
1. cheaper labor in LICs
2. exploiting new resource locations
3. avoiding trade barriers (export import barriers?)
4. tapping market potential in new regions
5. avoid strict domestic environmental regulations
6. maximising exchange rate advantage

• TNCs classifications and variations:

1. no. of countries
2. no. of subsidiaries (firms above them)
3. the share of production accounted for by foreign activities??
4. the degree of internationalised ownership and management
5. the division of research activities and routine tasks by country
6. the balance if advantages and disadvantage to the country they operate in

• 3 organisational Levels of TNCs

- Headquarters — in HIC cities where its established
- Research & Development: — mostly in HIC, some also overseas for large TNCs
- Branch Plant — overseas (some also have independent decision-making)

• 4 major ways of organising the geography of TNC production units

- globally concentrated production
- host market production
- product specialisation for a global or regional market
- transnational vertical integration

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• TNCs Locational Changes:

Case Study: Nike

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