Globalisation

As technology has enabled information to be spread all around the world, an international network, aswell as physical access via transport, there has been a development of a world business market.

What Is Globalisation?

Globalisation is the development of the world market, and a tending to an international equilibrium in wages and cultures. It has been evident in the past 20 years, with the development of the internet spreading world information and an online market.

World Labour Market

A world market of goods means a world market of labour. The net advantage incentive of labour markets can be realised between borders, and an economy is no longer limited to it’s current population for productivity.

World Wage Equilibrium For this reason, there is a tending towards international equilibrium in wages in a certain job. Already are secondary sector workers in China bidding up their wages nearer that of the UK.

Migration of enterprise to ‘cheap labour’ China has caused their wages to rise by 250% in 10 years see below.

Why World Wage Equilibrium?

Migration of Labour: If a profession such as a cab driver pays much more in France than say, Ghana, then there will be a net movement of cabbies to France, more scarcity in Ghana rises wage and extra supply vice versa in France.

Migration of Enterprise: Likewise, labour markets can internationally balance due to foreign direct investment in economies where labour is much cheaper. This causes a bidding up of labour prices as outsourcing firms compete for scarcer ‘cheap’ labour.

World Goods Market

Multinational Firms

Due to transport and information, the profit incentive of supply also works across borders, meaning foreign direct investment outsourcing in economies where factors of production are cheaper, providing a competent legal system.

You will see an outsourcing of certian parts of the firm across borders, and if market conditions are right for it, the tertiary aswell as secondary/primary branches. Globalisation means workers are trained in common skills such as the English language and computer literacy around the world, hence firms can outsource pretty much anywhere.

Same Products Everywhere

Just as firms are able to respond to the profit incentive of the price mechanism across borders, consumers have access to a world market of goods which often sees the same product sold in many economies.

World access: It is often the multinational’s product, due to their international advertising and product development, that is demanded across borders. Consumers are now more able to make a rational choice as to the product they want. Comparisons of quality and price are available, and international trade becomes easier meaning you will see similar products on shelves in Russia and Nicaragua over time.

Price Elasticity: Consumers have a higher price elasticity of demand due to a choice of what other economies have to offer, not just it’s own. The most popular brands are hence seen almost everywhere, often at the expense of the local producer, e.g  Coca Cola, McDonalds and Starbucks.

International Specialisation

A world goods market means that such a product is only demanded if at the right price and quality. It will hence only be accepted if the place it is produced has the correct factors of production and natural resources to produce it, where it is marketed has a large media market and where it is developed full of knowledge workers in the quaternary sector.

For the goods and services to be accepted in a world market, economies need to specialise in where productive efficiency can be realised. This creates an international specialisation by free market forces.

Comparative Advantage: A world market means world trade and for GDP to last, comparative advantage must be followed to some extent. For this reason, a key feature of globalisation is each nation largely specialising in what they do best, just like the division of labour enhances firm’s productivity, this enhances world productivity.

See ‘international trade’ to learn about the theory and it’s assumptions.

World Organisations

A world market will see the growth of organisations with power across borders, whereas previously an economy would only be subject to it’s laws and regulations.

These are needed so there is a certainty as to trading standards across borders, for business confidence and certainty when importing and exporting. Also as to cooperation between world governments for peace pacts etc.

See ‘Organisations’ to see examples.

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One Response to Globalisation

  1. Pingback: Thinktank « Zahablog's Economic Page

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