Chapter 1
Globalisation
Learning outcomes
• LO1: What is globalisation?
• LO2: Two drivers of Globalisation
• LO3: The Changing Demographics of the Global Economy
• LO3: Globalisation Debate
• LO4: The future of Globalisation
What is Globalization?
1. Globalization is the process of increasing interconnectedness
and interdependence among countries through trade,
investment, technology, culture, and information exchange. It
leads to greater integration of markets, economies, and
societies on a global scale.
2. Globalization refers to the expansion of international trade,
capital flows, and multinational business activities that result
in the integration of national economies into a global market.
It is driven by factors such as free trade agreements,
multinational corporations, and technological advancements
in communication and transportation.
3. Globalization is the spread of ideas, values, cultures, and
lifestyles across borders, leading to increased cultural
exchange and interaction. It influences consumer behavior,
education, communication, and even languages, fostering both
cultural homogenization and diversity.
Globalization
The world is moving away from self-contained national economies toward
an interdependent, integrated global economic system
Globalization of Markets Globalization of Production
The merging of historically distinct and separate national Sourcing of goods and services from locations around
markets into one huge global marketplace the globe to take advantage of national differences in cost
and quality
Globalization of Markets
Historically distinct and separate national markets are merging
=> global market
falling trade barriers make it easier to sell globally
consumers’ tastes and preferences are converging on some global norm
firms promote the trend by offering the same basic products worldwide
Globalization of Markets
97% 98%
U.S. Exporters German SMEs
Have fewer than 500 employees Participate in international markets
Firms of all sizes benefit and contribute to the globalization of markets
Globalization of Production
Firms source goods and services from locations around the globe to capitalize on national differences in the cost and
quality of factors of production like land, labor, energy, and capital
Read the case about Boeing Global
Production System on page 8
- Summarise the key points of each
paragraph.
- Do you think Boeing’s decision to
outsource so much of the 787’s
production was a good one? Why or
why not?
Drivers of Analyse the table and the graph in
groups, following the outline below.
Globalization
1. General trends
2. Compare the countries/
Important periods
3. Explain the rational of the trends
4. Impact of the trends on
businesses, the government and
consumers.
Drivers of Globalization
The decline in tariffs
Clear Trend of Tariff Reduction: Overall, tariffs on manufactured goods have declined
significantly from 1913 to 2019 across all countries.
• 1913 - 1950: High tariffs in most nations, especially in the U.S. (44%) and Japan (30%),
reflecting economic protectionism during early industrialization.
• 1950 - 1990: Tariffs dropped sharply due to trade agreements and globalization.
• 1990 - 2019: Tariffs continued to decline, stabilizing around 2.5% - 3.9%, indicating
stronger free trade policies.
The decline in tariffs
Explanation of the Trend
• Trade agreements like GATT and WTO played a crucial role in tariff reduction.
• Free trade and globalization led to the dismantling of tariff barriers between
countries.
• The rise of global supply chains encouraged nations to lower tariffs to attract
investment and international trade.
The decline in tariffs
Implications for Businesses and Economic Policies
• Businesses: Can leverage low tariffs to expand exports and reduce production
costs through cheaper imports.
• Governments: Must balance free trade with protecting domestic industries.
• Future Trend: A potential rise in trade protectionism, such as the U.S.-China
trade war.
Drivers of Globalization
The rise of World trade and World output
Stable Growth Until the 1990s
• Both GDP and trade gradually increased, but trade grew at a slightly faster rate.
Boom Period (1990-2008)
• Trade index (blue line) surged, driven by globalization, trade liberalization, and the expansion of global supply chains.
Global Financial Crisis (2008-2009)
• A major shock caused a severe decline in trade, but it quickly recovered.
Post-2010 Volatility
• Trade peaked around 2010-2015, but later showed signs of stagnation and fluctuations due to:
• Trade wars,
• Protectionism,
• Economic uncertainty.
The rise of World trade and World output
Trade Growth Outpacing GDP Growth
• Reflects the rise of global supply chains and trade liberalization policies.
• Countries are increasingly interdependent, with imports and exports driving growth.
Trade is Highly Sensitive to Global Crises
• Events like the 2008 financial crisis and COVID-19 pandemic show that trade is more vulnerable to
shocks than GDP.
Trade Stagnation in Recent Years
Since 2015, trade growth has slowed due to:
• U.S.-China trade tensions,
• Brexit,
• Rising protectionism.
The rise of World trade and World output
Implications for Businesses and Economic Policy
For Businesses
• Diversify supply chains to mitigate risks from trade disruptions.
• Be prepared for policy changes that may impact international markets.
For Governments
• Balance free trade and economic protectionism to support domestic industries while
leveraging globalization.
• Promote trade agreements to maintain global trade stability.
Drivers of Globalization
Technological Advancements Reduction of Trade Barriers
Digital innovations and improved Lowered tariffs and trade agreements facilitate
communications systems enable instant global easier movement of goods and services
connectivity and business operations across between countries
borders
The Changing Demographics
of the Global Economy
The changing world output and world trade picture
The changing Foreign Direct Investment picture
The changing nature of the multinational
enterprise
The Globalisation Debate: Why
• Benefits and challenges exist for economies, businesses, and
societies.
• Recent political shifts, trade wars, and the pandemic have
intensified discussions.
Pro-Globalization Arguments
1. Economic Growth & Development
• Expands markets, increases trade, and attracts foreign investment.
• Example: Developing economies like China and India have grown due to globalization.
2. Lower Consumer Prices
• Companies source from low-cost countries, reducing product prices.
3. Innovation & Knowledge Transfer
• Companies collaborate internationally, driving innovation.
4. Cultural Exchange
• Exposure to new ideas, foods, traditions, and entertainment.
Anti-Globalization Arguments
1. Job Losses & Wage Stagnation
• Outsourcing reduces manufacturing jobs in developed nations.
• Example: US industrial decline due to overseas production.
2. Income Inequality
• Benefits multinational corporations and skilled workers more than lower-income populations.
3. Loss of National Sovereignty
• Global organizations (WTO, IMF) influence national policies.
4. Environmental Concerns
• Increased production and transportation contribute to climate change.
Boeing Case study
• Global Supply Chain:
• Boeing sources parts from multiple countries to reduce costs and access specialized expertise.
• Example: Boeing 787 Dreamliner components come from Japan, Italy, Korea, and the U.S.
• Challenges of Over-Globalization:
• Coordination issues led to delays and increased costs.
• Some parts didn’t fit properly due to outsourcing mismanagement.
• Solution: Boeing had to bring some production back in-house.
• Lesson Learned:
• Balancing efficiency and control: While globalization lowers costs, too much reliance on foreign
suppliers can create risks.
• Recent Shift: Boeing is reshoring some production to regain control over quality and supply chains.
Brexit & Trade Wars (e.g., US-China trade
dispute)
Recent Trends
– Is Reshoring & Nearshoring (companies bringing
production back home)
Globalization
COVID-19 Impact (supply chain disruptions
and localization trends)
Declining?
Rise of Protectionism (nations prioritizing
domestic industries)
The Future of Globalization
What’s Next?
• Hybrid models: Companies balancing global supply chains with
regional hubs.
• Sustainability: ESG (Environmental, Social, Governance) focus in
global trade.
• Digital globalization: Expansion of e-commerce, remote work, and
digital services.
