Globalisation is the international integration of markets around the world for goods, labour and capital.
Trading blocs are groups of countries that have agreements in place to engage in free trade – there are no barriers to trade and no protectionism. Over recent years there has been a massive increase in the number of trading blocs such as the European Union which contains 28 European countries with the ability to freely trade goods, services, labour and capital. Trading blocs lead to an increase in globalisation because it encourages firms to set up businesses within the trading blocs as they can sell their goods or services without any barriers. Therefore, more foreign firms will start to invest and move abroad to be part of the trading blocs. As firms are moving around the world to gain trade advantages, globalisation is increased and consumers will benefit as they will have more choice for goods and services.
Transportation cost is the cost of transferring goods around the world. As we have developed, it has become cheaper to travel by plane, boat and rail. This is because our technology has developed we have been able to make planes for relatively low prices and relatively quickly. The increase in supply of the vehicles and the availability of transport options means that firms can transport their goods for very low prices. This increases globalisation because firms will be willing to produce their goods abroad for cheap costs and then transport the finished product to many markets around the world. For example, Marks and Spencer could set up in China, produce clothes for cheap costs and then transport the finished clothes to retailers all over the world. The low transport costs will encourage firms to set up in other countries and the cost of transport will not matter to them as it is relatively cheap. Also, as transportation becomes more efficient, goods cam be transported very quickly and the products can be in stores practically every day of the year!
Communication is vital to the running of a business, without good communication messages and important decisions cannot be passed on from managers and directors down to the employees and labour work force. In the modern world, it is very easy and cheap to communicate with people from overseas. As these communication networks improve, firms will find it cheap and easy to set up abroad yet keep their communication networks strong. Globalisation can also increase, because it is easier for people (labour) to move to other countries and find jobs as they have the internet with all the information they need – housing and job vacancies. The internet has also made it possible for most good to be sold online and available to be sent all over the world. Therefore, this encourages firms to set up abroad in countries where production costs are low and then the goods can be sold domestically or sold to consumers via the internet.
Eval. I believe trade blocs had a significant impact on increasing globalisation. Before trade blocs, firms would not have any incentive to invest in foreign countries because of tariffs (taxation on imports). Now that trade blocs are found in many places around the world, firms have a massive incentive to set up (Foreign Direct Investment) within these trade blocs because they can freely move resources between countries in that bloc without having to pay any tariffs. They can easily move capital and labour to any of the countries in that bloc without facing taxation. This has lead to many firms setting up within these trade blocs so globalisation increases as the main incentive for any firm is increased profits and being able to set up in a trade bloc where labour can be brought in from any country in the bloc will reduce the firms costs and increase its profit.
Eval. Currently, with low transportation costs globalisation will increase. I believe that in the long run when raw materials run out, the cost of transporting goods around the world will increase dramatically because the supply of fossil fuels decreases leading to an increase in the price of oil and petrol. Therefore, in the long run, the reduction in the supply of fossil fuels may lead to a decrease in globalisation as firms will find it extremely costly to transport their goods from country to country in planes that use up a lot of fuel. However, in contrast, I believe that transportation costs may not increase dramatically because of the emergence of other sources of energy such as renewable solar power and bio fuels.
Eval. The increase in globalisation will have negative effects in the long run to many stakeholders. Firstly, the environment will become deteriorated as the increased transportation will pollute the earth and increase the effect on global warming. Also, labour in the countries encouraging FDI may become exploited and earn wages below the minimum wage. The labour will work just to earn this wage as they find it hard to find a job and will therefore continue to work for such a low wage. The firm may be a victim of this approach because if the media find out and spread the word then the firm may suffer from negative publicity and consumers will avoid buying their products. Negative publicity is extremely significant and has devastating effects on the firm because a reduction in demand may eventually lead to a loss being made and the firm shutting down.