Concept and Factors of Globalisation
Economics (Year 12) - Global Interdependence
What is Globalisation?
Globalisation is the increasing integration between countries over trade, investment, ideas and people bought by people and greatly facilitated through improvements in technology and transport. In other words, it's our ability to communicate, trade and integrate culture from other people around the world.
For example, think about the purchase of clothes online:
Purchase clothes on Amazon (an American company), sourcing the products from China.
You pay using a credit card that is processed through the Mastercard network (an American company), transferring funds from NAB (Australia) to Citigroup (an American bank).
You call a call centre to enquire about the status of the product. The call centre is based in the Philippines.
Your product is delivered by air, from Shanghai, into Singapore and then into Perth. Your parcel was delivered by DHL, a German Company.
With the simple task of ordering clothes online, you have used technology to communicate, pay and receive goods from overseas.
Evidence of Globalisation in Australia
Economic Evidence of Globalisation
Foreign Direct Investment contributed $286B to Australia's Industry Value Added (Aus Trade, 2014-15);
Direct tourism is valued at $55.2 billion or 3.2% of GDP in 2016-17 (Source: ABS 5249.0);
Tourism directly employs an estimated 598,000 people or 4.9% of the workforce in 2016-17 (Source: ABS 5249.0);
Iron Ore & Concentrates exports make up Australia's largest export and were valued at 102.8B and 21.6% of all exports in 2019-20 (Source: DFAT);
Personal travel makes up Australia's 5th largest export valued at $16.4B and 8.3% of all exports in 2019-20 (Source: DFAT);
Personal travel makes up Australia's largest import, valued at $46.3B and 11% of all imports in 2018-19 (Source: DFAT); and
The GFC which started in the United States, saw Australia's economic growth fall from 4.3% in Sep 2007 to 0.3% in Dec 2008.
Non-Economic Evidence of Globalisation
Net overseas migration into Australia has totalled a gain of 236,700 persons for the year ended 30 June 2018 (Source: ABS 3101.0); and
An estimated 28.5% of Australians or 6.9 million Australians were born overseas (Source: ABS 3412.0).
Factors Facilitating Globalisation
Factor #1: Advances in Transportation Technologies:
Australia being an isolated country has experienced significant trade growth from advances in transport technologies, decreasing freight costs and transportation times.
Advances in Transportation: Cargo container ships are now larger than ever, carrying more cargo and lowering the cost of each item shipped. Furthermore, logistics networks have never been more efficient, delivering goods faster and more cost-effectively.
Decreasing Freight Costs: Incredibly important as typically Australia's distance has meant goods imported and exported have come at considerable costs. Nowadays, express shipping between the United States and Australia can cost from $33 a parcel.
Transportation Times: With advances in technologies, it's now faster to receive goods. Air delivery services can make next business day deliveries possible even between countries.
Factor #2: Growth of multinational corporations
Multinational corporations are large companies with subsidiaries companies located around the world. These corporations provide flows of investment, people and trade between their subsidiaries. With Companies having operations between different companies, it is evident that communication and trade exist internally within.
Examples of multinational corporations operating in Australia include:
Apple: Headquartered in Cupertino, California, United States
Microsoft: Headquartered in Redmond, Washington, United States
BHP: Headquartered in Melbourne, Victoria, Australia
ALDI Supermarkets: Headquartered in Essen, Germany
Toyota: Headquartered in Toyota, Aichi, Japan
Factor #3: Information Technology
IT has enabled greater virtual communication between countries.
IT links international buyers and sellers. In addition, IT communicates global news, knowledge and other information quickly and cheaply. Even in COVID-19, technologies such as Zoom, Teams and Facetime have made it possible to communicate across different countries.
Factor #4: Trade Organisations
Global trade organisations such as the World Trade Organisation, encourage freer movements of trade through the reduction or removal of protectionist measures.
Factor #5: Growth of Free Trade Agreements
Free trade agreements have developed political and economic ties between member countries. Free trade agreements can be bilateral, that is between two countries, and multilateral, between three or more countries.
Examples of Australian bilateral free trade agreements:
ChAFTA: China-Australia Free Trade Agreement
JAEPA: Japan-Australia Economic Partnership Agreement
KAFTA: Korea- Australia Free Trade Agreement
Examples of Australian multilateral free trade agreements:
Trans-Pacific Partnership (TPP)
Asia-Pacific Economic Co-operation (APEC)
Association of South East Asian Nations (ASEAN) - not technically a member, but does have a bilateral free trade agreement with ASEAN in the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA)
Global Value Chains
The above CNBC video explains how the iPhone you use today is made up of components from all around the world.
Global value chains are supply chains where components of manufacture are sourced from locations around the world and assembled in a central location. The growth of global value chains has seen an increase in economic integration between countries.
Example of a Global Value Chain
Apple iPhone Display - LG Technologies (South Korea), Japan Display (Japan) and Innolux (Taiwan)
Cameras - Sony (Japan)
Conductor Coils - TDK (Japan)
Storage - Toshiba (Japan) and SK Hynix (South Korea)
Central Assembly - Foxconn (China) and Pegatron (Taiwan)