4.1.1 - Globalisation

What Globalisation Means

Globalisation is the process by which separate national economies become more closely linked. It makes countries more interdependent, so firms, consumers and governments are affected not just by domestic conditions but by world trade, world finance and international business decisions.

In practice, globalisation has several connected characteristics:

• Trade in goods and services has grown faster than world output for most of the last 50 years, so countries buy and sell a larger share of what they produce internationally.
• Capital is more mobile, so firms and investors can move money across borders for investment, lending, takeovers or speculation.
• Labour is more mobile than before, so workers can move internationally to fill shortages or seek better-paid work, although immigration controls keep it far less mobile than goods or capital.
• Technology and knowledge spread faster, so ideas, designs, management techniques and intellectual property no longer stay in one country for long.
• Transnational corporations (TNCs) operate in many countries at once, locating design, sourcing, assembly, marketing and distribution where conditions are most favourable.
• Financial markets are increasingly integrated, so borrowing, lending and portfolio investment happen on a global scale and continue across time zones.

The result is not that national economies disappear. It is that local and national markets become much more exposed to international competition, international finance, and events elsewhere in the world.

What Has Driven Globalisation

Globalisation has accelerated over the last 50 years because it has become easier and cheaper for firms to coordinate activity across borders.

Better transport has been a major driver. Containerisation cut handling costs sharply, larger ships and aircraft lowered average transport costs, ports and roads improved, and refrigeration made it possible to trade perishable goods. Production and consumption therefore no longer need to happen in the same place. A product can be made where costs are lowest and then shipped to where demand is strongest.

Information and communication technology has reinforced this. The internet, video calls, cloud-based systems and mobile communication allow firms to manage global supply chains in real time. A business can design a product in one country, source components from several others, assemble it elsewhere, and sell it worldwide without losing control of the process. The UK supermarket fruit market shows this clearly: berries sold in winter may come from Spain or Morocco, while grapes are often imported from South Africa or Chile because refrigerated shipping and digital stock control keep shelves supplied all year round.

Trade liberalisation has made cross-border exchange more attractive. Since 1947, rounds of negotiations under the GATT and, from 1995, the WTO have reduced tariffs and quotas, while regional trade agreements such as the EU and NAFTA (replaced by USMCA in 2020) have made trade easier within blocs. The opening of China after 1978, its entry to the WTO in 2001, and the integration of former communist economies after the collapse of the Soviet bloc also brought huge new markets and workforces into the world economy.

Global financial markets have developed at the same time. Deregulation, financial innovation, 24-hour trading and multinational banks all make it easier for capital to move to where returns are highest. TNCs have been both a cause and a consequence of this process: firms such as Unilever or Toyota can spread different stages of production across countries, often through foreign subsidiaries, joint ventures or long supply chains. That lets them access larger markets, exploit lower costs, and transfer technology and working practices across borders.

Effects on Consumers and Workers

Globalisation usually gives consumers more choice. Imports and global supply chains mean households can buy a wider range of food, clothing, electronics and services than would be available from domestic producers alone. It can also lower prices because firms can source from lower-cost locations and because domestic producers face stronger competition from imports.

In the UK clothing market, retailers can source garments from countries such as Bangladesh, Vietnam and Turkey. That can reduce costs and widen consumer choice, especially for lower-priced fashion.