Globalisation - Introduction

Author: Jim Riley Last updated: Sunday 23 September, 2012

Globalisation is arguably the most important factor currently shaping the world economy. Although it is not a new phenomenon (waves of globalisation can be traced back to the 1800s) the changes it is bringing about now occur far more rapidly, spread more widely and have a much greater business, economic and social impact than ever before.

There are several definitions of globalisation. Here are two official examples:

First, from the OCED

“The geographic dispersion of industrial and service activities, for example research and development, sourcing of inputs, production and distribution, and the cross-border networking of companies, for example through joint ventures and the sharing of assets”

And here from the International Monetary Fund:

“The process through which an increasingly free flow of ideas, people, goods, services and capital leads to the integration of economies and societies”

Globalisation is best thought of as a process that results in some significant changes for markets and businesses to address: for example

An expansion of trade in goods and services between countries (an opportunity for many businesses; a threat for others)
An increase in transfers of financial capital across national boundaries including foreign direct investment (FDI) by multi-national companies and the investments by sovereign wealth funds (e.g. Middle Eastern governments buying assets in the UK)
The internationalisation of products and services and the development of global brands such as Starbucks, Nike, Sony and Google
Shifts in production and consumption – e.g. the expansion of outsourcing and offshoring of production and support services, which has traditionally benefitted countries with lower labour costs & skilled labour markets such as India, at the expense of jobs in developed economies like the UK
Increased levels of labour migration – which has the effect of lowering wage costs in many industries, but for others is a problem (e.g. a loss of skilled workers leaving an economy)
The emergence of countries playing a bigger role in the global trading system including China, Brazil, India and Russia

A key result of globalisation is the increasing inter-dependence of economies. For example:

Most of the world’s countries are dependent on each other for their macroeconomic health
Many of the newly industrialising countries are winning a growing share of world trade and their economies are growing faster than in richer developed nations
All countries have been affected by the credit crunch and decline in world trade, but many emerging market countries have slowed down rather than fall into a full-blown recession