Reasons for Globalisation

Reasons for globalisation

  • Technological advances have dramatically improved transport allowing raw materials, goods and people to travel much more quickly.
  • The mass production of goods has led to economies of scale. This means that the cost per item can be reduced when operating on a larger scale in order to generate bigger profits.
  • Organisations like the World Trade Organisation (WTO) promote free trade between countries, which helps to remove barriers between them.
  • Improved telecommunications - the internet and mobile technology has allowed the world to become better connected and less isolated, people around the world can communicate instantly.
  • Countries like India, China and Brazil have much lower labour costs and high skill levels; labour intensive industries, such as clothing manufacture, can take advantage of cheaper labour costs and reduced legal restrictions in developing countries.
  • Multinational corporations have expanded into new markets and places for production in order to remain profitable. Companies like IKEA are able to locate outside their home country to access new markets for their goods and take advantage of local suppliers of materials.

Multinational corporations

Shell petrol station in the UK
Shell petrol station in the UK

Globalisation has resulted in many companies setting up or buying operations in other countries. When a foreign company invests in a country, perhaps by building a factory or a shop, this is called inward investment.

Companies that operate in several countries are called multinational corporations (MNCs) or transnational corporations (TNCs). The American fast-food chain McDonald's is a large MNC - it has approximately 30,000 restaurants in over 100 countries.

The majority of MNCs come from developed countries such as the USA and UK. Many multinational corporations invest in other developed countries. For example, the American car company Ford makes large numbers of cars in the UK.

McDonald's in Kazan, Russia
McDonald's in Kazan, Russia

However, MNCs also invest in developing countries such as the British DIY chain B&Q. It now has stores in China.

There are several factors to attracting MNCs to a country:

  • cheap raw materials
  • cheap labour supply
  • good transport
  • access to markets where the goods are sold
  • friendly government policies