Global trade

Global trade is the result of uneven distribution of materials and resources across the world. No single country has everything it needs and so countries need to trade with each other. Countries that rely on each other to trade goods and services are interdependent.

People holding up the flag of the European Union

Sometimes, countries group together to help increase the volume of trade. The European Union is one example of a trading group (or trading bloc).

The global pattern of trade is uneven because:

  • most of the valuable trade happens between more economically developed countries (MEDCs)
  • MEDCs generally import low-value goods from less economically developed countries (LEDCs)
  • there is little trade between LEDCs, partly because they may trade similar products
  • newly industrialised countries (NICs) are playing a larger role in world trade
  • a lot of trade happens through transnational corporations (TNCs) with a head office in one country, operating in many countries

Transnational corporations

TNCs or multinational corporations (MNCs) are companies that operate in more than one country. They often have factories in countries that are not as economically developed because labour is cheaper. Offices and headquarters tend to be located in the more developed world. Unilever, McDonalds and Apple are all examples of TNCs.

A container ship in Pudong, China

When a TNC locates within a country, there are advantages and disadvantages.

Advantages of TNCs locating in a country include:

  • creation of jobs
  • stable income and more reliable than farming
  • improved education and skills
  • investment in infrastructure, eg new roads - helps locals as well as the TNC
  • help to exploit natural resources
  • a better developed economic base for the country

Disadvantages of TNCs locating in a country include:

  • fewer workers employed, considering the scale of investment
  • poorer working conditions
  • damage to the environment by ignoring local laws
  • profits going to companies overseas rather than locals
  • little reinvestment in the local area
  • factories are often footloose and jobs insecure. If labour costs increase, the company may move elsewhere
  • natural resources being over-exploited

The global chain

A product has a series of stages, linked from design to purchase. Each link in the chain may happen all in one location, or be spread globally. Large companies often have very complex chains. A company may also outsource some of the production, paying another company to make part of the product.

For example, HP laptops are assembled for sale in Kunshan, China. Manufacture of each laptop's printed circuit board (PCB) is outsourced to a company in Penang, Malaysia - this is called the first tier of outsourcing. The PCB requires parts, such as memory chips or a cooling fan. These can be sourced from other Malaysian factories and firms - this is called the second tier of outsourcing.

Because even the wire, screws and plastics used in the manufacture of each component part will need to be sourced separately, there are additional tiers of outsourcing.

The interactive graphic outlines a simple global chain.