What is globalisation?
Globalisation is the process by which countries become more connected and dependent on each other through trade, investment, technology, transport, communication and the movement of people.
In simple words, globalisation means the world economy is becoming more like one connected market. A product may be designed in one country, made in another country, and sold in many countries.
1. Benefits and limitations of globalisation
More choice
Consumers can buy goods from many countries, such as phones, clothes, cars and food.
Larger markets
Firms can sell to customers in other countries, which can increase sales and growth.
Technology transfer
Ideas, machinery and skills can spread from one country to another.
| 3 benefits of globalisation | Easy explanation |
|---|---|
| Lower prices and more choice | International competition can force firms to reduce prices and improve quality. |
| Economic growth | Exports, foreign investment and tourism can increase output, income and jobs. |
| Spread of technology and skills | Businesses and workers can learn new production methods and use better technology. |
| 3 limitations of globalisation | Easy explanation |
|---|---|
| Job losses in some industries | Domestic firms may close if they cannot compete with cheaper imports. |
| Greater dependence on other countries | A problem in one country can affect supply chains in many countries. |
| Environmental damage | More production, transport and resource use can increase pollution. |
2. Multinational corporations
A multinational corporation (MNC) is a business that operates in more than one country. It usually has its head office in one country and factories, offices, branches or stores in other countries.
Example: a car company may have its headquarters in Japan, factories in Thailand and Mexico, and sell cars in Europe, the Middle East and Africa.
Advantages and disadvantages of MNCs
| 4 advantages of MNCs | Explanation |
|---|---|
| Create jobs | MNCs employ local workers in factories, offices, hotels, shops and service centres. |
| Increase investment | Foreign direct investment can bring capital, buildings, machinery and infrastructure. |
| Transfer skills and technology | Local workers may learn new production methods, management skills and technical skills. |
| Increase tax revenue | If profits and wages are taxed, the government may receive more revenue. |
| 4 disadvantages of MNCs | Explanation |
|---|---|
| Profits may leave the country | MNCs may send profits back to the country where their head office is located. |
| May exploit workers | In some countries, workers may face low wages, long hours or poor conditions. |
| May damage the environment | Large-scale production can increase pollution and resource use. |
| Can force local firms out of business | Small domestic firms may struggle to compete with large global companies. |
3. International trade and trading blocs
International trade is the buying and selling of goods and services between countries. Goods and services sold to other countries are exports, while goods and services bought from other countries are imports.
A trading bloc is a group of countries that agree to reduce or remove trade barriers between themselves. Members may trade more easily with each other than with countries outside the bloc.
4 benefits of free trade
Free trade means trade between countries without restrictions such as tariffs, quotas or unnecessary rules.
- Lower prices: consumers may buy cheaper imported goods.
- More choice: consumers can access products from many countries.
- Higher efficiency: firms face competition and must control costs.
- Specialisation: countries can focus on producing goods they are relatively good at producing.
4. Protection and methods of protection
Protection means government policies used to restrict imports or support domestic producers. Protection is also called protectionism.
Governments use protection when they want to protect local jobs, support new industries, improve the balance of payments or protect important industries.
Methods of protection
| Method | Meaning | Simple example |
|---|---|---|
| Tariff | A tax on imported goods. | A tax on imported cars makes them more expensive. |
| Import quota | A physical limit on the quantity of imports allowed into a country. | The government allows only 50,000 imported shoes per year. |
| Subsidy | A payment from the government to domestic producers to lower their costs. | A subsidy to local farmers helps them compete with imports. |
| Embargo | A complete ban on trade with a particular country or on a particular good. | A country bans imports from another country for political reasons. |
| Rules and regulations | Standards or legal requirements that imports must meet. | Imported food must pass health and safety checks. |
5. Protection diagrams
How to read the graph: a tariff increases the cost of imported goods. This shifts the supply curve left from S₁ to S₂. As a result, price rises from P₁ to P₂, while output falls from Q₁ to Q₂.
How to read the graph: an import quota limits the amount of imports available. Supply becomes restricted at Q₂. Because fewer imports are allowed, price rises from P₁ to P₂, and output falls from Q₁ to Q₂.
How to read the graph: a subsidy reduces production costs for domestic producers. This shifts supply right from S₁ to S₂. Price falls from P₁ to P₂, and output rises from Q₁ to Q₂.
6. Arguments for and against protection
4 arguments for protection
- Protects infant industries: new local firms may need time to grow before competing with foreign firms.
- Protects jobs: reducing imports may help domestic firms keep workers employed.
- Protects strategic industries: governments may want to protect food, defence, energy or medicine production.
- Improves the balance of payments: fewer imports can reduce spending on foreign goods.
4 arguments against protection
- Higher prices for consumers: tariffs and quotas can make imported goods more expensive.
- Less choice: consumers may have fewer foreign products available.
- Inefficient domestic firms: protected firms may not improve because they face less competition.
- Retaliation: other countries may respond by placing their own restrictions on exports from this country.
Easy exam method
- Define the key term, such as globalisation, MNC, free trade or protection.
- Give an example to show understanding.
- Explain one effect on consumers, producers, workers or the government.
- Balance the answer by giving one benefit and one limitation where possible.
Quick revision summary
- Globalisation connects economies through trade, investment, technology and movement of people.
- MNCs operate in more than one country and can bring jobs, investment and technology.
- Free trade allows goods and services to move between countries with few restrictions.
- Protection uses tariffs, quotas, subsidies, embargoes and rules to limit imports or support local firms.
- Protection can help domestic producers, but it may increase prices and reduce consumer choice.