Development and globalisation questions 1. Study the information below. Figure: The world’s top 10 companies (2007): Rank Company Country Market value Sector (US $ billion) 1 Exxon Mobil USA 479 Oil and gas 2 General Electric USA 396 General industrials 3 Microsoft USA 287 Computer software 4 Toyota Motor Japan 280 Automobiles 5 Royal Dutch Shell UK 269 Oil and gas 6 Citigroup USA 254 Banking 7 AT&T USA 252 Telecommunications 8 Gazprom Russia 251 Oil and gas 9 BP UK 232 Oil and gas 10 Bank of America USA 219 Banking (a) Comment on the information given above. (7) (b) Suggest reasons for the growth of transnational corporations (TNCs). (8) (c) With reference to examples, discuss the social, economic and environmental impacts of TNCs on their host countries. (10) 2. Study the figure below. (a) Comment on the degree to which the figure supports the view that development is a straightforward concept. (7) (b) Outline the concept of the North/South divide, and explain its relationship to the development continuum. (8) (c) Discuss the consequences of the groupings on nations for social and/or economic reasons. (10) 3. 4. 5 (a) Study Figure 5 which shows how foreign aid should be spent in three African countries in order to achieve the United Nations Millennium Development goals by 2015. Comment on the similarities and differences in the ways in which foreign aid should be spent in the three countries shown. (7 marks) (b) Outline and illustrate the concept of “the development continuum”. (8 marks) (c) With reference to one or more specific examples, discuss the reasons for the groupings of nations. (10 marks) June 2010 Study Figure 5 which shows economic changes associated with development. a. Comment on trends shown in Figure 5. (7 marks) b. For either China or India, explain the recent growth of industries in that country. (8 marks) c. Discuss the impact of Newly Industrialised Countries (NICs) on the global economy. (10 marks) Jan 2011 Study Figure 5 which shows information regarding trends in both trade and aid between developed countries and less developed countries. a. Comment on the trends shown in Figure 5. (7 marks) b. Outline and suggest reasons for the issues facing countries at very low levels of economic development. (8 marks) c. Discuss one of the following development issues: either ‘Economic sustainability versus environmental sustainability’ or ‘Sustainable tourism – myth or reality?’ (10 marks) June 11 Essays: 1. “Global social and economic groupings have significant beneficial effects for their members.” Discuss the extent to which you agree with this statement. (40 marks) 2. Discuss the varying roles of (a) the promotion of trade and (b) the provision of aid, as approaches in the efforts to raise living standards in the poorest countries of the world. (40 marks) 3. Can sustainable development ever be achieved? (40 marks) ‘Recent globalisation has resulted in a widening of the development gap.’ 4. How far do you agree with this statement? 40 marks 5. Discuss the roles and relative importance of transnational corporations (TNCs) and newly industrialising countries (NICs) in the changing global economy. (40 marks) 6. Assess the role of social and economic groupings of nations in the world today. (Jan 2011) 7. “Countries at very low levels of economic development face such huge challenges that they cannot hope to address them without assistance from the rest of the world.” To what extent do you agree with this view? (June 2010) 8. (June 2011) June 06 – essays now worth 40 marks Questions with model answers – how many marks would you give the answers? Development and globalisation. What can be the effects in the donor (home) country when transnational companies move their investment to other countries? (8 marks) ANSWER A When a transnational corporation moves operations to another country the main effect in the home country is unemployment as factories can be closed down. This can also affect factories that supplied components to the TNC’s plants. This can make the regions where the factories are located a lot poorer. Service operations can also be affected when TNCs move such things as call centres to developing countries. On the plus side, many high salaried jobs stay in the home country. Money is also sent back to the home country which improves its economy. ANSWER B When TNCs move their operations from their country of origin to other countries, a lot of people may lose their jobs. This is not only true for the main company, but a lot of employment may also be lost in companies which supply components to the TNC. This is particularly the case in assembly industries such as motor vehicle manufacture. It also affects those firms which offer services to the TNC’s factories, such as maintenance companies and even those which supply food to the factory’s canteens. This movement can also affect service industries as has been seen with call centre operations of financial companies (banks, insurance companies) being moved to India. All of this can have a major impact in regions where the TNC was located. There is less money to spend, fewer goods and services are required and the region can suffer increased unemployment. This is the reverse of the multiplier effect and is often known as a downward spiral, or vicious circle. On the positive side, if the TNC is successful in its move, profits will be returned to the home country and paid out in the form of dividends or to the government as company taxation. As the headquarters of the TNC will probably stay in the home country, a successful company may need more high salary people at head office to run it. Discuss the role of transnational companies in the development of the global economy. (10 marks) ANSWER A Transnational corporations (TNCs) are companies which operate in more than one country. Many of them have their headquarters in the country of origin along with Research and Development (R&D), and their manufacturing plant overseas, usually in cheaper labour areas. It is possible when they grow that they may establish regional headquarters in some of their markets. TNCs control and coordinate economic activities in different countries and develop trade between those countries as they move materials and goods from factory to factory. They are also responsible for the transfer of technology from the developed world to developing countries, which may result in a more skilled workforce. The introduction of a TNC into a country can bring some benefits, particularly in terms of employment, but there can also be some disadvantages. The largest companies in the world are TNCs (e.g. BP, Toyota, General Motors, Ford, HSBC, Coca Cola, Unilever, Sony) and they operate in a variety of activities. In recent years, service companies, such as accountancy firms, have become TNCs by taking on global operations. ANSWER B During the twentieth century a new global economy has emerged through a process known as globalisation. This is defined as the increased interconnection between the world’s economic, cultural and political systems. In the global economy, transnational corporations (TNCs) and nation states are two of the major players. The growth of TNCs has been particularly rapid in the second half of the century, because in the 1960s, less than 10,000 companies were TNCs, whereas today some economists have estimated that there are over 60,000 in operation. TNCs have been the major force in increasing economic interdependence between various parts of the world. TNCs initially emerged from developed countries but increasingly they are the product of economic growth in a number of countries which are known as Newly Industrialising Countries (NICs), e.g. South Korea and Singapore. TNCs have their headquarters in their country of origin, along with R&D, but their manufacturing plant will be overseas, probably in a cheaper labour location. TNCs have stimulated world trade as they move goods and materials between their factories. This is particularly the case for those industries involved in assembly, such as the motor vehicle industry. TNC involvement in poorer countries such as South Korea, enabled such countries to become richer through the benefits of employment and the transfer of technology and management skills. This is why several large firms developed in South Korea which eventually became TNCs by locating factories overseas, e.g. Samsung, Hyundai and LG. In the early 1950s , 95% of all manufacturing was concentrated in the industrial economies. Since then, TNCs as a result of direct foreign investment (FDI), have been involved in a movement of manufacturing to developing countries, a process known as global shift. The creation of TNCs is not confined to resource exploitation and manufacturing as many service companies have now become global in their operations. The accountancy industry is a very good example with the emergence of four very large corporations, e.g. KPMG. One recent trend, which has affected the global economy, is the growth of services such as call centres, where large banking and insurance companies move their call centre operations from Europe and the USA to such countries as India. Some of these movements have resulted in deindustrialsation in developed countries and decreased employment opportunities in developed countries. Examples of Unit 3 essays. Mark scheme for the essay questions In deciding the overall level a best fit of the above will be put into practice. Assessment Level 1 Level 2 Level 3 Level 4 criteria 1-10 (mid 6) 11-20 (mid 16) 21-30 (mid 26) 31-40 (mid 36) Knowledge of Basic grasp of The answer is Sound and frequent Strong evidence of content, ideas concepts and relevant and evidence of thorough, detailed and concepts ideas; points accurate. thorough, detailed and accurate lack Reasonable and accurate knowledge development knowledge. knowledge or depth. Imbalanced theories Critical Incomplete, Reasonable Sound and frequent Strong evidence of understanding of basic. critical evidence of critical critical the above understanding of understanding of understanding of concepts and concepts and concepts and principles with principles, and of principles and of some use of specialist specialist specialist vocabulary. vocabulary. vocabulary. Use of examples/ Superficial Examples show Examples are Examples are well case studies to imbalances. developed, developed and support balanced and integrated. argument support the Maps/Diagrams None Ineffective argument. Fully integrated Effective Evidence of No evidence Limited. Strong Full synopticity: Connections Some ability to Some ability to There is a high level between identify, interpret identify, interpret of insight, and an different aspects and synthesise and synthesise a ability to identify, of the subject some of the range of material. interpret and material. synthesise a wide range of material ‘Thinking like a Limited ability to Some ability to with creativity. geographer’ understand the understand the Evidence of maturity roles of values, roles of values, in understanding the attitudes and attitudes and role of values, decision-making decision-making attitudes and processes. processes. decision-making processes. Quality of Language is Arguments are Explanations, Explanations, argument – the basic; not fully arguments and arguments and degree to which arguments are developed nor assessments or assessments or an argument is partial, over expressed clearly, evaluations are evaluations are constructed, simplified and and the accurate, direct, direct, focused, developed and lacking clarity. organisation of logical, purposeful, logical, perceptive, concluded No sense of ideas is simple expressed with mature, purposeful, focus of task. and shows clarity and and are expressed imbalances. Some generally balanced. coherently and sense of focus of Clear sense of confidently, and task. focus of task. show both balance and flair. Development and globalisation essays. Discuss the roles and relative importance of transnational corporations (TNCs) and newly industrialising countries (NICs) in the changing global economy. It can be seen that TNCs have grown globally because of the competitive nature of international economies and the ease at which products can be produced, traded and transported worldwide. Often TNCs such as Nike, Dyson and Daewoo have the mainframe of their corporations in MEDCs, for example Nike’s headquarters are based in Oregon, USA. They are located in such areas for the skilled educated workforce and commerce opportunities. However, the products they produce are often out-sourced to NICs. This is because NICs offer what MEDCs can no longer afford to do: cheap materials, tax incentives to locate there and most importantly a large cheap workforce. This creates huge profit margins for the company but can often cause both social and economic problems. For example, when Dyson shifted production of its hoovers from England to Malaysia, over 500 people lost their jobs causing mass unemployment. It also affected local suppliers who lost trade because they had set up to supply the company. Dyson could no longer afford the high rates of tax England charged, nor could it continue paying high wages. In order to stay in competition it had to move production abroad. However, the relocation of a TNC can also cause social problems for the NICs. As a TNC relocates it needs a new large workforce that is often unavailable at a local level and subsequently creates economic migration. For example when HSBC moved its call centre from Derby to India, thousands of people were required, and many left the rural agricultural townships to come and work in the urbanised areas for them. This caused a shortage of people in the rural areas to work on the farms. A similar scenario occurred when Nike set up a new factory in Vietnam, people moved from the rural areas to work for the TNC only to find a severe shortage of housing and services such as doctors and schools. Often the economies of areas in MEDCs greatly suffer when TNCs shift operations to NICs. For example when the Chinese Automotive Group closed Rover production in Longbridge, the area suffered huge rates on unemployment and went into a mini-recession. It can be seen that due to TNCs many NICs are becoming powerful components in the global economy. For example the “Tiger” economies of Asia such as China and Korea are growing incredibly fast and are able such to out-compete many established MEDCs such as the USA because of the speed and cheapness of what they are able to produce. For example, China’s sudden growth surge has required huge amounts of metal, by buying in bulk they have cornered the market and many companies, especially those in Europe have suffered shortages and have been unable to compete. The success of these NICs has lead to an imminent rise in inflation rates which will see established MEDCs such as in the UK suffer higher costs of borrowing, higher taxes and lower house prices. As a result of the growing dominance of NICs such as South Korea, MEDCs such as Japan are increasingly struggling to compete on the global market. MEDC are subsequently losing many of its manufacturing industries to cheaper NICs eg the British motor manufacturing industry is now non-existent except on a bespoke scale because it is no longer financially viable to conduct such businesses. Many NICs often have the raw resources such as coal that are needed for industry that the MEDCs have long since either run out of or have outpriced the limited resources they have. In conclusion it can be seen that TNCs and their reliance on NICs has had a major impact on the global economy. With the ever increasing growth that NICs such as Taiwan and the Philippines and China are undertaking, there is an increased likelihood they will soon develop into viable superpowers on a scale on a par with the USA. The commercial viability of NICs is destined to translate into a decline in the manufacturing capabilities of MEDCs such as the UK and Germany. MEDCs will have to resort to other industries and services in order to maintain economic stability and a place in global economic marketplaces. The increase in freer trade has also helped NICs to attract TNCs and subsequently boost economic activity. MEDCs can no longer rely on its traditional industries in order to survive with the growth of NICs, MEDCs need to become more innovative in order to prevent a global recession. TNCs should also be more considerate in their host countries before shifting operations abroad, for example Heinz has had to reconsider keeping its HP Sauce Aston factory open after it caused civil outrage when announcing it was transferring production to Holland, prompting the local city council to intervene. It is therefore fair to comment that TNCs and NICS now have a major influence on local, national and international economies. Write an account of the growth and impacts of transnational corporations (TNCs) and their relationship with global products and global marketing. Answer 1. TNCs grow as companies try and make the most money as possible. Nike for example started making shoes in the 1960s in the US and realised that costs could be cut if manufacture was shifted to a newly industrialising country. In the 1960s these were places such as Taiwan and Hong Kong (Tiger economies). The advantage to Nike of becoming a TNC was that labour and land was cheaper in the NICs than in MEDCs and regulations about pollution and working hours were scarce. Furthermore governments attracted TNCs like Nike by offering tax breaks and subsidies. Other reasons for the growth of TNCs is to get the product closer to the market. Nissan for example set up its first European car plant in Washington near Sunderland. The advantage of this to Nissan is that it reduces transport costs of shipping cars from Japan to Europe and more importantly as the cars are made in Europe the EU does not charge Nissan for importing the product again cutting costs and increasing profits for the TNC. TNCs grow with time so may set up manufacture in one country, have research and development in another and have regional headquarters in other countries. Washington near Sunderland for example is the European headquarters of Nissan. Often TNCs set up in a country to be near the appropriate market. Their product must suit the market. For example, the Nissan Washington plant builds 250000 Primeras and Micras a year to be sold on the European market. This is because there is demand for that kind of product in Europe. Whereas in Mexico Nissan set up a factory building pick up trucks which are more suitable for the Mexican market as it is less economically developed so has poorer roads so pick up trucks are more in demand. It is also in close proximity to the USA and Canada where pick up trucks are popular. In this way Nissan are reducing transport costs in getting their product to the desired global market so make more money. The impact of TNCs can have on the countries they operate in can be massive. Last year for example the biggest TNC was Exxon-Mobil which turned over the most of any TNC much more money than a lot of African nations. Clearly then they will have tremendous power as market forces are in operation. The impact of TNCs can be positive and negative. Jobs are often created in NICs in the manufacturing industry building sector and service sector, for example in hotels and food providers for workers. Whilst this seems positive often jobs are lost in MEDCs as a result. For example when Dyson closed its Wiltshire factory to move it to Malaysia over 800 jobs were lost in England. Further problems are that skilled jobs are often not given to the people of the host country, in Washington Nissan brought in over 70% of the managers from Japan. The impact of this is that the host country will not have its population trained in skilled work. A positive impact of TNCs operating in other countries is that the building of a site often brings with it improved infrastructure and sometimes health care. For example a Dutch TNC set up a diamond mine in Namibia and gave free HIV tests and treatment for all its workers. On the other hand the negative side of the setting up of the mine was that much land was lost that had previously been home to native tribe. The tribe was relocated in urban areas and elders say much of their culture and tradition has been lost as a result. A similar problem is that when setting up in new countries TNCs often build on Greenfield sites. Conservationists complain TNCs are destroying natural habitats worldwide especially in LEDCs where rules about pollution and where sites can locate are less strict. A further problem is that often the host country will not profit that much from having the TNC there, taxes on profits will be paid to the country of origin of the TNC. Also a lot of TNCs are footloose so can move whenever they want. The impact of this especially for LEDCs is that countries can become dependent on a particular company who may suddenly pull out thus ruining the economy of the host nation. Answer 2. Transnational corporations are among the most powerful business organisations in the world with considerable influence in global consumer prices, living standards and politics. The huge American chain Walmart has an annual income of $244 billion which is more than the combined gross domestic product of the world’s 30 poorest countries. On a slightly smaller scale, Nike, the major American sportswear brand has an annual output of $11 billion, which is greater than the GDP of Jamaica ($10 billion). Over the past 30 years the world has seen considerable growth in the number, size and wealth of TNCs. This is due to a number of different factors. Most importantly is communication. Fast air travel, internet broadband, undersea cable and mobile phones means that it has become much easier for domestic companies to function abroad. The relaxation of trade barriers for example within the EU where there are no significant trade barriers between member states means that it is economically possible for companies to import and export raw materials, products and employees, thanks to more lax labour laws). The growth towards privatisation in many countries since for example the collapse of the Soviet Union in Europe and the end of the British Empire means that foreign direct investment has become much easier. Governments however can still play a key role in encouraging foreign companies to set up branch plants in their countries for example in Britain where the UK government offered grants to the Japanese car company Nissan when they created their Sunderland plant. Many TNCs chose to relocate routine assembly lines to LEDCs and Newly Industrialising Countries (NICs) to capitalise on cheaper labour, cheaper land and less stringent health and safety and environmental planning laws. At the moment the majority of TNCs are American, European and Japanese and their head offices in MEDCs but there is significant growth of TNCs in China and India and the Tiger nations of South East Asia. Singapore for example since gaining its independence in 1985 has developed into one of the largest electronics producing countries in the global market playing host to TNCs such as SGS Thompson electrics. The investment by foreign corporations has led to such growth that SGS Thompson outsourced its routine assembly plants to Muan in Malaysia making Singapore itself the site of more sophisticated assembly as well as some R&D. Singapore is now investing in other countries through foreign direct investment and outsourcing its own branchplants. The logos and products of the major TNCs are recognisable everywhere, for example McDonalds, Coca Cola, Cadbury Schweppes and global products can be found in all countries even some of the poorest LEDCs such as Lesotho in Southern Africa. These are very much globally functioning companies. Nestle which manufactures a large number of food products employ 276.050 people worldwide in 100 different countries. The popularity of global products has led to the creation of ‘fake trade’ which functions particularly healthily in the Far East. In Hong Kong the market in fake brand electronics is currently booming and though it can be seen as an unfair trade capitalising on the TNCs business, it is at least providing employment for those not directly employed by the global TNC. TNCs impact heavily on the countries in which they operate. They can have considerable benefits economically. In Taiwan for example the growth of TNCs has increased the average GDO per capita from $140 to $4800 between 1980 and 1997. However this does not translate directly into a higher standard of living: only 600000 of Taiwan’s 27 million inhabitants are served by a proper sewage system. Equally, the environmental impact of the TNCs is considerable: toxic fumes are pumped into the air and chemical affluent pours out from factories though when compared to the pollution TNCs have brought to Chinese cities such as Beijing, Taiwan’s pollution problem is viewed less harshly. The wages from global companies can be superior to domestic ones and TNCs regularly employ more women. When Singapore was still an LEDC receiving foreign imports, female employment rates began to rival male employment, producing some jealousy in male counterparts. Another outcome of the creation of TNC branch plants is rural to urban migration. TNCs tend to establish themselves in the urban areas and attract employment leading to overcrowding and eventually even unemployment when these jobs start to run out. In the rural communities there may be fewer people to work in food production leading to malnutrition in rural areas and the urban areas which they supply. Age structure imbalance can often occur as the young active population leave to find work, leaving the older generation and children. In South Africa this has led to the spread of AIDS. Men leaving their families in peripheral areas to work for foreign owned mining companies work on long term contracts and may frequent brothels in cities like Johannesburg and Cape Town, infecting themselves with AIDS which they can then transmit to their own communities on their return. Some TNCs are also unscrupulous employers. Nestle have been chastised in the past for this use of child slavery on West African cocoa plantations. One problem of TNCs is that often the product supply chain is so long that the head office can lose track of the ethical practices and wage structure further down its supply chain. In conclusion, TNCs are a major part of the growing trend of globalisation, the increasing importance of global perspectives and communication in the lives of both people and companies.
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